<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 13, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
LIQUOR.COM, INC.
(Name of small business issuer as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5921 36-3903894
(State or jurisdiction of (Primary Standard (I.R.S Employer
incorporation or organization) Industrial Identification Number)
Classification Code Number)
</TABLE>
<TABLE>
<S> <C>
4205 W. IRVING PARK ROAD 4205 W. IRVING PARK ROAD
CHICAGO, IL 60641 CHICAGO, IL 60641
(773) 427-8620 (773) 427-8620
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL (ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED
EXECUTIVE OFFICES) PRINCIPAL PLACE OF BUSINESS)
</TABLE>
SCOTT B. CLARK
4205 WEST IRVING PARK ROAD
CHICAGO, IL, 60641
(773) 427-8620
(Name, address and telephone number of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL J. CHOATE, ESQ. LAWRENCE B. FISHER, ESQ.
Shefsky & Froelich, Ltd. Orrick, Herrington & Sutcliffe LLP
444 North Michigan Avenue, Ste. 2500 666 Fifth Avenue
Chicago, Illinois 60611 New York, New York 10103
(312) 836-4066 (212) 506-5055
(312) 527-5921 (Facsimile) (212) 506-5151 (Facsimile)
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: AS SOON AS POSSIBLE AFTER
EFFECTIVENESS.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If 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>
NUMBER OF UNITS/ PROPOSED MAXIMUM PROPOSED MAXIMUM
SHARES TO BE OFFERING PRICE PER AGGREGATE OFFERING
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE
<S> <C> <C> <C>
Units, consisting of two shares of common stock,
par value $.00001 per share, and one redeemable
common stock purchase warrant to purchase one
share of common stock(2)......... 1,725,000 $24.10 $41,572,500.00
Common stock underlying redeemable warrants
included in the units(3)......... 1,725,000 $14.40 $24,840,000.00
Representative's Warrants(4)(5).... 150,000 $.0001 $15.00
Common stock issuable upon exercise of the
representative's warrants(3)..... 300,000 $14.40 $4,320,000
Redeemable warrants issuable upon exercise of the
representative's warrants(3)..... 150,000 $.12 $18,000
Common stock issuable upon exercise of redeemable
warrants included in the representative's
warrants(3)...................... 150,000 $14.40 $2,160,000
Common stock issuable upon conversion preferred
stock held by selling shareholders... 422,222 $12.00 $5,066,664
Total..............................
<CAPTION>
AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Units, consisting of two shares of common stock,
par value $.00001 per share, and one redeemable
common stock purchase warrant to purchase one
share of common stock(2)......... $10,975.14
Common stock underlying redeemable warrants
included in the units(3)......... $6557.76
Representative's Warrants(4)(5).... $0
Common stock issuable upon exercise of the
representative's warrants(3)..... $1140.48
Redeemable warrants issuable upon exercise of the
representative's warrants(3)..... $4.75
Common stock issuable upon exercise of redeemable
warrants included in the representative's
warrants(3)...................... $570.24
Common stock issuable upon conversion preferred
stock held by selling shareholders... $1,337.60
Total.............................. $20,585.97
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o).
(2) Includes 225,000 units that the Underwriters have the option to purchase
from Liquor.com to cover over-allotments, if any.
(3) Pursuant to Rule 416 under the Securities Act, we are registering additional
securities as may become issuable pursuant to the anti-dilution provisions
of the redeemable warrants, the representative's warrants and the redeemable
warrants underlying the representative's warrants.
(4) No registration fee is required pursuant to Rule 457 under the Securities
Act.
(5) Consists of warrants issuable to the Representatives to purchase 300,000
shares of common stock and 150,000 redeemable common stock purchase
warrants.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 13, 2000
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[LOGO]
1,500,000 UNITS, EACH CONSISTING OF
TWO SHARES OF COMMON STOCK
AND
ONE REDEEMABLE COMMON STOCK PURCHASE WARRANT EXERCISABLE
TO PURCHASE ONE SHARE OF COMMON STOCK
------------------------
This is an initial public offering of 1,500,000 units of Liquor.com, Inc.,
each unit consisting of two shares of common stock and one redeemable common
stock purchase warrant. The common stock and warrants will trade as separate
securities immediately upon issuance. We anticipate that the initial public
offering price will be $23.10 per unit, consisting of $11.50 per share of common
stock and $0.10 per warrant.
Prior to this offering, no public market exists for any of our securities.
We have made an application to quote our common stock and our redeemable
warrants under the symbols "LIQR" and "LIQRW" on the Nasdaq National Market.
FOR INFORMATION THAT SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE
INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PER UNIT TOTAL
------------------- -------------------
<S> <C> <C>
Initial public offering price.............................
Underwriting discounts....................................
Proceeds, before expenses, to Liquor.com..................
</TABLE>
This prospectus also relates to the registration for resale of 422,222
shares of common stock held by selling shareholders identified in this
prospectus.
We have granted the underwriters an option for forty-five days to purchase
an additional 225,000 units from us at the initial public offering price less
the underwriting discount to cover any over-allotments.
Delivery of the securities offered hereby will be made on or about
, 2000, in New York, New York. The underwriters are offering the
units on a firm commitment basis.
------------------------
DIRKS & COMPANY, INC.
The date of this prospectus is , 2000
<PAGE>
Inside Front Cover Page of Prospectus
Top of Page--The top of the page contains the Logo of
Liquor.com--"LIQUOR.COM--for the spirited life"--followed by the statement
"Liquor.com--Integrating eCRM and Business-to-Business Solutions for the Alcohol
Beverage Industry."
Body of Page--The body of the page contains a chart with the Logo of
Liquor.com--"LIQUOR.COM-- for the spirited life" in the center of the chart. The
four corners of the chart contain four series of photographs depicting the
various parties of the liquor distribution chain: (1) producers,
(2) wholesalers, (3) retailers and (4) consumers.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Cautionary Note Regarding Forward-Looking Statements........ 13
Use of Proceeds............................................. 14
Dividend Policy............................................. 14
Capitalization.............................................. 15
Dilution.................................................... 16
Selected Financial Data..................................... 17
Management's Discussion And Analysis of Financial Condition
And Results of Operations................................. 18
Business.................................................... 23
Management.................................................. 32
Certain Transactions........................................ 40
Principal Stockholders...................................... 42
Description of Securities................................... 43
Shares Available For Future Sale............................ 50
Underwriting................................................ 52
Legal Matters............................................... 54
Experts..................................................... 54
Where You Can Find Additional Information About Us.......... 54
Index to Consolidated Financial Statements.................. F-1
</TABLE>
ii
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL THE INFORMATION IMPORTANT TO YOUR
INVESTMENT DECISION. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING THE
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES BEFORE MAKING AN INVESTMENT
DECISION.
OUR BUSINESS
Liquor.com is a customer relationship management, or "eCRM," eCommerce and
business-to-business exchange company whose focus is to integrate producers,
wholesalers, retailers and consumers in the highly fragmented alcohol and
entertainment beverage industry. We build and maintain relations with the
consumer, and also provide eBusiness solutions for all three tiers of the
alcohol beverage distribution system--(a) producers, (b) wholesalers and (c)
retailers. We have created a global network of retail partner affiliates by
offering them the opportunity to generate additional revenue, reduce costs and
build loyal customer relationships. We give our affiliates and customers alike
access to a secure eCommerce and custom content environment that serves as the
hub of a direct-delivery network. We do not sell directly to consumers, and thus
do not maintain inventory. Rather, we utilize our industry relationships,
expertise and in-depth knowledge of our target market to generate demand,
facilitate sales and build loyalty. Currently, the Liquor.com affiliate network
provides direct delivery to thirty-nine states and more than forty countries.
We intend to become an essential marketing and eBusiness solutions partner
for producers, wholesalers and retailers by offering direct access to consumers
through our website and offline promotions and by offering valuable demographic
and product preference information on their purchases and interests. We are
currently developing a hosted, proprietary network for the industry that will
aggregate and streamline product purchasing, reduce costs, build revenue and
effectively disseminate product information and industry news for all three
tiers.
By expanding our existing infrastructure and capitalizing on relationships
developed by our founders and their family over fifty years in the alcohol
beverage industry, it is our goal to alter the $113 billion alcohol beverage
industry and change the manner in which alcohol beverages are marketed,
purchased and sold.
OUR INDUSTRY
We believe that the market for online sales of alcohol beverages and related
products is poised for growth. According to Beverage Dynamics, an industry
publication, annual sales of alcohol beverages in the United States totaled
approximately $113 billion in 1999.
OUR STRATEGY
Our goal is to become the leading provider of eCRM, eCommerce and
business-to-business solutions for the alcohol and entertainment beverage
industry and significantly alter the manner in which alcohol beverages are
marketed, purchased and sold. To achieve this goal, we will continue to focus on
the following strategies:
- Leveraging our relationships with producers, wholesalers and retailers
developed by our founders and their family over fifty years in the alcohol
beverage industry.
- Strengthening and expanding our relationships with our retail affiliate
network through cooperative marketing, custom product development and
other programs.
- Completing the development of our online exchange that unites producers,
wholesalers and retailers to generate additional revenue, reduce costs and
build loyal customer relationships.
1
<PAGE>
- Focusing our direct marketing efforts on generating increased traffic,
orders and brand recognition through our Liquor.com portal.
- Expanding the proprietary content on our Liquor.com portal through direct
development and partnerships with content providers.
- Increasing our database of Liquor.com users by offering what we believe to
be one of the world's largest selections of wine, champagne, spirits and
complementary products and services, ease of use and high levels of
customer service.
- Further developing our growing list of Liquor.com users into an extensive
database of consumer demographic, product preference and other information
that our partners may use to focus their marketing efforts and obtain
feedback that we believe is not available in the current distribution
system.
CORPORATE BACKGROUND
We were incorporated in Illinois under the name Liquor by Wire, Inc. in
August 1993. In December 1999, we formed a subsidiary named Liquor.com, Inc., a
Delaware corporation. We then merged into this subsidiary, which was the
surviving corporation in the merger, to assume our present form. Our executive
offices are located at 4205 West Irving Park Road, Chicago, Illinois 60641. Our
phone number is (773) 427-8620.
Our website is located at www.liquor.com. We are not incorporating the
information on our website into this prospectus, and we do not intend to make
our website a part of this prospectus. This prospectus includes trademarks,
trade names and service marks of other companies. Each trademark, trade name or
service mark of any other company appearing in this prospectus is the property
of its owner.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Units, each consisting of two shares of our common
stock and one redeemable common stock purchase
warrant, offered by us............................... 1,500,000 (3,000,000 shares of common stock)
Terms of redeemable common stock purchase warrants... Each warrant entitles the holder to acquire
one share of our common stock, at an exercise
price of $13.80 per share, for a four-year
period beginning twelve months from the date
of issuance. Beginning eighteen months from
the completion of this offering, we will be
able to redeem these warrants at a price equal
to $.10 per warrant if the average closing
price of our common stock on the Nasdaq
National Market is equal to or greater to
$28.75 per share for any 20 trading days
within a 30-day period.
Common stock to be outstanding upon completion of
this offering........................................ 7,053,558 shares
Redeemable warrants to be outstanding upon completion
of this offering..................................... 1,500,000
Use of proceeds...................................... We intend to use the proceeds of this offering
for:
- repaying indebtedness;
- marketing and other promotions;
- technological investments; and
- working capital and general corporate
purposes.
Proposed Nasdaq National Market Symbol for common
stock................................................ LIQR
Proposed Nasdaq National Market Symbol for redeemable
warrants............................................. LIQRW
</TABLE>
Unless stated otherwise, all information in this prospectus assumes:
- An initial offering price of $23.10 per unit;
- A 22,500 for 1 stock split which was effectuated on December 22, 1999;
- conversion of all 422,222 shares of our Series A preferred stock into an
aggregate of 422,222 shares of common stock;
- conversion of eleven convertible notes, which includes one note that has
not yet been issued, into an aggregate of 284,090 shares of common stock;
- issuance of a total of 27,582 shares of common stock which certain of our
preferred shareholders have committed to purchase pursuant to the exercise
of preemptive rights but which have not yet been issued;
and excludes:
- 450,000 shares of common stock and 225,000 redeemable common stock
purchase warrants issuable if the underwriter exercises its over-allotment
option in full;
3
<PAGE>
- 1,500,000 shares issuable upon the exercise of the 1,500,000 redeemable
common stock purchase warrants offered by this prospectus;
- 300,000 shares of common stock issuable upon the exercise of the
representative's warrants;
- 150,000 warrants issuable upon exercise of the representative's warrants;
- 150,000 shares of common stock issuable upon exercise of the 150,000
common stock purchase warrants issuable upon exercise of the
representative's warrants;
- 300,125 shares of common stock issuable upon the exercise of warrants
which we have issued or are contractually obligated to issue to
consultants or in connection with financings;
- 14,205 shares of common stock issuable upon exercise of warrants to be
issued to certain of our preferred shareholders pursuant to the exercise
of preemptive rights, after the date of this prospectus;
- 1,171,617 shares of common stock issuable upon exercise of currently
outstanding options at a weighted average price of $3.52 per share; and
- 328,383 shares available for issue upon the exercise of options which may
be granted under our 2000 stock plan.
SUMMARY FINANCIAL DATA
The following table summarizes the financial data of our business. This
information is derived from, and should be read together with, the historical
financial data for the years ended December 31, 1997, 1998 and 1999. The data
presented below should also be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the financial
statements and accompanying notes appearing elswhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues................................................. $1,281,453 $1,818,960 $2,788,187
Cost of revenues......................................... 704,486 1,076,197 1,946,758
---------- ---------- ----------
Gross profit............................................. 576,967 742,763 841,429
---------- ---------- ----------
Marketing expenses....................................... 312,814 339,973 425,236
General and administrative expenses...................... 310,804 360,174 592,613
(Loss) income from operations............................ (46,651) 42,616 (176,420)
Net (loss) income........................................ (54,121) 35,563 (195,200)
========== ========== ==========
SHARE DATA:
Net (loss) income per share: basic and diluted........... $ (.02) $ .01 $ (.06)
========== ========== ==========
Shares used in computing basic and diluted net (loss)
income per share....................................... 3,026,956 3,026,956 3,033,216
========== ========== ==========
BALANCE SHEET DATA:
Cash..................................................... $ 129,324 $ 461,924 $ 340,786
Working capital (deficit)................................ (95,306) (102,729) (218,565)
Total assets............................................. 231,117 603,377 1,212,310
========== ========== ==========
Total noncurrent liabilities............................. 31,975 31,975 218,487
---------- ---------- ----------
Total stockholders' (deficit) equity..................... (127,279) (91,716) (136,916)
---------- ---------- ----------
</TABLE>
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING INFORMATION ABOUT THE RISKS WE FACE BEFORE
INVESTING IN OUR SECURITIES.
WE HAVE A LIMITED OPERATING HISTORY AS A CUSTOMER RELATIONSHIP MANAGEMENT AND
BUSINESS-TO-BUSINESS EXCHANGE COMPANY, WHICH MAKES IT DIFFICULT TO EVALUATE OUR
BUSINESS AND PROSPECTS.
We were incorporated in 1993, but we have recently dramatically changed the
focus of our business. Accordingly, we have only a limited operating history in
our current line of business as an eCRM, eCommerce and business-to-business
solutions company upon which prospective investors may judge our performance and
prospects. We are subject to all of the risks associated with a new enterprise,
including lack of financial and human resources. As of December 31, 1999 we had
a working capital deficit of $218,565. We base our need for working capital and
additional employees on operating plans, expected traffic and purchases made
through website. Our revenues and operating results are difficult to forecast
because both generally depend on the volume and timing of orders. We may not be
able to adjust our spending in a timely manner to compensate for any unexpected
revenue shortfall. We may also not have enough working capital to pay for the
advertising or other marketing support needed to generate revenues that we
project.
WE HAVE NOT CONSISTENTLY EARNED PROFITS AND ANTICIPATE FUTURE LOSSES.
We have not consistently made profits, either on a quarterly or annual
basis. In 1997 we lost $54,121. We had a profit of $35,563 in 1998, and in 1999
we lost $195,200. From our inception in August 1993 through December 31, 1999,
we lost a total of approximately $306,000. We plan to make significant
expenditures on marketing and other items during the twelve months following
completion of this offering. We plan to aggressively spend money to upgrade our
technology and to advertise our website to increase the awareness of our brand
and to ensure that we can accommodate increased website traffic and customer
orders as we grow. These expenditures may not increase revenues, and may
therefore prevent us from achieving profitability.
OUR SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP OUR BUSINESS-TO-BUSINESS ONLINE
EXCHANGE AND GENERATE ADDITIONAL REVENUE BY EXPANDING OUR PARTNERSHIPS WITH
PRODUCERS, WHOLESALERS AND RETAILERS.
A significant portion of our business plan involves generating revenue by
providing business to business services. An important part of our strategy is
the development of an online exchange which links producers, wholesalers and
retailers in the alcohol beverage industry. In addition, we plan to expand our
business by providing a wide variety of marketing and promotional services to
producers, wholesalers and retailers, including offline promotions. Our revenues
depend significantly on our ability to successfully implement this network and
to expand our services. We do not have experience operating an online exchange,
and have not provided marketing and promotional services on a broad scale. If we
cannot develop this exchange or successfully provide these additional services,
or if a significant number of producers, wholesalers and retailers do not use
our exchange or promotional services, we will not be able to achieve our revenue
goals.
WE DEPEND ON RETAIL LIQUOR STORES AND THIRD-PARTY CARRIERS TO FILL CUSTOMER
ORDERS AND MAKE DELIVERIES. PROBLEMS WITH THESE PARTIES COULD IMPAIR OUR
OPERATING RESULTS AND DAMAGE OUR REPUTATION.
We depend on third-party retail affiliates and other vendors to sell and
deliver the products ordered through our website. We may not be able to ensure
that these retailers fill the orders placed on our website accurately or deliver
the products promptly. While we have agreements with many of our affiliated
retailers in the United States, these agreements can be terminated at any time
by either party. We have agreements with only a small number of the retailers in
foreign countries with whom we
5
<PAGE>
have affiliations. If any of our existing arrangements were terminated, our
business could be disrupted and we could incur significant costs. Our
distribution network depends on third-party carriers. We are, therefore, subject
to the risk that labor shortages, strikes, inclement weather or other factors
may limit the ability of these carriers to meet our shipping needs. The failure
to deliver products to our customers in a timely manner would damage our brand
and adversely affect the demand for our products and services. If the shippers
who currently deliver orders to our customers are unable or unwilling to make
these deliveries, we would need to arrange for alternative carriers. An
alternative carrier might charge more for delivery, or we might not be able to
locate an alternative carrier at all. Changing carriers would likely disrupt our
business. We do not know if we would be able to secure additional vendors and
shippers on commercially reasonable terms.
CONSUMERS MAY NOT REGULARLY PURCHASE ALCOHOL BEVERAGES AND OTHER PRODUCTS WE
OFFER OVER THE INTERNET OR TELEPHONE.
There are many channels other than the Internet and telephone through which
consumers are able to purchase alcohol beverages and related products, including
retail stores, catalogs, supermarkets and other mass merchants. Our business and
results of operations would be adversely affected if consumers purchase these
products over the Internet or by phone only on a limited basis or choose to make
future purchases through more traditional channels.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, WHICH MAKES IT
DIFFICULT TO PREDICT OUR FUTURE RESULTS.
Our quarterly operating results may fluctuate significantly as a result of a
variety of factors, many of which are outside our control. We believe the
seasonal nature of gift giving will cause our revenues to fluctuate because that
portion of our revenues which is derived from online revenues depends to a
significant extent on gift giving. Our revenues and operating results tend to be
lower for the quarter that ends on September 30 because none of the holidays
which produce a significant volume of our orders such as Valentine's Day,
Mother's Day, Father's Day and Christmas fall within that quarter.
Other factors that may affect our quarterly operating results include:
- spending patterns of online shoppers;
- seasonal trends in Internet usage and advertising placements;
- the level of traffic on our website;
- the amount and timing of capital expenditures and other costs relating to
the expansion of our operations;
- technical difficulties or system downtime; and
- general economic conditions and economic conditions specific to the
Internet, such as electronic commerce and online media.
In addition, in response to changes in the competitive environment, we may,
from time to time, make certain pricing, service or marketing decisions that
could cause significant declines in our quarterly or annual operating results.
As a result of fluctuations in our revenue, comparison of our results of
operations from one quarter to the immediately preceding quarter are of limited
relevance in evaluating our historic financial performance or predicting our
future performance.
6
<PAGE>
WE MAY BE HELD LIABLE IF ORDERS PLACED ON OUR WEBSITE LEAD TO SALES TO MINORS.
The laws of each state in the United States require individuals to be at
least twenty-one years of age to purchase or consume alcohol beverages. We have
put procedures in place which are intended to prevent us from inadvertently
accepting orders from minors. However, we may inadvertently facilitate the sale
of alcohol beverages to a minor, and thus become subject to actions by
governmental bodies seeking fines or orders preventing us from doing business in
a particular state, or lawsuits by private parties seeking compensatory and
punitive damages.
STATES MAY REQUIRE US TO OBTAIN A LIQUOR LICENSE OR ALLOW ONLY NON-ALCOHOL
PRODUCTS TO BE DELIVERED WITHIN THE STATE, WHICH WOULD INCREASE OUR EXPENSES AND
LIMIT OUR PRODUCT OFFERINGS AND OUR REVENUE GROWTH.
We believe we can lawfully receive orders for the full range of products
listed in our catalogs and website in thirty-nine states without the need to
obtain a liquor license. In two of these states, we are allowed to receive
orders for wine and champagne only. In addition, any or all of these states
could change their laws to prohibit us from providing our services without a
liquor license, or change the interpretation of their existing laws in a way
which would require us to obtain a license to provide our services to residents
of these states. If either of these changes occurred, it could greatly increase
our costs of doing business, or prevent us from accepting orders for shipment to
residents in the affected states. In either case, our results of operations
would significantly suffer.
In eleven states we are only permitted to accept orders for non-alcohol
products. If other states imposed similar limitations on us, this could greatly
reduce our product offerings and revenue. In addition, we are currently
appealing a decision by the State of Illinois Department of Revenue that we are
subject to its retailers' occupation tax. If other states held us liable for the
payment of similar taxes, this would impair our ability to achieve profits.
OUR MANAGEMENT HAS BROAD DISCRETION IN USING THE NET PROCEEDS OF THIS OFFERING
AND YOU MAY HAVE NO OPPORTUNITY TO APPROVE THE USE OF PROCEEDS OF THIS OFFERING.
We intend to use approximately 32.9% of the net proceeds from this offering
for working capital and general corporate purposes. Our management will have
broad discretion over how we use these proceeds. You will not have the
opportunity to evaluate the economic, financial or other information on which we
base our decisions regarding how to use the proceeds from this offering, and we
may spend these proceeds in ways with which you disagree.
OUR SUCCESS DEPENDS UPON OUR MARKETING EFFORTS AND INCREASING OUR BRAND
RECOGNITION.
We believe that broad recognition and favorable consumer and industry
perception of the Liquor.com brand is essential to our future success.
Successful positioning of the Liquor.com brand will depend largely on the
success of our advertising, marketing and promotional efforts. We currently only
have three full-time marketing employees, and the success of our marketing plan
will depend to a large extent on our ability to attract and retain talented
employees to work in our marketing department. We have not yet engaged in a
broad-based marketing program, and we cannot assure you that our planned
advertising will be effective. If our brand development strategy is
unsuccessful, these expenses may never be recovered and we may not increase
traffic to our website or our catalog revenues and our revenues will not grow as
expected.
WE FACE SIGNIFICANT COMPETITION THAT MAY ADVERSELY AFFECT THE DEMAND FOR OUR
PRODUCTS AND SERVICES.
Our market is highly competitive with few barriers to entry. We do not have
exclusive agreements with the retailers who sell the products ordered on our
website or through or catalog, so our competitors are free to enter into similar
agreements with these retailers. We compete directly with
7
<PAGE>
other companies maintaining websites or publishing catalogs through which
consumers can purchase alcohol beverages and related items. We also compete with
traditional "bricks and mortar" liquor stores as well as with businesses which
offer non-alcohol gift items, such as flowers or candy, through catalogs or on
websites. Some of our principal competitors are 800 Spirits, Inc., Drinks.com,
Wine.com, Inc., Internet Wines & Spirits, Geerlings & Wade, Inc., and Ambrosia.
Many of our existing or potential competitors have greater technical expertise,
brand recognition or Internet commerce experience. In addition, many of our
existing or potential competitors may be able to devote far greater resources
than us to marketing campaigns, attracting traffic to their website and
developing their technology.
In addition to competing with online and traditional retailers for customer
orders, we also compete with other websites and traditional media for
advertising dollars. The competition for advertisers could result in significant
price competition. The number of companies selling Web-based advertising and the
available inventory of advertising space has increased substantially.
Accordingly, we may face increased pricing pressure for the sale of
advertisements.
Many of the companies that we compete with for advertising monies have
greater name recognition and more established relationships with advertisers and
advertising agencies than us. These companies may be able to obtain a more
attractive inventory of ad spots, adopt more aggressive pricing policies and
devote substantially more resources to selling advertising inventory.
OUR SUCCESS AND THE DEMAND FOR OUR SERVICES AND PRODUCTS DEPENDS ON THE
CONTINUED GROWTH OF ONLINE COMMERCE.
A material portion of our future revenue depends on the continuing
development of online commerce. The Internet and other online services may not
be accepted as a viable commercial marketplace for a number of reasons,
including inadequate development of enabling technologies and the lack of
performance improvements. As the number and frequency of Internet users
increase, users will require more bandwidth, although the infrastructure for the
Internet may not be able to support the demands placed upon it. In addition, the
Internet could lose its viability due to delays in developing or adopting new
standards required to handle increased levels of Internet activity. Changes in,
or insufficient availability of, telecommunications services to support the
Internet could result in slower response times and adversely affect usage of the
Internet, including our website. These problems would harm our brand and cause a
decrease in the demand for our services and products.
OUR FUTURE REVENUE GROWTH IS DEPENDENT UPON THE INTERNET BEING ACCEPTED AS A
VIABLE ADVERTISING MEDIUM.
A significant portion of our future revenue depends upon the acceptance of
the Internet as a viable advertising medium. The market for Internet advertising
has only recently begun to develop, is rapidly evolving and is characterized by
intense competition. As is typical in the case of a new and rapidly evolving
industry, the level of demand and market acceptance for recently introduced
products and services is extremely uncertain. Our ability to generate
advertising revenue will depend on, among other factors, the following:
- pricing of advertising on other websites or other outlets such as
newspaper, radio and television;
- the amount of traffic on our website;
- our ability to achieve and demonstrate user and member demographic
characteristics that are attractive to advertisers; and
- the development and expansion of our advertising sales force.
Acceptance of the Internet among advertisers and advertising agencies will
depend on the level of use of the Internet by consumers and upon growth in the
commercial use of the Internet. If widespread
8
<PAGE>
commercial use of the Internet does not develop, or if the Internet does not
develop as an effective and measurable medium for advertising, our business and
financial condition will be adversely affected.
THE DEMAND FOR OUR SERVICES AND PRODUCTS DEPENDS UPON A STRONG ECONOMY.
We believe that consumer spending on alcohol beverages is influenced by
general economic conditions and the level of discretionary income. Accordingly,
we may experience sustained periods of declines in revenues during periods of
economic downturn.
OUR BUSINESS COULD BE HARMED IF WE ARE UNABLE TO ACHIEVE AND MAINTAIN A
SIGNIFICANT ADVERTISING PRESENCE ON HIGH-TRAFFIC WEBSITES.
In order to increase our revenues, we need to increase the number of visits
to our website, which will require us to establish and maintain an advertising
presence on high-traffic websites, including third party portals and content
sites. We have limited relationships with these websites and do not know if we
will be able to develop these relationships on favorable terms or at all. We may
have to pay significant fees to establish or maintain a presence on these
websites. Websites that we may approach may also provide advertising services to
our competitors. As a result, these sites may be reluctant to enter into or
maintain relationships with us. The demand for our services and products could
be harmed if we do not develop and secure sufficient online advertising or
secure a sufficient presence on commercially reasonable terms or if these
activities do not effectively attract users to our website and lead to a
substantial number of orders.
OUR FUTURE SUCCESS DEPENDS, IN PART, ON THE CONTINUED SERVICE OF NUMEROUS
INDIVIDUALS AND OUR ABILITY TO INTEGRATE BARRY GRIEFF, OUR NEW CHIEF EXECUTIVE
OFFICER AND SCOTT CLARK, OUR NEW CHIEF FINANCIAL OFFICER AND GENERAL COUNSEL,
INTO OUR MANAGEMENT TEAM.
Mr. Olsher, our Chief Operating Officer, Ms. Zelitzky, our Chairman,
Mr. Reiner, our Chief Technology Officer, Mr. McDermott, our Senior Vice
President, Business Development and Jamie Cutburth, our Vice President of Online
Marketing, were until recently the only senior managers we employed. We have
recently hired several senior managers, including Barry Grieff, our Chief
Executive Officer and Scott Clark, our General Counsel and Chief Financial
Officer. Our success will depend to a significant degree on the ability of
Mr. Grieff and Mr. Clark to work effectively with Mr. Olsher, Ms. Zelitzky,
Mr. Reiner, Mr. McDermott and Mr. Cutburth. We have "key man" life insurance
policies only on Mr. Grieff, Ms. Zelitzky and Mr. Olsher.
Our future success also depends on our ability to attract, retain and
motivate highly-skilled employees. Competition for employees in our industry is
intense. We may be unable to retain our key employees or attract, assimilate or
retain other highly qualified employees in the future in the event that we lose
any of our key personnel.
OUR OPERATIONS, INCLUDING THE OPERATION OF OUR WEBSITE, DEPEND ON THIRD PARTY
SERVICE PROVIDERS.
We rely on outside parties to provide many services, including just a single
company for all of the services relating to the technology used to operate our
website. We do not have a contract with this company. Similarly, we rely on
outside companies to provide telephone service to our call center. If these
companies were unable or unwilling to provide these services, we do not know if
other companies would provide these services on terms as favorable as the
current providers. In addition, if one of these companies terminated its
services, or experienced a system failure, this could cause a significant
disruption in service on our website, which could cause damage to our
reputation, and decrease the demand for our products and services.
9
<PAGE>
DIFFICULTIES IN INCREASING OUR CAPACITY OR ENHANCING OUR WEBSITE, OR COMPUTER
SYSTEM FAILURES, COULD DAMAGE OUR BRAND AND THE DEMAND FOR OUR PRODUCTS AND
SERVICES.
To generate more traffic on our website, which is a key element of our
strategy, we need to introduce additional or enhanced features to our website
and ensure that the site can accommodate increased numbers of visitors and
orders. If the number of orders handled by our website exceeds available
capacity, we may not be able to add additional hardware and software in time to
process the increased orders. If we cannot upgrade our existing technology or
network infrastructure to accommodate increased traffic or to introduce new
services and features, this could cause customer dissatisfaction and damage our
brand. In addition, if we introduce a feature or service which is not favorably
received, our current users may not use our website as frequently and we may not
be able to attract new users.
The performance, reliability and availability of our website and the
technology used to manage our Internet orders is critical to our reputation and
ability to attract and retain consumers and advertisers. Sudden and significant
increases in traffic on the websites of online businesses can strain the
capacity of the software, hardware and telecommunications systems used by these
businesses, leading to slower response times or system failures. Similarly, an
increase in the volume of calls to our call center could lead to long waits for
callers. Any system error or failure that interrupts the operation of our
website or increases response time could cause us to lose customers or
advertisers. In addition, if these failures or errors were sustained or
repeated, it could reduce the attractiveness of our website, reduce our revenue
and damage our brand.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND COULD BE SUBJECT TO
CLAIMS THAT WE HAVE INFRINGED ON THE INTELLECTUAL PROPERTY OF OTHERS.
The Liquor.com Internet domain name is our brand on the Internet. The
acquisition and maintenance of Internet domain names is generally regulated by
governmental agencies and their designees and we expect the requirements for
registering Internet domain names to be changed. In addition, the relationship
between regulations governing Internet domain names and laws protecting
trademarks and similar proprietary rights is unclear. We may be unable to
prevent third parties from acquiring Internet domain names that are similar to,
infringe upon or otherwise decrease the value of our Internet domain name, the
trademarks and other intellectual property rights used by us. Moreover, we have
not yet applied for trademark protection for proprietary content we intend to
introduce on our website, and cannot be sure such protection is available. If
this protection is not available, this will impair our ability to protect our
content.
We could be subject to claims by others that we infringe upon their
intellectual property rights. Any litigation regarding our proprietary rights
could be costly and divert management's attention, result in the loss of certain
of our proprietary rights or the payment of substantial monetary damages,
require us to seek licenses from third parties or prevent us from selling our
services.
ONLINE SECURITY BREACHES COULD DAMAGE OUR BRAND AND DECREASE THE DEMAND FOR OUR
PRODUCTS AND SERVICES.
To place orders on our website, consumers must submit credit card
information to us. This information and other confidential information may be
misappropriated when transmitted over the Internet. We may be liable to our
customers if a third party is able to penetrate our network security and
misappropriate our customers' personal information. We may be held liable for
claims based on unauthorized purchases with credit card information,
impersonation or other similar fraud claims. These claims could result in
litigation and financial liability. Security breaches would likely damage our
reputation and decrease the demand for our products and services.
10
<PAGE>
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE INTERNET AND
ONLINE COMMERCE COULD HARM OUR BUSINESS OPERATIONS.
Online commerce is new and rapidly changing, and federal and state
regulation relating to the Internet and online commerce is evolving. Currently,
there are few laws or regulations directly applicable to the Internet or online
commerce on the Internet, and the laws governing the Internet that exist remain
largely unsettled. Due to the increasing popularity of the Internet, it is
possible that laws and regulations will be passed covering issues such as user
privacy, pricing, taxation, content, copyrights, distribution, antitrust and
quality of products and services. In addition, it is not clear how existing laws
governing issues such as property ownership, copyrights and other intellectual
property issues, taxation, libel, obscenity and personal privacy will be applied
to the Internet. The growth and development of online commerce may lead to
requests for more stringent consumer protection laws, both in the U.S. and
abroad. We are also subject to regulation laws affecting direct marketers and
advertisers. The adoption or modification of laws or regulations applicable to
the Internet could reduce the demand for our services and products or increase
our cost of doing business.
Due to the increasing use of the Internet and the burden it has placed on
the current telecommunications infrastructure, several telephone carriers have
asked that the FCC regulate Internet service providers and impose access fees on
those providers. If the FCC imposes access fees, the costs of using the Internet
could increase dramatically. This could result in the reduced use of the
Internet as a medium for commerce, which could reduce the demand for our
services and products.
WE MAY INCUR LIABILITY FOR INFORMATION DISPLAYED ON AND COMMUNICATED THROUGH OUR
WEBSITE OR INFORMATION THAT CAN BE ACCESSED THROUGH OUR WEBSITE.
We provide links to websites operated by other businesses and thus may be
subject to claims for defamation, negligence, copyright or trademark
infringement relating to the information we publish on our website and those
websites that may be accessed through our website. Based on links we provide to
other websites, we could also be subject to claims based upon online content we
do not control that is nevertheless accessible from our website.
CONCERNS RELATED TO COLLECTION AND SALE OF PERSONAL INFORMATION ABOUT OUR USERS
AND OTHER PRIVACY CONCERNS COULD ADVERSELY AFFECT OUR BUSINESS.
We intend to collect demographic information from visitors to our website
and to sell this information to producers of alcohol beverages. Governmental
authorities have proposed regulations to govern this practice. These regulations
may include requirements that we establish procedures to disclose and notify
users of privacy and security policies, obtain consent from users to collect and
use the information and provide users with the ability to access, correct or
delete personal information which we store. These regulations may also provide
for the payment of damages to users of websites. In addition, our website does
not currently place "cookies" on a user's hard drive, but it may do so in the
future. If our website does place cookies on a user's hard drive, this may be
done often without the user's knowledge or consent. Cookies are data retrieval
devices designed to collect personal identifying information from individuals
who visit our website. The Federal Trade Commission has proposed regulations
regarding the collection and use of personal identifying information obtained
from individuals when accessing websites, with particular emphasis on access by
minors. In addition, the Federal Trade Commission is investigating the data
collection practices of an online marketing company. We may become subject to an
investigation, or the Federal Trade Commission's regulatory and enforcement
efforts may restrict our ability to collect demographic and personal information
from users, which could adversely affect our marketing efforts.
11
<PAGE>
CHANGING TECHNOLOGY MAY FORCE US TO INVEST SIGNIFICANT FUNDS ON TECHNOLOGY.
The Internet, online commerce and online advertising markets are
characterized by rapidly changing technologies, evolving industry standards,
frequent new product and service introductions and changing customer
preferences. Our future success will depend, in part, on our ability to adapt to
changing technologies and to address our customers' changing preferences. We
may, however, experience difficulties that delay or prevent our being able to do
so. In addition, we may be required to spend significant funds on technology,
and failure to make these expenditures could hurt the performance of our website
and damage our brand and the demand for our services and products.
CERTAIN STOCKHOLDERS WILL CONTROL 36% OF OUR COMMON STOCK AFTER THIS OFFERING
AND THEIR INTERESTS MAY BE DIFFERENT FROM YOURS AND AS A RESULT, YOU MAY HAVE NO
EFFECTIVE VOICE IN OUR MANAGEMENT.
Upon completion of this offering, Ms. Zelitzky, our Chairman, and
Mr. Olsher, our Chief Operating Officer, will continue to own in excess of 36%
of our outstanding voting power. As a result, these two individuals will be able
to exercise control over our business, policies and affairs and exert
substantial influence over the election of our directors, and the approval or
disapproval of actions requiring shareholder approval. This concentration of
stock ownership could have the effect of delaying or preventing, and may
discourage attempts to bring about, a change in control of us or the removal of
existing management.
PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS MAY MAKE IT MORE
DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.
Our certificate of incorporation and bylaws contain provisions that may be
deemed to have anti-takeover effects and may discourage, delay or prevent a
takeover attempt that a stockholder might consider in its best interest. These
provisions include a requirement that the number of directors not be more than
seven.
Our board of directors has the authority to authorize the issuance of
preferred stock. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of our company, and may
adversely affect the voting and other rights of the holders of our capital
stock.
THE REDEEMABLE NATURE OF OUR WARRANTS MAY AFFECT YOUR INVESTMENT DECISION AS TO
IF AND WHEN TO EXERCISE THEM.
We may redeem the 1,500,000 redeemable common stock purchase warrants that
we are offering if our stock price exceeds $28.75 per share. If we decide to
redeem the warrants, holders will lose their rights to purchase the underlying
shares of common stock unless the warrant is exercised before we redeem. Holders
may be forced to exercise the warrants prior to the time the investor would
otherwise desire to do so.
YOU CANNOT SELL THE SHARES UNDERLYING THE REDEEMABLE COMMON STOCK PURCHASE
WARRANTS IF WE DO NOT HAVE AN EFFECTIVE REGISTRATION STATEMENT.
The redeemable common stock purchase warrants included in the units offered
by this prospectus are not exercisable unless, at the time of exercise, we have
a current prospectus covering the shares of common stock issuable upon exercise
of the warrants, and the shares have been registered, qualified or deemed to be
exempt under the securities laws of the state of residence of the exercising
holder of the warrants. Although we have agreed to use our best efforts to keep
a registration statement covering the shares of common stock issuable upon the
exercise of the warrants effective for the term of the warrants, if we fail to
do so for any reason, the value of the warrants may decline.
12
<PAGE>
The common stock and warrants included in the units offered by this
prospectus will be detachable and separately transferable immediately following
completion of this offering. Purchasers may buy warrants in the aftermarket or
may move to jurisdictions in which the shares underlying the warrants are not so
registered or qualified during the period that the warrants are exercisable. In
that event, we would be unable to issue shares to those holders desiring to
exercise their warrants, and these holders would have no choice but to attempt
to sell the warrants in a jurisdiction where a sale is permissible or allow the
warrants to expire unexercised.
THERE HAS BEEN NO PRIOR MARKET FOR OUR SECURITIES, AND A PUBLIC MARKET MAY NOT
DEVELOP OR BE SUSTAINED.
Prior to this offering, you could not buy or sell any of our securities
publicly. An active public market for any of our securities may not develop or
be sustained after this offering, and the market price might fall below the
initial public offering price. The initial public offering price may bear no
relationship to the price at which our common stock or warrants will trade upon
completion of this offering. The initial public offering price will be
determined based on negotiations between us and the representatives of the
underwriters, based on factors that may not be indicative of future market
performance.
A SUBSTANTIAL NUMBER OF OUR SHARES WILL BE AVAILABLE FOR SALE IN THE PUBLIC
MARKET AFTER THE OFFERING AND SALES OF THOSE SHARES COULD ADVERSELY AFFECT OUR
STOCK PRICE.
Sales of a substantial number of shares of our common stock into the public
market after this offering, or the perception that those sales could occur,
could cause our stock price to decline or impair our ability to raise capital
through an offering of equity securities. After the offering, we will have
outstanding 7,053,558 shares of common stock (7,503,558 shares if the
underwriters' option to purchase additional shares is exercised in full). Of
these shares, the shares sold in this offering will be freely transferable
without restriction or further registration under the Securities Act, except for
any shares purchased by our affiliates as defined in Rule 144 under the
Securities Act.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that are based on our
current expectations, assumptions, estimates and projections about us and our
industry. When used in this prospectus, the words "expects," "anticipates,"
"estimates," "intends" and similar expressions are intended to identify forward
looking statements. These statements include, but are not limited to, statements
under the captions "Risk Factors," "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere in this prospectus concerning, among other things:
- our ability to maintain and expand current distribution, fulfillment and
other partnering relationships and to enter into new relationships;
- our ability to attract advertisers and increase advertising revenue; and
- our ability to broaden our existing product lines or expand into new
product categories;
You should not rely too extensively on the forward-looking statements
contained in this prospectus, because these statements reflect only our
management's view as of the date of this prospectus. In addition, these
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projected. The cautionary
statements made in this prospectus should be read as being applicable to all
related forward-looking statements wherever they appear in this prospectus. We
assume no obligation to publicly update or revise these forward-looking
statements for any reason, or to update the reasons actual results could differ
from those anticipated in these forward-looking statements, even if new
information becomes available in the future.
13
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 1,500,000 units
offered by this prospectus will be approximately $30,531,750 based on an assumed
initial public offering price of $23.10 per unit. If the representative
exercises its over-allotment option in full, we estimate that the net proceeds
will be approximately $35,183,513. Both of these figures are after deducting
estimated underwriting discounts and commissions and estimated offering expenses
of $480,000 payable by us. We expect to use the net proceeds of this offering as
follows:
<TABLE>
<CAPTION>
PERCENTAGE
USE AMOUNT OF TOTAL
- --- --------------------- ----------------
<S> <C> <C>
Repay of indebtedness....................................... $ 500,000 1.6%
Marketing and public relations.............................. $ 10,000,000 32.8%
Technology.................................................. $ 10,000,000 32.8%
Working capital and general corporate purposes.............. $ 10,031,750 32.9%
--------------------- ----------------
Total..................................................... $ 30,531,750 100.0%
===================== ================
</TABLE>
- We intend to use approximately $500,000 of the net proceeds of this
offering to repay a note in the principal amount of $500,000 which was
issued in a private placement in January, 2000, which is due and payable
upon the closing of this offering. This note does not bear interest.
- We intend to use approximately $10,000,000 of the proceeds of this
offering for marketing. We plan to advertise in traditional media, such as
print publications, radio and television, and also on online advertising.
We also intend to engage in other promotional activities, including events
at nightclubs and other venues. The purpose of our marketing expenditures
will be to increase brand recognition, revenue and website traffic.
- We intend to use approximately $10,000,000 of the proceeds of this
offering for expenditures relating to the development of technology
allowing us to communicate more effectively with our retailers and the
establishment of an online network linking producers, wholesalers and
retailers.
The remaining proceeds will be used for working capital and general
corporate purposes. These purposes include paying salaries and general
administrative expenses. Our management will have broad discretion concerning
the allocation and use of a significant portion of the net proceeds of this
offering. Pending the use of the net proceeds of this offering, we intend to
invest these proceeds in short-term, investment grade, interest bearing
securities. In the event the representative of the underwriters exercises the
over-allotment option we intend to utilize such additional proceeds for working
capital and general corporate purposes.
The above represents our management's best estimate of the allocation of the
net proceeds, based upon the current state of our business operations, our
current plans for expansion and the current economic and industry conditions. We
reserve the right to reallocate the net proceeds among the categories stated
above. The amount or timing of our actual expenditures will depend on numerous
factors, including our profitability, the availability of alternative financing,
our business development activities and competition.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock. We
currently intend to retain future earnings, if any, to operate and expand our
business and do not expect to pay cash dividends in the foreseeable future.
We may not declare or pay any dividends on our common stock without the
approval of either holders of two-thirds of our Series A preferred stock or a
representative of the holders of our Series A preferred stock with written
authority to give this approval.
14
<PAGE>
CAPITALIZATION
The following table indicates our capitalization at December 31, 1999:
- on an actual basis;
- on a pro forma basis to give effect to the issuance of a $500,000
promissory note, 422,222 shares of Series A preferred stock, 248,236
shares of common stock, eleven convertible notes in the aggregate
principal amount of $1,000,000, 21,428 shares of common stock to Corporate
Capital Strategies, Inc. pursuant to a termination agreement and 27,582
additional shares of common stock pursuant to the exercise of preemptive
rights;
- on a pro forma as adjusted basis to reflect, upon completion of the
offering: (a) the repayment of a $500,000 promissory note, (b) the
conversion of all 422,222 shares of our Series A preferred stock into an
aggregate of 422,222 shares of our common stock, (c) the conversion of
eleven convertible notes issued by us into an aggregate of 284,090 shares
of common stock, and (d) the receipt of net proceeds from the sale by us
of the 1,500,000 units at an assumed initial public offering price of
$23.10 per unit, representing the mid point of the filing range, after
deducting underwriting discounts and commissions and estimated offering
expenses payable by us.
This table should be read in conjunction with our consolidated financial
statements and the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
SHORT TERM DEBT:
Short-term liabilities.............................. $ 1,130,739 $ 2,600,739 $ 1,130,739
LONG-TERM DEBT:....................................... $ 218,487 $ 218,487 $ 218,487
STOCKHOLDERS EQUITY (DEFICIT):
Preferred stock, $0.00001 par value per share,
10,000,000 shares authorized, 0 shares issued and
outstanding actual, 422,222 shares outstanding pro
forma, 0 shares outstanding pro forma, as
adjusted.......................................... $ -- $ 4 $ --
Common Stock, $0.00001 par value, 50,000,000 shares
authorized, 3,050,000 shares issued and
outstanding actual, 3,347,246 shares issued and
outstanding pro forma, 7,053,558 shares issued and
outstanding pro forma, as adjusted................ 31 33 71
Warrants............................................ 0 0 150,000
Additional paid-in capital.......................... 169,169 1,191,564 33,043,280
Accumulated deficit................................. (306,116) (306,116) (306,116)
----------- ----------- -----------
Total stockholders' equity (deficit).............. $ (136,916) $ 885,485 $32,887,235
----------- ----------- -----------
Total capitalization.............................. $ 1,212,310 $ 3,704,711 $34,236,461
=========== =========== ===========
</TABLE>
The preceding table excludes:
- 450,000 shares of common stock and 225,000 redeemable common stock
purchase warrants issuable upon exercise of the underwriter's
over-allotment option;
- 1,500,000 shares issuable upon the exercise of the 1,500,000 redeemable
common stock purchase warrants offered by this prospectus;
- 300,000 shares issuable upon the exercise of the representative's
warrants;
15
<PAGE>
- 150,000 shares issuable upon exercise of the 150,000 common stock purchase
warrants included in the representative's warrants;
- 300,125 shares of common stock issuable upon the exercise of warrants
which we have issued or are contractually obligated to issue to
consultants or in connection with financings;
- 14,205 shares issuable upon exercise of warrants to be issued to certain
of our preferred shareholders pursuant to the exercise of preemptive
rights after date of this prospectus;
- 1,171,617 shares of common stock issuable upon the exercise of currently
outstanding options at a weighted average price of $3.52 per share; and
- 328,383 shares available for issuance upon the exercise of options which
may be granted under our stock plan.
DILUTION
Our pro forma net tangible book value at December 31, 1999, after giving
effect to (a) the issuance of 422,222 shares of Series A convertible preferred
stock, (b) the issuance of 248,236 shares of common stock, and (c) the
anticipated issuance of 27,582 shares of our common stock pursuant to the
exercise of preemptive rights, and (d) the issuance of 21,428 shares of common
stock pursuant to termination of a consulting agreement, was approximately
$885,485, or $.26 per share of common stock. Pro forma net tangible book value
per share represents total tangible assets less total liabilities, divided by
the number of shares of common stock outstanding after giving effect to the
conversion of all outstanding convertible preferred stock.
After giving effect to the sale of 1,500,000 units offered hereby, and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, our pro forma net tangible book value at December 31, 1999,
would have been $32,887,235, or $4.66 per share. This represents an immediate
increase in net tangible book value of $4.40 per share, or 1,692%, to existing
stockholders and an immediate dilution of $6.84 per share, or 59%, to new
investors. The following table illustrates this dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share............. $11.50
Pro forma net tangible book value (deficit) per share at
December 31, 1999......................................... $ .26
Increase in net tangible book value per share attributable
to new investors.......................................... $ 4.40
Pro forma net tangible book value per share as adjusted for
the offering.............................................. $ 4.66
Dilution per share to new investors......................... $ 6.84
</TABLE>
If the over-allotment option is exercised in full, the pro forma net
tangible book value of common stock after the offering would have been
$37,538,998, or $5.00 per share. This represents an immediate increase in net
tangible book value per share to existing stockholders of $4.74, or 1,823% and
an immediate dilution of $6.50 per share, or 56%, to new investors.
The following table summarizes as of December 31, 1999, on a pro forma as
adjusted basis, the total number of shares of common stock and consideration
paid to us and the average price per share paid by existing stockholders and by
new investors purchasing the 1,500,000 units offered by this prospectus at an
assumed initial public offering price of $23.10 per unit and before deducting
the estimated underwriting discounts and commissions and estimated offering
expenses. The following table does not include purchase of or any exercise of
the redeemable warrants offered by this prospectus.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 4,053,558 57% $ 2,661,601 7% $ .66
New investors............................. 3,000,000 43% $34,500,000 93% $11.50
--------- --- ----------- --- ------
Totals.................................. 7,053,558 100% $37,161,601 100%
========= === =========== ===
</TABLE>
16
<PAGE>
SELECTED FINANCIAL DATA
You should read the following selected financial data in conjunction with
our financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus. The statement of operations data for the years ended
December 31, 1997, 1998 and 1999 and the balance sheet data as of December 31,
1998 and 1999 are derived from the audited financial statements included
elsewhere in this prospectus. The balance sheet data as of December 31, 1997 is
derived from our unaudited financial statements. The historical results are not
necessarily indicative or results to be expected for future periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues............................................... $1,281,453 $1,818,960 $2,788,187
Cost of revenues....................................... 704,486 1,076,197 1,946,758
---------- ---------- ----------
Gross profit........................................... 576,967 742,763 841,429
---------- ---------- ----------
OPERATING EXPENSES:
Marketing.............................................. 312,814 339,973 425,236
General and administrative............................. 310,804 360,174 592,613
Total operating expenses............................. 623,618 700,147 1,017,849
---------- ---------- ----------
(Loss) income from operations.......................... (46,651) 42,616 (176,420)
OTHER INCOME (EXPENSE)
Interest expense....................................... (7,470) (7,053) (18,780)
---------- ---------- ----------
Net (loss) income...................................... $ (54,121) $ 35,563 $ (195,200)
========== ========== ==========
Net (loss) income per share: basic and diluted......... $ (.02) $ .01 $ (.06)
========== ========== ==========
Shares used in computing basic and diluted net (loss)
income per share..................................... 3,026,956 3,026,956 3,033,216
========== ========== ==========
BALANCE SHEET DATA:
Cash................................................... $ 129,324 $ 461,924 $ 340,786
Working capital (deficiency)........................... $ (95,306) $ (102,729) $ (218,565)
Total assets......................................... $ 231,117 $ 603,377 $1,212,310
========== ========== ==========
Total liabilities.................................... $ 358,396 $ 695,093 $1,349,226
Total stockholder's (deficit) equity................. $ (127,279) $ (91,716) $ (136,916)
---------- ---------- ----------
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ TOGETHER WITH OUR
FINANCIAL STATEMENTS, AND THE NOTES WHICH ACCOMPANY THE FINANCIAL STATEMENTS,
APPEARING BELOW.
OVERVIEW
We were incorporated as Liquor by Wire, Inc. in 1993. We first accepted
online orders through the website liquorbywire.com., and in our first five years
a small percentage of our revenues came from online orders. In October 1998, we
acquired the domain name Liquor.com, and in April 1999 we launched Liquor.com as
a separate website. We combined the Liquorbywire.com and Liquor.com websites and
relaunched our website under the domain name Liquor.com in November 1999. In
December 1999, we formed a subsidiary, Liquor.Com, Inc., a Delaware corporation,
and conducted a merger under which this subsidiary was the surviving
corporation.
As we seek to expand our business, we believe that our operating expenses
will significantly increase as a result of increased advertising, marketing and
promotional activities and other expenditures designed to increase the value of
our brand. We anticipate continuing to incur losses and generate negative cash
flow from operations for the foreseeable future.
In light of the rapidly changing nature of our business, our limited
operating history in our current form and the seasonality of our business, we
believe that comparisons of our operating results for any period with those of
the preceding period are not particularly meaningful and should not be relied
upon as an indication of future performance. Our revenues and operating results
may vary from quarter to quarter due to a number of factors, some of which are
beyond our control, and detailed in the "Risk Factors" section of this
prospectus. This fluctuation is primarily due to increased revenues and
advertising expenditures during holiday seasons, particularly the quarter ending
December 31.
REVENUE
Sales of alcohol beverages to visitors who view our website are made by
local retailers with whom we have relationships, not directly by us. As a
result, we do not incur the costs associated with a large distribution network
or with maintaining inventory. We treat the entire purchase price of orders
placed through us as revenue because we assume the risk associated with all
sales made through our catalogs or website, by agreeing to refund a customer's
purchase price in the event a delivery is not made or the customer is
dissatisfied. For the years ended December 31, 1998 and 1999, total refunds as a
percentage of our total revenues were .87% and 3.75%, respectively.
Our largest source of revenue is from the facilitation of sales orders for
alcohol beverages and related products placed on our catalogs and website. Our
revenues from these orders was $2,435,118 in 1999. A smaller percentage of our
revenue is derived from the sale of advertising space. Our revenues from the
sale of advertising space were $353,069 in 1999.
EXPENSES
Our expenses are divided into four general categories: cost of revenues,
marketing, general and administrative, and interest expense.
COST OF REVENUES. Our cost of revenues consists of the portion of the
purchase price of products ordered through us which we pay to our affiliated
retailers, direct costs associated with advertising revenues and shipping and
handling costs paid by us in connection with fulfilling customer orders. We
expect our cost of revenues to increase if we successfully generate more product
orders.
MARKETING EXPENSES. Marketing expenses consist primarily of advertising
costs, commission payments to affiliated websites, purchases of customer lists,
the costs of printing and mailing our
18
<PAGE>
catalogs and direct mailing expenses. We expect that these expenses will
increase significantly in future periods. We anticipate that our marketing
expenses will increase substantially as we increase our advertising and other
promotional expenditures with a view to further developing our brand name.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of personnel costs, facilities expenses, professional fees and
other general corporate expenses. We expect our general and administrative
expenses to grow as we hire additional personnel and incur expenses related to
the growth of our business and our operation as a public company.
INTEREST EXPENSE. Interest expense consists of interest on our bank debt
and other borrowings.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, our selected
statements of operations data.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
REVENUE AND COST OF REVENUES:
Revenues............................................... $1,281,453 $1,818,960 $2,788,187
Cost of revenues....................................... 704,486 1,076,197 1,946,758
---------- ---------- ----------
Gross profit........................................... 576,967 742,763 841,429
OPERATING EXPENSES:
Marketing.............................................. 312,814 339,973 425,236
General and administrative............................. 310,804 360,174 592,613
---------- ---------- ----------
Total operating expenses............................. 623,618 700,147 1,017,849
---------- ---------- ----------
(Loss) income from operations.......................... (46,651) 42,616 (176,420)
OTHER EXPENSE:
Interest expense....................................... (7,470) (7,053) (18,780)
---------- ---------- ----------
Net (loss) income........................................ $ (54,121) $ 35,563 $ (195,200)
========== ========== ==========
Net (loss) income per share: basic and diluted........... $ (.02) $ .01 $ (.06)
========== ========== ==========
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES. Our revenues increased approximately $969,000, or 53.3%, to
approximately $2,788,000 in 1999 from approximately $1,819,000 million in 1998.
This increase was primarily the result of increased order volume.
COST OF REVENUES. Our cost of revenues increased approximately $871,000, or
80.9%, to approximately $1,947,000 million in 1999 from approximately $1,076,000
in 1998. This increase was primarily the result of the increased order volume
described above as well as increases in the costs of developing and maintaining
our website. As a percentage of revenues, cost of revenues increased from 59.2%
in 1998 to 69.8% in 1999. This increase was due primarily to our lowering of our
retail prices to generate additional orders while the prices paid to our
affiliated retailers remained relatively constant.
MARKETING EXPENSES. Our marketing expenses increased approximately $85,000,
or 25.0%, to approximately $425,000 in 1999 from approximately $340,000 in 1998.
This increase was primarily due to increased advertising expenditures.
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative
expenses increased approximately $233,000 or 64.7%, to approximately $593,000 in
1999 from approximately $360,000 in
19
<PAGE>
1998. This change was primarily due to increased personnel costs associated with
our hiring additional employees.
INTEREST EXPENSE. Our interest expense increased about $11,700, or 164.8%,
to approximately $18,800 in 1999 from approximately $7,100 in 1998. This
increase is due to the fact that we increased our debt by borrowing $192,000,
which we used to purchase the building in which our offices are located and to
make improvements on the property.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Our revenues increased approximately $538,000, or 41.9%, to
approximately $1,819,000 in 1998 from approximately $1,281,000 million in 1997.
This increase was primarily the result of increased Internet and catalog order
volume.
COST OF REVENUES. Our cost of revenues increased approximately $372,000, or
52.8%, to approximately $1,076,000 million in 1998 from approximately $704,000
in 1997. This increase was primarily the result of the increased Internet and
catalog order volume described above. As a percentage of revenues, cost of
revenues increased from 55.0% in 1997 to 59.2% in 1998. This increase was due
primarily to our lowering of our retail prices to generate additional orders
while the prices paid to our affiliated retailers remained relatively constant.
MARKETING EXPENSES. Our marketing expenses increased approximately $30,000,
or 8.6%, to approximately $340,000 in 1998 from approximately $313,000 in 1997.
This change was primarily due to increased advertising and catalog expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. Our general and administrative
expenses increased about $49,000, or 15.8%, to approximately $360,000 in 1998
from approximately $311,000 in 1997. This increase was primarily due to
increased personnel costs.
INTEREST EXPENSE. Our other expenses decreased approximately $400, or 5.3%,
to approximately $7,100 in 1998 from approximately $7,500 in 1997. This decrease
was primarily due to our cash flow improving, which allowed us to draw less on
our bank line of credit, and declining interest rates, which provided a more
favorable interest rate on the line of credit.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our requirements for working capital primarily through
operating cash flows and more recently from the proceeds of the private
placement of our securities as well as borrowings under our line of credit. As
of December 31, 1999, we had a working capital deficit of $218,565 and a capital
deficiency of $136,916. In contrast, as of December 31, 1998, we had a working
capital deficit of $102,729 and a capital deficit of $91,716.
In September 1999, we obtained a $120,000 line of credit from LaSalle Bank
FSB. Draws on the line currently bear interest at the rate of 9.75% and are
evidenced by a note that is payable on demand of the bank. In March 1999, we
borrowed $192,000 from Bank One, Illinois, N.A. The loan must be repaid by
September 19, 2004. The loan bears interest at a rate equal to 7.74% on a per
annum basis. Our Chief Operating Officer, Steven Olsher and our Chairman, Gail
Zelitzky, have each guaranteed our obligations under these two loans.
Since December, 1999, we have obtained a total of $2,466,974 in proceeds
from the private placement of securities. On December 23, 1999, we sold a total
of 50,000 shares of our common stock for $50,000. In January 2000 we issued a
promissory note in the principal amount of $500,000 to the Gem Global Yield Fund
Limited, and 422,222 shares of Series A Preferred Stock to the Gem Global Yield
Fund and four other entities, for total consideration of $500,000. In March 2000
we issued ten units, each consisting of one convertible promissory note and one
warrant to purchase shares of our
20
<PAGE>
common stock, for total consideration of $900,000. In addition, the holders of
our Series A have made a committment to purchase one unit for total
consideration of $100,000 by exercising their preemptive rights with regard to
this offering. The holders will make payment for their unit, and we will issue
their note and warrant, after the date of this prospectus. Each convertible note
bears interest at the prime rate plus two percent. Each note automatically
converts into shares of our common stock at a conversion price of $3.52 per
share upon completion of this offering, but may be converted earlier, at the
same conversion price, at the option of the holder. Each warrant allows the
holder, for a period of five years from the date of issuance, to purchase a
number of shares equal to 50% of the number issuable upon conversion of the
convertible note, at a price of $2.64 per share. From January through March
2000, we sold a total of 248,236 shares of common stock for total consideration
of $825,276. The first 42,194 shares sold in this offering were sold at a price
of $2.37 per share, and the remainder were sold at a price of $3.52 per share.
In addition, in March 2000 the holders of our Series A Preferred Stock, in
exercise of their preemptive rights with regard to these sales, committed to
purchase an additional 4,688 shares at a price of $2.37 per share for total
consideration of $11,111, and an additional 22,894 shares at a price of $3.52
for total consideration of $80,857. These shares will be issued after the date
of this prospectus.
Our principal uses of cash are to fund expanded marketing and advertising
expenses as well as improvements and enhancements to our technology. While there
can be no assurance, we believe that the proceeds of this offering, funds
currently on hand and funds to be provided by operations will be sufficient to
meet our need for working capital for at least the next twelve months. Actual
results and working capital needs could differ materially from those estimated
due to a number of factors. We may require additional financing within this time
frame. Additional funding may not be available on terms acceptable to us, or at
all.
Cash used in operating activities was approximately $8,000 in 1999, and cash
generated by operating activities was approximately $401,000 in 1998. We used
cash primarily to pay professional fees and to fund the increase in accounts
receivable. A substantial portion of the increase in receivables was due to
processing delays associated with credit card orders placed in 1999, but for
which we did not receive payment until 2000.
Cash used in investing activities was approximately $56,000 for 1999. We
used this cash to purchase our office facility and make related improvements.
Financing activities provided approximately $69,000 comprised of $20,000 in
draws on our line of credit and $50,000 from the placement of securities
discussed above, less a $1,000 reduction in our long-term debt.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March, 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 requires that all the
costs related to the development of internal use software other than those
incurred during the application development stage be expensed as incurred. Costs
incurred during the application development stage are required to be capitalized
and amortized over the estimated useful life of the software. We adopted SOP
98-1 on January 1, 1999. Our adoption of SOP 98-1 did not have a material effect
on our financial position or results of operations.
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instrument and Hedging Activities." SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair market value. Changes
in the fair value of derivatives are recorded each period in current earnings or
other comprehensive income (loss) depending on whether a derivative is designed
as part of a hedge transaction and, if so, the type of
21
<PAGE>
hedge transaction involved. We do not expect adoption of SFAS No. 133 to have a
material impact on our consolidated financial position or results of operation.
In December 1998, we adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." This standard requires that reportable
segments be reported consistent with how management assesses segment
performance. It also requires disclosure of certain information by reportable
segment, geographic area and major customer. As a result, we will separately
report information on the two operating segments: (1) catalog and website, and
(2) advertising. We do not calculate operating income by segment. Instead, we
present our gross profit. In addition, because we do not rely on segment asset
allocation, information regarding segment assets is not meaningful and is not
reported.
We have elected to follow Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and related interpretations,
in accounting for our employee stock options, rather than the alternative fair
value accounting allowed by SFAS No. 123, "Accounting for Stock-Based
Compensation." APB No. 25 provides that the compensation expense relative to our
employee stock options is measured based on the intrinsic value of stock options
granted. SFAS No. 123 requires companies that continue to follow APB No. 25 to
provide a pro forma disclosure of the impact of applying the fair value method
of SFAS No. 123. This method recognizes the fair value of stock options granted
at the date of grant in earnings over the vesting period of the options.
We account for non-employee stock-based awards in which goods or services
are the consideration received for the equity instruments issued based on the
fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.
22
<PAGE>
BUSINESS
OVERVIEW
Liquor.com is a customer relationship management, or eCRM, eCommerce and
business-to-business exchange company whose focus is to integrate producers,
wholesalers, retailers and consumers in the highly fragmented prestige alcohol
and entertainment beverage industry. We build and maintain relationships with
the consumer, as well as provide eBusiness solutions for all three tiers of the
alcohol beverage distribution system--(a) producers, (b) wholesalers and (c)
retailers. We have created a global network of retail partner affiliates by
offering them the opportunity to generate additional revenue, reduce costs and
build loyal customer relationships. We give our affiliates and customers alike
access to a secure eCommerce and custom content environment that serves as the
hub of a direct delivery network. We are currently developing a hosted,
proprietary network for the industry that will aggregate and streamline product
purchasing, reduce costs, build revenue and effectively disseminate product
information and industry news for all three tiers.
We do not sell directly to customers, but rather utilize our industry
relationships, expertise and in-depth knowledge of our target markets to
generate demand, facilitate sales and build loyalty. Currently, the Liquor.com
affiliate network provides direct delivery to thirty-nine states and more than
forty countries. By expanding our existing infrastructure and capitalizing on
relationships developed by our founders and their family over fifty years in the
alcohol beverage industry, it is our goal to alter the $113 billion alcohol
beverage industry and change the manner in which alcohol beverages are marketed,
purchased and sold.
INDUSTRY BACKGROUND
GROWTH OF ONLINE COMMERCE. The Internet is a global medium which enables
millions of people to share information, conduct business and communicate
electronically. In a September 1999 report Forrester Research estimated that
17 million U.S. households will have purchased items online in 1999, increasing
to 49 million by 2004. In this report, Forrester Research also estimated that
Internet purchases of goods and services by United States consumers would
increase from $20.3 billion in 1998 to over $143 billion in 2003.
ECRM, ECOMMERCE AND BUSINESS-TO-BUSINESS INTERNET APPLICATIONS. We believe
that the Internet offers increasing opportunities to provide
business-to-business services which link participants at all levels of a product
distribution system, improving efficiency and lowering costs. In addition, the
Internet allows sellers to directly market their products and obtain customer
feedback and demographic information in ways which are not possible through
traditional distribution and advertising channels. We also believe that
businesses which offer goods and services over the Internet have potential
advantages over traditional retailers who sell exclusively through catalogs or
in fixed locations, because eCommerce companies typically can avoid many
overhead costs associated with traditional businesses, such as the expenses of
large inventory systems.
MARKET FOR ALCOHOL BEVERAGES. According to Beverage Dynamics, an industry
publication, annual sales of alcohol beverages in the United States totaled
approximately $113 billion in 1999.
CORPORATE HISTORY
Liquor.com is the product of three generations of family service in the
alcohol beverage industry. Irving Robins, our Chairman's father and Chief
Operating Officer's grandfather, founded Foremost Sales Promotions, Inc. in
1949, and focused on providing services to the alcohol beverage industry as well
as the franchising of Foremost Liquor Stores. Our predecessor, Liquor by Wire,
was created as a division of Foremost Sales Promotions to facilitate the
worldwide delivery of wine, champagne, spirits and gifts and as a means with
which to help differentiate the Foremost franchisees from their
23
<PAGE>
competition. In 1991, after recognizing the significant opportunity for the
further development of the Liquor by Wire division, our founders began to focus
on expanding the revenues and reach of this division, which led to our Internet
efforts.
We were incorporated in Illinois with the name Liquor by Wire, Inc. in
August 1993. Also in 1993, we launched liquorbywire.com, beginning our
transition into an eCRM, eCommerce and business-to-business exchange company. In
1994, our founders discontinued their franchise operations to fully concentrate
on the opportunity within the online and direct segment of the market. Since
1995, the majority of our revenue has been derived from the online and catalog
gift revenues for entertainment beverages and related products. In
October 1998, we acquired the URL liquor.com and began to implement the next
generation of our Internet strategy.
In December 1999, we formed a subsidiary, Liquor.com, Inc., a Delaware
corporation, and conducted a merger under which this subsidiary was the
surviving corporation. Our executive offices are located at 4205 West Irving
Park Road, Chicago, IL 60641. Our phone number is (773) 427-8620.
Our website is located at www.liquor.com. We are not incorporating the
information on our website into this prospectus, and we do not intend to make
our website a part of this prospectus. This prospectus includes trademarks,
trade names and service marks of other companies. Each trademark, trade name or
service mark of any other company appearing in this prospectus is the property
of its owner.
OUR STRATEGY
To achieve our mission of becoming the leading provider of eCRM, eCommerce
and business-to-business solutions for the alcohol and entertainment beverage
industry and significantly altering the manner in which alcohol beverages are
marketed, purchased and sold, we will continue to focus on the following
strategies:
- Leveraging our relationships with producers, wholesalers and retailers
developed by our founders and their family over fifty years in the alcohol
beverage industry.
- Strengthening and expanding our relationships with our retail affiliate
network through cooperative marketing, custom product development and
other programs.
- Completing the development of our online exchange that unites producers,
wholesalers and retailers to generate additional revenue, reduce costs and
build loyal customer relationships.
- Focusing our direct marketing efforts on increasing traffic, orders and
brand recognition through our Liquor.com portal.
- Expanding proprietary content on our Liquor.com portal through direct
development and partnerships with content providers.
- Increasing our database of Liquor.com users by offering what we believe to
be one of the world's largest selections of wine, champagne, spirits and
complementary products and services, ease of use and high levels of
customer service.
- Further developing our growing list of Liquor.com users into an extensive
database of consumer demographic, product preference and other information
enabling our partners to focus their marketing efforts and obtain feedback
in ways that we believe are not available in the current distribution
system.
DEVELOPMENT OF AN ECRM, ECOMMERCE AND BUSINESS-TO-BUSINESS EXCHANGE COMPANY
Alcohol beverages are typically sold through a three-tier system, from the
producer to the wholesaler and then to the retailer. We are a partner in the
alcohol beverage distribution chain, serving
24
<PAGE>
businesses at all three levels. As an eCRM, eCommerce and business-to-business
exchange company, we attempt to integrate the three tiers through a central BtoB
network that:
- Reduces costs;
- Generates revenues; and
- Build relationships.
PRODUCER SERVICES.
We are developing and implementing an online network of hosted software
solutions and business relationships that incorporate our expertise in sourcing
and delivering alcohol and related entertainment beverages, as well as custom
products and services related to the upscale entertainment lifestyle. As this
network is deployed, we intend to link producers with wholesalers and retailers
via the Internet, offering increasing opportunity to (a) reduce order costs,
(b) manage inventory, (c) compare strategies and marketing techniques, and
(d) generally operate their businesses more efficiently and effectively. We
intend to offer producers access to specific intranet applications within the
Liquor.com website. We intend for these areas to be accessible through password
only and will provide access to product sales information, such as "This Week's
Top 10 Selling Items," information on new products, consumer comments on
products of interest and news related to the industry.
Through our network, we attempt to offer producers a one-to-one relationship
with the consumer that we believe is non-existent within the current
distribution system. We believe producers will be able to utilize this
relationship to educate and inform their customers, reach new markets, and
introduce new products. We believe our ability to provide direct access to
consumers specifically interested in the purchase of alcohol beverages at the
point of sale, both online and offline, is a significant asset in the producers'
marketing efforts. In addition, we maintain a database of names, addresses,
e-mails and other relevant information regarding consumers who purchase and
receive producers' brands as well as competitive products within the category of
choice, such as vodka or gin. Using this database, we hope to become an integral
marketing partner and alter the manner in which producers' marketing dollars are
allocated. We also intend to offer producers the opportunity to receive feedback
directly from consumers through our website. Utilizing interactive forums, we
will forward consumer comments, such as product or drink reviews, directly to
producers.
From May 1999 to April 2000, we signed agreements with nineteen producers in
which the producers have agreed to pay us an aggregate of over $600,000 for
advertising on our website and in our catalogs. We plan to increase the
opportunities available to producers for the direct promotion of their products
beyond placement on our website and in our catalogs. Online, we plan to offer
"Category Exclusive" positioning, the sponsorship of online events, such as Q &
A LIVE!, and the offering of online coupons. Utilizing liquor.com as a calendar
and events hub, we intend for producers to have the opportunity to sponsor
nightclub-based events, such as Liquor.com LIVE!, a nationwide nightclub tour,
or The Bartender Olympics, a cross-country search for the world's most talented
bartender. We also intend for producers to be able to utilize our existing
retailer relationships for new product introductions and advertise in our
various direct mail pieces, such as a publication we intend to develop called
"Loungin'--the Liquor.com Magalog." We believe offering these increased services
will increase our advertising revenues and create additional sources of revenue,
such as payments for our services in organizing offline events.
WHOLESALER SERVICES.
We believe we benefit wholesalers by driving incremental sales through this
middle tier. Every order we receive benefits wholesalers across the country
since all of our orders are fulfilled by local, licensed retailers who purchase
their product from the wholesale tier. We also believe that our online
25
<PAGE>
network will benefit wholesalers by linking them with producers and retailers,
improving their ability to reduce costs, manage inventory, and otherwise improve
their efficiency. We plan to offer wholesalers access to password-protected
sales and marketing information available only to participants at the wholesale
tier, along with industry news.
RETAILER SERVICES.
We believe sales generated through our website complement retailers' current
operational structure. Each order received by our retailers is typically
additional business they would not otherwise have received. For example, through
orders processed through our website and catalogs as business-to-business gifts,
our network of retailers reaps the benefit of receiving orders for delivery in
their local area that have originated from outside of their immediate vicinity.
Like producers and wholesalers, we believe retailers will be able to improve
efficiency and reduce costs by using our online network. In addition, we believe
increasing the size of our affiliate network will create the potential for
buying power and product leverage as the affiliates are aggregated. The retail
alcohol beverage industry is highly fragmented, and we intend to leverage the
combined purchasing power of these accounts into a nationally recognized buying
cooperative, and aggregate these accounts for on-site product placements and
cooperative marketing. By aggregating our member retailers, we believe we can
affect the current alcohol beverage distribution structure through the pooling
of these retailers for the bulk purchase of their products. Although this
practice is commonly conducted on a market by market basis, we are not aware of
any dominant industry player affecting sales in this manner on a national basis
which we believe provides us with a market opportunity.
OUR WEBSITE
Liquor.com was officially launched in November 1999, and we have been
developing it into an online community in which visitors can encounter a host of
interesting products, content and services. The site is designed to enable our
visitors to select and purchase fine wine and beverages, learn the art of mixing
drinks, understand the history of products such as single malt scotch, plan
parties and events, hire professional bartenders or send unique gifts.
Furthermore, the site acts as an e-commerce portal, providing access to the
direct delivery of beverages and related goods through our affiliate network. By
utilizing the Internet as a point of contact, commerce and service, we hope to
be able to broaden our network of affiliates, products and services, thereby
helping develop stronger relationships with the consumer. As our website traffic
and membership increase, we expect to be able to generate increasing revenue
from online advertising and marketing to these visitors. We are already selling
advertising space to producers and others wishing to target our constituency.
Our website provides what we believe to be a compelling experience
combining:
- Custom content, including:
- "The Libation Library" -- an extensive database of drink recipes; and
- An "Ask The Bartender!" feature, which allows consumers to receive answers
to questions on alcohol beverages, such as the difference between a
"blended" scotch and a single malt scotch;
- A "party planner" service called "Party Central" that provides product and
serving recommendations for consumer and corporate events; and
- What we believe to be one of the world's largest selections of wines,
champagnes, spirits and alcohol beverage related products.
26
<PAGE>
We intend to add the following features to our website during the year:
- Entertainment, such as celebrity profiles and live interaction, including
online chat and Q & A LIVE!, to allow consumers to ask questions of
celebrities and industry notables;
- Information on offline events, such as tastings and nightclub promotions;
- The ability to create a personalized home page which will allow consumers
to receive information tailored to their specific interests;
- A Liquor.com membership program, under which consumers will be assigned a
customer identification number and we will store their demographic
information and previous order information. We intend for Liquor.com
members to be entitled to product discounts, invitations to members-only
events, and primary access to limited allocations or new products; and
- Online coupons, which will allow consumers to access daily specials and
receive immediate discounts on their orders.
AFFILIATE NETWORK
Our retail affiliate network provides individual alcohol beverage retailers
access to a broad range of services and products, business leverage and
marketing opportunities. In addition, it provides customers with a resource for
product information, service and direct delivery. We have agreements with over
130 alcohol beverage retailers to provide fulfillment for Liquor.com according
to our specifications. We believe these retailers are among the industry's
largest and most recognized stores. We intend to expand our affiliate network by
adding retailers of similar size.
In our role as a revenue-enhancer, we provide our affiliates with online
access to retail sales by offering custom links, or "eLinks," and icons on the
Liquor.com website, which lead to the affiliate's websites. We are currently in
the process of implementing an "eStore" builder that will enable retailers to
create their own personalized storefronts. "eStores" will be a series of web
pages, maintained on and accessed through our website, containing background
information on a particular affiliate. We believe these links and storefronts
will offer Liquor.com affiliates the opportunity to enhance revenues by:
- offering our selection of custom products that may not be normally
available to these affiliates; and
- offering their products to a broader geographic range of customers.
Additionally, because we operate the portal, source its products directly
with producers, and manage its technology, we believe affiliates will be able to
offer a greater level of product and service to their customers with virtually
no initial capital investment on behalf of the affiliate. We intend for
affiliates to be able to create their own "eLinks" and "eStores" in an
automated, Internet-based environment, enabling new affiliates to join the
network and quickly go online with links and icons. We believe many of our
affiliates will take advantage of the "eStore" program, which is intended to be
a free service. This system will also allow us to reduce our costs, by improving
the speed and efficiency of our communications with retailers. In addition, we
intend to process all orders placed through an "eStore" on our website.
We believe our "eLinks" and "eStores" will allow our affiliates to utilize
Liquor.com content to assist their patrons in planning and supporting their
professional and personal entertainment lifestyle. Liquor.com's corporate and
personal gift services provide our affiliates with an array of custom packaged,
private label wines, champagnes and alcohol beverages, as well as an array of
custom related goods.
We are expanding the range of services and marketing opportunities offered
to our member affiliates. Affiliates currently receive the benefit of processing
orders for delivery in their immediate
27
<PAGE>
locale that are generated by Liquor.com. These opportunities will include
activities for which we will receive a percentage of the revenues, such as
aggregating our member affiliates for the bulk purchase of their products and
thereby lowering their cost of goods.
Our relationships and infrastructure give us the ability to facilitate the
worldwide delivery of alcohol beverages and related items. We have entered into
marketing partnerships under which orders for alcohol beverages from the
websites of our partners are fulfilled through our network of retail affiliates,
generating additional revenue for us and for the affiliates.
DISTRIBUTION AND ORDER PROCESSING
Our distribution model allows us to offer a wide selection of products
without the need to maintain any inventory. Consumers order products through our
website, which is designed internally. We retrieve orders electronically from
our server located in Hoffman Estates, Illinois which is maintained by an
outside company. We believe that hiring an outside company to maintain our
server makes it easier for us to accommodate a larger number of customer orders
without significantly increasing our work force. In connection with processing
orders at our office, we plan to invest in technology designed to allow us to
communicate more effectively with our retailers, which we believe will improve
the method of communication between us and these retailers, while allowing us to
process a higher volume of orders.
Under our current system, once we retrieve these orders at our offices, we
transmit them by facsimile to our affiliated retailers. These retailers then
confirm acceptance of the order by telephone or facsimile. As part of developing
our online network, we intend to transmit these orders to our retailers and
receive their confirmation electronically. We process customers' credit card
orders for the retailers, but the retailers make the actual sale to the
consumer, and also deliver the product to the consumer. Domestic orders are
generally delivered by the retailers in one to three business days.
International orders are typically delivered in five to seven business days.
Since we do not sell directly to our affiliate's customers, local tax and
regulatory considerations remain the responsibility of the local affiliates.
MARKETING
Liquor.com's marketing approach focuses on incorporating the choice of fine
alcohol beverages and packaging them with other elements of the entertainment
lifestyle, offering meaningful alternatives to traditional liquor-store
concepts. A key part of our strategy is to solidify the relationship between
alcohol beverage producers and related lifestyle product marketers, creating a
broad base of related products through our affiliate network. We also believe
that our online eStore and eLink models will offer opportunities for thousands
of retail outlets across the U.S. and abroad to provide informative content to
their customers. In addition, we plan to establish a range of services and
marketing opportunities for "on-premise accounts," such as bars, nightclubs and
restaurants. These services and opportunities are intended to include
implementing traffic-generating, Liquor.com LIVE! events at their
establishments. As our brand name gains additional recognition, we believe this
will drive additional traffic into our partner's establishments and increase
services we provide to our member accounts, allowing us to implement monthly
fees for our on-premise accounts' continued participation. We also intend to
introduce private label products to participating liquor.com retailers,
nightclubs, bars, restaurants and consumers.
To increase traffic on our website, we offer an online partnership program.
This program is managed by LinkShare, an online partnership management company
whose website is located at www.linkshare.com. Online partners who place a
Liquor.com banner on their website receive commissions of between five and ten
percent for revenues generated as a result of the banner, which provides a link
to our website.
28
<PAGE>
We intend to aggressively implement marketing programs to further strengthen
the Liquor.com name. In addition to enhancing our website, we intend to conduct
promotional events, such as product tastings at nightclubs and restaurants. We
also plan to launch a Liquor.com "Magalog" which will feature articles on
entertaining and other issues of interest to consumers of alcohol beverages, in
addition to product listings. We believe this Magalog will increase our catalog
sales and increase our brand recognition. Our marketing strategy will also
target specific groups such as purchasing agents and individuals responsible for
corporate gift-giving. In addition, we intend to create specific
business-to-business gift programs, such as developing gift items tailored to
specific corporations and creating a business-to-business marketing staff.
We believe we have achieved relatively broad exposure from our limited
advertising efforts to date. In December 1999, we received approximately
6,700,000 "hits" on our website, with an average session length of nine minutes
and ten seconds. This was accomplished with a total marketing and advertising
budget of under $450,000 for 1999. We believe the implementation of our planned
multi-million dollar marketing campaign, combined with the ease of recall of our
brand name, will lead to a significant increase in traffic to our website.
After this offering, we will seek to promote our brand name with extensive
advertising, both in traditional media and on the Internet. Our traditional
advertising will consist of print advertising, direct mail campaigns, local
radio and cable television commercials, a business-to-business print campaign,
television infomercials and targeted outdoor media. We intend for our Internet
advertising efforts to include establishing partnerships with search engines,
directories, and award sites; generating reciprocal links with other sites,
using banner advertising, purchasing banner exchange services, postings to news
groups and Internet mailing lists, and gaining certification on shopping
channels of major Internet portals. Our non-traditional marketing will include
advertising on taxi-cab rooftops and bus stands and marketing in smaller local
publications and local nightclubs. An additional marketing effort will involve
preparing a media guide to distribute press releases describing major product
offerings. We also intend to create a launch promotion to generate the largest
possible registered user base in the shortest amount of time, and we will reward
consumers for registering with our site. We plan to focus our initial marketing
efforts on the largest United States cities and on executives of large
corporations and individuals responsible for corporate gift giving.
COMPETITION
The business of marketing and selling alcohol beverages is highly
competitive, and there are few barriers to entry in the markets in which we
compete. The number of e-commerce sites competing for consumers' attention and
advertising dollars has increased rapidly during the past several years. We
compete with other marketers of alcohol beverages who sell through various
channels, including retail stores, the Internet, telephone and catalogs. Many of
our competitors have greater resources and more established customer bases than
ours. Our principal competitors are 800-Spirits, Inc., Drinks.com,
Wine.com, Inc., Internet Wines & Spirits, Geerlings & Wade, Inc. and Ambrosia.
In addition, many of our affiliated retailers have their own websites, so
customers can make online purchases from these retailers without using our
website.
We believe that the primary competitive factors in our markets are:
(a) brand recognition, (b) site content, (c) ease of use, (d) price,
(e) capacity to fill orders, (f) customer service and (g) reliability. Our
success will depend on our ability to provide value-added services to our
marketing partners and a compelling shopping experience to consumers. Some of
our competitors have and may continue to adopt aggressive pricing and marketing
strategies. Increased competition may prevent us from achieving our financial
goals and result in the loss of market share and a reduced value for our brand.
29
<PAGE>
EMPLOYEES
As of April 10, 2000 we had eighteen full-time employees. Five of these
employees are executive officers. In addition, we have (a) one employee devoted
to office management, (b) one to accounting, (c) three to customer service,
(d) four to marketing, and (e) four to technology. We have reached an agreement
with an individual who will serve as our vice president of strategic marketing.
We also hire temporary employees, when necessary, to aid in order processing at
our busiest times. Following the completion of this offering, we intend to hire
a vice president of industry relations, vice president of operations, chief
marketing officer, senior vice president of sales, ten additional customer
service representatives, three sales associates, five additional marketing
associates, two additional industry relations personnel, two additional
accounting clerks, and two administrative assistants. None of our employees are
represented by a labor union and we consider our relations with our employees to
be good.
GOVERNMENT REGULATION
The distribution of alcohol beverages is highly regulated by various
governmental agencies. In particular, retail stores which sell alcohol beverages
must obtain liquor licenses and are subject to extensive regulation. We do not
believe that we are required to obtain a liquor license in any state or are
otherwise subject to laws which govern retail liquor stores, because we provide
a service which connects buyers and sellers of liquor, and do not sell liquor
ourselves. We believe we can lawfully receive orders for the full range of
products listed in our catalogs and website in thirty-seven states and the
District of Columbia without the need to obtain a liquor license and that in two
additional states, Oregon and Washington, we can receive orders for wine and
champagne only. Any or all of these states could change their laws to prohibit
us from providing our services without a liquor license, or change the
interpretation of their existing laws in a way which would require us to obtain
a license to provide our services to residents of these states. If either of
these changes occurred in one or more of the states, it could greatly increase
our costs of doing business, or prevent us from accepting orders for shipment to
residents of those states.
In the following eleven states we are only permitted to receive orders for
non-alcohol products: Alabama, Delaware, Georgia, Kentucky, New Hampshire, North
Carolina, North Dakota, Utah, Vermont, Tennessee and Pennsylvania. These
limitations have had the effect of limiting our ability to expand our business,
and if other states adopted similar systems this could greatly reduce our
revenues and profitability. To date, no foreign government has imposed
limitations on our ability to accept orders for shipment to a particular
country. However, there is nothing to prevent foreign governments from imposing
these types of limitations.
FACILITIES
We currently own a building Chicago, Illinois occupying approximately 5,000
square feet in which our executive offices are located. We have mortgaged this
property to secure a loan. We used the proceeds of the loan to purchase this
property and to make improvements to it. We anticipate that our future growth
will require us to procure additional space. We have no agreements,
understandings or arrangements with regard to any additional space as of the
date of this prospectus.
INSURANCE
We maintain insurance in such amounts and with such coverages and
deductibles as our management believes are adequate. The primary risks that we
insure against are professional liability, workers' compensation, personal
injury, bodily injury, property damage and fidelity losses. We cannot assure you
that our insurance will adequately protect us from potential losses and
liabilities. In addition, we do not maintain business interruption insurance
covering losses which could result if
30
<PAGE>
consumers were unable to access our website due to system failure or some other
cause. We signed an agreement in connection with a $500,000 loan to us in which
we agreed to obtain key man life insurance policies on Ms. Zelitzky and
Mr. Olsher naming the lender as the beneficiary, and to obtain other key man
life insurance policies at the discretion of our board of directors.
LEGAL PROCEEDINGS
We are involved from time to time in various legal proceedings arising in
the ordinary course of business. In October 1999, the Illinois Department of
Revenue issued a decision denying our claim for a refund of approximately of
$9,000 in payments of Illinois' retailers' occupation tax. We disagree with the
Department of Revenue's conclusion, and have filed an appeal of this decision in
the Circuit Court of Cook County, Illinois. If we lose this appeal, it could
increase the likelihood that other states would seek to impose similar taxes on
us. We are not a party to any other current or threatened legal proceedings that
our management believes would materially adversely affect our business, results
of operations or financial condition.
31
<PAGE>
MANAGEMENT
The following table sets forth information regarding our officers, directors
and key personnel as of March 31, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ------------------------------------------
<S> <C> <C>
Barry L. Grieff........................... 53 Chief Executive Officer and Director
Scott B. Clark............................ 42 Chief Financial Officer and General
Counsel
Gail P. Zelitzky.......................... 58 Chairman of the Board and Director
Steven Olsher............................. 30 Chief Operating Officer
Jonathan McDermott........................ 35 Senior Vice President, Business
Development
Eric Reiner............................... 33 Chief Technology Officer
Jamie Cutburth............................ 31 Vice President, Online Marketing
Bryan D. Legate........................... 33 Director
Ralph J. Sorrentino....................... 47 Director
John G. Vandegrift........................ 33 Director
</TABLE>
BARRY L. GRIEFF, CHIEF EXECUTIVE OFFICER Barry L. Grieff became our Chief
Executive Officer in March 2000. From March 1999 to March 2000, Mr. Grieff was
the Chairman and Chief Executive Officer of Dormrat LLC, which is developing
interactive content and a website designed for the college market. Since May
1999, he has served on the board of directors of Volatile Media, Inc., which
operates Ezcd.com, a music website, and acted as a marketing consultant. From
August 1997 to March 1999, Mr. Grieff was the President of Broadway Video
Entertainment, an entertainment and talent management company. From 1988 to
August 1997, Mr. Grieff was the President and Chief Executive Officer of
Promotional Concept Group, an affiliate of The Interpublic Group of
Companies, Inc. which creates and markets entertainment promotional packages.
Mr. Grieff received a Bachelor of Arts in 1967 from the University of Rochester.
SCOTT B. CLARK, CHIEF FINANCIAL OFFICER AND GENERAL COUNSEL. Scott B. Clark
became our Chief Financial Officer and General Counsel in March 2000. From
October 1999 through March 2000, Mr. Clark acted as an independent consultant to
Internet and telecommunications companies. From October 1997 through September
1999, Mr. Clark was a partner with the accounting firm of
Pricewaterhousecoopers. Mr. Clark was Associate Tax Counsel at GTE Corporation
from July 1993 through October 1997. Mr. Clark received a B.B.A. in Accounting
in 1978 from George Washington University, and a J.D. from Pace University
School of Law in 1984. Mr. Clark also received an L.L.M. in Taxation in 1992
from Quinnipiac University. Mr. Clark is a Certified Public Accountant.
GAIL P. ZELITZKY, CHAIRMAN OF THE BOARD. Gail P. Zelitzky became the
President and Chief Operating Officer of Foremost Sales Promotions, Inc. in 1981
and in this position was directly responsible for advertising and marketing in
addition to overseeing the operations of the business. She became our President
and Chief Executive Officer when we were formed in 1993. As our President and
Chief Executive Officer, in addition to overseeing all aspects of the business,
her responsibilities included strategic planning, advertising sales and
oversight of our financial operations. In December 1999, she relinquished her
position as President and Chief Executive Officer and Steven Olsher became our
President. Since December 1999, Ms. Zelitzky has been our Chairman.
Ms. Zelitzky received her Bachelor of Education degree with honors in 1962 from
National-Louis University.
STEVEN OLSHER, CHIEF OPERATING OFFICER. Steven Olsher started with Foremost
Sales Promotions, Inc. as Vice President in 1991. He became our Vice President
when we were formed in 1993 and in this position was responsible for strategic
planning and the creation of our operational structure.
32
<PAGE>
Mr. Olsher's responsibilities included brand development, maintaining relations
with our retail partner affiliates, business development. and the launch of
liquorbywire.com in 1993. Mr. Olsher became our President in December 1999 and
held this position until March 2000 when he became our Chief Operating Officer.
Mr. Olsher received a Bachelor of Science degree in Speech Communications in
1991 from Southern Illinois University.
JONATHAN MCDERMOTT, SENIOR VICE PRESIDENT, BUSINESS DEVELOPMENT. Jonathan
McDermott became our Senior Vice President, Business Development in
February 2000. From August 1999 to January 2000, Mr. McDermott was the Managing
Director and a founding partner of Corporate Capital Strategies, Inc., which
provides consulting services to businesses in the areas of capital formation,
mergers and acquisitions and forming strategic alliances. Corporate Capital
Strategies provided services to us under the terms of a contract which was
terminated in March 2000. From July 1999 to December 1999, and June 1998 to
October 1998, Mr. McDermott worked as a registered representative at Security
Capital Trading, Inc. From February 1998 to June 1998 Mr. McDermott was a
registered representative at Dirks & Company, Inc., the representative of this
offering. From October 1998 to July 1999, Mr. McDermott was President and
strategic advisor of Spotlight Entertainment Group, Inc., a start-up business in
the entertainment industry. From October 1994 to February 1998, Mr. McDermott
was the President of John Magee, Inc., a financial publishing company. From
September 1995 to May 1997, Mr. McDermott was employed with Access Financial
Group, Inc., a broker-dealer. Mr. McDermott received a Bachelor of Science
degree in business in 1986 from the University of Arizona.
BRYAN D. LEGATE, DIRECTOR. Bryan D. Legate was elected to our board of
directors in March 2000 by the holders of our Series A Preferred Stock, who were
granted the right to elect one director. Mr. Legate has been a Managing Director
of The GEM Group, a New York and London based private equity investment firm
since September 1998. Mr. Legate co-founded River Oaks Trading, L.P., a
securities trading firm, in January 1997 and served as its Chairman of the Board
until May 1998. Mr. Legate was an associate in the Houston law firm of Porter &
Hedges, L.L.P., where he practiced corporate and securities law, from June 1992
to June 1995. From July 1995 to December 1997, Mr. Legate operated the Ku Legate
Group, an intellectual property consulting firm specializing in the licensing of
underutilized patents, trademarks for small and middle market companies.
Mr. Legate is a Captain in the United States Army Reserve and a member of the
State Bar of Texas. He holds his law degree from the University of Houston Law
Center in 1994 and an undergraduate degree, with distinction, in 1989 from
Princeton University.
RALPH J. SORRENTINO, DIRECTOR. Ralph J. Sorrentino joined our board of
directors in March 2000. Since 1998, Mr. Sorrentino has been an Executive Vice
President and the Chief Financial Officer of Liberty Digital Inc., a new media
company with strategic holdings in Internet content and interactive television
businesses, and its predecessor, TCI Music, Inc. From 1994 to 1997,
Mr. Sorrentino was the President and Chief Operating Officer of Bohbot
Entertainment & Media Inc., an independent children's television syndication and
advertising company. Mr. Sorrentino received a Bachelor of Science in Accounting
in 1979 from Brooklyn College. Mr. Sorrentino is a Certified Public Accountant.
JOHN G. VANDEGRIFT, DIRECTOR. John G. Vandegrift joined our Board of
Directors in March 2000. Since January 2000, Mr. Vandegrift has provided
consulting services to technology companies through Whodoweknow, LLC. We have
entered into a contract under which Whodoweknow has agreed to provide us
consulting services. From March 1999 to January 2000, Mr. Vandegrift worked as a
strategic advisor for yesmail.com, Inc. From July 1997 to March 2000,
Mr. Vandegrift served on the board of directors of yesmail.com, Inc. From
January 1999 to March 1999, Mr. Vandegrift was the Interim Chief Executive
Officer of Frictionless Commerce, Inc., an Internet software company. From
December 1997 to December 1998, Mr. Vandegrift was Marketing Senior Executive
with Compaq Computer Corp. From May 1993 to July 1998, Mr. Vandegrift was
Executive Vice President of Marketing and Business
33
<PAGE>
Development and then President of TAC Systems, a communications company.
Mr. Vandegrift received a Bachelor of Science in Engineering in 1989 from Texas
A&M University and a Master of Science in Engineering in 1997 from the
University of Alabama.
In addition to our directors and executive officers, we employ the following
key employees:
JAMIE CUTBURTH, VICE PRESIDENT, ONLINE MARKETING. Jamie Cutburth became our
Vice President of Marketing in January 2000. From April 1999 to August 1999, Mr.
Cutburth was a Channel Account Manager for Covad Communications. From January
1995 to March 1999, Mr. Cutburth was employed by U.S. Robotics Corporation,
holding the positions of Inside Sales Representative, Senior Retail Sales
Representative, Sales Program Manager, and ISP Marketing Manager. Mr. Cutburth
received a B.S. Degree in Business Administration in 1994 from the University of
Kansas.
ERIC REINER, CHIEF TECHNOLOGY OFFICER. Eric Reiner joined us as our Chief
Technology Officer in February 2000. From October 1997 to February 2000,
Mr. Reiner was the Director of Product Development of Florists' Transworld
Delivery. From October 1993 to October 1997, Mr. Reiner was Manager of the
Client/Server Development Group and Manager of the Internet Development Group
for the Chicago Board Options Exchange. Mr. Reiner received a B.S. in Computer
Science in 1988 from Iowa State University.
DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL
Our bylaws require us to have at least two, but no more than seven,
directors. We currently have a board comprised of five members. Once elected,
our directors hold office until our next annual meeting of shareholders or until
a successor has been elected and qualified, unless they resign at some earlier
time. As a result, all of our director positions will be filled at each annual
meeting. The holders of our Series A Preferred Stock have the right to elect one
director to our board, and have chosen Mr. Legate to serve on the board.
In addition, we have agreed to grant to Dirks & Co., Inc., the
representative of the underwriters, the right for one year from completion of
this offering to designate one person to attend all meetings of our board of
directors. We have also agreed to reimburse the person designated by Dirks & Co.
for expenses incurred in attending these meetings.
Our executive officers are appointed by our board on an annual basis until
their successors have been elected and qualified. Gail Zelitzky, our Chairman,
is the mother of our Chief Operating Officer, Steven Olsher. Samantha McDermott,
our Manager of Marketing and Creative Services, is the wife of Jonathan
McDermott, our Senior Vice President, Business Development. There are no other
family relationships among any of our directors, officers or key employees.
In addition to the members of our management listed above, upon completion
of this offering, we intend to hire a vice president of industry relations, vice
president of operations, chief marketing officer, and senior vice president of
sales. We have entered into a contract with Redwood Partners, Ltd., an executive
recruiting firm in connection with our search for executives. Under this
contract, we have agreed to pay Redwood a placement fee of 25% of the first
year's cash compensation paid to any employee hired as he result of Redwood's
search, and 10% of the guaranteed stock options or warrants paid to the
employee. We have also agreed to pay Redwood a $7,500 non-refundable retainer
fee for each individual search assignment, along with an additional $7,500 fee
which is payable after 60 days for each search if Redwood has presented several
viable candidates for each search and we are satisfied with Redwood's services.
In addition, the contract provides that we will pay Redwood a fee of $250 per
month for each active search assignment to pay for Redwood's expenses. As of the
date of this prospectus, we have paid Redwood $30,500. In addition, we are
obligated to issue to Redwood options to purchase approximately 11,800 shares of
our common stock.
34
<PAGE>
DIRECTOR COMPENSATION AND COMMITTEES
We do not currently pay any compensation to our directors apart from that
which they receive as officers of ours, although our bylaws permit us to do so.
We intend to pay our directors compensation of $1,000 per month and from time to
time to grant options to our directors in the discretion of our compensation
committee. We have agreed to pay a $10,000 bonus to Mr. Sorrentino upon his
becoming a member of our board of directors, but do not intend to typically pay
such bonuses in the future. We also intend to provide expense reimbursements to
directors for attendance at board meetings or performing other business of the
board of directors.
AUDIT COMMITTEE. Our audit committee consists of our three independent
directors, Mr. Legate, Mr. Sorrentino and Mr. Vandegrift. The duties of the
audit committee are generally: (a) to recommend to our board of directors the
selection of the independent auditors to conduct annual audits of our books and
records, (b) to review the activities and reports of our independent auditors
and (c) to report the results of such review to our board of directors. The
audit committee also periodically reviews the adequacy of our internal controls.
COMPENSATION COMMITTEE. Our compensation committee consists of Mr. Grieff,
Mr. Vandegrift and Mr. Sorrentino. None of the members of the compensation
committee is currently or has been, at any time, one of our officers or
employees. None of our executive officers serves or has served as a member of
the board of directors or compensation committee or any entity that has one or
more executive officers serving on our board or compensation committee. Prior to
forming the compensation committee, all compensation decisions were made by our
entire board of directors. The duties of the compensation committee are
generally to review employment, development, reassignment and compensation
matters involving corporate officers and other executive level associates as may
be appropriate including, without limitation, issues relating to salary, bonus,
stock options and other incentive arrangements.
EMPLOYMENT AGREEMENTS
We have entered into an employment agreement with Barry L. Grieff, our Chief
Executive Officer which has a one-year term beginning on March 1, 2000.
Following the initial one-year term, the agreement will automatically renew for
one-year terms, unless terminated by either party upon ninety days written
notice prior to the end of any term, or for cause. Under the terms of his
employment agreement, Mr. Grieff has agreed to work for us full time, and will
receive an annual base salary of $225,000, which will be reviewed annually by
our board of directors to determine whether it should be increased, but cannot
be decreased. If we terminate Mr. Grieff without cause, if he voluntarily
terminates the agreement based on our breach of the agreement or similar
reasons, or if his employment term ends because we choose not to renew his
agreement, he is entitled to receive both salary and bonus severance payments.
The salary severance payment is equal to the salary due through the date of
termination plus an additional amount equal to one year of his current base
salary, and the bonus severance payment is equal to any bonus earned through the
date of termination and an additional amount designed to approximate one-half of
his annual performance bonus, calculated based on the actual percentage of his
performance target which he had reached as of the date his employment ended or
50% of the target, whichever is greater.
The employment agreement with Mr. Grieff provides for our payment of annual
performance bonuses to Mr. Grieff to be established by our board of directors
based on our achieving certain financial goals. Under the agreement Mr. Grieff
is eligible to receive performance bonuses for the period from the execution of
the agreement to twelve months after the completion of this offering. The
performance bonuses are to be paid as follows based on our achieving certain
revenue goals over a twelve-month period: (i) a payment of $25,000 if we reach
$8 million in revenue, (ii) $100,000 if we reach $10 million in revenue,
(iii) incremental cash bonuses in amounts determined by our board if we
35
<PAGE>
reach gross revenue targets established by our board of between $10.1 and
$11.9 million in gross revenue, and (iv) $100,000 if we reach $12 million in
gross revenue. Under the agreement Mr. Grieff is also entitled to a $50,000
bonus within fourteen days of completion of this offering. Mr. Grieff is also
entitled to receive options of up to seven percent of the number of shares of
our common stock, on a fully diluted basis, after the completion of this
offering. Upon execution of his agreement we granted to Mr. Grieff an option to
purchase 727,117 shares of our common stock, which is our estimate of a number
of shares which will equal seven percent of our stock after completion of this
offering, at an exercise price of $3.52 per share. We will adjust this number,
if necessary, upon completion of the offering. Approximately 11% of the shares
which Mr. Grieff may purchase under the option vested upon execution of the
agreement, approximately 46% will vest in equal monthly installments over a
two-year period, and an additional 14% will vest on completion of this two-year
period. The remaining 29% will vest if Mr. Grieff meets certain performance
goals, including approximately 14.5% if we reach $8 million in revenue and 14.5%
between March 2001 and 2002 under a vesting schedule agreed upon between
Mr. Grieff and our board of directors if Mr. Grieff meets performance goals
agreed upon between him and our board. Mr. Grieff's employment agreement also
provides for health insurance benefits, and our paying the premiums on a
$1 million life insurance policy for Mr. Grieff.
We have entered into an employment agreement with Scott B. Clark, our Chief
Financial Officer and General Counsel. Mr. Clark's employment with us is at
will, but he can be terminated only by our Chief Executive Officer or our board.
If he is terminated without cause, he will receive a severance payment of six
months's salary. Under the employment agreement Mr. Clark will receive an annual
salary of $175,000. Upon execution of the agreement we granted Mr. Clark options
to purchase 160,000 shares of our common stock at an exercise price of $3.52 per
share. An option to purchase 40,000 shares vested upon Mr. Clark's starting
date, and the remainder are to vest over a period of two years. We agreed to
provide Mr. Clark with a two-year, non-interest bearing loan to allow him to
immediately exercise vested stock options on a cashless basis. Under the
agreement, Mr. Clark is entitled to a bonus of $25,000 upon completion of this
offering, and an additional $25,000 bonus on the first anniversary of the
agreement. After the first year of the agreement, Mr. Clark is to receive a
bonus determined by our board of directors but no less than $50,000.
Mr. Clark's agreement also provides for health insurance benefits.
We have entered into an employment agreement with our Chairman, Gail P.
Zelitzky. Ms. Zelitzky's employment agreement has a term of three years
beginning March 1, 2000. After the initial three-year term, the agreement will
automatically renew for one-year periods, unless terminated by either party on
upon sixty days written notice prior to the end of any term, or for cause. If
Ms. Zelitzky voluntarily terminates the agreement based on our breach of the
agreement or similar reasons, prior to March 1, 2002, she will receive her
salary due for the entire term, and a performance bonus equal to the previous
year's bonus multiplied by the number of years remaining in the agreement. If
she voluntarily terminates the agreement based on our breach of the agreement or
similar reasons, after March 1, 2002, she will receive a severance payment equal
to one year's salary and the prior year's performance bonus. Ms. Zelitzky's base
salary is $150,000 per year, and she also is to receive annual performance
bonuses to be established by our board of directors based on our achieving
certain financial goals. Under the agreement, Ms. Zelitzky is also entitled to a
$50,000 bonus within thirty days of completion of this offering. Ms. Zelitzky
also receives a car allowance of $500 per month, and health insurance benefits.
We have entered into an employment agreement with our Chief Operating
Officer, Steven Olsher, which has a term of three years beginning March 1, 2000.
After the initial three-year term, the agreement will automatically renew for
one-year periods, unless terminated by either party on upon sixty days written
notice prior to the end of any term, or for cause. If Mr. Olsher voluntarily
terminates the agreement based on our breach of the agreement or similar
reasons, prior to March 1, 2002, he will receive his salary due for the entire
term and a performance bonus equal to the previous year's bonus
36
<PAGE>
multiplied by the number of years remaining in the agreement. If he voluntarily
terminates the agreement based on our breach of the agreement or similar
reasons, after March 1, 2002, he will receive a severance payment equal to one
year's salary and the prior year's performance bonus. Mr. Olsher's base salary
is $150,000 per year, and he also is to receive annual performance bonuses to be
established by our board of directors based on our achieving certain financial
goals. Under the agreement, Mr. Olsher is also entitled to a $50,000 bonus
within thirty days of completion of this offering. Mr. Olsher also receives a
car allowance of $500 per month, and health insurance benefits.
We have entered into an employment agreement with Jonathan McDermott, our
Executive Vice President, Business Development. Mr. McDermott's employment began
March 1, 2000 and may be terminated by us at any time. If we terminate
Mr. McDermott and he signs a separation agreement containing a general release
and reaffirms a confidentiality agreement he has previously signed, we will make
a severance payment to him equal to six months salary. Mr. McDermott's base
salary is $150,000 per year, and he also is to receive annual performance
bonuses to be established by our board of directors based on our achieving
certain financial goals. In addition, upon execution of the agreement we issued
to Mr. McDermott options to purchase 50,000 shares of our common stock at an
exercise price of $3.52 per share. An option to purchase 20,000 shares vested
upon execution of the agreement, and the remainder of the option shares are to
vest at a rate of 2,000 per month. Mr. McDermott also receives health insurance
benefits under the agreement.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
of our most highly compensated executive officers for services in their
capacities to us for fiscal years 1997, 1998 and 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND CURRENT YEAR ENDED COMPENSATION COMPENSATION
PRINCIPAL POSITION DEC. 31, SALARY ($) BONUS ($) (1) ($) ($)
- ------------------ ---------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Gail P. Zelitzky............................. 1999 $48,100 0 $20,062 0
Chairman 1998 $37,600 0 $28,931 0
1997 $34,750 0 $26,256 0
</TABLE>
- ------------------------
(1) For the years 1997 through 1999, Ms. Zelitzky received a commission equal to
7.5% of our total advertising revenues. Ms. Zelitzky's current employment
contract does not provide for the payment of any commissions to her.
The total compensation we paid to all persons who served as directors and
executive officers of ours in 1999, two persons, was $136,324.
2000 STOCK PLAN
We have adopted the 2000 stock plan which we will use to attract, reward and
retain our key employees, directors and consultants. The maximum number of
shares of common stock reserved for issuance under the plan is 1,500,000 shares,
subject to adjustment for certain anti-dilution provisions. As of April 7, 2000,
we had granted options to purchase 1,171,617 shares of our common stock under
the 2000 plan, with an average exercise price of $3.52 per share.
Awards under the 2000 stock plan may be in the form of incentive stock
options, or "ISOs", or non-qualified stock options; or stock purchase rights.
Awards may be paid in shares, cash or a combination thereof.
37
<PAGE>
ADMINISTRATION. The plan is administered by the compensation committee,
which has the authority to select the participants to be granted awards under
the plan, determine the size and terms of an award, and determine the time when
grants of awards will be made. The committee is authorized to, among other
powers, interpret the plan, and establish, amend and rescind any rules and
regulations relating to the plan.
OPTIONS. An option may be granted as an ISO, as defined in the Internal
Revenue Code of 1986, as amended, or as a non-qualified stock option. The
exercise price per share of common stock is determined by the committee but
cannot be less than 110% of the fair market value of the shares on the date of
grant for any employee owning 10% or more of our voting stock, or 100% of the
fair market value of the shares on the date of grant for all other employees.
Options granted under the plan are exercisable at the time and upon the terms
determined by the committee, but in no event will an option be exercisable more
than ten years after the date it is granted.
STOCK PURCHASE RIGHTS. The committee may also grant a stock purchase right
independent of an option or in conjunction with an option or other award granted
under the plan.
EXERCISE OF OPTIONS. Except as otherwise provided in the stock plan or in
an applicable award agreement, an award may be exercised for all, or any part,
of the shares of common stock for which it is then exercisable. The purchase
price for the shares of common stock as to which an award is exercised shall be
paid to us in full at the time of exercise:
- in cash;
- by issuing a promissory note to us;
- in shares of common stock having a fair market value equal to the
aggregate option price for the shares of common stock being purchased and
satisfying such other requirements as may be imposed by the compensation
committee;
- some combination of the above forms of payment.
TRANSFERABILITY. Except to the extent provided by the committee, each
option and stock purchase right granted under the plan is non-transferable
during the lifetime of the participant, except in limited circumstances.
TERMINATION, AMENDMENT AND TERM. The plan will terminate on January 9, 2010
unless terminated earlier by our board of directors. Our Board of Directors may
suspend, amend or terminate the plan, in whole or in part. Furthermore, no
amendment, suspension or termination of the plan may, without the consent of a
participant, impair any of the rights or obligations existing under any award
previously granted to any participant under the plan.
ADJUSTMENTS. In the event of any change in the outstanding shares of our
common stock by reason of any dividend or split, or merger, the committee, in
its sole discretion, may make such substitution or adjustment as it deems to be
equitable to the number or kind of shares or securities issued or reserved under
the plan or to any affected terms of the awards.
OPTION GRANTS
We did not grant any stock options or stock appreciation rights in 1999 or
any previous year.
LIMITATION ON LIABILITY OF AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation will, upon the closing of this offering,
limit the liability of directors to the maximum extent permitted by Delaware
law. Delaware law provides that directors of a
38
<PAGE>
corporation will not be personally liable for monetary damages for breach of
their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or - any transaction from which the director derived an
improper personal benefit.
The limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and officers and may indemnify our employees and other agents to
the fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence on the part of indemnified parties. Our bylaws
also permit us to secure insurance on behalf of any officer, director, employee
or other agent for any liability arising out of his or her actions in their
capacity as an officer, director, employee or other agent, regardless of whether
the bylaws would permit indemnification.
We intend to enter into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our bylaws, prior
to the completion of this offering. These agreements, among other things, will
provide for indemnification for judgments, fines, settlement amounts and certain
expenses, including attorneys' fees incurred by the director, executive officer
or controller in any action or proceeding, including any action by or in our
right, arising out of the person's services as a director, executive officer or
controller of us, any of our subsidiaries or any other company or enterprise to
which the person provides services at our request. We believe that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers. The limited liability and indemnification
provisions in our certificate of incorporation and bylaws may discourage
stockholders from bringing a lawsuit against our directors for breach of their
fiduciary duty and may reduce the likelihood of derivative litigation against
our directors and officers, even though a derivative action, if successful,
might otherwise benefit us and our stockholders. A stockholder's investment in
us may be adversely affected to the extent we pay the costs of settlement or
damage awards against our directors and officers under these indemnification
provisions. At present, there is no pending litigation or proceeding involving
any of our directors, officers or employees in which indemnification is sought,
nor are we aware of any threatened litigation that may result in claims for
indemnification.
39
<PAGE>
CERTAIN TRANSACTIONS
Other than the employment agreements described under "Management" and the
transactions described below, there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which we were or
are to be a party in which the amount involved exceeds $60,000, and in which any
director, executive officer, holder of more than 5% of our common stock or any
member of the immediate family of any of these people had or will have a direct
or indirect material interest.
GUARANTEES BY EXECUTIVE OFFICERS
Steven Olsher, our Chief Operating Officer, and Gail Zelitzky, our Chairman,
have each guaranteed our obligations under two loans. The first guaranty applies
to draws on a line of credit with LaSalle Bank, FSB, which has an interest rate
of 9.75% per year and is payable on demand. As of March 31, 2000 we had an
outstanding balance of $125,000 on this line of credit. The second guaranty
relates to a $192,000 promissory note that we issued in March 1999 to Bank One
Illinois, N.A., which has an interest rate of 7.75% and a maturity date of
September 19, 2004. We used the proceeds of this loan to purchase, and to make
improvements to, the building in which our offices are located. As of March 31,
2000, we owed approximately $189,000 on this loan.
OTHER TRANSACTIONS
On August 31, 1999, we entered into an agreement, entitled "Founder's
Service Agreement, Acknowledgment and Receipt" with Corporate Capital
Strategies, Inc. Jonathan McDermott, who is now our Senior Vice President,
Business Development, was the Managing Director of Corporate Capital Strategies
at the time we entered into these agreements. Mr. McDermott formerly worked as a
registered representative at Dirks & Co., Inc., the representative of the
underwriter. Mr. McDermott is no longer an officer of Corporate Capital
Strategies, but is still a shareholder. Under the agreement with Corporate
Capital Strategies it has agreed to: (a) assist us in preparing our business
plan; (b) identify possible strategic partners or sources of capital;
(c) assist us in developing our financial and business models; and (d) consult
with us on the composition of our board of directors, website development and
other matters. Under the agreement, we paid Corporate Capital Strategies a total
of $16,000, and issued to Corporate Capital Strategies ten percent of our
shares, on a fully diluted basis as of August 1999, the date of issuance. We
issued 13 1/3 shares to Corporate Capital Strategies under this agreement, which
converted into 300,000 shares when we effectuated a stock split in
December 1999. Corporate Capital Strategies later distributed all of these
shares to its owners, including 118,000 to Mr. McDermott, and certain other
individuals. We terminated this agreement in April 2000, and pursuant to the
termination issued to Corporate Capital Strategies an additional 21,428 shares
of our common stock and agreed to pay it $50,000 upon completion of this
offering.
On December 7, 1999, we entered into a consulting agreement with
e-Consulting, Inc. which is owned by Mr. McDermott, our Senior Vice President,
Business Development. The term of the agreement began on January 1, 2000 and was
to terminate on the later of six months after its execution or the date of an
initial public offering of our securities. Pursuant to this agreement we agreed
to pay e-Consulting compensation of $10,000 per month, and to reimburse
Mr. McDermott or e-consulting for reasonable business expenses. e-Consulting
agreed to provide us with business development, financial and investment banking
consulting services. This agreement terminated on February 29, 2000, due to
Mr. McDermott's joining us as a full-time employee. We paid Mr. McDermott a
total of $20,000 under the agreement.
Samantha McDermott, who is now our Manager of Marketing and Creative
Services and the wife of Mr. McDermott, previously provided website and graphic
design services as a consultant. We did not
40
<PAGE>
have a contract with Ms. McDermott. From September 1999 to December 1999, we
paid her a total of approximately $3,800 for her services.
In March 2000, we entered into a consulting agreement with Ron Bloom and
Whodoweknow, LLC under which Mr. Bloom and Whodoweknow agreed to provide us with
consulting services, including assisting us with investor relations and further
developing our business plan and providing advice on our capital structure. John
G. Vandegrift, one of our directors, owns approximately 20% of Whodoweknow. The
agreement has a one-year term beginning on March 14, 2000. Upon execution of the
agreement, agreed to provide Mr. Bloom and Whodoweknow with five-year warrants
to purchase our common stock at a price of $3.52 per share, to be divided among
them in any manner they choose, on the following terms: (a) a warrant to
purchase 80,000 shares upon execution of the agreement, (b) a warrant to
purchase 5,000 shares for each of the six months beginning with April 2000, and
(c) on October 1, 2000, in the discretion of our Chief Executive Officer, a
warrant to purchase an additional 30,000 shares. If the employment of our Chief
Executive Officer is terminated for any reason before October 1, 2000, we are
required to immediately issue the final warrants to purchase 30,000 shares to
the consultants. Under the agreement we have also agreed to grant "piggyback"
and demand registration rights to the consultants. The agreement also requires
that if we raise capital through a securities offering, or acquire another
entity during the term of the agreement or within one year of the termination of
the agreement, and the transaction arises as a result of an introduction made by
Mr. Bloom to us, we will pay Mr. Bloom five percent of the value of the
consideration for the transaction up to $5,000,000, and three percent of the
value of the transaction in excess of $5,000,000. We have also agreed to
indemnify the consultants for losses or expenses arising from any breach of a
representation or warranty we make in the agreement or activities performed by
the consultants under the agreement, unless the losses resulted from intentional
misconduct or gross negligence of the consultants or from information provided
by the consultants.
We believe that the transactions described above were fair and reasonable
and on terms at least as favorable as we would expect to negotiate with an
unaffiliated third party. In the future, we intend to present all proposed
transactions between us and our officers, directors or 5% shareholders, and
affiliates, to our board of directors for consideration and approval. Any such
transaction will require approval by a majority of the directors and such
transactions will be on terms no less favorable than those available to
disinterested third parties.
OPTIONS GRANTS TO EXECUTIVE OFFICERS AND DIRECTORS
BARRY L. GRIEFF. In March 2000 we granted to Barry L. Grieff an option to
purchase 727,117 shares of our common stock at an exercise price of $3.52 per
share.
SCOTT B. CLARK. In March 2000 we granted to Scott B. Clark an option to
purchase 160,000 shares of our common stock at an exercise price of $3.52 per
share.
JONATHAN MCDERMOTT. In March 2000 we granted to Jonathan McDermott an option
to purchase 50,000 shares of our common stock at an exercise price of $3.52 per
share.
JOHN G. VANDEGRIFT. In March 2000 we granted to John G. Vandegrift an option
to purchase 17,500 shares of our common stock at an exercise price of $3.52 per
share.
RALPH J. SORRENTINO. In March 2000 we granted to Ralph J. Sorrentino an
option to purchase 17,500 shares of our common stock at an exercise price of
$3.52 per share.
41
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information, as of the date of this
prospectus, regarding the beneficial ownership of our common stock by:
- our directors;
- each of our named executive officers;
- each person known by us to beneficially own more than 5% of the
outstanding shares of our common stock;
- each of our directors, director nominees and executive officers, as a
group.
Unless otherwise indicated, each of the stockholders listed below has sole
voting and investment power with respect to the shares beneficially owned.
A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this prospectus upon the
exercise of warrants or options. Each beneficial owner's percentage ownership is
determined by assuming that options or warrants that are held by such person,
but not those held by any other person, and which are exercisable within
60 days from the date of this prospectus, have been exercised. Unless otherwise
indicated, we believe that all persons named in this table have sole voting and
investment power with respect to all shares of common stock beneficially owned
by them. Common stock beneficially owned is based on 3,319,664 shares
outstanding prior to the offering and 7,053,558 shares outstanding after the
offering.
Unless otherwise indicated, the address of each person listed below is 4205
West Irving Park Road, Chicago, Illinois, 60641.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PRIOR TO OFFERING
----------------------------------
SHARES ISSUABLE PERCENT
NUMBER OF PURSUANT TO OPTIONS BENEFICIALLY OWNED
SHARES AND WARRANTS -----------------------------------
BENEFICIALLY EXERCISABLE WITHIN BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED 60 DAYS OF OFFERING OFFERING
- ------------------------------------ ------------ ------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Barry L. Grieff................. 0 246,674 6.92% 3.38%
Scott B. Clark.................. 0 65,000 1.92% *
Steven Olsher................... 1,282,500 0 38.63% 18.18%
Gail P. Zelitzky................ 1,282,500 0 38.63% 18.18%
Jonathan McDermott.............. 118,000 32,000 4.48% 2.12%
Bryan D. Legate................. 42,222(1) 0 1.27% *
Ralph J. Sorrentino............. 0 6,563 * *
John G. Vandergrift............. 0 164,830(2) 4.73% 2.28%
All directors, director nominees and
executive officers, as a group (8
persons)...................... 3,105,222 427,056 94.41% 47.83%
</TABLE>
- ------------------------
* Less than 1% of our outstanding shares.
(1) Consists of 42,222 shares of our Series A Preferred Stock owned by Tazmanic
Corporation, for which Mr. Legate has voting power, and which will
automatically convert into shares of our common stock upon completion of
this offering.
(2) Includes an option to purchase 6,563 shares of our common stock held by Mr.
Vandegrift, 35,511 shares of our common stock to be issued to Mr. Vandegrift
upon the conversion of a promissory note held by him when this offering is
completed, a warrant to purchase 17,756 shares of our common stock issued to
Mr. Vandegrift in connection with his purchase of the convertible promissory
note, and warrants to purchase 105,000 shares of our common stock which
could be granted to Whodoweknow, LLC, a company in which Mr. Vandegrift has
an ownership interest, pursuant to a consulting agreement with us.
42
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
We are authorized to issue 50,000,000 shares of common stock, par value
$.00001 per share, of which 3,050,000 shares were issued and outstanding on
December 31, 1999 and 10,000,000 shares of preferred stock, par value $.00001
per share, the rights and preferences of which may be established from time to
time by our board of directors, none of which is outstanding. Except as
otherwise expressly stated, all references in this prospectus to us or our
capital stock (including the common stock) are to such after completion of the
offering. Immediately following completion of the offering, there are expected
to be 7,053,558 shares of common stock (7,503,558 shares of common stock if the
underwriters' over-allotment options is exercised in full) and no shares of
preferred stock outstanding. This amount excludes:
- 1,171,617 shares issuable pursuant to options which have been granted
pursuant to our 2000 stock plan;
- 328,383 shares of common stock available for future issuance under our
incentive plans;
- 1,500,000 shares issuable pursuant to the exercise of the redeemable
warrants offered by this prospectus;
- 300,000 shares issuable upon the exercise of the representative's
warrants; and
- 150,000 shares issuable upon exercise of the 150,000 common stock purchase
warrants included in the representative's warrants.
The following description of our capital stock and related matters is
qualified in its entirety by reference to our certificate of incorporation and
our bylaws, copies of which have been filed as exhibits to the registration
statement of which this prospectus forms a part.
COMMON STOCK
Our certificate of incorporation authorizes 50,000,000 shares of common
stock, par value $.00001 per share. Stockholders are entitled to one vote per
share on all matters to be voted upon by the stockholders. Holders of common
stock are entitled to receive dividends if, as and when dividends are declared
from time to time by our Board of Directors out of funds legally available,
after payment of dividends required to be paid on outstanding preferred stock.
In the event of our liquidation, dissolution or winding up, the holders of our
common stock are entitled to share ratably in all assets remaining after payment
of liabilities and accrued but unpaid dividends and liquidation preferences on
any outstanding preferred stock. The shares of common stock have no preemptive
or conversion rights and are not subject to our further calls or assessment.
There are no redemption or sinking fund provisions applicable to the common
stock. All of our currently issued and outstanding common stock is, and the
common stock we are selling in this offering will be when sold to the
underwriters in the manner described in this prospectus, duly authorized,
validly issued, fully paid and non-assessable.
Our certificate of incorporation does not provide for cumulative voting.
Therefore, our shareholders do not have the right to aggregate their votes for
the election of directors and, accordingly, the shareholders of more than 50% of
all of our outstanding shares can elect all of the directors and approve
significant corporate transactions.
PREFERRED STOCK
Our board of directors is authorized, without further stockholder approval,
to issue up to 10,000,000 shares of preferred stock in one or more series and to
fix the rights, preferences, privileges and restrictions of these shares,
including dividend rights, conversion rights, voting rights, terms of
43
<PAGE>
redemption and liquidation preferences, and to fix the number of shares
constituting any series and the designations of these series. These shares may
have rights senior to our common stock. The issuance of preferred stock may have
the effect of delaying or preventing a change in control of us. The issuance of
preferred stock could decrease the amount of earnings and assets available for
distribution to the holders of common stock or could adversely affect the rights
and powers, including voting rights, of our common stock. At present, we have
not plans to issue any additional shares of our preferred stock.
SERIES A PREFERRED STOCK
ISSUANCE OF SERIES A PREFERRED STOCK. All 422,222 shares of our Series A
Preferred Stock were issued in January 2000 in connection with a bridge loan we
received from a third party. The lender agreed to loan us $500,000, to be paid
out of the proceeds of this offering. In exchange for the bridge loan, we issued
a promissory note which does not bear interest, and also issued the 422,222
shares of Series A Preferred Stock.
LIQUIDATION PREFERENCE OVER COMMON STOCK. The holders our Series A
Preferred Stock have the right to receive payments from any assets or funds of
ours before the holders of common stock in the event we are subject to a
liquidation, dissolution or winding up. The liquidation preference of each
holder is equal to approximately $3.55 per share if the promissory note held by
the holders of Series A Preferred Stock has been paid at the time of
liquidation, dissolution or winding up, and approximately $4.74 per share if the
note has been paid off at this time. In addition, the amount of this liquidation
preference will be increased by the amount of any unpaid dividends on the
Series A Preferred Stock. If we do not have enough assets to make the
liquidation payments to which the holders of the Series A Preferred Stock and
any other classes of stock with priority over the common stock are entitled,
then the holders of the Series A Preferred Stock will receive a portion of the
available assets in proportion to their ownership interests.
DIVIDENDS. If we declare a dividend, the holders of our Series A Preferred
Stock will share equally with the holders of our common stock in the dividend.
The share of the dividend to which the holders of the Series A Preferred Stock
will be entitled will be calculated based on the number of shares of common
stock to be received upon conversion of the Series A Preferred Stock.
CONVERSION. The holders of the Series A Preferred Stock have the right to
convert their shares into shares of our common stock at any time. The shares of
Series A Preferred Stock will automatically convert into shares of our common
stock upon completion of this offering. The number of shares of common stock
which the holders of the Series A Preferred Stock are entitled to receive for
each share of Series A Preferred Stock is calculated by dividing the original
issue price of the Series A Preferred Stock of approximately $1.18 per share by
a conversion price which is subject to adjustment. The initial conversion price
was equal to the issue price of the Series A Preferred Stock of approximately
$1.18 per share, so the initial conversion rate was one share of common stock
for each share of Series A Preferred Stock. The conversion price will be
adjusted for the following:
- certain issuances of shares at a price less than the conversion price for
the Series A Preferred Stock at the time of the issuance;
- certain issuances of options with an exercise price of less than the
conversion price of the Series A Preferred Stock; and
- stock splits, dividends or combinations.
VOTING RIGHTS. On each matter submitted to our stockholders for a vote, the
holders of the Series A Preferred Stock are entitled to the number of votes to
which they would be entitled if their shares were converted to shares of common
stock.
44
<PAGE>
SPECIAL VOTING RIGHTS. The holders of the Series A Preferred Stock have the
option to elect a Series A Director to our board of directors. If they choose to
exercise this right, the Series A Director will be elected by holders of a
majority of the shares of Series A Preferred Stock or by a written consent of
the holders of Series A Preferred Stock. The holders of the Series A Preferred
Stock have exercised their right to elect Mr. Legate to our board of directors.
We are required to obtain the approval of either 66 2/3% of outstanding shares
of Series A Preferred Stock, or a representative of the holders of Series A
Preferred Stock unanimously designated in writing by these holders, to take the
following actions:
- selling all or substantially all of our assets or engaging in a merger in
which we are not the surviving company;
- paying dividends on our common stock;
- making any loans or advances to our officers, directors, employees or
consultants other than in the ordinary course of business or for the
purchase of stock in exchange for a secured promissory note;
- making any guarantees outside of the ordinary course of business;
- creating a security interest in any of our property in an amount over
$100,000, unless unanimously approved by our board of directors;
- owning the securities of another corporation, partnership or similar
entity unless we own the entire entity;
- creating a new class of securities which are convertible into common stock
and which have rights with regard to voting, dividends or liquidation
which are equal or superior to the rights of the Series A Preferred Stock;
- make any changes to our certificate of incorporation or bylaws which would
change the rights, preferences or privileges of the Series A Preferred
Stock;
- enter into a business other than the development, marketing and support of
a website related to the sale of alcoholic beverages on the Internet and
related activities;
- increase or decrease the authorized number of shares of our common stock,
preferred stock, or Series A Preferred Stock;
- increase the number of shares available to be issued under our stock
option plan or a similar plan to greater than 750,000;
- increase the size of our board of directors to more than five members; or
- repay any money we owe to any shareholder of ours.
PREEMPTIVE RIGHTS. If we offer any equity securities for sale before
conducting a public offering at a price of at least four times the initial issue
price of the Series A Preferred Stock, as adjusted for any stock dividends,
splits or similar transactions, the holders of the Series A Preferred Stock have
the right, with certain exceptions, to purchase a number of the equity
securities option which allows them to maintain their percentage of ownership in
us. The preemptive rights of the holders of the Series A Preferred Stock will no
longer exist once the Series A Preferred Stock is converted into shares of our
Common Stock upon completion of this offering.
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
GENERALLY. Each redeemable common stock purchase warrant entitles the
registered holder to purchase, at any time commencing twelve months after the
date of this prospectus until 60 months
45
<PAGE>
after the date of this prospectus, one share of our common stock at a price
equal to 120% of the initial public offering price of the common stock.
REDEMPTION PROVISIONS. Commencing eighteen months after the date of this
prospectus, we may redeem these warrants in whole but not in part, at $.10 per
warrant on 30 days' prior written notice. The warrants may only be redeemed if
the average closing sale price of our common stock as reported on the Nasdaq
National Market equals or exceeds 250% of the initial public offering price per
share of the common stock for any 20 trading days within a period of 30
consecutive trading days ending on the fifth trading day prior to the date of
notice of redemption. The holder of any redeemable warrant may exercise the
warrant by surrendering the certificate representing the warrant and paying the
exercise price. No fractional shares will be issued upon the exercise of the
warrants. The exercise price of the redeemable warrants bears no relationship to
any objective criteria of value and should in no event be regarded as an
indication of any future market price of the securities offered in this
offering.
ADJUSTMENTS. The exercise price of the redeemable warrants and the number
of shares of common stock issuable upon exercise are subject to adjustment in
certain events, including (a) stock dividends, (b) stock splits,
(c) combinations or (d) reclassifications of the common stock. Additionally, an
adjustment would be made in the case of a (a) reclassification or exchange of
common stock, (b) consolidation or merger of us with or into another
corporation, other than a consolidation or merger in which we are the surviving
corporation, or (c) sale of all or substantially all of our assets, in order to
enable warrant holders to acquire the kind and number of shares of stock or
other securities or property receivable in such event by a holder of the number
of shares of common stock that might otherwise have been purchased upon the
exercise of the redeemable warrant.
TRANSFER, EXCHANGE AND EXERCISE. The redeemable warrants are in registered
form and may be presented to the warrant agent for transfer, exchange or
exercise at any time on or prior to their expiration date, at which time they
will be void and have no value. The redeemable warrants may not be exercised
until 12 months after the date of this prospectus. If a market for the
redeemable warrants develops, the holder may sell the redeemable warrants
instead of exercising them. However, we do not know if a market for the
redeemable warrants will develop or, if developed, will continue.
MODIFICATION OF REDEEMABLE WARRANTS. We and the warrant agent may make such
modifications to the redeemable warrants as we deem necessary and desirable that
do not adversely affect the interests of the redeemable warrant holders. We may,
in our sole discretion, lower the exercise price of the redeemable warrants for
a period of no less than 30 days on not less than 30 days' prior written notice
to the warrant holders and the representative. Modification of the number of
securities purchasable upon the exercise of any redeemable warrant, the exercise
price, other than as provided in the preceding sentence, and the expiration date
with respect to any redeemable warrant requires the consent of at least
two-thirds of the redeemable warrant holders.
The redeemable warrants are not exercisable unless, at the time of the
exercise, we have a current prospectus covering the shares of common stock
issuable upon exercise of the redeemable warrants, and such shares have been
registered, qualified or deemed to be exempt under the securities or blue sky
laws of the state of residence of the exercising holders of the redeemable
warrants. Although we have undertaken to use our best efforts to have all of the
shares of common stock issuable upon exercise of the redeemable warrants
registered or qualified on or before the exercise date and to maintain a current
prospectus relating thereto until the expiration of the redeemable warrants. We
do not know if we will be able to do so.
Although the securities will not knowingly be sold to purchasers in
jurisdictions in which the securities are not registered or otherwise qualified
for sale, investors in those jurisdictions may purchase redeemable warrants in
the secondary market or investors may move to jurisdictions in which the shares
underlying the redeemable warrants are so registered or qualified during the
period that the
46
<PAGE>
warrants are exercisable. If this happens, we would be unable to issue shares to
those persons desiring to exercise their warrants, and holders of redeemable
warrants would have no choice but to attempt to sell the warrants in
jurisdictions where such sale is permissible or allow them to expire
unexercised.
REPRESENTATIVE WARRANTS
At the closing of this offering, we will issue and sell to the
representative of the underwriters or persons designated by the representative,
five-year warrants at a price of $.0001 per warrant. The representative's
warrants will entitle the holder to purchase up to 300,000 shares of our common
stock at a price per share equal to 120% of the initial public offering price
for the shares of common stock offered by this prospectus and up to 150,000
warrants at a price per warrant equal to 120% of the initial public offering
price for the redeemable warrants offered by this prospectus. The
representative's warrants are exercisable at any time for four years commencing
on the one-year anniversary from the date of issuance. The shares of common
stock, redeemable warrants and the shares of common stock underlying the
redeemable warrants issuable upon exercise of the representative's warrants are
identical to those offered to the public and the securities underlying the
representative's warrants are being registered in this offering. The
representative's warrants contain anti-dilution provisions providing for
adjustment of the number of securities issuable upon exercise of the
representative's warrants under specific circumstances, including (a) stock
dividends, (b) stock splits, (c) mergers, (d) recapitalizations and
(e) acquisitions.
WARRANTS
With respect to $900,000 in convertible notes purchased in a private
placement, in March 2000 we issued five-year warrants to purchase a total of
127,843 shares of our common stock at a price of $2.64 per share. In addition,
after the date of this prospectus we will issue to the holders of our Series A
Preferred Stock Five-Year Warrants to purchase a total of 14,205 shares of our
common stock. These warrants are issuable pursuant to the exercise by the
preferred holders of their preemptive rights in connection with the convertible
note offering. In March 2000, under a consulting agreement, we issued to two
consultants five-year warrants to purchase a total of 80,000 shares. One of the
consultations is Whodoweknow, a company in which John G. Vanderift, one of our
directors, has an ownership interest. Under the agreement we are obligated to
issue warrants to purchase up to an additional 90,000 shares of common stock at
an exercise price of $3.52 per share. The warrants issued to the noteholders and
the consultants are each exercisable only upon payment in cash. The warrants
include features for adjustment in the event of a common stock split, stock
dividend, reverse common stock split, merger, consolidation or other change in
our capital structure. Holders of the warrants have no voting rights until such
time as our underlying common stock is issued to the holder. Upon the issuance
of our common stock to the holders of the warrants, the holders shall have the
same rights as any other stockholder owning our common stock.
CONVERTIBLE NOTES
We have issued a total of ten convertible notes. In addition, the holders of
our Series A Preferred Stock have made a commitment to purchase an additional
note. Each convertible note bears interest at the prime rate, as published in
The Wall Street Journal, plus two percent. The interest rate on each note will
be adjusted each month based on changes in the prime rate. Each note has a
maturity date of December 31, 2002, but automatically converts into shares of
our common stock at a conversion price of $3.52 per share upon completion of
this offering, but may be converted earlier, at the same conversion price, at
the option of the holder.
47
<PAGE>
REGISTRATION RIGHTS
We have agreed to provide the holders of the representative's warrants with
"piggyback" registration rights for a period of seven years. Under the terms of
the piggyback registration rights, if we intend to register additional
securities for sale to the public, we will notify all registered holders of the
representative's warrants and/or the securities underlying the representative's
warrants. If requested by the holders of the representative's warrants, we will
provide, at our expense, material to permit a public offering of the securities
underlying the representative warrants. Additionally, we have agreed to provide
the holders of the representative's warrants with "demand" registration rights
for a period of five years from closing. Under the terms of the demand
registration rights, a majority of the holders of representative's warrants may,
on one occasion, make a demand for registration which obligates us to promptly
register the underlying securities at our own expense.
We have also granted piggyback and demand registration rights to purchasers
of our Series A Preferred Stock. The piggyback registration rights allow these
purchasers to include the shares of common stock received on conversion of the
Series A Preferred Stock in a registration statement which we file. The demand
registration rights allow holders of a majority of the Series A Preferred Stock,
or common stock into which it is converted, on one occasion, to have us file a
registration statement registering their shares of common stock at our own
expense. In addition, we have agreed to use our best efforts to qualify for the
use of Form S-3 under the Securities Act, and have granted the holders of the
Series A Preferred Stock the right to request two registrations on Form S-3. All
of the piggyback and demand registration rights of a particular holder of the
Series A Preferred Stock will terminate if an active public trading market
exists for our stock and the holder can sell all of his securities within a
ninety-day period pursuant to Rule 144 under the Securities Act. In addition,
the demand registration rights expire in January 2002. The holders of the Series
A Preferred Stock have exercised their registration rights in connection with
the registration statement of which this prospectus forms a part. We have
granted registration rights which are identical to those granted to the holders
of our Series A Preferred Stock to Ronald Bloom and Whodoweknow,LLC with respect
to shares of common stock issuable upon exercise of warrants granted under an
agreement with these two consultants. Mr. Bloom and Whodoweknow have waived
their registration rights in connection with this offering.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make it more difficult to acquire us by means of a tender offer, a
proxy contest or otherwise to remove incumbent officers and directors. These
provisions, summarized below, are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of us to first negotiate with us. We believe
that the benefits of our potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweigh the
disadvantages of discouraging takeover or acquisition proposals because, among
other things, negotiation of these proposals could result in an improvement of
their terms.
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became
uninterested stockholder, unless, with certain exceptions, the "business
combination" or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. Generally, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior to the determination of interested
stockholder status, did own) 15% or more of a corporation's voting stock. The
existence of this provision would be expected to have an anti-takeover effect
with respect to
48
<PAGE>
transactions not approved in advance by the board of directors, including
discouraging attempts that might result in a premium over the market price for
the shares of common stock held by stockholders.
Our bylaws provide that our board of directors shall not have more than
seven members. This provision may have the effect of deterring hostile takeovers
or delaying changes in control or management of us. In addition, we must obtain
the approval of the holders of 66 2/3% of the outstanding shares of our Series A
Preferred Stock before taking certain actions, including engaging in a merger or
increasing the size of our board to more than five members. These voting rights
may also have the effect of deterring takeovers or delaying changes in control.
TRANSFER AND WARRANT AGENT
We intend to appoint Continental Stock Transfer and Trust Company as our
transfer and warrant agent.
RESALES BY SELLING SHAREHOLDERS
The registration statement, of which this prospectus forms a part, also
relates to the registration by us, for the account of selling shareholders, of
an aggregate of 422,222 shares of our common stock to be issued upon conversion
of all of our shares of Series A Preferred Stock. The selling shareholders'
shares are not being underwritten by the underwriters in connection with this
offering. The selling shareholders have agreed not to directly or indirectly
offer, sell, transfer or otherwise encumber or dispose of any of their shares of
common stock for a period of six months after the date of this prospectus. The
sale of the selling shareholders' shares may be conducted from time to time in
transactions, which may include block transactions by or for the account of the
selling shareholders, in the over-the-counter market or in negotiated
transactions, or through the writing of options on the selling shareholders'
shares, a combination of such methods of sale, or otherwise. Sales may be made
at fixed prices which may be changed, at market prices prevailing at the time of
sale, or at negotiated prices. The selling shareholders may conduct such
transactions by selling their shares directly to purchasers, through
broker-dealers acting as agents for the selling shareholders, or to
broker-dealers who may purchase shares as principals and afterwards sell their
shares from time to time in the over-the-counter market, in negotiated
transactions, or otherwise. These broker-dealers, if any, may receive
compensation in the form of discounts, concessions or commissions from the
selling shareholders or the purchaser for whom which broker-dealers may act as
agents or to whom they may sell as principals, or both. The compensation as to a
particular broker-dealer may exceed customary commissions. The selling
shareholders and broker-dealers, if any, acting in connection with such sales,
might be deemed to be 'underwriters' within the meaning of Section 2(11) of the
Securities Act and any commission received by them and any profit upon the
resale of such securities might be deemed to be underwriting discounts and
commissions under the Securities Act. Sales of any shares of common stock by the
selling shareholders may depress the price of the common stock in any market
that may develop for the stock.
<TABLE>
<CAPTION>
SHARES OWNED
COMMON STOCK AFTER OFFERING(2)
SHARES OWNED OFFERED BY -------------------
NAME OF SELLING SHAREHOLDER BEFORE OFFERING(1) BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------------------ ------------------ ---------------- -------- --------
<S> <C> <C> <C> <C>
GEM Global Group Yield Fund Limited(3).......... 168,890 168,890 0 0%
Global Strategic Holdings Limited............... 84,444 84,444 0 0%
Ocean Strategic Holdings Limited................ 84,444 84,444 0 0%
Tazmanic Corporation (4)........................ 42,222 42,222 0 0%
W.R. Timken Trust fbo Alexander C. Timken....... 42,222 42,222 0 0%
</TABLE>
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this prospectus upon
the exercise of warrants or options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that
49
<PAGE>
are held by such person, but not those held by any other person, and which
are exercisable within 60 days from the date of this prospectus, have been
exercised. Unless otherwise indicated, we believe that all persons named in
this table have sole voting and investment power with respect to all shares
of common stock beneficially owned by them.
(2) Assumes the sale of all of the shares registered in the registration
statement of which this prospectus forms a part.
(3) Consists of shares of our Series A Preferred Stock which will automatically
convert into shares of our common stock upon completion of this offering.
(4) Bryan D. Legate, one of our directors, is also considered to beneficially
own these shares because he has the power to vote the shares.
SHARES AVAILABLE FOR FUTURE SALE
Prior to this offering, there was no market for any of our securities and we
do not know if significant public market will develop for any of our securities
following completion of this offering. We cannot predict the effect, if any,
that sales of shares of our common stock will have on the market price of our
common stock. However, sales of substantial amounts of such shares in the public
market could cause the market price of our common stock to decline or impair our
ability to raise money through an offering of our equity securities.
Upon completion of this offering, we will have 7,053,558 shares of common
stock outstanding, and 1,500,000 warrants to purchase common stock, in each case
assuming that the underwriters do not exercise their over-allotment option to
purchase additional shares or warrants. The 3,000,000 shares of common stock
sold in this offering and the 1,500,000 warrants to purchase a like number of
common stock also sold in this offering will be freely tradeable without
restriction or further registration under the Securities Act; provided, however,
that none of the shares or warrants are purchased by "affiliates" as that term
is defined in Rule 144 under the Securities Act, their sales of shares would be
subject to certain limitations and restrictions that are described below.
The remaining 4,053,558 shares of common stock held by our existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act. We had warrants to purchase
300,125 shares outstanding prior to this offering. All 4,353,683 shares owned by
our existing stockholders or underlying warrants currently outstanding will be
subject to "lock-up" agreements described below on the effective date of this
offering. On the effective date of this offering, shares not subject to the
lock-up will not be eligible for sale pursuant to Rule 144(h). All of our
officers and directors as well as stockholders collectively holding more than
100% of the outstanding common stock have entered into lock-up agreements with
the underwriters that provide that the shares set forth in the table below will
become eligible for sale on the dates set forth in the table below, subject in
most cases to the limitations of Rule 144. In addition, holders of stock options
could exercise these options and sell shares issued on exercise as described
below.
<TABLE>
<CAPTION>
APPROXIMATE
SHARES ELIGIBLE FOR
RELEVANT DATES FUTURE SALE COMMENT
-------------- ------------------- -------
<S> <C> <C>
On effective date(1).......................... 3,000,000 Shares sold in this offering
90 days after effective date(2)............... -- Shares tradeable under Rules 144 and
701.
180 days after effective date(2).............. 4,353,683 All shares subject to lock-up
released; shares tradeable under
Rule 144 and 701.
</TABLE>
- ------------------------
(1) Assumes no exercise of the underwriter's over-allotment option to purchase
additional shares in the offering.
(2) The effective date is .
50
<PAGE>
We have agreed not to offer or sell any of our securities for a period of
thirteen months from the date of this prospectus without the consent of the
representative, except that we may conduct a secondary public offering of our
securities in an amount of at least $30,000,000 if the representative is given
the opportunity to participate in the secondary offering. Our officers and
directors and all of our current stockholders have agreed not to offer, pledge,
sell, contract to sell, grant any option for the sale of, or otherwise dispose
of, directly or indirectly, any of our securities for a period of six months
following the date of this prospectus, without the prior written consent of the
representative.
RULE 144
In general, under Rule 144, as currently in effect, beginning 90 days after
completion of this offering, a person or persons, including an affiliate, whose
shares are aggregated and who has satisfied a one-year holding period including
the period of any prior owner who is not an affiliate of ours, may sell within
any three-month period a number of shares which does not exceed the greater of:
- 1% of the then outstanding shares of our common stock; or
- the average weekly trading volume during the four calendar weeks preceding
the sale
Sales under Rule 144 are also subject to manner of sale provisions, notice
requirements and to the availability of current public information about us.
RULE 144(K)
Rule 144(k) also permits the sale of shares, without any volume limitation
or manner of sale or public information requirements, by a person who is not an
affiliate of ours and who has not been an affiliate of ours for at least the
three months preceding the sale, and who has satisfied a two-year holding
period.
RULE 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to resell these shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with certain restrictions, including the holding period, contained in
Rule 144.
The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of such options (including exercises after the date of this
prospectus). Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 90 days
after the date of this prospectus, may be sold by persons other than
"affiliates", as defined in Rule 144, subject only to the manner of sale
provisions of Rule 144 and by "affiliates" under Rule 144 without compliance
with its one year minimum holding period requirement.
51
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the form
of which is filed as an exhibit to the registration statement filed with the
Commission of which this prospectus is a part, the underwriters named below,
have agreed through Dirks & Company, Inc. as the representative of the
underwriters, to purchase from us, and we have agreed to sell to the
underwriters, the aggregate number of units set forth opposite their respective
names:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF UNITS
- ------------ ---------------
<S> <C>
Dirks & Company, Inc........................................
---------
Total..................................................... 1,500,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters under that agreement depend on various conditions, including:
- the absence of any material adverse change in our business;
- the absence of any event that has materially disrupted or in the
representative's opinion will in the immediate future materially adversely
disrupt the financial markets;
- the absence of our default under any of our agreements or contracts;
- the continued truth of the statements made in this prospectus;
- the absence of any event that in the representative's opinion that would
make it inadvisable to proceed with this offering,
- the continued employment of some of our officers and directors; and
- the receipt of certificates, opinions and letters from us, our counsel and
our independent public accountants.
This section contains the material conditions upon which the underwriting
agreement depends, although we direct you to the underwriting agreement, the
form of which is filed in an exhibit to the registration statement, of which
this prospectus forms a part, for a complete list of the conditions of the
underwriters' obligations.
The underwriters are committed to take and to pay for all of the units
offered by this prospectus, if any are purchased. In the event of a default by
any of the underwriters, the purchase commitments of the non-defaulting
underwriters may be increased or the underwriting agreement may be terminated.
The underwriters will offer the units to the public at the public offering
price set forth on the cover page of this prospectus. The underwriters may allow
some dealers concessions of not more than $ per unit. The underwriters also
may allow, and those dealers may re-allow, a concession of not more than
$ per unit to some other dealers. The public offering price,
concessions and re-allowances may be changed after the completion of this
offering.
We have agreed to indemnify the underwriters and their controlling persons
against some liabilities, as more fully set forth in the underwriting agreement,
including liabilities under the Securities Act, and to contribute to payments
the underwriters and their controlling persons may be required to make.
We have also agreed to pay to the representative a non-accountable expense
allowance equal to two and one half percent of the gross proceeds of this
offering, less $25,000 which has been paid to a prior underwriter.
52
<PAGE>
We have also agreed to pay all expenses in connection with qualifying the
securities under the laws of those states that the representative may designate,
including fees and expenses of counsel retained for these purposes by the
representative, and the costs and expenses in connection with qualifying the
offering with the National Association of Securities Dealers, Inc.
The representative of the underwriters has informed us that the underwriters
do not expect sales of the units offered by this prospectus to be made to
discretionary accounts to exceed five percent of the total number of units
offered.
We, have agreed not to offer or sell any of our securities for a period of
thirteen months from the date of this prospectus without the consent of the
representative, except that we may conduct a secondary public offering of our
securities in an amount of at least $30,000,000 if the representative is given
the opportunity to participate in the secondary offering. Our officers and
directors and all of our current stockholders have agreed that, for a period of
six months from the completion of this offering, we and they will not, without
the prior written consent of the representative:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of our common stock or any securities convertible
into or exercisable or exchangeable for our common stock.
We have agreed to issue and sell to the representative of the underwriters
or its designees, for nominal consideration, warrants to purchase 100,000 shares
of our common stock and/or 50,000 redeemable common stock purchase warrants. The
representative's warrants are exercisable for a period of four years commencing
one year after the date of issuance at a price equal to $ per share of
common stock and $0.12 per redeemable common stock purchase warrant. The
representative's warrants contain anti-dilution provisions providing for
adjustments of the exercise price and the number of shares issuable upon
exercise, upon the occurrence of specific events, including (a) stock dividends,
(b) stock splits and (c) recapitalizations. The representative's warrants
contain demand and piggyback registration rights relating to the shares of
common stock issuable upon exercise of these warrants. For the life of the
representative's warrants, the representative will have the opportunity to
profit from a rise in the market price of our shares of common stock. The
representative's warrants are restricted from sale, transfer, assignment or
hypothecation for the one-year period from the date of this prospectus, except
to officers or partners of the underwriters and members of the selling group
and/or their officers or partners.
We have agreed to grant the representative the right, for one year from the
date of this prospectus, to designate one person to attend all meetings of our
board of directors. The representative has not yet exercised its right to
designate this person. We have agreed to reimburse the representative's designee
for all out-of-pocket expenses incurred in connection with the designee's
attendance at meetings of our board of directors. As a results of our agreements
with the representative of the underwriters, the representative will continue to
have influence over us following the completion of this offering.
Prior to this offering, there has been no public market for any of our
securities. The initial public offering price of the units and the underlying
securities offered by this prospectus will be determined by negotiations between
the representative and us. Among the factors considered in determining the price
include:
- prevailing market conditions,
- the history of and the prospects for the industry in which we compete,
- an assessment of our management,
- our prospects, and
53
<PAGE>
- our capital structure.
The offering price does not necessarily bear any relationship to our assets,
results of operations or net worth. There can be no assurance that an active
trading market will develop for any of the securities offered by this
prospectus, or that such securities will trade in the public market at or above
the initial public offering price.
The representative, on behalf of the underwriters, may engage in:
- over-allotments,
- stabilizing transactions,
- syndicate covering transactions, and
- penalty bids.
An over-allotment involves syndicate sales in excess of this offering size,
which creates a syndicate short position. Stabilizing transactions permit bids
to purchase the shares of common stock and warrants being offered so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the shares of common stock in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the representative to reclaim a selling
concession from a syndicate member when the shares of common stock and warrants
originally sold by the syndicate member are purchased in a syndicate covering
transaction and penalty bids may cause the price of the shares of common stock
to be higher than it would otherwise be in the absence of such transactions.
These transactions may be effected on the Nasdaq National Market or otherwise,
and if commenced, may be discontinued at any time. In addition, the underwriters
may engage in passive market making transaction in our securities on the Nasdaq
National Market in accordance with Rule 103 of Regulation M. Neither we nor the
underwriters make any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the securities offered by this prospectus.
LEGAL MATTERS
Certain legal matters in connection with the offering, including the
validity of the shares of common stock and the redeemable common stock purchase
warrants offered hereby, and the shares of common stock underlying the warrants
offered hereby, will be passed on for us by Shefsky & Froelich, Ltd., Chicago,
Illinois. Certain shareholders of Shefsky & Froelich, Ltd. own shares of our
common stock. Certain legal matters will be passed upon for the underwriters by
Orrick, Herrington & Sutcliffe LLP, New York, New York.
EXPERTS
Our consolidated financial statements for the years ended December 31, 1997,
1998 and 1999 appearing in this prospectus and registration statement, have been
audited by Blackman Kallick Bartelstein, LLP, independent auditors, Chicago,
Illinois, as set forth in their reports thereon appearing elsewhere herein and
in the registration statement, and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION ABOUT US
We have filed with the Securities and Exchange Commission a registration
statement, of which this prospectus is a part, on Form SB-2 under the Securities
Act with respect to the securities offered by this prospectus. This prospectus
does not contain all the information set forth in the registration statement. We
have omitted certain portions of this information as allowed by the rules and
regulations of the Commission. Statements contained in this prospectus as to the
content of any contract or other
54
<PAGE>
document are not necessarily complete. To gain a complete understanding of any
such contract or other documents, you should read the copies which are filed as
exhibits to the registration statement.
For further information regarding us and the securities we are offering, you
may read the registration statement, including all amendments, and the exhibits
and schedules which may be obtained from the Commission in Room 1024 of the
Commission's main offices at 450 Fifth Street, N.W., Washington, DC 20549, and
at the Commission's regional offices located at the Citicorp Center, 500 West
Madison, Suite 1400, Chicago, IL 60661 and 7 World Trade Center, 13(th)Floor,
New York, New York 10048. You can inspect this material for free at the
Commission's offices, and you can make copies of the material if you pay fees
established by the Commission. The Commission's phone number is 1-800-SEC-0330
(1-800-732-0330).
The Commission maintains a website that contains registration statements,
reports, proxy material and other information regarding registrants that file
electronically with the Commission. The address for the website is
http://www.sec.gov.
Upon effectiveness of the registration statement, we will be subject to the
reporting requirements of the Securities Exchange Act and intend to furnish our
stockholders annual reports containing financial statements audited by our
independent accountants and to make available quarterly reports containing
unaudited financial statements for each of the first three quarters of each
fiscal year.
We have applied for listing of our securities on the Nasdaq National Market
and upon listing, investors can obtain information about us on its website
http://www.nasdaqamex.com.
55
<PAGE>
LIQUOR.COM, INC.
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditor's Report................................ F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Deficit......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7-15
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Liquor.com, Inc.
We have audited the accompanying balance sheets of LIQUOR.COM, INC. as of
December 31, 1998 and 1999, and the related statements of operations,
stockholders' deficit and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LIQUOR.COM, INC. as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with generally accepted accounting principles.
As discussed in Note 13 to the financial statements, on January 7, 2000, the
Company obtained $500,000 of bridge financing. Repayment of this promissory note
is highly dependent upon the success of the upcoming public offering.
/s/ Blackman Kallick Bartelstein, LLP
Chicago, Illinois
February 15, 2000
F-2
<PAGE>
LIQUOR.COM, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY 1999
1998 1999 (UNAUDITED)
--------- ---------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash.................................................... $ 461,924 $ 340,786
Accounts receivable, less allowance for doubtful
accounts of $10,000 in 1999 and $0 in 1998............ 74,155 520,312
Prepaid expenses and other current assets............... 24,310 51,076
--------- ----------
Total Current Assets.................................. 560,389 912,174
PROPERTY AND EQUIPMENT (Net of accumulated depreciation
and amortization)....................................... 20,742 248,361
OTHER..................................................... 22,246 51,775
--------- ----------
$ 603,377 $1,212,310
========= ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Short-term borrowings--Bank............................. $ 5,000 $ 25,000
Accounts payable--Trade................................. 654,100 1,074,942
Long-term debt due within one year...................... -- 4,432
Accrued expenses........................................ 4,018 26,365
--------- ----------
Total Current Liabilities............................. 663,118 1,130,739
--------- ----------
NONCURRENT LIABILITIES
Long-term debt (Net of portion included in current
liabilities).......................................... -- 186,512
Due to related party.................................... 31,975 31,975
--------- ----------
Total Noncurrent Liabilities.......................... 31,975 218,487
--------- ----------
Total Liabilities..................................... 695,093 1,349,226
--------- ----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock--$.00001 par value; authorized--6,000,000;
shares issued--2,700,000 shares and 3,050,000 shares
as of December 31, 1998, 1999, respectively; pro forma
3,472,222 issued and outstanding at December 31....... 27 31 $ 35
Additional paid-in capital.............................. 19,123 169,169 699,165
Preferred stock--$.00001 par value;
authorized--1,000,000 shares; issued 0 shares as of
December 31, 1998 and 1999............................ -- -- --
Accumulated deficit..................................... (110,916) (306,116) (306,116)
--------- ---------- ---------
Total Stockholders' (Deficit) Equity.................. (91,716) (136,916) $ 393,084
--------- ---------- =========
$ 603,377 $1,212,310
========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
LIQUOR.COM, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
AMOUNT % OF NET SALES
------------------------------------ ------------------------------------
1997 1998 1999 1997 1998 1999
---------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES.......................... $1,281,453 $1,818,960 $2,788,187 100.0% 100.0% 100.0%
COST OF REVENUES.................. 704,486 1,076,197 1,946,758 55.0 59.2 69.8
---------- ---------- ---------- ----- ----- -----
GROSS PROFIT...................... 576,967 742,763 841,429 45.0 40.8 30.2
---------- ---------- ---------- ----- ----- -----
OPERATING EXPENSES
Marketing....................... 312,814 339,973 425,236 24.4 18.7 15.3
General and administrative...... 310,804 360,174 592,613 24.3 19.8 21.3
---------- ---------- ---------- ----- ----- -----
Total Operating Expenses...... 623,618 700,147 1,017,849 48.7 38.5 36.5
---------- ---------- ---------- ----- ----- -----
(LOSS) INCOME FROM OPERATIONS..... (46,651) 42,616 (176,420) (3.6) 2.3 (6.3)
INTEREST EXPENSE.................. (7,470) (7,053) (18,780) (.6) (.4) (.7)
---------- ---------- ---------- ----- ----- -----
NET (LOSS) INCOME................. $ (54,121) $ 35,563 $ (195,200) (4.2)% 1.9% (7.0)%
========== ========== ========== ===== ===== =====
NET (LOSS) INCOME PER SHARE:
BASIC AND DILUTED............... $ (0.02) $ 0.01 $ (0.06)
========== ========== ==========
SHARES USED IN COMPUTING BASIC AND
DILUTED NET (LOSS) INCOME PER
SHARE........................... 3,026,956 3,026,956 3,033,216
========== ========== ==========
PRO FORMA NET LOSS
PER SHARE:
BASIC AND DILUTED (UNAUDITED)... $ (0.06)
==========
SHARES USED IN COMPUTING
PRO FORMA NET LOSS
PER SHARE
BASIC AND DILUTED (UNAUDITED)... 3,034,373
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
LIQUOR.COM, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL TOTAL
-------------------- -------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT
--------- -------- --------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997... 2,700,000 $ 27 -- $ -- $ 19,173 $ (92,358) $ (73,158)
Net loss................. -- -- -- -- -- (54,121) (54,121)
--------- ------ --------- -------- -------- --------- ---------
BALANCE, DECEMBER 31,
1997..................... 2,700,000 27 -- -- 19,173 (146,479) (127,279)
Net income............... -- -- -- -- -- 35,563 35,563
--------- ------ --------- -------- -------- --------- ---------
BALANCE, DECEMBER 31,
1998..................... 2,700,000 27 -- -- 19,173 (110,916) (91,716)
Issuance of common stock
for professional
services............... 300,000 3 -- -- 99,997 -- 100,000
Issuance of common stock
for cash............... 50,000 1 -- -- 49,999 -- 50,000
Net loss................. -- -- -- -- -- (195,200) (195,200)
--------- ------ --------- -------- -------- --------- ---------
BALANCE, DECEMBER 31,
1999..................... 3,050,000 31 -- -- 169,169 (306,116) (136,916)
Issuance of convertible
preferred stock on
January 7, 2000........ -- -- 422,222 30,000 -- -- 30,000
Assumed conversion of
convertible preferred
stock to common
stock.................. 422,222 4 (422,222) (30,000) 529,996 -- 500,000
--------- ------ --------- -------- -------- --------- ---------
BALANCE, DECEMBER 31, 1999,
PRO FORMA (UNAUDITED).... 3,472,222 $ 35 -- $ -- $699,165 $(306,116) $ 393,084
========= ====== ========= ======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
LIQUOR.COM, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income......................................... $(54,121) $ 35,563 $(195,200)
-------- -------- ---------
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities
Depreciation and amortization........................... 7,340 11,216 20,546
Professional fees paid in common stock.................. -- -- 100,000
(Increase) decrease in
Receivables........................................... (7,259) (5,043) (445,218)
Prepaid expenses and deposits......................... (713) (22,332) (57,234)
Increase (decrease) in
Accounts payable...................................... 49,480 382,799 420,842
Accrued expenses...................................... (3,026) (1,408) 22,347
-------- -------- ---------
Total Adjustments................................... 45,822 365,232 61,283
-------- -------- ---------
Net Cash (Used in) Provided by Operating
Activities........................................ (8,299) 400,795 (133,917)
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from insurance for loss of assets................ 13,063 -- --
Capital expenditures...................................... (15,798) (23,500) (56,165)
-------- -------- ---------
Net Cash Used in Investing Activities............... (2,735) (23,500) (56,165)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under line of credit.......... (24,600) (44,695) 20,000
Payment of long-term debt................................. -- -- (1,056)
Proceeds from issuance of common stock.................... -- -- 50,000
-------- -------- ---------
Net Cash (Used in) Provided by Financing
Activities........................................ (24,600) (44,695) 68,944
-------- -------- ---------
NET (DECREASE) INCREASE IN CASH............................. (35,634) 332,600 (121,138)
CASH, BEGINNING OF YEAR..................................... 164,958 129,324 461,924
-------- -------- ---------
CASH, END OF YEAR........................................... $129,324 $461,924 $ 340,786
======== ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
LIQUOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 1-- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS AND RECAPITALIZATION
Liquor.com, Inc. (the Company) provides services and information to
producers, sellers and consumers of alcohol beverages over the Internet.
Consumers order products via the Company's Web site or catalog. The orders are
filled through the Company's network of over 1,300 alcohol beverage retailers
worldwide as the Company does not sell directly to the consumer. Producers and
sellers of alcohol beverages are provided with demographic information and
product advertising through the Company's Web site and catalog. Substantially
all of the Company's revenues are generated in the United States. Credit is
extended to the Company's corporate customers under normal trade terms without
security.
On August 16, 1993, Liquor By Wire, Inc. was incorporated in the State of
Illinois. On December 15, 1999, Liquor.com, Inc., a wholly owned subsidiary of
Liquor By Wire, Inc. was incorporated in the State of Delaware. On December 22,
1999, Liquor By Wire, Inc. was merged into Liquor.com, Inc., with
Liquor.com, Inc. being the surviving corporation. Following the merger, each
outstanding share of common stock of Liquor By Wire, Inc. was converted into
22,500 shares of the common stock of Liquor.com, Inc. so that all 133 1/3 shares
outstanding of Liquor By Wire, Inc. were converted into 3,000,000 shares of
Liquor.com, Inc. and all of the outstanding shares of Liquor.com, Inc. held by
Liquor By Wire, Inc. were canceled. All references in the financial statements
to the number of shares and to the per share amounts have been retroactively
restated to reflect these changes.
(B) ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of credit card and trade receivables
arising in the normal course of business. The Company has arranged with its
network of alcohol beverage retailers that goods sold to customers be shipped
directly from the retailer.
(C) PROPERTY AND EQUIPMENT
The company's policy is to depreciate or amortize the original cost of the
assets over the estimated useful lives of the assets by use of the straight-line
method.
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Building and improvements................................... 39
Furniture and fixtures...................................... 7
Computer softwrae and hardware.............................. 3-5
</TABLE>
(D) DEFERRED EXPENSES
As of December 31, 1999, external costs directly attributable to the planned
initial public offering have been deferred. The costs will be charged against
the Company's additional paid-in-capital in connection with the consummation of
its initial public offering.
F-7
<PAGE>
LIQUOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 1-- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(E) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash,
accounts receivable, accounts payable, long-term debt and miscellaneous other
assets and liabilities, approximate fair value.
(F) REVENUE RECOGNITION
Net revenues include the dollar amount of orders placed on our website, net
of returns and allowances, and advertising revenues. The Company recognizes
revenue on customer orders, net of estimated sales returns, when the products
are shipped to the customer. For all sales made through its website, the Company
bears credit risk and bears inventory risk for returned products that are not
successfully returned to the suppliers.
The Company recognizes revenue from advertising sales ratably over the term
of the advertising campaigns, which usually range from one to twelve months. To
the extent that advertising customers may have paid for advertisements that have
yet to be published in the Company's catalog or on the Company's Web site, the
Company defers revenue recognition until such advertisements are delivered.
(G) COST OF REVENUES
The cost of goods sold includes product costs, direct costs associated with
advertising revenues and shipping and handling costs paid by the Company in the
fulfillment of customer orders.
(H) ADVERTISING
The cost of advertising is expensed as incurred. For the years ended
December 31, 1997, 1998 and 1999 the Company incurred advertising expenses of
$185,575, $210,499 and $229,143, respectively.
(I) INCOME TAXES
The Company recognizes deferred tax assets and liabilities based on
differences between the financial reporting and tax bases of assets and
liabilities using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to be recovered. Under the Tax Reform
Act of 1986, the benefits from net operating losses carried forward may be
impaired or limited in certain circumstances. In addition, a valuation allowance
has been provided for deferred tax assets when it is more likely than not that
all or some portion of the deferred tax asset will not be realized. The Company
has established a full valuation allowance on the aforementioned deferred tax
assets due to the uncertainty of realization.
(J) COMPREHENSIVE INCOME (LOSS)
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income," which establishes
standards for the reporting and display of comprehensive income (loss) and its
components in the financial statements. Components of comprehensive income
(loss) include amounts that, under SFAS No. 130, are included in the
F-8
<PAGE>
LIQUOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 1-- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
comprehensive income (loss) but are excluded from net income (loss). There were
no significant differences between the Company's net loss and comprehensive
loss.
(K) NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued statement of Position (SOP) 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires all
the costs related to the development of internal use software other than those
incurred during the application development stage to be expensed as incurred.
Costs incurred during the application development stage are required to be
capitalized and amortized over the estimated useful life of the software. The
Company adopted SOP 98-1 on January 1, 1999. Adoption did not have a material
effect on the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instrument and Hedging Activities." SFAS No. 133 is
effective for the fiscal years beginning after June 15, 2000. SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair market value. Changes in the fair value of derivatives are recorded
each period in the current earnings or other comprehensive income (loss)
depending on whether a derivative is designed as part of a hedge transaction
and, if so, the type of hedge transaction involved. The Company does not expect
that adoption of SFAS No. 133 will have a material impact on its consolidated
financial position or results of operation, as the Company does not currently
hold any derivative financial instruments.
(L) MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(M) SEGMENT REPORTING
In December 1998, the Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." The adoption of this
standard requires that reportable segments be reported consistent with how
management assesses segment performance. This statement requires disclosure of
certain information by reportable segment, geographic area and major customer.
See Note 10, "Segment Information," for further information. As a result, the
Company will separately report information on the two operating segments:
catalog and advertising. The Company does not calculate operating income by
segment. Accordingly, gross profit is instead presented. In addition, because
management does not rely on segment asset allocation, information regarding
segment assets is not meaningful and therefore is not reported.
F-9
<PAGE>
LIQUOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 1-- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(N) CONCENTRATION RISKS
Substantially all of the company's cash is held at one financial
institution.
(O) STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees," and related
interpretations, in accounting for its employee stock options rather than
alternative fair value accounting allowed by SFAS No. 123, "Accounting for
Stock-Based Compensation." APB No. 25 provides that the compensation expense
relative to the company's employee stock options is measured based on the
intrinsic value of stock options granted. SFAS No. 123 requires companies that
continue to follow APB No. 25 to provide a pro forma disclosure of the impact of
applying the fair value method of SFAS No. 123. This method recognizes the fair
value of stock options granted at the date of grant in earnings over the vesting
period of the options.
(P) STOCK-BASED COMPENSATION (CONTINUED)
The Company accounts for non-employee stock-based awards in which goods or
services are the consideration received for the equity instruments issued based
on the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.
NOTE 2--PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Land.................................................... $ -- $ 18,000
Building and improvements............................... -- 202,192
Furniture and fixtures.................................. 10,573 19,921
Computer software and hardware.......................... 23,500 42,125
-------- --------
34,073 282,238
Accumulated depreciation and amortization............... (13,331) (33,877)
-------- --------
$ 20,742 $248,361
======== ========
</TABLE>
NOTE 3--SHORT-TERM BORROWINGS--BANK
As of December 31, 1999, the Company was obligated under a line of credit
with LaSalle Bank for $25,000. Borrowings under this line of credit bear
interest at the prime rate plus 1.5% and are secured by substantially all of the
Company's assets. Certain conditions stipulated in the borrowing agreement
relating to net income must be met on an annual basis. As of December 31, 1999,
the Company was in violation of this covenant. As of December 31, 1999, maximum
additional available borrowings on this line of credit were $95,000. This
agreement is payable on demand. The Company's two principal stockholders have
personally guaranteed the borrowings under this line of credit.
F-10
<PAGE>
LIQUOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 4--LONG-TERM DEBT
<TABLE>
<S> <C>
Mortgage note payable to bank, payable in monthly
installments of $1,590, including interest at 7.75% per
annum, due September 2004; secured by a mortgage on the
building and land and guaranteed by the company's two
principal stockholders.................................... $190,994
Less current maturities..................................... (4,432)
--------
$186,512
========
</TABLE>
Maturities on long-term debt are as follows as of December 31, 1999:
<TABLE>
<S> <C>
Year Ending December 31:
2001...................................................... $ 4,788
2002...................................................... 5,173
2003...................................................... 5,588
2004...................................................... 170,963
--------
$186,512
========
</TABLE>
NOTE 5--INCOME TAXES
The Company incurred taxable losses for federal and state purposes for the
years ended December 31, 1997, 1998 and 1999. Accordingly, the Company did not
incur any federal income tax expense for those periods other than the minimum
required taxes for certain state and local jurisdictions.
As of December 31, 1999, the Company has net operating loss carryforwards of
approximately $220,000 related to federal and state income taxes which can be
used to offset future federal and state taxable income from operations.
Substantially all of these carryforwards will begin to expire in 2010.
Significant components of the Company's deferred tax asset as of
December 31, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net operating loss carryforward................ $ 34,300 $ 19,600 $ 85,500
Other.......................................... -- -- 2,000
-------- -------- --------
Gross deferred tax assets...................... 34,300 19,600 87,500
Valuation allowance............................ (34,300) (19,600) (87,500)
-------- -------- --------
Net Deferred Income Tax Asset.................. $ -- $ -- $ --
======== ======== ========
</TABLE>
Under the Tax Reform Act of 1986, the benefits from net operating losses
carried forward may be impaired or limited in certain circumstances. Events
which may cause limitations in the amount of net operating losses that the
Company may utilize in any one year include, but are not limited to, a
cumulative ownership change of more than 50.0% over a three-year period. The
impact of any limitations that may be imposed for future issuances of equity
securities, including issuances with respect to acquisitions, has not been
determined.
F-11
<PAGE>
LIQUOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 5--INCOME TAXES (CONTINUED)
The differences between the U.S. Federal statutory tax rate and the
Company's effective tax rate are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
U.S. Federal statutory rate................................ 35% 35% 35%
Change in valuation allowance.............................. (35) (35) (35)
--- --- ---
--% --% --%
=== === ===
</TABLE>
NOTE 6--STOCKHOLDERS' EQUITY
As of December 31, 1998, 6,000,000 shares of $.00001 par value common stock
of the Company were authorized, 2,700,000 of which were issued and outstanding.
As of December 31, 1999, 6,000,000 shares of $.00001 par value common stock were
authorized, of which 3,050,000 shares were issued and outstanding; and 1,000,000
shares of $.00001 par value Series A convertible preferred stock were
authorized, but none were issued until January 7, 2000. See Notes 1 and 13.
Each share of preferred stock is convertible into common stock as determined
by dividing the original issue price by the conversion price at the time in
effect for a share of Series A convertible preferred stock. The preferred stock
is automatically convertible upon the consummation of a corporate transaction
that meets certain minimum conditions in a qualified public offering as defined,
or at the option of the preferred stockholders upon the completion of a public
offering which does not meet the minimum conditions.
On August 31, 1999, the company issued 300,000 shares of common stock at
$.33 per share in exchange for $100,000 of business consulting services rendered
by an outside consulting firm. On December 31, 1999, the company issued 50,000
shares of common stock at $1.00 per share for $50,000 in cash to a previously
unrelated party.
NOTE 7--OTHER CASH FLOW INFORMATION
Cash payments for interest were $9,181, $7,053 and $18,780 in 1997, 1998 and
1999, respectively.
During 1999, the Company financed the purchase of its office building and
land for $192,000.
NOTE 8--EARNINGS (LOSS) PER SHARE
The Company computes net loss per share under the provisions of SFAS
No. 128, "Earnings per Share" (SFAS 128), and SEC Staff Accounting Bulletin
No. 98 (SAB 98).
Under the provisions of SFAS 128 and SAB 98, basic and diluted net loss per
share is computed by dividing the net (loss) income available to common
stockholders for the period by the weighted-average number of shares of common
stock outstanding during the period. The calculation of diluted net (loss)
income per share excludes potential common shares if the effect is antidilutive.
Basic earnings per share is computed by dividing income or loss applicable to
common stockholders by the weighted-average number of shares of common stock
outstanding during this period.
F-12
<PAGE>
LIQUOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 8--EARNINGS (LOSS) PER SHARE (CONTINUED)
Diluted earnings per share is determined in the same manner as basic
earnings per share except that the number of shares is increased assuming
exercise of dilutive stock options and warrants using the treasury stock method
and assuming conversion of the Company's preferred stock. In addition, income or
loss would be adjusted for dividends and other transactions relating to
preferred shares for which conversion is assumed. The weighted average number of
shares utilized in arriving at diluted earnings per share for all periods
presented reflect an adjustment for the 350,000 shares of common stock issued as
described in Note 6 above which were issued for consideration below the proposed
initial public offering price. As the Company had a net loss, the impact of the
assumed preferred stock conversion is anti-dilutive and as such, these amounts
have been excluded from the calculation of diluted earnings per share.
NOTE 9--UNAUDITED PRO FORMA FINANCIAL INFORMATION
On December 16, 1999, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission ("SEC") that
would permit the Company to sell shares of the Company's stock in connection
with a proposed initial public offering ("IPO"). If the IPO is consummated under
the terms presently anticipated, upon the closing of the proposed IPO, all of
the then outstanding shares of the Company's preferred stock will automatically
convert into shares of common stock on a 1-for-1 basis, subject to antidilution
provisions, including stock splits, stock dividends and recapitalizations.
Unaudited pro forma net (loss) income per share is computed by dividing net
(loss) income by the sum of the weighted number of shares of common stock
outstanding, including the shares resulting from the conversion of the preferred
stock as though such conversion occurred at December 31, 1999. Each share of
preferred stock converts into one share of common stock subject to antidilution
provisions, including stock splits, stock dividends and recapitalizations. The
conversion of the preferred stock has been reflected in the accompanying
unaudited pro forma statements of stockholders' equity as if these events had
occurred on December 31, 1999.
The unaudited pro forma net loss per share assumes the conversion of the
preferred stock to common stock, at a conversion price of $1.18 as if it had
been converted as of December 31, 1999, even though the result is anti-dilutive.
The following tables present the calculation of basic and diluted net loss
per share and pro forma net loss per share for the year ended December 31, 1999:
<TABLE>
<CAPTION>
DENOMINATOR
NUMERATOR (WEIGHTED--
(NET LOSS) AVERAGE SHARES) PER SHARE
---------- --------------- ---------
<S> <C> <C> <C>
Basic and diluted net loss per common
share..................................... $(195,200) $3,033,216 $(0.06)
Assumed conversion of shares of preferred
stock into share of common stock at
December 31, 1999......................... -- 1,157 --
--------- ---------- ------
Pro forma basic and diluted net loss per
common share.............................. $(195,200) $3,034,373 $(0.06)
========= ========== ======
</TABLE>
F-13
<PAGE>
LIQUOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 9--UNAUDITED PRO FORMA FINANCIAL INFORMATION (CONTINUED)
The unaudited pro forma equity presented in the balance sheet assumes the
conversion of the preferred stock issued on January 7, 2000.
NOTE 10--SEGMENT INFORMATION
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Revenues
Catalog and website.................... $ 970,475 $1,452,079 $2,435,118
Advertising............................ 310,978 366,881 353,069
---------- ---------- ----------
Total revenues....................... 1,281,453 1,818,960 2,788,187
---------- ---------- ----------
Gross Profit
Catalog and website.................... 273,551 375,882 488,360
Advertising............................ 303,416 366,881 353,069
---------- ---------- ----------
Total Gross Profit................... 576,967 742,763 841,429
---------- ---------- ----------
Less: Marketing expenses................ 312,814 339,973 425,236
General and administrative
expenses............................... 310,804 360,174 592,613
Interest expense................... 7,470 7,053 18,780
---------- ---------- ----------
Net (Loss) Income........................ $ (54,121) $ 35,563 $ (195,200)
========== ========== ==========
</TABLE>
All amounts have been stated in accordance with the provisions of SFAS
No. 131. There were no sales to any individual customer during any of the years
in the three-year period ended December 31, 1999 that represented 10% or more of
net sales. The Company has no long-lived assets located in foreign countries.
The Company attributes net sales to an individual country based upon the
location of the customer. The majority of the customers are located in the
United States.
NOTE 11--RELATED PARTY
Demand notes payable to a stockholder of the Company amounted to $31,975 as
of December 31, 1998 and 1999. The note is non-interest bearing and is
classified as long-term as the stockholder has committed to not demanding
payment prior to December 31, 2000.
NOTE 12--COMMITMENTS AND CONTINGENCIES
On October 11, 1999, the Company entered into an agreement with a business
consulting firm and a minority stockholder to pay a finder's fee in cash equal
to 2% of the equity capital or other financing raised. The agreement expires on
September 1, 2000.
The Company has also entered into an agreement with this stockholder
whereby, if a successful public offering does not occur on or before
September 1, 2000, the stockholder will return all stock issued to the Company
or its designee.
On December 7, 1999, the Company entered into a consulting agreement with a
minority stockholder to provide business development and financial and
investment banking consulting services
F-14
<PAGE>
LIQUOR.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 12--COMMITMENTS AND CONTINGENCIES (CONTINUED)
from January 1, 2000 to February 29, 2000. The agreement calls for monthly
compensation of $10,000 plus reasonable expenses.
NOTE 13--SUBSEQUENT EVENTS
On January 7, 2000, in consideration for $500,000 in bridge financing, the
Company issued to The Gem Group a non-interest bearing promissory note in the
principal amount of $500,000 and 422,222 shares of Series A Preferred Stock. The
proceeds from the bridge financing have been allocated between debt and
preferred stock based upon their relative fair values of $470,000 and $30,000,
respectively. The promissory note is due on or before the earlier of a qualified
public offering, upon demand or December 31, 2001. If demand is made, it shall
be repaid in two equal annual installments, each covering one-half the principal
sum of the note, the first to be made within 60 days of the demand for payment
and the second payment to be made one year after the due date of the first
payment or a qualified public offering. Repayment of this note is highly
dependent upon the success of the upcoming public offering.
In January 2000, the Company implemented a stock option plan which reserves
1,000,000 shares of common stock. Nonstatutory Stock Options and Stock Purchase
Rights may be granted to service providers at a price determined by the
administrator. Incentive Stock Options may be granted only to employees. The per
share exercise price of the incentive stock options is 110% of the fair market
value of the shares on the date of the grant for employees owning more than 10%
of the voting stock of the Company and 100% of the fair market value for
employees owning less than 10% of the voting stock. The term of each option
shall be stated in the option agreement; however, that term shall be no more
than 10 years from the date of the grant. No options or purchase rights have
been granted as of February 15, 2000.
F-15
<PAGE>
Inside Back Cover Page of Prospectus
Top of Page--The top of the page contains the words "Corporate Accounts
Page" and depicts the corporate accounts page to be maintained on Liquor.com's
website.
Middle of Page--The middle of the page contains the words "Home Page" and
depicts the home page to be maintained on Liquor.com's website.
Bottom of Page--The bottom of the page contains the words "Affiliate Network
Page" and depicts the affiliate network page to be maintained on Liquor.com's
website.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR ANY OTHER PERSON TO PROVIDE YOU
WITH DIFFERENT INFORMATION OR REPRESENT ANYTHING THAT IS NOT CONTAINED IN THIS
PROSPECTUS. THE INFORMATION IN THIS PROSPECTUS MAY ONLY BE ACCURATE AS OF THE
DATE ON THE FRONT COVER OF THIS PROSPECTUS. OUR BUSINESS, FINANCIAL CONDITION,
RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE THAT DATE. THIS
PROSPECTUS IS AN OFFER TO SELL ONLY THE UNITS, AND COMPONENTS THEREOF, OFFERED
HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT IS LAWFUL TO
DO SO.
------------------------
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
Cautionary Note Regarding Forward-
looking Statements.................. 13
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Financial Data............... 17
Management's Discussion And Analysis
of Financial Condition And Results
of Operations....................... 18
Business.............................. 23
Management............................ 32
Certain Transactions.................. 40
Principal Stockholders................ 42
Description of Securities............. 43
Shares Available For Future Sale...... 49
Underwriting.......................... 51
Legal Matters......................... 53
Experts............................... 53
Where You Can Find Additional
Information About us................ 53
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
Until , 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade the units, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
obligation of dealers to deliver a prospectus when acting as underwriters with
respect to their unsold allotments or subscriptions.
1,500,000 UNITS CONSISTING OF
TWO SHARES OF COMMON STOCK
AND ONE REDEEMABLE COMMON
STOCK PURCHASE WARRANT
[LOGO]
---------------------
PROSPECTUS
---------------------
DIRKS & COMPANY, INC.
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes corporations
to limit or eliminate the personal liability of directors and officers to
corporations and their stockholders for monetary damages for breach of
directors' fiduciary duty of care. The duty of care requires that, when acting
on behalf of the corporation, directors must exercise an informed business
judgment based on all material information reasonably available to them. Absent
the limitations authorized by the Delaware statute, directors could be
accountable to corporations and their stockholders for monetary damages for
conduct that does not satisfy their duty of care. Although the statute does not
change directors' duty of care, it enables corporations to limit available
relief to equitable remedies such as injunction or rescission. Our Certificate
of Incorporation limits the liability of our directors and officers to us or our
stockholders to the fullest extent permitted by the Delaware statute. The
inclusion of this provision in the Certificate 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 thought such an action,
if successful, might otherwise have benefitted us and our stockholders. The
Employment Agreements of certain directors and offices contain a provision
similar to the provisions of the Certificate of Incorporation.
We intend to obtain directors' and officers' insurance providing
indemnification for certain of our directors, officers and employees against
certain liabilities, prior to the completion of this offering.
Reference is also made to the underwriting agreement filed as Exhibit 1.1 to
the Registration Statement for information concerning the underwriters'
obligation to indemnify us and our officers and directors in certain
circumstances, and our obligation to indemnify the underwriters. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of ours pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a schedule of the estimated expenses to be incurred by us
in connection with the issuance and sale of the securities being registered
hereby:.
<TABLE>
<S> <C>
Registration Fee............................................ $ 20,585.97
Nasdaq Listing Fee.......................................... $ 72,875.00
NASD Filing Fee............................................. $ 4,657.00
Blue Sky Fees and Expenses.................................. $ 15,000.00*
Accounting Fees and Expenses................................ $ 90,000.00*
Legal Fees and Expenses..................................... $140,000.00*
Printing Expenses........................................... $125,000.00*
Transfer Agent and Registrar Fees........................... $ 2,500.00
Miscellaneous............................................... $ 9,382.23
-----------
Total................................................... $480,000.00
===========
</TABLE>
* Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, we have sold unregistered securities as
described below. Unless otherwise indicated, there were no underwriters involved
in the transactions and there was no
II-1
<PAGE>
underwriting discounts or commissions paid in connection with the transactions.
Unless otherwise indicated, the issuances of these securities were considered to
be exempt from registration under Section 4(2) of the Securities Act of 1933, as
amended, and the regulations promulgated thereunder. The purchasers of the
securities in these transactions represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution of the securities, and appropriate legends were affixed to
the certificates for the securities. The purchasers of the securities received
adequate information about us or had access, through employment or other
relationships, to such information.
1. In August 1999 we issued 13 1/3 shares of common stock, which
represented ten percent of our shares, on a fully diluted basis, at the time of
issuance, to Corporate Capital Strategies, Inc. in exchange for business
planning and business development services to be rendered pursuant to a Founders
Service Agreement dated August 31, 1999. The 13 1/3 shares were later converted
into 300,000 shares of our shares pursuant to a merger, and were later
transferred to certain persons affiliated with Corporate Capital Strategies,
Inc., including 118,000 shares to Jonathan McDermott, our Senior Vice President,
Business Development. Under this agreement, as amended, we also are obligated to
issue 21,428 shares to Corporate Capital Strategies upon completion of this
offering.
2. In December 1999 we sold a total of 50,000 shares of our common stock at
$1.00 per share to four individuals affiliated with Wink Communications, Inc.,
which maintains our website.
3. In January 2000 we sold a promissory note in the principal amount of
$500,000 and 422,222 shares of Series A Preferred Stock to GEM Global Group
Yield Fund Limited, Global Strategic Holdings Limited, Ocean Strategic Holdings
Limited, Tazmanic Corporation, and W.R. Timken Trust FBO Alexander C. Timken for
a total of $500,000.
4. In March 2000 we issued ten units, each consisting of one convertible
promissory note and one warrant to purchase shares of our common stock, to ten
purchasers for total consideration of $900,000. Each convertible note bears
interest at the prime rate plus two percent. Each note automatically converts
into shares of our common stock at a conversion price of $3.52 per share upon
completion of this offering, but may be converted earlier, at the same
conversion price, at the option of the holder. Each warrant allows the holder,
for a period of five years from the date of issuance, to purchase a number of
shares equal to the number issuable upon conversion of the convertible note, at
a price of $2.64 per share. In addition, the holders of our Series A have made a
committment to purchase one unit for total consideration of $100,000 by
exercising their preemptive rights with regard to this offering.
5. From January through March 2000, we sold a total of 248,236 shares of
common stock to
accredited investors for total consideration of $825,276. The first 42,194
shares sold in this offering were sold at a price of $2.37 per share, and the
remainder were sold at a price of $3.52 per share. In addition, in March 2000
the holders of our Series A Preferred Stock, in exercise of their preemptive
rights with regard to these sales, committed to purchase an additional 4,688
shares at a price of $2.37 per share for total consideration of $11,111, and an
additional 22,894 shares at a price of $3.52 for total consideration of $80,587.
These shares will be issued after the date of this prospectus.
ITEM 27. EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S> <C>
**1.1 Form of Underwriting Agreement
**1.2 Form of Representative's Warrant Agreement, including Form
of Representative's Warrant
*3.1 Articles of Incorporation of Liquor by Wire, Inc. as filed
with the Illinois Secretary of State on August 16, 1993
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S> <C>
*3.2 Certificate of Incorporation of Liquor.com, Inc. as filed
with the Delaware Secretary of State on December 15, 1999
*3.3 Articles of Merger of Liquor.com, Inc. as filed with the
Illinois Secretary of State on December 22, 1999
*3.4 Certificate of Ownership and Merger Merging Liquor by Wire,
Inc. into Liquor.com, Inc. as filed with the Delaware
Secretary of State on December 22, 1999
*3.5 Certificate of Designation of Series A Preferred Stock of
Liquor.com, Inc. as filed with the Delaware Secretary of
State on January 7, 2000
*3.6 Bylaws of the Liquor.com, Inc.
**4.1 Specimen Common Stock Certificate
**4.2 Form of Warrant Agreement
**4.3 Specimen Warrant Certificate
**5 Opinion of Shefsky & Froelich Ltd. Regarding Legality of
Shares
**10.1 Master Merchant-Partner Agreement for The LinkShare Network
**10.2 Network Membership Agreement between LinkShare Corporation
and Liquor by Wire, Inc.
*10.3 Founder's Services Agreement, Acknowledgment and Receipt
between Liquor by Wire, Inc. and Corporate Capital
Strategies, Inc.
**10.4 Termination of Founder's Services Agreement
**10.5 Consulting Agreement between Liquor by Wire, Inc. and
e-consulting, Inc.
**10.6 Termination of e-consulting agreement
**10.7 Investors' Rights Agreement between Liquor.com, Inc. and
holders of shares of Liquor.com Inc.'s Series A Preferred
Stock
**10.8 Partner Agreement between Liquor by Wire, Inc. and Concierge
Club
**10.9 Marketing Agreement between Damark International, Inc. and
Liquor by Wire, Inc.
**10.10 Merchant Agreement between Camdens and Liquor.com, Inc.
**10.11 Advertising Agreement between Liquor.com, Inc. and Seagram
Americas
**10.12 Consulting Agreement between Liquor.com, Inc., Whodowekrow,
LLC and Ronald Bloom
*10.13 Liquor.com, Inc. 2000 Stock Option Plan and Agreement
*10.14 Employment Agreement between Liquor.com, Inc. and Gail P.
Zelitzky
**10.15 Employment Agreement between Liquor.com, Inc. and Barry L.
Grieff
*10.16 Employment Agreement between Liquor.com, Inc. and Steven
Olsher
**10.17 Employment Agreement between Liquor.com, Inc. and Scott
Clark
**10.18 Employment Agreement between Liquor.com, Inc. and Jonathan
McDermott
*23.1 Consent of Blackman Kallick Bartelstein LLP
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S> <C>
**23.2 Consent of Shefsky & Froelich Ltd. (incorporated into
Exhibit 5)
*24 Power of Attorney (see signature page to this registration
statement)
*27 Financial Data Schedule.
</TABLE>
- ------------------------
* Filed with the registration statement.
** To be filed by amendment.
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant in all instances will provide to the Underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the undersigned Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be
deemed to be part of the registration statement as of the time it was
declared effective;
(2) For the purpose of determining any liability under the Securities Act of
1933, as amended, 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 in the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to file, during any period in
which offers or sales are being made, a post-effective amendment to this
Registration Statement:
(1) To include any Prospectus required by Section 10(a)(3) of the Securities
Act of 1933, as amended;
(2) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (for 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; and
(3) 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.
(d) The undersigned Registrant hereby undertakes 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.
(e) 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 or otherwise, 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. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless, in the opinion of counsel, the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized the this registration
statement to be signed on its behalf by the undersigned, in the City of Chicago,
State of Illinois, on April 13, 2000.
<TABLE>
<S> <C> <C>
LIQUOR.COM, INC.
(Registrant)
By: /s/ BARRY L. GRIEFF
-----------------------------------------
Barry L. Grieff, CHIEF EXECUTIVE OFFICER
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that Liquor.com, Inc., and each person whose
signature appears below, constitutes and appoints Barry L. Grieff and Scott B.
Clark, and each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution for him and in his name or in the
name of the Company and in any and all capacities, to sign any and all
amendments to the Form SB-2 Registration Statement under the Securities Act of
1933 and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises as full to all items and purposes as they might or could do in person,
hereby ratifying and confirming all that each said attorney-in-fact and agent or
his substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BARRY L. GRIEFF Chief Executive Officer and April 13, 2000
------------------------------------------- Director (Principal Executive
Barry L. Grieff Officer)
/s/ SCOTT B. CLARK Chief Financial Officer April 13, 2000
------------------------------------------- (Principal Financial and
Scott B. Clark Accounting Officer)
/s/ GAIL P. ZELITZKY April 13, 2000
------------------------------------------- Director
Gail P. Zelitzky
/s/ JOHN G. VANDEGRIFT April 13, 2000
------------------------------------------- Director
John G. Vandegrift
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RALPH J. SORRENTINO April 13, 2000
------------------------------------------- Director
Ralph J. Sorrentino
/s/ BRYAN D. LEGATE April 13, 2000
------------------------------------------- Director
Bryan D. Legate
</TABLE>
II-6
<PAGE>
Exhibit 3.1
FILE NUMBER 5743-800-2
STATE OF ILLINOIS
OFFICE OF
THE SECRETARY OF STATE
WHEREAS, ARTICLES OF INCORPORATION OF LIQUOR BY WIRE, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF ILLINOIS HAVE BEEN FILED IN THE
OFFICE OF THE SECRETARY OF STATE AS PROVIDED BY THE BUSINESS CORPORATION ACT
OF ILLINOIS, IN FORCE JULY 1, A.D. 1984.
NOW THEREFORE, I, GEORGE H. RYAN, SECRETARY OF STATE OF THE STATE OF
ILLINOIS, BY VIRTUE OF THE POWERS VESTED IN ME BY LAW, DO HEREBY ISSUE THIS
CERTIFICATE AND ATTACH HERETO A COPY OF THE APPLICATION OF THE AFORESAID
CORPORATION.
IN TESTIMONY WHEREOF, I HERETO SET MY HAND AND CAUSE TO BE AFFIXED
THE GREAT SEAL OF THE STATE OF ILLINOIS, AT THE CITY OF SPRINGFIELD, THIS
16TH DAY OF AUGUST A.D. 1993 AND OF THE INDEPENDENCE OF THE UNITED STATES THE
TWO HUNDRED AND 18TH.
/s/ GEORGE H. RYAN
--------------------------------
SECRETARY OF STATE
[SEAL]
<PAGE>
<TABLE>
<CAPTION>
Form BCA-2.10 ARTICLES OF INCORPORATION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Rev. Jan. 1991)
SUBMIT IN DUPLICATE!
George H. Ryan ----------------------------------
Secretary of State FILED This space for use by
Department of Business Services AUG 16, 1993 PAID Secretary of State
Springfield, IL 62756 GEORGE H. RYAN AUG 16 1993 Date 8-16-93
Telephone (217) 782-6961 SECRETARY OF STATE Franchise Tax $ 25.00
- ------------------------------------- Filing Fee $ 75.00
Payment must be made by certified -------
check, cashier's check, Illinois Approved: R $100.00
attorney's check, Illinois C.P.A.'s
check or money order, payable to
"Secretary of State."
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. CORPORATE NAME: LIQUOR BY WIRE, INC.
--------------------------------------------------------
------------------------------------------------------------------------
(The corporate name must contain the word "corporation", "company,"
"incorporated", "limited" or an abbreviation thereof.)
- -------------------------------------------------------------------------------
2. Initial Registered Agent: Norman E. Lapping
---------------------------------------------
FIRST NAME MIDDLE INITIAL LAST NAME
Initial Registered Office: 414 North Orleans Street 307
---------------------------------------------
NUMBER STREET SUITE #
Chicago 60610 Cook
---------------------------------------------
CITY ZIP CODE COUNTY
- -------------------------------------------------------------------------------
3. Purpose or purposes for which the corporation is organized:
(If not sufficient space to cover this point, add one or more sheets of
this size.)
The transaction of any and all lawful businesses for which
corporations may be incorporated under the Illinois Business
Corporation Act.
- ------------------------------------------------------------------------------
4. Paragraph 1: Authorized Shares, Issued Shares and Consideration
Received:
<TABLE>
<CAPTION>
Par Value Number of Shares Number of Shares Consideration to be
Class per Share Authorized Proposed to be Issued Received Therefore
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common $ N/A 1,000 100 $1,000
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Total $1,000
</TABLE>
Paragraph 2: The preferences, qualifications, limitations, restrictions and
special or relative rights in respect of the shares of each class are: NONE
(if not sufficient space to cover this point, add one or more sheets of this
size.)
5743-800-2
(over)
<PAGE>
5. OPTIONAL: (a) Number of directors constituting the initial board of
directors of the corporation: _____________________
(b) Names and addresses of the persons who are to serve as
directors until the first annual meeting of shareholders
or until their successors are elected and qualify:
Name Residential Address
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
6. OPTIONAL: (a) It is estimated that the value of all property to be
owned by the corporation for the following year
wherever located will be: $________________________
(b) It is estimated that the value of the property to be
located within the State of Illinois during the
following year will be: $________________________
(c) It is estimated that the gross amount of business that
will be transacted by the corporation during the
following year will be: $________________________
(d) It is estimated that the gross amount of business that
will be transacted from places of business in the State
of Illinois during the following year will be:
$________________________
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
7. OPTIONAL: OTHER PROVISIONS
Attach a separate sheet of this size for any other
provision to be included in the Articles of Incorporation,
e.g., authorizing preemptive rights, denying cumulative
voting, regulating internal affairs, voting majority
requirements, fixing a duration other than perpetual, etc.
- ------------------------------------------------------------------------------
8. NAME(S) & ADDRESS(ES) OF INCORPORATOR(S)
The undersigned incorporator(s) hereby declare(s), under penalties of
perjury, that the statements made in the foregoing Articles of Incorporation
are true.
<TABLE>
<S> <C>
Dated August 12 1993.
--------------------------------, ---
SIGNATURE AND NAME ADDRESS
1. /s/ Norman E. Lapping 1. 414 North Orleans St., Ste. 307
--------------------------------------- -----------------------------------------
SIGNATURE STREET
Norman E. Lapping Chicago, IL 60610
--------------------------------------- -----------------------------------------
(TYPE OR PRINT NAME) CITY/TOWN STATE ZIP CODE
2. 2.
--------------------------------------- -----------------------------------------
SIGNATURE STREET
--------------------------------------- -----------------------------------------
(TYPE OR PRINT NAME) CITY/TOWN STATE ZIP CODE
3. 3.
--------------------------------------- -----------------------------------------
SIGNATURE STREET
--------------------------------------- -----------------------------------------
(TYPE OR PRINT NAME) CITY/TOWN STATE ZIP CODE
</TABLE>
(Signatures must be in ink on original document. Carbon copy, photocopy or
rubber stamp signatures may only be used on conformed copies.)
NOTE: If a corporation acts as incorporator, the name of the corporation and
the state of incorporation shall be shown and the execution shall be by its
President or Vice President and verified by him, and attested by its
Secretary or Assistant Secretary.
- -------------------------------------------------------------------------------
FEE SCHEDULE
- The initial franchise tax is assessed at the rate of 15/100 of 1
percent ($1.50 per $1,000) on the paid-in capital represented in this
state, with a minimum of $25 and a maximum of $1,000,000.
- the filing fee is $75.
- The MINIMUM TOTAL DUE (franchise tax + filing fee) is $100.
(Applies when the Consideration to be Received as set forth in Item 4
does not exceed $16,667)
- the Department of Business Services in Springfield will provide
assistance in calculating the total fees if necessary.
Illinois Secretary of State Springfield, IL 62756
Department of Business Services Telephone (217) 782-6961
<PAGE>
File # D5943-800-2
- ----------------------------------------
Form BCA-5.10
NFP-105.10
(Rev. Jan. 1995)
- ----------------------------------------
George H. Ryan
Secretary of State
Department of Business Services
Springfield, IL 62756
Telephone (217) 782-3647
<TABLE>
- ------------------------------------------------------------------------------------------------------------
<S> <C> SUBMIT IN DUPLICATE
STATEMENT OF FILED
CHANGE THIS SPACE FOR USE BY
OF REGISTERED AGENT SEP 22 1995 SECRETARY OF STATE
AND/OR REGISTERED GEORGE H. RYAN Date 9[ILLEGIBLE]
OFFICE SECRETARY OF STATE Filing Fee $5
Approved: [ILLEGIBLE]
------------------------------------
REMIT PAYMENT IN CHECK OR MONEY ORDER,
PAYABLE TO "SECRETARY OF STATE."
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
1. CORPORATE NAME: LIQUOR BY WIRE, INC.
---------------------------------------------------------
2. STATE OR COUNTRY OF INCORPORATION IL
----------------------------------------
- ------------------------------------------------------------------------------
3. Name and address of the registered agent and registered office as they
appear on the records of the office of the Secretary of State (BEFORE
CHANGE):
Registered Agent GAIL P. ZELITZKY
--------------------------------------------------
FIRST NAME MIDDLE NAME LAST NAME
Registered Office 111 W. JACKSON BLVD., #1100
---------------------------------------------------
NUMBER STREET SUITE NO.
CHICAGO, IL 60604 COOK
---------------------------------------------------
CITY STATE ZIP CODE COUNTY
4. Name and address of the registered agent and registered office shall be
(AFTER ALL CHANGES HEREIN REPORTED):
Registered Agent GAIL P. ZELITZKY
---------------------------------------------------
FIRST NAME MIDDLE NAME LAST NAME
Registered Office 2835 N. SHEFFIELD AVENUE, #409
---------------------------------------------------
NUMBER STREET SUITE NO.
CHICAGO IL 60657 COOK
---------------------------------------------------
CITY STATE ZIP CODE COUNTY
<PAGE>
5. The address of the registered office and the address of the business
office of the registered agent, as changed, will be identical.
6. The above change was authorized by: ("X" ONE BOX ONLY)
a. / / By resolution duly adopted by the board of directors. (NOTE 5)
b. /X/ By action of the registered agent. (NOTE 6)
NOTE: When the registered agent changes, the signatures of both president
and secretary are required.
7. (IF AUTHORIZED BY THE BOARD OF DIRECTORS, SIGN HERE. SEE NOTE 5)
The undersigned corporation has caused this statement to be signed by
its duly authorized officers, each of whom affirms, under penalties of
perjury, that the facts stated herein are true.
<TABLE>
<S> <C>
Dated ____________________________________ 19___ _______________________________
(EXACT NAME OF CORPORATION)
attested by _______________________________________________ by _______________________________
(SIGNATURE OF SECRETARY OR ASSISTANT SECRETARY) (SIGNATURE OF VICE PRESIDENT)
_______________________________________________ _______________________________
(TYPE OR PRINT NAME AND TITLE) (TYPE OR PRINT NAME AND TITLE)
(IF CHANGE OF REGISTERED OFFICE BY REGISTERED AGENT, SIGN HERE. SEE NOTE 6)
The undersigned, under penalties of perjury, affirms that the facts
stated herein are true.
Dated August 17, 1995 /s/ G.P. Zelitzky
___________________ __ _________________________________________
(Signature of Registered Agent of Record)
</TABLE>
NOTES
1. The registered office may, but need not be the same as the principal
office of the corporation. However, the registered office and the office
address of the registered agent must be the same.
2. The registered office must include a street or road address; a post
office box number alone is not acceptable.
3. A corporation cannot act as its own registered agent.
4. If the registered office is changed from one county to another, then the
corporation must file with the recorder of deeds of the new county a
certified copy of the articles of incorporation and a certified copy of
the statement of change of registered office. Such certified copies may
be obtained ONLY from the Secretary of State.
5. Any change of REGISTERED AGENT must be by resolution adopted by the
board of directors. This statement must then be signed by the president
(OR VICE-PRESIDENT) and by the secretary (OR AN ASSISTANT SECRETARY).
6. The registered agent may report a change of the REGISTERED OFFICE of the
corporation for which he or she is registered agent. When the agent
reports such a change, this statement must be signed by the registered
agent.
<PAGE>
Exhibit 3.2
CERTIFICATE OF INCORPORATION
OF
LIQUOR.COM, INC.
1. The name of the Corporation is Liquor.com, Inc.
2. The address of its registered office in the State of Delaware is 9
East Loockerman, in the City of Dover, 19901, County of Kent. The name of its
registered agent at such address is National Registered Agents, Inc.
3. The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
4. The total number of shares of stock which the Corporation shall have
authority to issue are:
6,000,000 Common Stock, par value $.00001 per share.
1,000,000 Preferred Stock, par value $.00001 per share.
The Preferred Stock may be issued from time to time, in one or more
series, and each series shall be known and designated by designations as may be
stated and expressed in a resolution or resolutions adopted by the Board of
Directors of the Corporation and as shall have been set forth in a certificate,
made, executed, acknowledged, filed and recorded in the manner required by the
laws of the State of Delaware in order to make the same effective. Each series
shall consist of the number of shares as shall be stated and expressed in the
resolution(s) providing for the issuance of Preferred Stock of the series
together with the additional number of shares as the Board of Directors by
resolution(s) may, from time to time, determine to issue as part of the series.
Unless otherwise provided with respect to any series, shares of any series may
be issued in fractional shares. All shares of any one series of Preferred Stock
shall be alike in every particular respect except that shares issued at
different times may accumulate dividends from different dates. The Board of
Directors shall have the power and authority to state and determine, in the
resolution(s) providing for the issue of each series of Preferred Stock, the
number of shares of each series authorized to be issued, the voting powers (if
any) and the designations, preferences and relative, participating, optional or
other rights appertaining to series, and the qualifications, limitations or
restrictions of the series (including, but not limited to, full power and
authority to determine as to the Preferred Stock of each series, the rate(s) of
dividends payable thereon, the times of payment of the dividends, the prices and
manner upon which the Preferred Stock of the series may be redeemed, the amount
or amounts payable thereon in the event of liquidation, dissolution or winding
up of the Corporation, and the right (if any) to convert the same into, and/or
to purchase, stock of any other class or series). The Board of Directors may,
from time to time, decrease the number of authorized shares of any series of
Preferred Stock (but not below the number of shares of any series of Preferred
Stock then outstanding). The foregoing provisions of this paragraph with respect
to the creation or issuance of series of Preferred Stock shall be subject to any
additional conditions with respect thereto which may
<PAGE>
CERTIFICATE OF INCORPORATION
OF LIQUOR.COM, INC
PAGE 2
be contained in any resolutions then in effect which shall have theretofore been
adopted in accordance with the foregoing provisions of this paragraph with
respect to any then outstanding series of Preferred Stock.
5. The Corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter or repeal
the bylaws of the Corporation, subject to any specific limitation provided by
any bylaws adopted by the stockholders.
7. Meetings of stockholders may be held within or outside of the State
of Delaware, as the by-laws may provide. The books of the Corporation may be
kept (subject to any provision contained in the bylaws) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the bylaws of the Corporation. Elections of directors
need not be by written ballot unless the bylaws of the Corporation shall so
provide.
8. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. If the General Corporation Law of the State of
Delaware, or any other applicable law, is amended to authorize corporation
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of the State of
Delaware, or any other applicable law, as so amended. Any repeal or modification
of this ARTICLE VIII by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
9. The Corporation shall indemnify, to the full extent that it shall
have power under applicable law to do so and in a manner permitted by such law,
any person made or threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was a director or
officer of the Corporation against liabilities and expenses reasonably incurred
or paid by such person in connection with such action, suit or proceeding. The
Corporation may indemnify, to the full extent that it shall have power under
applicable law to do so and in a manner permitted by such law, any person made
or threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was an employee or agent of the
Corporation, or is or was serving at the
<PAGE>
CERTIFICATE OF INCORPORATION
OF LIQUOR.COM, INC
PAGE 3
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against liabilities and expenses reasonably incurred or paid by such person
in connection with such action, suit or proceeding. The words "liabilities"
and "expenses" shall include, without limitation: liabilities, losses,
damages, judgments, fines, penalties, amounts paid in settlement, expenses,
attorneys' fees and costs. The indemnification provided by or granted
pursuant to this ARTICLE IX shall not be deemed exclusive of any other rights
to which any person indemnified or being advanced expenses may be entitled
under any statute, bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in such person's official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and
administrators of such person.
The Corporation may purchase and maintain insurance on behalf of any
person referred to in the preceding paragraph against any liability asserted
against and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions of this
ARTICLE IX or otherwise.
For purposes of this ARTICLE IX, references to the "Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or agents, so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under the
provisions of this ARTICLE IX with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
The provisions of this ARTICLE IX shall be deemed to be a contract
between the Corporation and each director or officer who serves in any such
capacity at any time while this ARTICLE IX and the relevant provisions of the
General Corporation Law of the State of Delaware or other applicable law, if
any, are in effect, and any repeal or modification of such law or of this
ARTICLE IX shall not affect any rights or obligations then existing with respect
to any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought or threatened based in whole or in
part upon any such state of facts.
For purposes of this ARTICLE IX, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall
<PAGE>
CERTIFICATE OF INCORPORATION
OF LIQUOR.COM, INC
PAGE 4
include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner not opposed to the best interests of the Corporation.
10. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of the General Corporation Law of the State of
Delaware or on the application of trustees in dissolution or of any receiver or
receivers appointed for the Corporation under the provisions of Section 279 of
the General Corporation Law of the State of Delaware, order a meeting of the
creditors or class of creditors, and/or of the stockholders of the Corporation,
as the case may be, to be summoned in such manner as the said court directs. If
a majority in number representing three-fourths (3/4) in value of the creditors
or class of creditors, and/or of the stockholders or class of stockholders of
the Corporation, as the case may be, agree to any compromise or arrangement and
to any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
11. The Corporation hereby expressly elects not to be governed by
Section 203 of the General Corporation Law of the State of Delaware.
12. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by law, and all rights conferred upon the
stockholders herein are granted subject to this reservation.
13. The name and address of incorporator is as follows:
Carol Detert 118 W. Edwards, Suite 200
Springfield, Illinois 62704
<PAGE>
CERTIFICATE OF INCORPORATION
OF LIQUOR.COM, INC
PAGE 5
14. The powers of the incorporator are to terminate upon the filing of
this Certificate of Incorporation. The names and mailing addresses of the
persons who are to serve as the initial directors of the Corporation until the
first annual meeting of stockholders of the Corporation, or until their
successors are elected and qualified, are:
Gail P. Zelitzky 4205 West Irving Park Road
Chicago, Illinois 60641
Steve Olsher 4205 West Irving Park Road
Chicago, Illinois 60641
IN WITNESS WHEREOF, the undersigned, being the incorporator
hereinbefore named, for the purpose of forming a corporation pursuant to the
General Corporation Law of the State of Delaware, makes this Certificate of
Incorporation, hereby declaring and certifying that the facts herein stated are
true, and accordingly, has hereunto set his hand this 15th day of December,
1999.
/s/ Carol Detert
----------------------------
Incorporator
<PAGE>
Exhibit 3.3
File Number 5743-800-2
State of Illinois
Office of
The Secretary of State
Whereas, ARTICLES OF MERGER OF
LIQUOR.COM, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE HAVE BEEN FILED IN THE
OFFICE OF THE SECRETARY OF STATE AS PROVIDED BY THE BUSINESS CORPORATION ACT
OF ILLINOIS, IN FORCE JULY 1, A.D. 1984.
Now Therefore, I, Jesse White, Secretary of State of the State of Illinois,
by virtue of the powers vested in me by law, do hereby issue this certificate
and attach hereto a copy of the Application of the aforesaid corporation.
In Testimony Whereof, I hereto set my hand and cause to be affixed the
Great Seal of the State of Illinois, at the City of Springfield, this 22ND
day of DECEMBER A.D. 1999 and of the Independence of the United States the
two hundred and 24TH.
[SEAL] /s/ Jesse White
Secretary of State
C-212.3
<PAGE>
Form BCA-11.25
(Rev. Jan. 1999)
- ---------------------------------------
Jesse White
Secretary of State
Department of Business Services
Springfield, IL 62756
Telephone (217) 782-6961
http://www.sos.state.il.us
- ---------------------------------------
DO NOT SEND CASH
Remit payment in check or money
order, payable to "Secretary of State."
Filing Fee is $100, but if merger or
consolidation involves more than 2
corporations, $50 for each additional
corporation.
- ---------------------------------------
ARTICLES OF MERGER
CONSOLIDATION OR EXCHANGE
- ---------------------------------------
FILED
DEC 22 1999
JESSE WHITE
SECRETARY OF STATE
- ---------------------------------------
File # 5743-800-2
SUBMIT IN DUPLICATE
THIS SPACE FOR USE BY
SECRETARY OF STATE
Date 12/22/99
Filing Fee $100.00
Approved: [ILLEGIBLE]
- ---------------------------------------
merge
1. Names of the corporations proposing to consolidate , and the state or
exchange shares
country of their incorporation:
<TABLE>
<CAPTION>
Name of Corporation State or Country Corporation
of Incorporation File Number
<S> <C> <C>
Liquor By Wire, Inc. Illinois 5743-800-2
- ----------------------------------- ------------------ -----------
Liquor.com, Inc. Delaware [ILLEGIBLE]
- ----------------------------------- ------------------ -----------
- ----------------------------------- ------------------ -----------
- ----------------------------------- ------------------ -----------
</TABLE>
- -------------------------------------------------------------------------------
2. The laws of the state or country under which each corporation is
incorporated permits such merger, consolidation or exchange.
- -------------------------------------------------------------------------------
surviving
3. (a) Name of the new corporation: Liquor.com, Inc.
acquiring ------------------------------
(b) it shall be governed by the laws of: Delaware
------------------------------
- -------------------------------------------------------------------------------
IF NOT SUFFICIENT SPACE TO COVER THIS POINT,
ADD ONE OR MORE SHEETS OF THIS SIZE.
4. Plan of merger is as follows:
See Exhibit A
EXPEDITED
DEC 22 1999
SECRETARY OF STATE
<PAGE>
5. Plan of merger was approved, as to each corporation not organized in
Illinois, incompliance with the laws of the state
under which it is organized, and (b) as to each
Illinois corporation, as follows:
(THE FOLLOWING ITEMS ARE NOT APPLICABLE TO MERGERS UNDER SECTION 11.30 --
90% OWNED SUBSIDIARY PROVISIONS. SEE ARTICLE 7.)
(ONLY "X" ONE BOX FOR EACH ILLINOIS CORPORATION)
<TABLE>
<CAPTION>
By the shareholders, a reso-
lution of the board of direc-
tors having been duly
adopted and submitted to a By written consent of the
vote at a meeting of share- shareholders having not less
holders. Not less than the than the minimum number of
minimum number of votes votes required by statute and By written consent
required by statute and by by the articles of incorpora- of ALL the share-
the articles of incorporation tion. Shareholders who have holders entitled to
voted in favor of the action not consented in writing have vote on the action,
taken. been given notice in accor- in accordance with
(Section 11.20) dance with Section 7.10 Section 7.10 &
Name of Corporation (Section 11.220) Section 11.20
- -------------------- ----------------------------- ----------------------------- -------------------
<S> <C> <C> <C>
Liquor By Wire, Inc. / / / / /XX/
- -------------------- ----------------------------- ----------------------------- -------------------
/ / / / / /
- -------------------- ----------------------------- ----------------------------- -------------------
/ / / / / /
- -------------------- ----------------------------- ----------------------------- -------------------
/ / / / / /
- -------------------- ----------------------------- ----------------------------- -------------------
/ / / / / /
- -------------------- ----------------------------- ----------------------------- -------------------
</TABLE>
- -------------------------------------------------------------------------------
6. (NOT APPLICABLE IF SURVIVING, NEW OR ACQUIRING CORPORATION IS AN ILLINOIS
CORPORATION)
It is agreed that, upon and after the issuance of a certificate of
merger, consolidation or exchange by the Secretary of State of the State
of Illinois:
a. The surviving, new or acquiring corporation may be served with process
in the State of Illinois in any proceeding for the enforcement of any
obligation of any corporation organized under the laws of the State
of Illinois which is a party to the merger, consolidation or exchange
and in any proceeding for the enforcement of the rights of a
dissenting shareholder of any such corporation organized under the
laws of the State of Illinois against the surviving, new or acquiring
corporation.
b. The Secretary of State of the State of Illinois shall be and hereby
is irrevocably appointed as the agent of the surviving, new or
acquiring corporation to accept service of process in any such
proceedings, and
c. The surviving, new, or acquiring corporation will promptly pay to the
dissenting shareholders of any corporation organized under the laws
of the State of Illinois which is a party to the merger,
consolidation or exchange the amount, if any, to which they shall be
entitled under the provisions of "The Business Corporation Act of
1983" of the State of Illinois with respect to the rights of
dissenting shareholders.
- -------------------------------------------------------------------------------
<PAGE>
7. (COMPLETE THIS ITEM IF REPORTING A MERGER UNDER SECTION 11.30--90% OWNED
SUBSIDIARY PROVISIONS.)
a. The number of outstanding shares of each class of each merging
subsidiary corporation and the number of such shares of each class
owned immediately prior to the adoption of the plan of merger by the
parent corporation, are:
<TABLE>
<CAPTION>
Total Number of Shares Number of Shares of Each Class
Outstanding Owned Immediately Prior to
Name of Corporation of Each Class Merger by the Parent Corporation
<S> <C> <C>
- ------------------- ---------------------- --------------------------------
- ------------------- ---------------------- --------------------------------
- ------------------- ---------------------- --------------------------------
- ------------------- ---------------------- --------------------------------
- ------------------- ---------------------- --------------------------------
</TABLE>
b. (Not applicable to 100% owned subsidiaries)
The date of mailing a copy of the plan of merger and notice of the
right to dissent to the shareholders of each merging subsidiary
corporation was __________________, _________.
(Month & Day) (Year)
Was written consent for the merger or written waiver of the 30-day
period by the holders of all the outstanding shares of all subsidiary
corporations received? / / Yes / / No
(IF THE ANSWER IS "NO," THE DUPLICATE COPIES OF THE ARTICLES OF
MERGER MAY NOT BE DELIVERED TO THE SECRETARY OF STATE UNTIL AFTER 30
DAYS FOLLOWING THE MAILING OF A COPY OF THE PLAN OF MERGER AND OF THE
NOTICE OF THE RIGHT TO DISSENT TO THE SHAREHOLDERS OF EACH MERGING
SUBSIDIARY CORPORATION.)
8. The undersigned corporations have caused these articles to be signed by
their duly authorized officers, each of whom affirms, under penalties of
perjury, that the facts stated herein are true. (All signatures must be in
BLACK INK.)
Dated 12-17- 99 Liquor By Wire, Inc.
----------------------, ------ ----------------------------------------
(MONTH & DAY) (YEAR) (EXACT NAME OF CORPORATION)
attested by /s/ Steve Olsher by /s/ Gail P. Zelitzky
------------------------ --------------------------------------
(SIGNATURE OF SECRETARY (SIGNATURE OF PRESIDENT OR
OR ASSISTANT SECRETARY) VICE PRESIDENT)
Steve Olsher, Secretary Gail P. Zelitzky, President
------------------------ ----------------------------------------
(TYPE OR PRINT NAME (TYPE OR PRINT NAME AND TITLE)
AND TITLE)
Dated 12-17 99 Liquor.Com, Inc.
----------------------, ------ ----------------------------------------
(MONTH & DAY) (YEAR) (EXACT NAME OF CORPORATION)
attested by /s/ Gail P. Zelitzky by /s/ Steve Olsher
------------------------ -------------------------------------
(SIGNATURE OF SECRETARY (SIGNATURE OF PRESIDENT OR
OR ASSISTANT SECRETARY) VICE PRESIDENT)
Gail P. Zelitzky,
Secretary Steve Olsher, President
------------------------ ----------------------------------------
(TYPE OR PRINT NAME (TYPE OR PRINT NAME AND TITLE)
AND TITLE)
Dated
----------------------, ------ ----------------------------------------
(MONTH & DAY) (YEAR) (EXACT NAME OF CORPORATION)
attested by by
------------------------ --------------------------------------
(SIGNATURE OF SECRETARY (SIGNATURE OF PRESIDENT OR
OR ASSISTANT SECRETARY) VICE PRESIDENT)
------------------------ ----------------------------------------
(TYPE OR PRINT NAME (TYPE OR PRINT NAME AND TITLE)
AND TITLE)
C-195.8
<PAGE>
EXHIBIT A
PLAN OF MERGER
*****
FIRST: LIQUOR BY WIRE, INC., an Illinois corporation (the "Merging
Corporation") shall merge with and into LIQUOR.COM., a Delaware corporation
(the "Surviving Corporation"), with the Surviving Corporation being the
surviving corporation and assuming all of the liabilities and obligations of
the Merging Corporation (the "Merger"). The Surviving Company is a
wholly-owned subsidiary of the Merging Corporation.
SECOND: Each share of Common Stock, no par value per share, of the
Merging Corporation, which shall be outstanding on the effective date of the
merger (the "Effective Date"), and all rights in respect thereof, shall be
canceled and such shares shall be converted into and shall become 22,500
shares of the Common Stock of the Surviving Corporation, $.00001 par value
per share.
THIRD: The Certificate of Incorporation of the Surviving Corporation
shall be the Certificate of Incorporation of the corporation surviving the
Merger.
FORTH: The by-laws of the Surviving Corporation shall be the by-laws of
the corporation surviving the Merger.
FIFTH: The current directors and officers of the Surviving Corporation
shall be the directors and officers of the corporation surviving the Merger
and shall serve until their successors are selected.
SEVENTH: The officers of each corporation party to the Merger shall be
and hereby are authorized to do all acts and things necessary and proper to
effect the Merger.
<PAGE>
EIGHTH: The Merger shall become effective immediately upon compliance
with the laws of the Secretary of State.
NINTH: Anything herein or elsewhere to the contrary notwithstanding,
this Merger may be amended or terminated and abandoned by the Board of
Directors of each corporation party to the Merger, at any time prior to the
date each corporation party files the Merger with each corporation party's
respective Secretary of State.
630294-1
2
<PAGE>
Exhibit 3.4
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
LIQUOR BY WIRE, INC.,
AN ILLINOIS CORPORATION
INTO
LIQUOR.COM, INC.,
A DELAWARE CORPORATION
(PURSUANT TO SECTION 253 OF THE GENERAL CORPORATION LAW OF DELAWARE)
Liquor.com, Inc., a corporation organized and existing under the laws
of the State of Delaware ("Liquor.com, Inc.") and a wholly-owned subsidiary of
Liquor By Wire, Inc., an Illinois corporation,
DOES HEREBY CERTIFY:
FIRST: Liquor.com, Inc. was incorporated pursuant to the General
Corporation Laws of the State of Delaware.
SECOND: All of the outstanding shares of stock of Liquor.com, Inc. are
owned byLiquor By Wire, Inc., incorporated pursuant to the Illinois Business
Corporation Act of 1983, as amended, the provisions of which permit the merger
of a corporation of another state and a corporation organized and existing under
the laws of Illinois.
THIRD: The directors of Liquor.com, Inc. adopted by the unanimous
written consent on December 16, 1999 the following resolutions approving the
merger of Liquor By Wire, Inc. with and into Liquor.com, Inc.:
RESOLVED, that the plan of merger be and it hereby is, adopted and
approved pursuant to applicable law, and that:
<PAGE>
(a)Liquor By Wire, Inc. shall be merged with
and into Liquor.com, Inc., with Liquor.com, Inc.
being the surviving corporation (the "Merger").
(b)The certificate of incorporation and
by-laws of Liquor.com, Inc., as in effect on the
effective date of the Merger, shall be the
certificate of incorporation and by-laws of
Liquor.com, Inc. following the Merger.
(c)The directors and officers of Liquor.com,
Inc., as in effect on the effective date of the
Merger, shall be the directors and officers of
Liquor.com, Inc. following the Merger.
(d)Upon the effective date of the Merger,
all rights, privileges, powers of every kind and all
property, real, personal, tangible and intangible of
Liquor By Wire, Inc., shall be deemed transferred to
Liquor.com, Inc., without further act or deed;
provided, however, that all liabilities of Liquor By
Wire, Inc. and contracts as the same existed
immediately prior to the Merger shall have been
assumed by Liquor.com, Inc., which shall thereafter
be fully responsible and liable therefor.
(e) Upon completion of the Merger, the
capital of Liquor By Wire, Inc., shall be added to
the capital of Liquor.com, Inc.; the shares of Liquor
By Wire, Inc., shall be canceled; and following the
Merger, each outstanding share of common stock of
Liquor By Wire shall be converted into and shall
become 22,500 shares of the common stock of
Liquor.com, Inc., so that all One Hundred
Thirty-Three and 1/3 (133 1/3) outstanding shares of
Liquor By Wire, Inc. shall convert into Three Million
(3,000,000) shares of Liquor.com, Inc., and all of
the outstanding shares of Liquor.com, Inc., held by
Liquor By Wire, Inc., shall be canceled.
FOURTH: The merger shall become effective immediately upon
compliance with the laws of the State of Delaware and the laws of the
State of Illinois.
2
<PAGE>
FIFTH: The proposed merger has been adopted, approved,
certified, executed and acknowledged by Liquor By Wire, Inc. in
accordance with the laws of the State of Illinois under which the
corporation was organized.
SIXTH: Anything herein or elsewhere to the contrary
notwithstanding, this merger may be amended or terminated and abandoned
by the Board of Directors of Liquor.com, Inc., at any time prior to the
date of filing the merger with the Secretary of State of the State of
Delaware.
IN WITNESS WHEREOF, Liquor.com, Inc. and Liquor By Wire, Inc.
have each caused this Certificate of Merger to be executed by its
President and attested by its Secretary on the date as written below.
DATED: December 16, 1999
LIQUOR BY WIRE, INC.,
an Illinois corporation
By: /s/ Gail P. Zelitzky
----------------------------------------------
Gail P. Zelitzky, President of Liquor By Wire,
Inc.
ATTEST: /s/ Steve Olsher
-------------------------------------------
Steve Olsher, Secretary of Liquor By Wire, Inc.
<PAGE>
Exhibit 3.5
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "LIQUOR.COM, INC.", FILED IN THIS OFFICE ON THE SEVENTH DAY OF
JANUARY, A.D. 2000, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS.
3139246 8100 [SEAL] /s/ Edward J. Freel
------------------------------------
001011106 EDWARD J. FREEL, SECRETARY OF STATE
AUTHENTICATION: 0188176
DATE: 01-07-00
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 01/07/2000
001011106-3139246
CERTIFICATE OF DESIGNATION
OF SERIES A PREFERRED STOCK OF
LIQUOR.COM, INC.
LIQUOR.COM, INC. a Corporation organized and existing under the
laws of the State of Delaware (the "Corporation") does hereby certify that,
pursuant to the authority conferred on the Board of Directors of the
Corporation by the Certificate of Incorporation of the Corporation and in
accordance with Section 151 of the General Corporation Law of the State of
Delaware (the "DGCL"), the Board of Directors of the Corporation adopted the
following resolution establishing a series of 422,222 shares of Preferred
Stock of the Corporation designated as "Series A Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the Board of Directors
of this Corporation by the Certificate of Incorporation, a series of
Preferred Stock, par value $.00001 per share, of the Corporation is hereby
established and created, and that the designation and number of shares
thereof and the voting and other powers, preferences and relative,
participating, optional or other rights of the shares of such series and the
qualifications, limitations and restrictions thereof are as follows:
SERIES A PREFERRED STOCK
1. DESIGNATION AND AMOUNT. There shall be a series of Preferred Stock
designated as "Series A Convertible Preferred Stock" and the number of Shares
constituting such series shall be 422,222. Such series is referred to herein
as the "Series A Preferred Stock." Such number of shares may be increased or
decreased by resolution of the Board of Directors of the Corporation;
PROVIDED, HOWEVER, that no decrease shall reduce the number of shares of
Series A Preferred Stock to less than the number of shares then issued and
outstanding.
2. DIVIDENDS.
Out of the assets of the Corporation legally available for
dividends, the holders of the Series A Preferred Stock shall share equally in
any dividend, on an as converted basis, when and as declared by the Board of
Directors, to the holders of the Common Stock of the Corporation, which
dividend declaration must be approved by the Preferred Director, as defined
in Section 5 below.
3. LIQUIDATION PREFERENCE.
(a) In the event of the occurrence of any liquidation, dissolution or
winding up of this Corporation (or deemed occurrence of such event pursuant
to Section 3(c)), either voluntary or involuntary, the holders of Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or funds of this Corporation to the holders
of the Common Stock by reason of their ownership thereof, an amount per share
determined by multiplying $1.1842111 (the "ORIGINAL ISSUE PRICE") times four
(4) (or, if the holders of Series A Preferred Stock have been paid all
amounts due under the Promissory Note dated as of January 6, 2000 between the
Corporation and the holders of Series A Preferred Stock, times three (3))
1
<PAGE>
for each outstanding share of Series A Preferred Stock (appropriately
adjusted for any recapitalizations, stock combinations, stock dividends,
stock splits and the like), plus an amount equal to all unpaid dividends on
the Series A Preferred Stock (collectively, the "LIQUIDATION AMOUNT"). If
upon the occurrence of a liquidation, dissolution or winding up, the assets
and funds of this Corporation legally available for distribution to
stockholders by reason of their ownership of the stock of this Corporation
shall be insufficient to permit the payment to such holders of Series A
Preferred Stock of the full Liquidation Amount, then the entire assets and
funds of this Corporation legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred Stock in
proportion to the number of shares of Common Stock issuable to them upon
conversion of their respective shares of Series A Preferred Stock.
(b) After payment has been made to the holders of the Series A
Preferred Stock of the Liquidation Amount, the remaining assets and funds of
the Corporation available for distribution to stockholders shall be
distributed ratably among the holders of the Series A Preferred Stock and
Common Stock in proportion to the number of shares of Common Stock held by
them or issuable to them upon conversion of their respective shares of Series
A Preferred Stock.
(c) A consolidation or merger of this Corporation with or into any
other corporation or corporations where the holders of the Common Stock and
Series A Preferred Stock do not together continue to hold more than 50%
ownership interest in this Corporation, or a sale, conveyance or disposition
of all or substantially all of the assets of this Corporation, or the
effectuation by this Corporation of a transaction or series of related
transactions in which more than 50% of the voting power of this Corporation
is disposed of, shall be deemed to be a liquidation, dissolution or winding
up of the Corporation.
(d) If any of the assets of this Corporation are to be distributed
under this Section 3, or for any purpose, in a form other than cash, then the
Board of Directors shall promptly determine in good faith the value of the
assets to be distributed to the holders of Series A Preferred Stock or Common
Stock. This Corporation shall, upon receipt of such determination, give
prompt written notice of the determination to each holder of shares of Series
A Preferred Stock or Common Stock.
4. CONVERSION. The holders of the Series A Preferred Stock shall have
conversion rights as follows (the "CONVERSION RIGHTS"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date
of issuance of such share, at the office of this Corporation or any transfer
agent for such Series A Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the
Original Issue Price by the Conversion Price (as hereinafter defined) at the
time in effect for a share of Series A Preferred Stock. The "CONVERSION
PRICE" per share of Series A Preferred Stock initially shall be $1.1842111,
subject to adjustment from time to time as provided below.
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred Stock
shall automatically be converted into shares of Common Stock at the
Conversion Price at the time immediately prior to the consummation of this
Corporation's sale so its Common Stock in a firm commitment underwriting by a
nationally recognized underwriter pursuant to a registration
2
<PAGE>
statement under the Securities Act of 1933, as amended (the "ACT"), the
aggregate gross proceeds of which are not less than $20,000,000, at a public
offering price of not less than four (4) times the Original Issue Price
(appropriately adjusted for any recapitalizations, stock dividends, stock
splits, and the like) (a "QUALIFIED PUBLIC OFFERING"). The holders of the
Series A Preferred Stock shall have the option to convert or retain their
shares of Series A Preferred Stock upon the completion of a public offering
which does not meet the qualifications set forth above.
(c) MECHANICS OF CONVERSION. Before any holder of Series A Preferred
Stock shall be entitled to convert the same into shares of Common Stock, such
holder shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this Corporation or of any transfer agent for the
Series A Preferred Stock, and shall give written notice by mail, postage
prepaid, to this Corporation at its principal corporate office, of the
election to convert the same, and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued; PROVIDED, HOWEVER, that in the event of a conversion pursuant to
Section 4(b) hereof, the outstanding shares of Series A Preferred Stock shall
be converted automatically without any further action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent; and PROVIDED FURTHER
that the Corporation shall not be obligated to issue certificates evidencing
the shares of Common Stock issuable upon such automatic conversion unless and
until the certificates evidencing such shares of Series A Preferred Stock
are either delivered to the Corporation or its transfer agent as provided
above, or the holder notifies the Corporation or its transfer agent that such
certificates have been lost, stolen or destroyed, and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates. This Corporation shall,
as soon as practicable thereafter, issue and deliver at such office to such
holder of Series A Preferred Stock, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid, and a check
payable to the holder in the amount of any declared and unpaid dividends
payable to the holder hereunder, if any. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares of Series A Preferred Stock to be converted, or, in
the case of automatic conversion in connection with an underwritten public
offering of securities registered pursuant to such offering, immediately
prior to the closing of such sale of securities, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
shares of Common Stock as of such date.
(d) FRACTIONAL SHARES. In lieu of any fractional shares to which the
holder of the Series A Preferred Stock would otherwise be entitled, this
Corporation shall pay cash equal to such fraction multiplied by the Fair
Market Value of one share of Series A Preferred Stock as determined by the
Board of Directors of the Corporation pursuant to Section 4(e)(i)(4) below.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Series A Preferred
Stock of each holder at the time converting into Common Stock and the number
of shares of Common Stock issuable upon such aggregate conversion.
(e) ADJUSTMENT OF CONVERSION PRICE. The Conversion Price of the
Series A
3
<PAGE>
Preferred Stock shall be subject to adjustment from time to time as follows:
(i) SPECIAL DEFINITIONS. For purposes of this Section 4(e), the
following definitions shall apply:
(1) "OPTIONS" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(2) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities convertible into or exchangeable for
Common Stock.
(3) "ADDITIONAL SHARES OF COMMON" shall mean all shares of
Common Stock issued (or, pursuant to Section 4(e)(iii), deemed to be issued)
by this Corporation after the Original Issue Date, other than shares of
Common Stock issued or issuable:
(A) to officers, directors or employees of, or consultants
to, the Corporation pursuant to a stock grant, stock option, restricted stock
purchase agreement, stock appreciation right, option plan, purchase plan or
other employee stock incentive program or agreement approved by a majority of
the Board of Directors of this Corporation, to the extent the total number of
such shares does not exceed 750,000 shares (as adjusted for stock splits and
the like);
(B) upon conversion of shares of the Series A Preferred
Stock;
(C) as a dividend or other distribution on the Series A
Preferred Stock;
(D) pursuant to a Qualified Public Offering;
(E) to persons or entities with whom this Corporation has
business relationships, including under equipment leasing arrangements, bank
or other institutional loans, acquisitions of companies or product lines or
other arrangements or transactions wherein the principal purpose of the
issuance of such Common Stock is for non-equity financing purposes, provided
that such arrangements are approved by a majority of the Board of Directors
of this Corporation, including the affirmative vote of the Preferred
Director, if any; and
(F) in a transaction described in Section 4(e)(vi).
(4) "FAIR MARKET VALUE" of one share of Common Stock or Series
A Preferred Stock as of a particular date shall be determined by the Board of
Directors of the Corporation as follows: (i) if traded on a securities
exchange or through the Nasdaq National Market or Small Cap Market, the value
shall be deemed to be the average of the closing prices of the Common Stock
or Series A Preferred Stock, as applicable, on such exchange or quotation
system over the thirty (30) day period ending three (3) days prior; (ii) if
traded over-the-counter, the value shall be deemed to be the average of the
closing bid or sale prices (whichever is applicable) over the thirty (30)
day period ending three (3) days prior; and (iii) if there is no
4
<PAGE>
active public market, the value shall be the fair market value thereof, as
determined in good faith by the Board of Directors of the Corporation,
including the affirmative vote of the Series A Preferred Director, if any.
(5) "ORIGINAL ISSUE DATE" shall mean the date on which the
first share of Series A Preferred Stock is issued.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the
Conversion Price shall be made in respect of the issuance of Additional
Shares of Common unless the consideration per share (determined pursuant to
Section 4(e)(v) hereof) for an Additional Share of Common issued or deemed to
be issued by this Corporation is less than the Conversion Price in effect on
the date of, and immediately prior to, such issue.
(iii) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON. In the event the
Corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record date
for the determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard to
any provisions contained therein for a subsequent adjustment of such number)
of Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the exercise of such Options and
conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common issued as of the time of such issue or, in case
such a record date shall have been fixed, as of the close of business on such
record date, provided that Additional Shares of Common shall not be deemed to
have been issued unless the consideration per share (determined pursuant to
Section 4(e)(v) hereof) of such Additional Shares of Common would be less
than the Conversion Price in effect on the date of and immediately prior to
such issue, or such record date, as the case may be, and PROVIDED FURTHER
THAT in any such case in which Additional Shares of Common are deemed to be
issued:
(1) no further adjustment in the Conversion Price shall be made
upon the subsequent issue of Convertible Securities or shares of Common Stock
upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(2) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or decrease
in the consideration payable to the Corporation, or increase or decrease in
the number of shares of Common Stock issuable, upon the exercise, conversion
or exchange thereof (other than under or by reason of provisions designed to
protect against dilution), the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase
or decrease becoming effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(3) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Price computed upon the original issue thereof
or upon the occurrence of a
5
<PAGE>
record date with respect thereto, and any subsequent adjustments based
thereon, shall, upon such expiration, be recomputed as if:
(A) in the case of Convertible Securities or Options for
Common Stock, the only additional shares of Common Stock issued were shares
of Common Stock, if any, actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, and the
consideration received therefor was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration actually received by the Corporation upon such
exercise, or for the issue of all such Convertible Securities, whether or not
converted or exchanged, plus the additional consideration, if any, actually
received by the Corporation upon such conversion or exchange; and
(B) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued upon the exercise thereof
were issued at the time of issue of such Options and the consideration
received by the Corporation for the Additional Shares of Common Stock deemed
to have been then issued was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(4) no readjustment pursuant to clauses (2) and (3) above shall
have the effect of increasing the Conversion Price to an amount which exceeds
the lower of (1) the Conversion Price on the original adjustment date and (2)
the Conversion Price that would have resulted from any issuance of Additional
Shares of Common between the original adjustment date and such readjustment
date; and
(5) in the case of any Option or Convertible Securities with
respect to which the maximum number of shares of Common Stock issuable upon
exercise or conversion or exchange thereof is not determinable, no adjustment
to the Conversion Price shall be made until such number becomes determinable.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL
SHARES OF COMMON. In the event this Corporation shall issue Additional Shares
of Common (including Additional Shares of Common deemed to be issued pursuant
to Section 4(e)(iii)) without consideration or for a consideration per share
less than the Conversion Price in effect on the date of and immediately prior
to such issue, then and in each such event such Conversion Price shall be
reduced, concurrently with such issue, to such lower price so long as such
price is not less than the par value per share of the Common Stock.
(v) DETERMINATION OF CONSIDERATION. For purposes of this Section
4(e), the consideration received by the Corporation for the issue of any
Additional Shares of Common shall be computed as follows:
(1) CASH AND PROPERTY. Such consideration shall:
6
<PAGE>
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation before deducting any
commissions paid by the Corporation with respect to such issuance;
(B) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such issue, as determined
in good faith by the Board of Directors, including the affirmative vote of
the Series A Preferred Director, if any; and
(C) in the event Additional Shares of Common are issued (or,
pursuant to Section 4(e)(iii), deemed to be issued) together with other
shares or securities or other assets of the Corporation for consideration
which covers both, be the proportion of such consideration so received,
computed as provided in clauses (A) and (B) above, as determined in good
faith by the Board of Directors.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per
share received by the Corporation for Additional Shares of Common deemed to
have been issued pursuant to Section 4(e)(iii), relating to Options and
Convertible Securities, shall equal the quotient determined by dividing:
(A) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options
or the conversion or exchange of such Convertible Securities, or in the case
of Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities, by
(B) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon
the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) OTHER ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price
shall be subject to adjustments from time to time as follows:
(1) ADJUSTMENTS FOR SUBDIVISIONS OR COMBINATIONS OF COMMON
STOCK. In the event the outstanding shares of Common Stock shall be
subdivided by stock split, stock dividend or otherwise, into a greater number
of shares of Common Stock, the Conversion Price of each series of Preferred
Stock then in effect shall, concurrently with the effectiveness of such
subdivision, be proportionately decreased. In the event the outstanding shares
of Common Stock shall be combined or consolidated into a lesser number of
shares of Common Stock, the Conversion Price of each series of Preferred
Stock then in effect shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately increased.
(2) ADJUSTMENTS FOR STOCK DIVIDENDS AND OTHER DISTRIBUTIONS. In
the event the Corporation makes, or fixes a record date for the determination
of holders of Common Stock entitled to receive any distribution (excluding
repurchases of securities by the
7
<PAGE>
Corporation not made on a pro rata basis) payable in property or in
securities of the Corporation other than shares of Common Stock, and other
than as otherwise adjusted for in this Section 4 or as provided in Section
2 in connection with a dividend, then and in each such event the holders of
the Series A Preferred Stock shall receive, at the time of such distribution,
the amount of property or the number of securities of the Corporation that
they would have received had their Series A Preferred Stock been converted
into Common Stock on the date of such event.
(3) ADJUSTMENTS FOR REORGANIZATIONS, RECLASSIFICATIONS OR
SIMILAR EVENTS. If the Common Stock shall be changed into the same or a
different number of shares of any other class or classes of stock or other
securities or property, whether by capital reorganization, reclassification
or otherwise, then each share of Series A Preferred Stock shall thereafter be
convertible into the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of such shares of Series A Preferred
Stock shall have been entitled upon such reorganization, reclassification or
other event.
(vii) MISCELLANEOUS.
(1) All calculations under this Section 4(e) shall be made to
the nearest cent or to the nearest one hundredth (1/100) of a share, as the
case may be.
(2) No adjustment in the Conversion Price need be made if such
adjustment would result in a change in such Conversion Price of less than
$0.01. Any adjustment of less than $0.01 which is not made shall be carried
forward and shall be made at the time of and together with any subsequent
adjustment which, on a cumulative basis, amounts to an adjustment of $0.01 or
more in such Conversion Price.
(f) NO IMPAIRMENT. This Corporation will not, by amendment of this
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this Corporation, but will at all times in good faith assist in
the carrying out of all the provisions of this Section 4 and in the taking of
all such actions as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock against
impairment.
(g) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section
4, this Corporation, at its expense, shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and prepare and furnish
to each holder of Series A Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. This Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish or
cause to be furnished to such holder a like certificate setting forth (A)
such adjustment and readjustment, (B) the Conversion Price at the time in
effect, and (C) the number of shares of Common Stock and the amount, if any,
of other property that at the time would be received upon the conversion of
such holder's Series A Preferred Stock.
(h) NOTICES OF RECORD DATE. In the event that this Corporation shall
propose at
8
<PAGE>
any time:
(i) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge with or into any other Corporation (other than a
merger in which the holders of the outstanding voting equity securities of
this Corporation immediately prior to such merger hold more than fifty percent
(50%) of the voting power of the surviving entity immediately following such
merger), or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up;
then, in connection with each such event, this Corporation shall send to the
holders of the Series A Preferred Stock:
(1) at least five (5) days prior written notice of the date
on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which holders of the Common
Stock shall be entitled thereto) or for determining rights to vote in respect
of the matters referred to in (i) and (ii) above; and
(2) in the case of the matters referred to in (iii) and (iv)
above, at least ten (10) days' prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event).
(i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. This Corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock, and if
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding shares of
the Series A Preferred Stock, in addition to such other remedies as shall be
available to the holders of such Series A Preferred Stock, this Corporation
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purposes.
(j) NOTICES. Any notice required by the provisions of this Section 4
to be given to the holders of shares of Series A Preferred Stock shall be
deemed given if delivered by confirmed facsimile or electronic transmission
(with duplicate original sent by United States mail) or three business days
after such notice is deposited in the United States mail, postage
9
<PAGE>
prepaid, and addressed to each holder of record at his address appearing on
the books of this Corporation.
5. REDEMPTION.
(a) In the event that any holder (a "Redeeming Holder") of
outstanding Series A Preferred Stock gives written notice to this Corporation
of a demand for redemption of its Series A Preferred Stock at any time on or
after the second anniversary of the Original Issue Date, and the Corporation
has not satisfied its obligation to the holders of the Series A Preferred
Stock pursuant to the Promissory Note between the Corporation and the holders
of the Series A Preferred Stock dated January 6, 2000, this Corporation
shall, to the extent it may lawfully do so, redeem such shares at a price
equal to the Original Issue Price of the shares of Series A Preferred Stock,
plus any accrued but unpaid dividends. Such redemption shall occur in two
equal annual installments, each covering one-half of the shares then held by
the Redeeming Holder with the first installment to close within 60 days of
the redemption request.
(b) If the funds of this Corporation legally available for
redemption of shares of Series A Preferred Stock on any Redemption Date are
insufficient to redeem the total number of shares of Series A Preferred Stock
to be redeemed on such date, those funds which are legally available will be
used to redeem the maximum possible number of such shares in accordance with
the provisions of Section 5(a) above. The shares of Series A Preferred Stock
not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein and the redemption price of each unredeemed share
shall bear interest at a rate of 10% per annum. At any time thereafter when
additional funds of this Corporation are legally available for the redemption
of shares of Series A Preferred Stock, such funds will immediately be used to
redeem the balance of the shares that this Corporation has become obligated
to redeem on any Redemption Date but which it has not redeemed plus the
interest specified above. In the event fewer than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(c) The shares of Series A Preferred Stock which are redeemed by the
Corporation pursuant to this Section 5 shall be cancelled by the Corporation
and shall not be eligible for re-issuance.
6. VOTING RIGHTS.
(a) GENERAL VOTING RIGHTS. Except as otherwise required by law or as
otherwise set forth below, each holder of Common Stock shall have one vote
for each share of Common Stock so held. In connection with any matter as to
which the holders of Common Stock are entitled to vote including, but not
limited to, the election of directors, each share of Preferred Stock issued
and outstanding as of the record date for such meeting shall have (and the
holder of record thereof shall be entitled to cast) the number of votes equal
to the number of votes such holder would have been entitled to cast had it
converted its shares of Preferred Stock into shares of Common Stock
immediately prior to the record date for the determination of stockholders
entitled to vote upon such matters. Except as provided below and except as
otherwise may be required by law or in this Certificate of Incorporation, the
holders of Common Stock and the holders of Preferred Stock shall be entitled
to notice of any meeting of stockholders and to vote together as a single
class.
10
<PAGE>
(b) ELECTION OF SERIES A DIRECTORS.
(i) The holders of the Series A Preferred Stock, voting
separately as a single series, shall have the exclusive right, if
they so choose, acting by written consent given in accordance with
paragraph 6(b)(vi) below, or by vote at a meeting called for that
purpose, to elect the number of directors to the Corporation's Board
of Directors provided for by this Certificate of Incorporation,
which number shall initially be one (the "SERIES A PREFERRED
DIRECTOR"). In addition to any other rights and responsibilities
attributable to a Director of the Corporation under the DGCL or the
Certificate of Incorporation and Bylaws of the Corporation, the
Series A Preferred Director, if any, shall have the right, but not
the obligation, to serve as a member of any committee of the Board
of Directors that may be established from time to time.
(ii) The initial Series A Preferred Director, if any,
will be the person designated by written consent of the holders of
the Series A Preferred Stock given in accordance with paragraph
6(b)(vi) on the Issue Date.
(iii) At any meeting having as a purpose the election of
directors by holders of the Series A Preferred Stock, the presence,
in person or by proxy, of the holders of a majority of the shares
of the Series A Preferred Stock then outstanding shall be required
and be sufficient to constitute a quorum for the election of a
director by such holders. The Series A Preferred Director(s) to be
elected at such meeting shall be elected by a majority of the votes
of the shares of the Series A Preferred Stock present in person or
represented by proxy at such meeting and entitled to vote in the
election of such Series A Preferred Director(s) or by written
consent of the holders of such shares given in accordance with the
provisions of paragraph 6(b)(vi).
(iv) Except as provided in paragraph 6(b)(v), any vacancy
in the office of a Series A Preferred Director shall be filled by
the holders of the Series A Preferred Stock entitled to vote for
such Series A Preferred Director by vote of such holders as provided
in paragraph 6(b)(iii) above at a meeting called for such purpose or
by written consent of such holders given in accordance with
paragraph 6(b)(vi) below.
(v) A Series A Preferred Director, if any, may be
removed, with or without cause, by the vote or by written consent of
the holders of a majority of the outstanding shares of Series A
Preferred Stock. Any vacancy occurring as a result of such removal
shall be filled by the affirmative vote of the holders of a majority
of the Series A Preferred Stock as provided in paragraph 6(b)(iii),
such vote to be taken at the same meeting at which the removal of
such Series A Preferred Director was voted upon, or by written
consent of the holders of such Series A Preferred Stock given in
accordance with the provisions of paragraph 6(b)(vi). Any director
elected to fill a vacancy shall serve the same remaining term as
that of his or her predecessor and until his or her successor has
been chosen and has qualified.
11
<PAGE>
(vi) With respect to actions by the holders of the Series
A Preferred Stock upon those matters on which such holders are
entitled to vote as a separate series, such actions may be taken
without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth action so taken,
shall be signed by the holders of outstanding shares of Series A
Preferred Stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at
which all shares of such Series A Preferred Stock entitled to vote
thereon were present and voted, and shall be delivered to the
Corporation as provided in the DGCL. Notice shall be given in
accordance with the applicable provisions of the DGCL of the taking
of corporate action without a meeting by less than unanimous written
consent.
7. PROTECTIVE PROVISIONS. This Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of
either (a) at least sixty-six and two-thirds percent (66 2/3%) of the
then-outstanding shares of Series A Preferred Stock voting together as a
single class, on an as-converted basis; or (b) a representative of the
holders of Series A Preferred Stock unanimously designated in writing by the
holders of Series A Preferred Stock as the person entitled to exercise such
approval (the "Series A Preferred Stock Representative"):
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its assets, property or business or recapitalize,
reorganize or merge into or consolidate with any other corporation (other
than a wholly-owned subsidiary corporation) or effect any transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of this Corporation is disposed of;
(b) declare or pay any dividends on the Common Stock, or repurchase
any Preferred Stock or Common Stock (other than the redemption rights
provided by Section 5 herein or the exercise of repurchase rights pursuant to
any right of first refusal or restricted stock grant approved by a majority
of the Board of Directors, including the affirmative vote of the Preferred
Director, if any);
(c) make any loans or advances to officers, directors, employees or
consultants of this Corporation, except (i) in the ordinary course of
business as part of travel advances or other remuneration for services and
(ii) pursuant to secured promissory notes for the purchase of stock;
(d) make any guarantees, except in the ordinary course of business;
(e) mortgage, pledge or create any security interest in, or permit
any subsidiary corporation to mortgage, pledge or create any security interest
in, all or substantially all of the real, personal or intangible property of
this Corporation or any subsidiary Corporation, in an amount over $100,000
unless unanimously approved by the Board of Directors;
(f) own or permit any subsidiary corporation to own any securities
of any other corporation, partnership or other entity unless it is wholly
owned by this Corporation;
(g) create any new class or series of stock or any other securities
convertible into equity securities of the Corporation having a preference
over, or being on a parity with, the Series A Preferred Stock with respect to
voting, dividends or upon liquidation;
12
<PAGE>
(h) amend, waive, or repeal any provision of, or add any provision
to, this Corporation's Certificate of Incorporation or Bylaws if such action
would change the preferences, rights, privileges or power of, or restrictions
provided for the benefit of, the Series A Preferred Stock;
(i) enter a business other than the development, marketing and
support of a web-site related to the sale of alcoholic beverages on the
internet and related e-commerce activities;
(j) increase or decrease the authorized number of shares of Common
Stock, Preferred Stock, or Series A Preferred Stock.
(k) increase the number of shares available for issuance under the
terms of any stock option or equity-based compensation plan to more than
750,000 shares, as adjusted for stock splits and the like.
(l) increase the Board of Directors to more than 5 members.
(m) make any payment on indebtedness to any shareholder.
8. PREEMPTIVE RIGHTS. If, prior to a Qualified Public Offering, the
Corporation shall issue Common Stock or other equity securities ("EQUITY
SECURITIES"), each holder of Series A Preferred Stock shall be entitled to
purchase the portion of such Common Stock or Equity Securities to be issued
necessary in order that the aggregate shares of Common Stock and Equity
Securities held by such holder constitute the same percentage of all Common
Stock (assuming the conversion, exercise or exchange of all Equity Securities)
after the issuance of such Common Stock or Equity Securities as before the
issuance thereof; provided, however, that such preeemptive right shall not
apply to (a) issuances of Common Stock or Equity Securities excluded from the
definition of "Additional Shares of Common" pursuant to Section
4(e)(i)(3)(A); (b) issuance of Common Stock or Equity Securities upon the
conversion, exercise or exchange of Equity Securities to which the preemptive
right was applicable; (c) issuance of Common Stock or Equity Securities in
connection with an exercise of the preemptive rights granted hereunder; (d)
issuances of shares pursuant to the Preferred Stock Purchase Agreement or
upon conversion of the Series A Preferred; or (e) issuances of Common Stock
in connection with a Qualified Public Offering. The price of securities which
each holder becomes entitled to purchase by reason hereof shall be the same
price at which such securities are offered to others. A holder may exercise
its right under this Section 7 to purchase Equity Securities by paying the
purchase price therefor at the principal office of the Corporation within ten
days after receipt of notice from the Corporation (which notice by the
Corporation shall be given at least 15 days before the issuance of the Equity
Securities) stating the number or amount of Equity Securities it intends to
issue, the price and characteristics thereof and the number of shares that
such holder is entitled to purchase. The holder shall pay such purchase price
in cash or by check or wire transfer; PROVIDED, HOWEVER, that if the
Corporation is indebted to such holder, the holder shall be entitled, at the
holder's sole option, to credit against the purchase price all or any portion
of the Corporation's indebtedness to such holder which is then due (accrued
but unpaid dividends on the Series A Preferred Stock shall not be deemed to be
indebtedness for purposes of such credit). A holder's contractual preemptive
rights hereunder shall be deemed to be exercised immediately prior to the
close of business on the day of payment of the purchase price in accordance
with the foregoing provisions, and at such time such holder shall be treated
for all purposes as the record
13
<PAGE>
holder of the Equity Securities. As promptly as practicable (and in any event
within ten days) on or after the purchase date, the Corporation shall issue
and deliver at its principal office a certificate or certificates for the
number of full shares of Common Stock or the number of full shares or amount,
whichever is applicable, of Equity Securities together with cash for any
fraction of a share or portion of an Equity Security at the purchase price to
which the holder is entitled hereunder.
9. STATUS OF CONVERTED STOCK. In the event any shares of Series A
Preferred Stock shall be converted into Common Stock pursuant to Section 4 of
this Article IV, the shares of such Series A Preferred Stock so converted
shall be canceled and shall not be issuable by this Corporation. This
Certificate of Incorporation shall be appropriately amended to effect the
corresponding reduction in this Corporation's authorized stock.
14
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation of Series A Preferred Stock to be signed by Steve Olsher, its
President, this 6th day of January, 2000.
LIQUOR.COM, INC.
/s/ Steve Olsher
--------------------------
Steve Olsher
President
15
<PAGE>
Exhibit 3.6
BY-LAWS
OF
LIQUOR.COM INC.
ARTICLE 1
OFFICES
The corporation shall continuously maintain in the State of Delaware, a
registered office and a registered agent whose office is identical with such
registered office and may have other offices within or without the state. The
address of the corporation's registered office in the State of Delaware is
National Registered Agents, Inc., 9 East Loockerman, Dover, County of Kent,
19901. The name of the corporation's registered agent at such address is the
National Registered Agents, Inc. The corporation reserves the power to change
its registered agent and registered office at any time.
ARTICLE 2
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. An annual meeting of the stockholders shall
be held not less than thirty (30) days after delivery of the annual report, but
within six (6) months after the end of each fiscal year, for the purpose of
electing directors and for the transaction of such other business, as may come
before the meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders may
be called either by the chairperson of the board, the chief executive officer,
the board of directors, or by any stockholders who hold in the aggregate not
less than ten percent (10%) of the outstanding shares of common stock for the
purpose or purposes stated in the call of the meeting.
SECTION 3. PLACE OF MEETINGS. Each meeting of the stockholders for the
election of directors shall be held at the date, time and place, either within
or without the State of Delaware, as may be designated by resolution of the
board of directors. Meetings of stockholders for any other purpose may be held
at such place, within or without the State of Delaware, and at such time as
shall be determined pursuant to Section 2 of this ARTICLE II, and stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
SECTION 4. NOTICE OF MEETINGS. A written notice of each meeting of
stockholders, stating the place, date and hour of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called,
shall be given to each stockholder entitled to vote at the meeting. Unless
otherwise provided by the General Corporation Law of Delaware ("Delaware Law"),
the notice shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting, and, if mailed, shall be deposited in the United
States mail, postage prepaid, both directed to the stockholder at his address as
it
<PAGE>
appears on the records of the corporation. No notice need be given to any
person with whom communication is unlawful, nor shall there be any duty to apply
for any permit or license to give notice to any such person.
SECTION 5. WAIVER OF NOTICE. Anything herein to the contrary
notwithstanding, with respect to any stockholder meeting, any stockholder who in
person or by proxy shall have waived in writing notice of the meeting, either
before or after such meeting, or who shall attend the meeting in person or by
proxy, shall be deemed to have waived notice of such meeting unless he attends
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 6. QUORUM; MANNER OF ACTING AND ORDER OF BUSINESS. Subject to
the provisions of these by-laws, the Certificate of Incorporation and Delaware
Law as to the vote that is required for a specified action, the presence in
person or by proxy of the holders of a majority of the outstanding shares of the
corporation entitled to vote at any meeting of stockholders shall constitute a
quorum for the transaction of business. The vote of the holders of a majority of
the shares of the corporation's stock entitled to vote, present in person or
represented by proxy, shall be binding on all stockholders of the corporation,
unless the vote of a greater number or voting by classes is required by law or
the Certificate of Incorporation or these by-laws. The stockholders present at a
duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
In the absence of a quorum, stockholders holding a majority of the
shares present in person or by proxy and entitled to vote, regardless of whether
or not they constitute a quorum, or if no stockholders are present, any officer
entitled to preside at or act as secretary of the meeting, may adjourn the
meeting to another time and place. Any business which might have been transacted
at the original meeting may be transacted at any adjourned meeting at which a
quorum is present. No notice of an adjourned meeting need be given if the time
and place are announced at the meeting at which the adjournment is taken except
that, if adjournment is for more than thirty (30) days or if, after the
adjournment, a new record date is fixed for the meeting, notice of the adjourned
meeting shall be given pursuant to Section 4 of this ARTICLE II.
Meetings of the stockholders shall be presided over by the chairperson
of the board, or in his or her absence, by the chief executive officer, or in
his absence, by the president, or in the absence of the foregoing persons, by a
chairperson designated by the board of directors, or in the absence of such
designation, by a chairperson chosen at the meeting. The secretary shall act as
secretary of the meeting, but in his absence the chairperson of the meeting may
appoint any person to act as secretary of the meeting. The order of business at
all meetings of the stockholders shall be
<PAGE>
determined by the chairperson. The order of business so determined, however,
may be changed by vote of the holders of a majority of the shares present at
the meeting in person or represented by proxy.
SECTION 7. VOTING; PROXIES. Each stockholder of record on the record
date, as determined pursuant to Section 6 of ARTICLE VI, shall be entitled to
one vote for every share registered in his name. Voting at meetings of
stockholders need not be by written ballot. Each stockholder entitled to vote at
any meeting of stockholders or to express consent to or dissent from corporate
action in writing without a meeting may authorize another person to act for him
by proxy. No proxy shall be valid after three years from its date of execution,
unless the proxy provides for a longer period.
SECTION 8. INSPECTORS OF ELECTION.
(1) In advance of any meeting of stockholders, the board of directors
may appoint inspectors of election to act at each meeting of stockholders and
any adjournment thereof. If inspectors of election are not so appointed, the
chairperson of the meeting may, and upon the request of any stockholder or his
proxy shall, appoint inspectors of election at the meeting. The number of
inspectors shall be either one or three. If appointed at the meeting upon the
request of one or more stockholders or proxies, the vote of the holders of a
majority of shares present shall determine whether one or three inspectors are
appointed. In any case any person appointed as an inspector fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
directors in advance of the convening of the meeting or at the meeting by the
person acting as chairperson.
(2) The inspectors of election shall determine the outstanding stock of
the corporation, the stock represented at the meeting and the existence of a
quorum, shall receive votes, ballots, or consents, shall count and tabulate all
votes and shall determine the result; and in connection therewith, the inspector
shall determine the authority, validity and effect of proxies, hear and
determine all challenges and questions, and do such other ministerial acts as
may be proper to conduct the election or vote with fairness to all stockholders.
If there are three inspectors of election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or certificate of
all. If no inspectors of election are appointed, the secretary shall pass upon
all questions and shall have all other duties specified in this Section.
(3) Upon request of the chairperson of the meeting or any stockholder
or his proxy, the inspector(s) of election shall make a report in writing of any
challenge or question or other matter determined by him and shall execute a
certificate of any fact found in connection therewith. Any such report or
certificate shall be filed with the record of the meeting.
3
<PAGE>
SECTION 9. ACTION WITHOUT A MEETING. Any action required to be taken at
any annual or special meeting of stockholders, or any action which may be taken
at any annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding shares having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted and shall be delivered to the corporation by delivery to
its registered office in the State of Delaware, its principal place of business,
or an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. Every written consent shall bear the date of
signature of each stockholder who signs the consent and no written consent shall
be effective to take the corporate action referred to therein unless, within
sixty (60) days of the earliest dated consent delivered in the manner required
by this Section 9, ARTICLE II to the corporation, written consents signed by a
sufficient number of stockholders to take action are delivered to the
corporation in such manner. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 10. REVOCATION OF CONSENT. Any stockholder giving a written
consent, or the stockholder's proxyholders, or a transferee of the shares or a
personal representative of the stockholder or its respective proxyholder, may
revoke the consent by a writing received by the corporation prior to the time
that written consents of the number of shares required to authorize the proposed
action have been filed with the secretary of the corporation, but may not do so
thereafter. Such revocation is effective upon its receipt by the secretary of
the corporation.
ARTICLE 3
DIRECTORS
SECTION 1. NUMBER, TENURE AND QUALIFICATIONS.
(1) The number of directors of the corporation shall be not less than
two (2) and not more than seven (7) members. Within these parameters, the board
of directors may by resolution from time to time determine the number of
directors. Initially, the number of directors shall be two(2).
Each director elected shall hold office until the next annual
meeting of stockholders or until his successor shall have been duly elected
and qualified or until his earlier resignation or removal. Unless the
Certificate of Incorporation fixes the number of directors, the number of
directors may be increased or decreased
4
<PAGE>
from time to time by an amendment of this section; but no decrease shall have
the effect of shortening the term of any incumbent director. Directors need
not be residents of the State of Delaware, or stockholders of the corporation.
(2) Any director or the entire board of directors may be removed, with
or without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors, unless otherwise provided under Delaware Law
or the Certificate of Incorporation.
SECTION 2. RESIGNATIONS. Any director may resign at any time by giving
written notice to the chairperson of the board or to the chief executive
officer.
SECTION 3. MEETINGS. Meetings of the board of directors may be called
by or at the request of the chairperson of the board, the chief executive
officer or a majority of the directors. The person or persons authorized to call
meetings of the board of directors may fix any place as the place for holding
any meeting of the board of directors called by them. Meetings of the board of
directors may be held within or outside the State of Delaware.
SECTION 4. BUSINESS OF MEETINGS. Except as otherwise expressly provided
in these by-laws, any and all business may be transacted at any meeting of the
board of directors.
SECTION 5. NOTICE OF MEETINGS. Notice of any meeting shall be given at
least one (1) day previous thereto by prior written notice to each director at
his principal place of business or residence.
SECTION 6. ATTENDANCE BY TELEPHONE. Directors may participate in
meetings of the board of directors by means of conference telephone or similar
communications equipment by means of which all directors participating in the
meeting can hear one another, and such participation shall constitute presence
in person at the meeting.
SECTION 7. QUORUM AND MANNER OF ACTING; ADJOURNMENT. A majority of the
directors shall constitute a quorum for the transaction of business at any
meeting of the board of directors and the act of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
board.
SECTION 8. ACTION WITHOUT A MEETING. Any action which could be taken at
a meeting of the board of directors may be taken without a meeting if all of the
directors consent to the action in writing and the writing or writings are filed
with the minutes of proceedings of the board.
SECTION 9. FILLING OF VACANCIES. A vacancy or vacancies in the board of
directors shall exist when any previously authorized
5
<PAGE>
position of director is not then filled by a duly elected director, whether
caused by death, resignation or removal. Any newly created directorship or
any vacancy occurring in the board of directors for any cause may be filled
by a majority of the remaining members of the board of directors, although
such majority is less than a quorum, or by a plurality of the votes cast at a
meeting of stockholders and each director so elected shall hold office until
the expiration of the term of office of the director whom he has replaced or
until his successor is elected and qualified.
Vacancies and newly created directorships resulting from an increase in
the authorized number of directors elected by all the stockholders having the
right to vote as a single class may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the Certificate of Incorporation or the by-laws, or may apply to the Court of
Chancery for a decree summarily ordering an election as provided in Section 211
of Delaware Law.
SECTION 10. COMPENSATION OF DIRECTORS. The board of directors shall
have the authority to fix the compensation of directors, unless otherwise
provided in the Certificate of Incorporation.
SECTION 11. PRESIDING OFFICER. The presiding officer at any meeting of
the board of directors shall be the chairperson of the board, or if such person
is absent, any other director elected chairperson by vote of a majority of the
directors present at the meeting.
SECTION 12. COMMITTEE. The board of directors, by resolution adopted by
a majority of the number of directors fixed by the by-laws or otherwise, may
designate one (1) or more committees, each committee to consist of one (1) or
more directors of the corporation, which committees, to the extent provided in
such resolution, shall have and exercise all of the authority of the board of
directors in the management of the corporation, except as otherwise required by
law. The board of directors may designate one (1) or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee.
ARTICLE 4
OFFICERS
6
<PAGE>
SECTION 1. NUMBER. The officers of the corporation may consist of the
chief executive officer, the president, the chief financial officer, the
chairperson of the board, the vice president(s) (the number thereof to be
determined by the board of directors), the secretary, and such assistant
secretaries or any other officers hereunto authorized or elected by the board of
directors. Any two or more offices may be held by the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected by the board of directors at their first meeting and thereafter
at any subsequent meeting and shall hold their offices for such term as
determined by the board of directors. Each officer shall hold office until his
successor is duly elected and qualified, or until his death or disability, or
until he resigns or is removed from his duties in the manner hereinafter
provided.
SECTION 3. REMOVAL AND RESIGNATION. Any officer may be removed, either
with or without cause, by a majority of the directors, then in office, at any
meeting of the board of directors. Any officer may resign at any time by giving
written notice to the corporation. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation or removal or any other cause may be filled for the unexpired
portion of the term by the board of directors.
SECTION 5. CHIEF EXECUTIVE OFFICER. The chief executive officer shall
be the chief executive officer of the corporation and shall be in charge of the
business and affairs of the corporation and shall exercise such other powers and
perform such other duties as the board of directors may from time to time assign
to him or her or as may be prescribed by these by-laws.
SECTION 6. PRESIDENT. The president shall be an executive officer of
the corporation. Subject to the direction and control of the board of directors
and the chief executive officer, the president shall have such duties and
responsibilities as delegated by the chief executive officer and the board of
directors.
SECTION 7. VICE PRESIDENT. The vice president (or in the event there be
more than one vice president, each of the vice presidents), if one shall be
elected, shall assist the president and chief executive officer in the discharge
of their duties, as they may direct and shall perform such other duties as from
time to time may be assigned to him by them or by the board of directors.
SECTION 8. CHAIRPERSON OF THE BOARD. The chairperson of the board of
directors shall have the power to preside at all meetings of the board of
directors and shall have such other powers and duties as provided in these
By-Laws and as the board of
7
<PAGE>
directors or the chief executive officer may from time to time prescribe.
SECTION 9. CHIEF FINANCIAL OFFICER. The chief financial officer, if
any, shall be the treasurer, principal accounting and financial officer of the
corporation. The chief financial officer shall: (i) have charge of and be
responsible for the maintenance of the adequate books and records for the
corporation; (ii) have charge and custody of all funds and securities of the
corporation, and be responsible therefor and for the receipt and disbursement
thereof; and (iii) perform all the duties incident to the office of chief
financial officer and such other duties as from time to time may be assigned to
him by the chief executive officer or by the board of directors. If required by
the board of directors, the chief financial officer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties as
the board of directors may determine.
SECTION 10. SECRETARY. The secretary shall: (i) record the minutes of
the stockholders and of the board of directors' meetings in one or more books
provided for that purpose; (ii) see that all notices are duly given in
accordance with the provisions of these by-laws or as required by law; (iii) be
custodian of the corporate books and records and of the seal of the corporation;
(iv) keep a register of the post-office address of each stockholder which shall
be furnished to the secretary by such stockholder; (v) sign with the chief
executive officer or the president or a vice president or any other officer
hereunto authorized by the board of directors, certificates for the shares of
the corporation, the issue of which shall have been authorized by the board of
directors, and any contracts, deeds, mortgages, bonds or other instruments which
the board of directors have authorized to be executed, according to the
requirements of the form of the instrument, except when a different mode of
execution is expressly prescribed by the board of directors or these by-laws;
(vi) have general charge of the stock transfer books of the corporation; (vii)
perform all duties incident to the office of secretary and such other duties as
from time to time may be assigned to him by the president or by the board of
directors.
SECTION 11. SALARIES. The salaries of the officers shall be fixed from
time to time by the board of directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE 5
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The board of directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation and such
authority may be general or confined to specific instances.
8
<PAGE>
SECTION 2. LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name, unless
authorized or ratified by a resolution of the board of directors. Such authority
may be general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued by the
name of the corporation, shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by resolution of the board of directors.
SECTION 4. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the board of directors
may select.
ARTICLE 6
CERTIFICATES OF STOCK AND THEIR TRANSFER
SECTION 1. STOCK RECORD AND CERTIFICATES. Records shall be kept by or
on behalf of the corporation, which shall contain the names and addresses of
stockholders, the number of shares held by them respectively, and the number of
certificates, if any, representing the shares, and in which there shall be
recorded all transfers of shares. Every stockholder shall be entitled to a
certificate signed by the chairperson of the board of directors, or the
president or a vice president, and by the treasurer or an assistant treasurer,
or the secretary or an assistant secretary of the corporation, certifying the
class and number of shares owned by him/her in the corporation, provided that
any and all signatures on a certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he or it were such officer, transfer
agent or registrar at the date of issue.
SECTION 2. TRANSFER AGENTS AND REGISTRARS. The board of directors may,
in its discretion, appoint one or more responsible banks or trust companies as
the board may deem advisable, from time to time, to act as transfer agents and
registrars of shares of the corporation; and, when such appointments shall have
been made, no certificate for shares of the corporation shall be valid until
countersigned by one of such transfer agents and registered by one of such
registrars.
SECTION 3. STOCKHOLDERS' ADDRESSES. Every stockholder or transferee
shall furnish the secretary or a transfer agent with the address to which notice
of meetings and all other notices may be served upon or mailed to such
stockholder or transferee, and in
9
<PAGE>
default thereof, such stockholder or transferee shall not be entitled to
service or mailing of any such notice.
SECTION 4. LOST CERTIFICATES. In case any certificate for shares of the
corporation is lost, stolen or destroyed, the board of directors, in its
discretion, or any transfer agent duly authorized by the board, may authorize
the issue of a substitute certificate in place of the certificate so lost,
stolen or destroyed. The corporation may require the owner of the lost, stolen
or destroyed certificate or his legal representative to give the corporation a
bond sufficient to indemnify the corporation against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertified shares.
SECTION 5. DISTRIBUTIONS TO STOCKHOLDERS. To the extent permitted by
Delaware Law and subject to any restrictions contained in the Certificate of
Incorporation, the directors may declare and pay dividends upon the shares of
its capital stock in the manner and upon the terms and conditions provided by
Delaware Law and the Certificate of Incorporation.
SECTION 6. RECORD DATES. In order that the corporation may determine
the stockholders entitled to notice of or to vote at any meeting of
stockholders, or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of shares
or for the purpose of any other lawful action, the board of directors may fix,
in advance, a record date which shall be not more than sixty (60) nor less than
ten (10) days before the date of any meeting of stockholders, and not more than
sixty (60) days prior to any other action.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
In order that the corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is adopted by the board of
directors. In such case, those stockholders, and only those stockholders, who
are stockholders of record on the date fixed by the board of directors shall,
notwithstanding any subsequent transfer of shares on the books of the
corporation, be entitled to notice of and to vote at such meeting of
stockholders, or any adjournment thereof, or to express consent to such
corporate action in writing without a meeting, or entitled to receive payment of
such dividend or other distribution or allotment of rights, or
10
<PAGE>
entitled to exercise rights in respect of any such change, conversion or
exchange of shares or to participate in any such other lawful action.
SECTION 7. TRANSFERS OF SHARES. Shares of the corporation may be
transferred by delivery of the certificates therefor, accompanied either by an
assignment in writing on the back of the certificates, or by written power of
attorney to sell, assign and transfer the same, signed by the record holder
thereof; but no transfer shall affect the right of the corporation to pay any
distribution upon the shares to the holder of record thereof, or to treat the
holder of record as the holder in fact thereof for all purposes, and no transfer
shall be valid, except between the parties thereto, until such transfer shall
have been made upon the books of the corporation.
SECTION 8. REPURCHASE OF SHARES ON OPEN MARKET. The corporation may
purchase its shares on the open market and invest its assets in its own shares,
provided that in each case the consent of the board of directors shall have been
obtained.
ARTICLE 7
INDEMNIFICATION
SECTION 1. DEFINITIONS. For purposes of this ARTICLE VII:
"Corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or was serving at
the request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
ARTICLE VII with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its separate
existence had continued.
"Fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan.
"Liabilities" and "expenses" shall include, without limitation:
liabilities, losses, damages, judgments, fines, penalties, amounts paid in
settlement, expenses, attorneys' fees and costs.
"Other enterprises" shall include employee benefit plans.
"Serving at the request of the Corporation" shall include any service
as a director, officer, employee or agent of the
11
<PAGE>
Corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner not opposed to the best interests of the Corporation.
SECTION 2. INDEMNIFICATION. The Corporation shall indemnify, to the
full extent that it shall have power under applicable law to do so and in a
manner permitted by such law, any person made or threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person is or was a director or officer of the Corporation against
liabilities and expenses reasonably incurred or paid by such person in
connection with such action, suit or proceeding. The Corporation may indemnify,
to the full extent that it shall have power under applicable law to do so and in
a manner permitted by such law, any person made or threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against liabilities and expenses reasonably incurred or paid by such
person in connection with such action, suit or proceeding. The indemnification
provided by or granted pursuant to this ARTICLE VII shall not be deemed
exclusive of any other rights to which any person indemnified or being advanced
expenses may be entitled under any statute, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
The provisions of this ARTICLE VII shall be deemed to be a contract
between the Corporation and each director or officer who serves in any such
capacity at any time while this ARTICLE VII and the relevant provisions of the
General Corporation Law of the State of Delaware or other applicable law, if
any, are in effect, and any repeal or modification of such law or of this
ARTICLE VII shall not affect any rights or obligations then existing with
respect to any state of facts then or theretofore existing or any action, suit
or proceeding theretofore or thereafter brought or threatened based in whole or
in part upon any such state of facts.
SECTION 3. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person referred to in the preceding paragraph against
any liability asserted against and
12
<PAGE>
incurred by such person in any such capacity, or arising out of such person's
status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions of this
ARTICLE VII or otherwise.
ARTICLE 8
AMENDMENTS
Unless otherwise provided in the Certificate of Incorporation the power
to make, alter, amend or repeal the by-laws of the corporation shall be vested
in the stockholders entitled to vote. The bylaws may contain any provisions for
the regulation and management of the affairs of the corporation not inconsistent
with Delaware Law or the Certificate of Incorporation.
13
<PAGE>
Exhibit 10.3
CORPORATE CAPITAL STRATEGIES, INC.
70 East Lake Street, Suite 1600 Chicago, Illinois 60601
(312) 701-0913 Fax (312) 701-0917
================================================================================
Mr. Steve Olsher, CONFIDENTIAL
Liquor-by-Wire, Inc./Liquor.com ------------
4205 West Irving Park Road August 31, 1999
Chicago, Illinois 60641
FOUNDER'S SERVICES AGREEMENT, ACKNOWLEDGMENT AND RECEIPT
We, Corporate Capital Strategies, Inc. ("CCS"), have reviewed the
information you have provided regarding Liquor-by-Wire, Inc./Liquor.com
("Liquor-by-Wire" or "Liquor.com" or "Company") and look forward to providing
you with the Founder's Services as outlined in this acknowledgement and
agreement.
CCS will provide the following Founder's Services:
1. CCS will familiarize itself to the extent it deems appropriate and
feasible with the business, operations, financial condition and
prospects of Liquor-by-Wire;
2. CCS will assist Liquor-by-Wire in identifying and evaluating key
strategic introductions to individuals, firms and businesses;
3. CCS, in coordination with Liquor-by-Wire, will prepare, formulate
and implement a business plan;
4. CCS will contact appropriate parties on behalf of Liquor-by-Wire,
subject to customary business confidentiality, to develop, design
and assemble a financial model;
5. CCS will advise and assist Liquor-by-Wire in considering,
developing and implementing a business strategy to achieve
Liquor-by-Wire's strategic goals;
6. CCS will advise and assist Liquor-by-Wire in its web site
development and construction;
7. CCS will advise and assist senior management of Liquor-by-Wire in
establishing and developing the Liquor-by-Wire Board of Directors.
8. CCS will render such financial, management and planning advisory
services as Liquor-by-Wire may reasonably and specifically request
in connection with the above listed Founding Services.
As compensation for our services Liquor-by-Wire will compensate CCS in
accordance to the following:
a. An initial retainer of $8,000.00 (eight thousand dollars), due upon
signing this engagement, for development of the Liquer.com business
plan with an additional $8,000.00 (eight thousand dollars) due upon
completion of the business plan satisfactory to Liquor-by-Wire;
b. Liquor-by-Wire will issue to CCS or its designees, upon execution of
this agreement, a 10% (ten percent) equity distribution of shares of
the Company, on a fully diluted basis, after giving effect to issuance
of CCS or its designees shares, granted in the same form as that held
by the founder's.
<PAGE>
All terms and conditions of this acknowledgment and agreement are
binding on all parties upon signature below by the appropriate parties.
Agreed and Accepted Agreed and Accepted
LIQUOR-BY-WIRE, INC. CORPORATE CAPITAL STRATEGIES, INC.
By: /s/ Steve Olsher By: /s/ George Wight, Jr.
------------------------------ -------------------------------
Name: Steve Olsher Name: George Wight, Jr.
------------------------------ -------------------------------
Title: VP Title: Managing Director
------------------------------ -------------------------------
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
Page 2
<PAGE>
Exhibit 10.13
LIQUOR.COM, INC.
2000 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock
Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As uded herein, the following defintions shall
apply:
(a) "ADMINISTRATOR" means the Board or any of its
Committees as shall be administerin the Plan in accordance with Section 4
hereof.
(b) "APPLICABLE LAWS" means the requirements relating to
the administration of stock option plans under U.S. state corporate laws,
U.S. federal and state securities laws, the Code, any stock exchange or
quotation system on which the Common Stock is listed or quoted and the
applicable laws of the foreight country or jurisdiction where Options or
Stock Purchase Rights are granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as
amended.
(e) "COMMITTEE" means a committee of Directors appointed by
the Board in accordance with Section 4 hereof.
(f) "COMMON STOCK" means the common stock of the Company.
(g) "COMPANY" means Liquor.com, Inc., a Delaware corporation.
(h) "CONSULTANT" means any person who is engaged by the
Company or any Parent or Subsidiary to render consulting or advisory services
to such entity.
(i) "DIRECTOR" means a member of the Board.
(j) "EMPLOYEE" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the
Company. A Service Provider shall not cease to be an Employee in the case of
(i) any leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any Subsidiary,
or any
<PAGE>
successor. For puposes of Incentive Stock Options, no such leave may exceed
ninety days, unless reemployment upon expiration of such leave is guaranteed
by statute or contract. If reemployment upon expiration of a leave of absence
approved by the Company is not so guaranteed, on the 181st day of such leave
any Incentive Stock Option held by the Optionee shall cease to be treated as
an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment"
by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or the Nasdaq SmallCap Market of The Nasdaq Stock
Market, its Fair Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such exchange
or system for the last market trading day prior to the time of determination,
as reported in THE WALL STREET JOURNAL or such other source as the
Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for
the Common Stock on the last market trading day prior to the day of
determination; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith
by the Administrator.
(m) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended
to qualify as an Incentive Stock Option.
(o) "OPTION" means a stock option granted pursuant to the
Plan.
(p) "OPTION AGREEMENT" means a written or electronic
agreement between the Company and an Optionee evidencing the terms and
conditions of an individual Option grant. The Option Agreement is subject to
the terms and conditions of the Plan.
(q) "OPTION EXCHANGE PROGRAM" means a program whereby
outstanding Options are exchanged for Options with a lower exercise price.
2
<PAGE>
(r) "OPTIONED STOCK" means the Common Stock subject to an
Option or a Stock Purchase Right.
(s) "OPTIONEE" means the holder of an outstanding Option or
Stock Purchase Right granted under the Plan.
(t) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(u) "PLAN" means this 2000 Stock Plan.
(v) "RESTRICTED STOCK" means shares of Common Stock
acquired pursuant to a grant of a Stock Purchase Right under Section 10 below.
(w) "SERVICE PROVIDER" means an Employee, Director or
Consultant.
(x) "SHARE" means a share of the Common Stock, as adjusted
in accordance with Section 12 below.
(y) "STOCK PURCHASE RIGHT" means a right to purchase Common
Stock pursuant to Section 10 below.
(z) "SUBSIDIARY" means a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Section 12 of the Plan, the maximum aggregate number of Shares which may be
subject to option and sold under the Plan is 1,000,000 Shares. The Shares
may be authorized but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered
pursuant to an Option Exchange Program, the unpurchased Shares which were
subject thereto shall become available for future grant or sale under the
Plan (unless the Plan has terminated). However, Shares that have actually
been issued under the Plan, upon exercise of either an Option or Stock
Purchase Right, shall not be returned to the Plan and shall not become
available for future distribution under the Plan, except that if Shares of
Restricted Stock are repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Board or a
Committee appointed by the Board, which Committee shall be constituted to
comply with Applicable Laws.
3
<PAGE>
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions
of the Plan and, in the case of a Committee, the specific duties delegated by
the Board to such Committee, and subject to the approval of any relevant
authorities, the Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options
and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered
by each such award granted hereunder;
(iv) to approve forms of agreement for use under the
Plan;
(v) to determine the terms and conditions, of any
Option or Stock Purchase Right granted hereunder. Such terms and conditions
include, but are not limited to, the exercise price, the time or times when
Options or Stock Purchase Rights may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or Stock
Purchase Right of the Common Stock relating thereto, based in each case on
such factors as the Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what
circumstances an Option may be settled in cash under subsection 9(e) instead
of Common Stock;
(vii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common
Stock covered by such Option has declined since the date the Option was
granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax
treatment under foreign tax laws;
(x) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of
Shares having a Fair Market Value equal to the amount required to be
withheld. The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be
determined. All elections by Optionees to have Shares withheld for this
purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable; and
4
<PAGE>
(xi) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only
to Employees.
(b) Each Option shall be designated in the Option Agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of this Section 5(b), Incentive Stock Options shall be taken into
account in the order in which they were granted. The Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon any Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall it
interfere in any way with his or her right or the Company's right to
terminate such relationship at any time, with or without cause.
6. TERM OF PLAN. Subject to Section 18 of the Plan, the Plan
shall be come effective upon its adoption by the Board. It shall continue in
effect for a term of ten (10) years unless sooner terminated under Section 14
of the Plan.
7. TERM OF OPTION. The term of each Option shall be stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant of such shorter term as
may be provided in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued
upon exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option:
5
<PAGE>
(A) granted to an Employee who, at the time
of grant of such Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant; and
(B) granted to any other Employee, the per
Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant:
(ii) In the case of a Nonstatutory Stock Option, the
per Share exercise price shall be determined by the Administrator; and
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price other than as required above pursuant
to a merger or other corporate transaction.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be
determined by the Administrator (and, in the case of an Incentive Stock
Option, shall be determined at the time of grant). Such consideration may
consist of (1) cash, (2) check, (3) promissory note, (4) other Shares which
(x) in the case of Shares acquired upon exercise of an Option, have been
owned by the Optionee for more than six months on the date of surrender, and
(y) have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which such Option shall be exercised, or
(5) any combination of the foregoing methods of payment. In making its
determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected
to benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE, RIGHTS AS A SHAREHOLDER. Any
Option granted hereunder shall be exercisable according to the terms hereof
at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement. Unless the Administrator provides
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with
the Option Agreement) from the person entitled to exercise the Option; and
(ii) full payment for the Shares with respect to which the Option is
exercised. Full payment may consist of any consideration and method of
payment authorized by the Administrator and permitted by the Option Agreement
and the Plan. Shares issued upon exercise of an Option shall be issued in
the name of the Optionee or, if requested by the Optionee, in the name of the
Optionee and his or her spouse. Until the Shares are issued (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with
6
<PAGE>
respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the Shares are issued,
except as provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares thereafter available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which
the Option is exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If
an Optionee ceases to be a Service Provider, such Optionee may exercise his
or her Option within such period of time as is specified in the Option
Agreement (of at least thirty (30) days) to the extent that the Option is
vested on the date of termination (but in no event later than the expiration
of the term of the Option as set forth in the Option Agreement). In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for three (3) months following the Optionee's termination. If,
on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise
his or her Option within the time specified by the Administrator, the Option
shall terminate, and the Shares covered by such Option shall revert to the
Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a
Service Provider as a result of the Optionee's total and permanent
disability, as defined in Section 22(e)(3) of the Code, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for twelve
(12) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the
Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is
specified in the Option Agreement (but in no event later than the expiration
of the term of such Option as set forth in the Notice of Grant), by the
Optionee's estate or by a person who acquires the right to exercise the
Option by bequest or inheritance, but only to the extent that the Option is
vested on the date of death. In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, at the time of death, the Optionee
is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall immediately revert to the Plan. The
Option may be exercised by the executor or administrator of the Optionee's
estate or, if none, by the person(s) entitled to exercise the Option under
the Optionee's
7
<PAGE>
will or the laws of descent or distribution. If the Option is not so
exercised within the time specified herein, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time
offer to buy out for a payment in cash or Shares, an Option previously
granted, based on such terms and conditions as the Administrator shall
establish and communicate to the Optionee at the time that such offer is made.
10. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under
the Plan and/or cash awards made outside of the Plan. After the
Administrator determines that it will offer Stock Purchase Rights under the
Plan, it shall advise the offeree in writing or electronically of the terms,
conditions and restrictions related to the offer, including the number of
Shares that such person shall be entitled to purchase, the price to be paid,
and the time within which such person must accept such offer. The offer
shall be accepted by execution of a Restricted Stock purchase agreement in
the form determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination
of the purchaser's service with the Company for any reason (including death
or disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as
the Administrator may determine.
(c) OTHER PROVISIONS. The Restricted Stock purchase
agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Administrator in its
sole discretion.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right
is exercised, the purchaser shall have rights equivalent to those of a
shareholder and shall be a shareholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment shall be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in Section 12 of the Plan.
11. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS.
Unless determined otherwise by the Administrator, Options and Stock Purchase
Rights may not be sold, pledged, assigned, hypothecated, transferred, or
disposed of in any manner other than by will or by the laws of descent or
distribution and may be exercised, during the lifetime of the Optionee, only
by the Optionee. If the Administrator makes an Option or Stock Purchase
Right transferable, such Option
8
<PAGE>
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET
SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required
action by the shareholders of the Company, the number of shares of Common
Stock covered by each outstanding Option or Stock Purchase Right, and the
number of shares of Common Stock with have been authorized for issuance under
the Plan but as to which no Options or Stock Purchase Rights have yet been
granted or which have been returned to the Plan upon cancellation or
expiration of any Option or Stock Purchase Right, as well as the price per
share of Common Stock covered by each such outstanding Option or Stock
Purchase Right, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in
the numbered of issued shares of Common Stock effected without receipt of
consideration by the Company. The conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding, and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an
Option or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the
proposed dissolution or liquidation of the Company, the Administrator shall
notify each Optionee as soon as practicable prior to the effective date of
such proposed transaction. The Administrator in its discretion may provide
for an Optionee to have the right to exercise his or her Option until fifteen
(15) days prior to such transaction as to all of the Optioned Stock covered
thereby, including Shares as to which the Option would not otherwise be
exercisable. In addition, the Administrator may provide that any Company
repurchase option applicable to any Shares purchased upon exercise of an
Option or Stock Purchase Right shall lapse as to all such Shares, provided
the proposed dissolution or liquidation takes place at the time and in the
manner contemplated. To the extent it has not been previously exercised, an
Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation.
In the event that the successor corporation refuses to assume or substitute
for the Option or Stock Purchase Right, the Optionee shall fully vest in and
have the right to exercise the Option or Stock Purchase Right as to all of
the Optioned Stock, including Shares as to which it would not otherwise be
vested or exercisable. If an Option or Stock Purchase Right becomes fully
vested and exercisable in lieu of
9
<PAGE>
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock
Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned
Stock subject to the Option or Stock Purchase Right immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders
of Common Stock for each Share held on the effective date of the transaction
(and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merge or sale
of assets is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option
or Stock Purchase Right, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right, to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
13. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date
of grant of an Option or Stock Purchase Right shall, for all purposes, be the
date on which the Administrator makes the determination granting such Option
or Stock Purchase Right, or such other date as is determined by the
Administrator. Notice of the determination shall be given to each Service
Provider to whom an Option or Stock Purchase Right is so granted within a
reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time
amend, alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Board shall obtain
shareholder approval of any Plan amendment to the extent necessary and
desirable to comply with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of
any Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee
and the Company. Termination of the Plan shall not affect the
Administrator's ability to exercise the powers granted to it hereunder with
respect to Options granted under the Plan prior to the date of such
termination.
15. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant
to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares shall comply
10
<PAGE>
with Applicable Laws and shall be further subject to the approval of counsel
for the Company with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the
exercise of an Option, the Administrator may require the person exercising
such Option to represent and warrant at the time of any such exercise that the
Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of the counsel
for the Company, such a representation is required.
16. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
17. RESERVATION OF SHARES. The Company, during the term of this
Plan, shall at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
18. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by
the shareholders of the Company within twelve (12) months after the date the
Plan is adopted. Such shareholder approval shall be obtained in the degree
and manner required under Applicable Laws.
11
<PAGE>
LIQUOR.COM
2000 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the 2000 Stock
Plan (the "Plan") shall have the same defined meanings in this Stock Option
Agreement.
I. NOTICE OF STOCK OPTION GRANT
[OPTIONEE'S NAME AND ADDRESS]
The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and
this Option Agreement, as follows:
Grant Number ___________________________________
Date of Grant ___________________________________
Vesting Commencement Date ___________________________________
Exercise Price per Share $__________________________________
Total Number of Shares Granted ___________________________________
Total Exercise Price $__________________________________
Type of Option: _______ Incentive Stock Option
_______ Nonstatutory Stock Option
Term/Expiration Date: ___________________________________
<PAGE>
VESTING SCHEDULE:
This Option shall be exercisable, in whole or in part, according to the
following vesting schedule:
25% OF THE SHARES SUBJECT TO THE OPTION SHALL VEST TWELVE MONTHS AFTER
THE VESTING COMMENCEMENT DATE, AND 1/48 OF THE SHARES SUBJECT TO THE OPTION
SHALL VEST EACH MONTH THEREAFTER, SUBJECT TO OPTIONEE'S CONTINUING TO BE A
SERVICE PROVIDER ON SUCH DATES.
TERMINATION PERIOD:
This Option shall be exercisable for three months after Optionee ceases to
be a Service Provider. Upon Optionee's death or Disability, this Option may
be exercised for one year after Optionee ceases to be a Service Provider.
In no event may Optionee exercise this Option after the Term/Expiration Date
as provided above.
II. AGREEMENT
1. GRANT OF OPTION. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant (the "Optionee"), an
option (the "Option") to purchase the number of Shares set forth in the
Notice of Grant, at the exercise price per Share set forth in the Notice of
Grant (the "Exercise Price"), and subject to the terms and conditions of the
Plan, which is incorporated herein by reference. Subject Section 14(c) of
the Plan, in the event of a conflict between the terms and conditions of the
Plan and this Option Agreement, the terms and conditions of the Plan shall
prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option as defined in
Section 422 of the Code. Nevertheless, to the extent that it exceeds the
$100,000 rule of Code Section $422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option shall be exercisable during
its term in accordance with the Vesting Schedule set out in the Notice of
Grant and with the applicable provisions of the Plan and this Option Agreement.
(b) METHOD OF EXERCISE. This option shall be exercisable by
delivery of an exercisable notice in the form attached as EXHIBIT A (the
"Exercise Notice") which shall state the election to exercise the Option, the
number of Shares with respect to which the Option is being exercised, and
such other representations and agreements as may be required by the Company.
The
2
<PAGE>
Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares. This Option shall be deemed to be
exercised upon receipt by the Company of such fully executed Exercise Notice
accompanied by the aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option unless such
issuance and such exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares have not been
registered under the Securities Act of 1933, as amended, at the time this
Option is exercised, the Optionee shall, if required by the Company,
concurrently with the exercise of all or any portion of this Option, deliver
to the Company his or her Investment Representation Statement in the form
attached hereto as EXHIBIT B.
4. LOCK-UP PERIOD. Optionee hereby agrees that, if so requested by
the Company or any representative of the underwriters (the "Managing
Underwriter") in connection with any registration of the offering of any
securities of the Company under the Securities Act, Optionee shall not sell
or otherwise transfer any Shares or other securities of the Company during
the 180-day period (or such other period as may be requested in writing by
the Managing Underwriter and agreed to in writhing by the Company) (the
"Market Standoff Period") following the effective date of a registration
statement of the Company filed under the Securities Act. Such restriction
shall apply only to the first registration statement of the Company to become
effective under the Securities Act that includes securities to be sold on
behalf of the Company to the public in an underwritten public offering under
the Securities Act. The Company may impose stop-transfer instructions with
respect to securities subject to the foregoing restrictions until the end of
such Market Standoff Period.
5. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall
be by any of the following, or a combination thereof, at the election of
the Optionee:
(a) cash or check; or
(b) surrender of other Shares which, (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market
Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares.
6. RESTRICTIONS ON EXERCISE. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company,
or if the issuance of such Shares upon such exercise or the method of payment
of for such shares would constitute a violation of any Applicable Law.
3
<PAGE>
7. NON-TRANSFERABILITY OF OPTION. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution any may be exercised during the lifetime of Optionee only by
Optionee. The terms of the Plan and this Option Agreement shall be binding
upon the executors, administrators, heirs, successors and assigns of the
Optionee.
8. TERM OF OPTION. This Option may be exercised only within the
term set out in the Notice of Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Option.
9. TAX CONSEQUENCES. Set forth below is a brief summary as of the
date of this Option of some of the federal tax consequences of exercise of
this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE
OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) EXERCISE OF NSO. There may be a regular federal income
tax liability upon the exercise of an NSO. The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates)
equal to the excess, if any, of the Fair Market Value of the Shares on the
date of exercise over the Exercise Price. If Optionee is an Employee or a
former Employee, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and
refuse to deliver Shares if such withholding amounts are not delivered at the
time of exercise.
(b) EXERCISE OF ISO. If this Option qualifies as an ISO,
there will be no regular federal income tax liability upon the exercise of
the Option, although the excess, if any, of the Fair Market Value of the
Shares on the date of exercise over the Exercise Price will be treated as an
adjustment to the alternative minimum tax for federal tax purposes and may
subject the Optionee to the alternative minimum tax in the year of exercise.
(c) DISPOSITION OF SHARES. In the case of an NSO, if Shares
are held for at least one year, any gain realized on disposition of the
Shares will be treated as long-term capital gain for federal income tax
purposes. In the case of an ISO, if Shares transferred pursuant to the
Option are held for at least one year after exercise and of at least two
years after the Date of Grant, any gain realized on disposition of the Shares
will also be treated as long-term capital gain for federal income tax
purposes. If Shares purchased under an ISO are disposed of within one year
after exercise or two years after the Date of Grant, any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the difference between the Exercise Price and
the lesser of (1) the Fair Market Value of the Shares on the date of
exercise, or (2) the sale price
4
<PAGE>
of the Shares. Any additional gain will be taxed as capital gain, short-term
or long-term depending on the period that the ISO Shares were held.
(d) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If
the Option granted to Optionee herein is an ISO, and if Optionee sells or
otherwise disposes of any of the Shares acquired pursuant to the ISO on or
before the later of (1) the date two years after the Date of Grant, or (2)
the date one year after the date of exercise, the Optionee shall immediately
notify the Company in writing of such disposition. Optionee agrees that
Optionee may be subject to income tax withholding by the Company on the
compensation income recognized by the Optionee.
10. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated
herein by reference. The Plan and this Option Agreement constitute the
entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the
Company and Optionee with respect to the subject matter hereof, and may not
be modified adversely to the Optionee's interest except by means of a
writing signed by the Company and Optionee. This agreement is governed by
the internal substantive laws but not the choice of law rules of the state of
Delaware.
11. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND
AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS
EARNED ONLY BY CONTINUING A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT,
THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH
HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR
AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT
ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he or
she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept
as binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this
5
<PAGE>
Option. Optionee further agrees to notify the Company upon any change in the
residence address indicated below.
OPTIONEE LIQUOR.COM, INC.
_________________________________ ______________________________
Signature By
_________________________________ ______________________________
Print Name Title
_________________________________
_________________________________
Residence Address
6
<PAGE>
EXHIBIT A
2000 STOCK PLAN
EXERCISE NOTICE
Liquor.com, Inc.
4205 West Irving Park Road
Chicago, IL 60641
Attention: [TITLE]
1. EXERCISE OF OPTION. Effective as of today, _____________, __, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to
purchase _____________, __, shares of the Common Stock (the "Shares") of
Liquor.com, Inc. (the "Company") under and pursuant to the 2000 Stock Plan
(the "Plan") and the Stock Option Agreement dated _____________, __, (the
"Option Agreement").
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the full
purchase price of the Shares, as set forth in the Option Agreement.
3. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. RIGHTS AS SHAREHOLDER. Until the issuance of the Shares (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company), no right to vote or receive dividends or any other rights
as a shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Shares shall be issued to the Optionee as soon
as practicable after the Option is exercised. No adjustment shall be made for a
dividend or other right for which the record date is prior to the date of
issuance except as provided in Section 12 of the Plan.
5. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by Optionee or any
transferee (either being sometimes referred to herein as the "Holder") may be
sold or otherwise transferred (including transfer by gift or operation of law),
the Company or its assignee(s) shall have a right of first refusal to purchase
the Shares on the terms and conditions set forth in this Section (the "Right of
First Refusal").
(a) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall deliver to
the Company a written notice (the "Notice") stating: (i) the Holder's bona fide
intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number
of Shares to be transferred to each Proposed Transferee; and (iv) the
<PAGE>
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares
at the Offered Price to the Company or its assignee(s).
(b) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty (30) days
after receipt of the Notice, the Company and/or its assignee(s) may, by giving
written notice to the Holder, elect to purchase all, but not less than all, of
the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) PURCHASE PRICE. The purchase price ("Purchase Price") for the Shares
purchased by the Company or its assignee(s) under this Section shall be the
Offered Price. If the Offered Price includes consideration other than cash, the
cash equivalent value of the non-cash consideration shall be determined by the
Board of Directors of the Company in good faith.
(d) PAYMENT. Payment of the Purchase Price shall be made, at the option of
the Company or its assignee(s), in cash (by check), by cancellation of all or a
portion of any outstanding indebtedness of the Holder to the Company (or, in the
case of repurchase by an assignee, to the assignee), or by any combination
thereof within 30 days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(e) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in the Notice
to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws
and that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
2
<PAGE>
(g) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First Refusal
shall terminate as to any Shares upon the first sale of Common Stock of the
Company to the general public pursuant to a registration statement filed with
and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
6. TAX CONSULTATION. Optionee understands that Optionee may suffer adverse tax
consequences as a result of Optionee's purchase or disposition of the Shares.
Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with the purchase or disposition of the
Shares and that Optionee is not relying on the Company for any tax advice.
7. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. Optionee understands and agrees that the Company shall cause
the legends set forth below or legends substantially equivalent thereto, to be
placed upon any certificate(s) evidencing ownership of the Shares together with
any other legends that may be required by the Company or by state or federal
securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN
THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH
MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF
THESE SHARES.
(b) STOP-TRANSFER NOTICES. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer
on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this
3
<PAGE>
Exercise Notice or (ii) to treat as owner of such Shares or to accord the right
to vote or pay dividends to any purchaser or other transferee to whom such
Shares shall have been so transferred.
8. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under this
Exercise Notice to single or multiple assignees, and this Exercise Notice shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Exercise Notice shall be
binding upon Optionee and his or her heirs, executors, administrators,
successors and assigns.
9. INTERPRETATION. Any dispute regarding the interpretation of this Exercise
Notice shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.
10. GOVERNING LAW. SEVERABILITY. This Exercise Notice is governed by the
internal substantive laws but not the choice of law rules, of the state of
Delaware.
11. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated herein by
reference. This Exercise Notice, the Plan, the Option Agreement and the
Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.
Submitted by: Accepted by:
OPTIONEE LIQUOR.COM, INC.
- ---------------------------- -----------------------------
Signature By
- ---------------------------- -----------------------------
Print Name Title
ADDRESS: ADDRESS:
- ---------------------------- -----------------------------
- ---------------------------- -----------------------------
Date Received
--------------
4
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
COMPANY: LIQUOR.COM, INC
SECURITY: COMMON STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Optionee's
investment intent as expressed herein. In this connection, Optionee understands
that, in the view of the Securities and Exchange Commission, the statutory basis
for such exemption may be unavailable if Optionee's representation was
predicated solely upon a present intention to hold these Securities for the
minimum capital gains period specified under tax statutes, for a deferred sale,
for or until an increase or decrease in the market price of the Securities, or
for a period of one year or any other fixed period in the future. Optionee
further understands that the Securities must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available. Optionee further acknowledges and understands that
the Company is under no obligation to register the Securities. Optionee
understands that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel
satisfactory to the Company, and any other legend required under applicable
state securities laws.
<PAGE>
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly from the
issuer thereof, in a non-public offering subject to the satisfaction of certain
conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of the grant of the Option to the Optionee, the exercise will be exempt
from registration under the Securities Act. In the event the Company becomes
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any
market stand-off agreement may require) the Securities exempt under Rule 701 may
be resold, subject to the satisfaction of certain of the conditions specified by
Rule 144, including: (1) the resale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934); and,
in the case of an affiliate, (2) the availability of certain public information
about the Company, (3) the amount of Securities being sold during any three
month period not exceeding the limitations specified in Rule 144(e), and (4) the
timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than one year after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than two years, the satisfaction of the conditions set forth in
sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
-----------------------------------
Date
---------------------------
2
<PAGE>
Exhibit 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (THE "AGREEMENT") is made as of this 1st day of
March, 2000, by and between Liquor.com, Inc., a Delaware corporation (the
"COMPANY"), and Gail Zelitzky (the "EXECUTIVE").
RECITALS:
A. The Company is actively engaged in operating an e-commerce site
(Liquor.com) which facilitates both the purchase and sending of liquor, wine,
and other alcoholic or non-alcoholic beverage by businesses and individuals, for
gift delivery and personal consumption.
B. The Company is currently expanding its business by further utilizing its
existing network of affiliates in the alcoholic beverage industry to reduce the
cost and increase the efficiency at each tier of the alcoholic beverage
distribution system.
C. Executive is a founding shareholder and executive of the Company and has
obtained certain unique and particular talents and abilities in managing and
developing the Company's business.
D. The Company is undergoing certain fundamental changes to its business
plan, capitalization and management structure pursuant to which Executive is
relinquishing control of the Company.
E. The Company desires to assure itself of the continued availability of
Executive's talents and abilities and Executive desires to secure continued
employment with the Company, subject to the terms, conditions and covenants
hereinafter set forth;
F. The Executive has previously executed and delivered the
Confidentiality/Proprietary Information Agreement dated January 7, 2000 attached
hereto as EXHIBIT A (the "CONFIDENTIALITY AGREEMENT").
NOW, THEREFORE, in consideration of the foregoing and the agreements,
covenants and conditions set forth herein, the Executive and the Company hereby
agree as follows:
ARTICLE I
EMPLOYMENT
1.1 EMPLOYMENT. The Company hereby employs, engages and hires Executive,
and Executive hereby accepts employment, upon the terms and conditions set forth
in this Agreement. The Executive shall serve as the Founder, Chairman of the
Board and as Chief Sales Officer. Executive shall have and fully perform such
duties and responsibilities that are commensurate with her position, as may be,
from time to time, assigned to her by the Board of Directors of the
<PAGE>
Company and/or the Chief Executive Officer of the Company. Executive shall
report directly to the Chief Executive Officer of the Company.
1.2 ACTIVITIES AND DUTIES DURING EMPLOYMENT. Executive represents and
warrants to the Company that she is free to accept employment with the Company,
and that she has no prior or other commitments or obligations of any kind to
anyone else which would hinder or interfere with her acceptance of her
obligations under this Agreement, or the exercise of her best efforts as an
officer and employee of the Company. During the Employment Term (as defined
below), Executive agrees:
(a) to devote substantially all of her business, time, attention and
efforts to the faithful and diligent performance of her services to the
Company;
(b) to faithfully serve and further the interests of the Company in
every lawful way, giving honest, diligent, loyal and cooperative service to
the Company; and
(c) to comply with all rules and policies which, from time to time,
may be adopted by the Company.
ARTICLE II
TERM
2.1 TERM. The term of employment under this Agreement shall be three (3)
years (the "INITIAL TERM"), commencing on the date of the Agreement, which
Employment Term shall automatically renew for one year periods unless
terminated by either party by written notice not less than sixty (60) days prior
to expiration of the then-current term (such term of employment, as it may be
extended or terminated, is herein referred to as the "EMPLOYMENT TERM").
2.2 TERMINATION. The employment of Executive may be terminated as
follows:
(a) After the Initial Term, by either party upon at least sixty (60)
days notice to the other party, in which event such termination shall be
effective upon expiration of the notice period. If Executive terminates her
employment pursuant to this SECTION 2.2(a), such termination is hereinafter
referred to as a "VOLUNTARY TERMINATION".
(b) By the Company immediately for "CAUSE." For the purpose of this
Agreement, "CAUSE" shall mean (i) conduct amounting to fraud, embezzlement,
or willful or illegal misconduct in connection with Executive's duties
under this Agreement; (ii) the indictment or conviction of Executive by a
court of proper jurisdiction of (or her written, voluntary and freely given
confession to) a crime which constitutes a felony and/or results in
material injury to the Company's property, operation or reputation; (iii)
breach of the Confidentiality Agreement; or (iv) substantial and continued
failure to perform duties
2
<PAGE>
reasonably directed by the Board of Directors or Chief Executive Officer
after written notice from the Company and a ten (10) day opportunity to
cure.
(c) Upon the death of Executive.
(d) By either party upon the Total Disability of the Executive. The
Executive shall be considered to have a Total Disability for purposes of
this Agreement if she is unable by reason of accident or illness to
substantially perform her employment duties, and is expected to be in such
condition for periods totaling six (6) months (whether or not consecutive)
during any consecutive period of twelve (12) months. During a period of
disability prior to termination hereunder, Executive shall continue to
receive her base salary.
(e) By the Executive upon five (5) business days notice to the Company
for Good Reason, which notice shall state the reason for termination. For
the purpose of this agreement, "GOOD REASON" shall mean:
(i) the assignment to the Executive of any duties inconsistent
with the Executive's position (including status, offices and titles,
office facilities, staff support and reporting requirements),
authority, duties or responsibilities as contemplated by ARTICLE I of
this Agreement, or any other action by the Company which results in a
diminution in such position, authority, duties or responsibilities
without prior written consent of the Executive, excluding for this
purpose an isolated action not taken in bad faith and which is
remedied by the Company within five (5) business days after receipt
of written notice thereof given by the Executive;
(ii) any material failure by the Company to comply with any of
the provisions of this Agreement, other than an isolated failure not
occurring in bad faith and which is remedied by the Company within
five (5) business days after receipt of written notice thereof given
by the Executive;
(iii) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(iv) any action taken by the Company, including a proxy
solicitation, failure to nominate and/or recommend Executive as a
director of the corporation, that results in or is intended to result
in the removal of Executive from the Board of Directors.
If there is any dispute between the parties as to whether Cause, Good Reason, or
Total Disability exists, either party may submit the dispute to binding
arbitration. Any such arbitration proceeding will be conducted in Chicago,
Illinois and except as otherwise provided in this Agreement, will be conducted
under the auspices of JAMS/Endispute, in accordance with the then current
Commercial Arbitration Rules of the American Arbitration Association. The
arbitrator(s) shall allow such discovery as the arbitrator(s) determines
appropriate under the circumstances. The arbitrator(s) shall
3
<PAGE>
determine which party, if either, prevailed and shall award the prevailing
party its costs and attorneys fees. The award and decision of the arbitrator
shall be conclusive and binding on all parties to this Agreement and judgment
on the award may be entered in any court of competent jurisdiction. The
parties acknowledge and agree that any arbitration award may be enforced
against either or both of them in a court of competent jurisdiction and each
waives any right to contest the validity or enforceability of such award. The
parties further agree to be bound by the provisions of any statute of
limitations which would be applicable in a court of law to the controversy or
claim which is the subject of any arbitration proceeding initiated under this
Agreement. The parties further agree that they are entitled in any
arbitration proceeding to the entry of an order, by a court of competent
jurisdiction pursuant to an opinion of the arbitrator, for specific
performance of any of the requirements of this Agreement.
2.3 CESSATION OF RIGHTS AND OBLIGATIONS: SURVIVAL OF CERTAIN PROVISIONS. On
the date of expiration or earlier termination of the Employment Term for any
reason, all of the respective rights, duties, obligations and covenants of the
parties, as set forth herein, shall, except as specifically provided herein to
the contrary, cease and become of no further force or effect as of the date of
said termination, and shall only survive as expressly provided for herein.
2.4 TREATMENT OF EXECUTIVE UPON TERMINATION OF EMPLOYMENT. In lieu of any
severance under any severance plan that the Company may then have in effect, and
subject to any set-offs for any damages suffered by the Company or other amounts
owed by the Executive to the Company, the Company shall pay to the Executive,
and the Executive shall be entitled to receive in one lump sum payment, the
following amounts within thirty (30) days of the date of a termination of the
Employment Term:
(a) VOLUNTARY TERMINATION OR FOR CAUSE. Upon a Voluntary Termination
of the Employment Term by the Executive, the expiration of the Employment
Term because the Executive elects not to extend the Employment Term, or a
termination of the Employment Term for Cause by the Company, the Executive
shall be entitled to receive her current Base Salary (as defined herein)
and expense reimbursement through the date of termination and pro rata
portion of the prior year's Performance Bonus (as defined herein).
(b) DEATH OR TOTAL DISABILITY. Upon the termination of the Employment
Term by either party by reason of the Death or Total Disability of the
Executive, the Executive shall be entitled to receive (i) Base Salary and
expense reimbursement through the date of termination, (ii) an amount equal
to the prior year's Performance Bonus, and (iii) an amount equal to one
year of her current Base Salary.
(c) GOOD REASON; INVOLUNTARY PRIOR TO MARCH 1, 2002. Upon the
termination of the Employment Term by the Executive for Good Reason, or by
the Company in breach of this Agreement in either case at any time before
March 1, 2002, the Executive shall be entitled to receive (i) the Base
Salary and expense reimbursement through the date of termination, (ii) the
balance of her current Base Salary due through the end of the Initial
4
<PAGE>
Term, and (iii) an amount equal to the number of years remaining (including
the year of termination) in the Initial Term multiplied by the prior year's
Performance Bonus.
(d) GOOD REASON; INVOLUNTARY AFTER INITIAL TERM. Upon the expiration
of the Employment Term by the Company by not electing to extend the
Employment Term, by the Company pursuant to SECTION 2.2 (a), by the Company
in breach of this Agreement after March 1, 2002, or by Executive for Good
Reason after March 1, 2002, the Executive shall be entitled to receive (i)
her Base Salary and expense reimbursement through the date of termination,
(ii) one year's Base Salary, and (iii) an amount equal to the prior year's
Performance Bonus.
In addition, the Executive shall be entitled to continue to receive, at the
Company's sole expense, all health and disability benefits for a period of one
year after the termination date. If the Executive's employment is terminated in
the first year of the Initial Term, her prior year "Performance Bonus" shall be
deemed to be $50,000.
2.5 NO MITIGATION OF DAMAGES DEFENSE. The Company shall not be entitled to
interpose in any forum or proceedings whatsoever the defense of "mitigation of
damages," notwithstanding that the Executive shall have entered into or could
have entered into any other employment.
ARTICLE III
COMPENSATION OF BENEFITS
3.1 COMPENSATION.
(a) During the Employment Term, the Company shall pay Executive a base
salary ("BASE SALARY") of One Hundred Fifty Thousand Dollars ($150,000)
per year. The Base Salary will be reviewed annually by the Board of
Directors with a view to increasing it. The Company shall not be permitted
to reduce the Base Salary.
(b) The Company shall, in addition to Executive's Base Salary, pay
Executive an annual performance bonus (the "PERFORMANCE BONUS") based on
the Company obtaining certain targeted financial goals, as established by
the Board of Directors of the Company, after consultation with the
Executive.
(c) The Company may pay such additional bonuses as the Board of
Directors of the Company may deem appropriate.
(d) The Company shall pay Executive a bonus of $50,000 within thirty
days of the closing of an initial public offering or other significant
financing event for the Company.
5
<PAGE>
3.2 PAYMENT. All compensation shall be payable in intervals in accordance
with the general payroll payment practice of the Company. The compensation shall
be subject to such withholdings and deductions by the Company as are required by
law.
3.3 BUSINESS EXPENSES.
(a) REIMBURSEMENT. The Company shall reimburse the Executive for all
reasonable, ordinary, and necessary business expenses incurred by her in
connection with the performance of her duties hereunder, including, but not
limited to, ordinary and necessary travel expenses and entertainment
expenses.
(b) ACCOUNTING. The Executive shall provide the Company with an
accounting of her expenses, which accounting shall clearly reflect which
expenses are reimbursable by the Company. The Executive shall provide the
Company with such other supporting documentation and other substantiation
of reimbursable expenses as will conform to Internal Revenue Service or
other requirements. All such reimbursements shall be payable by the Company
to the Executive within a reasonable time after receipt by the Company of
appropriate documentation therefor.
3.4 OTHER BENEFITS. Executive shall be entitled to participate in any
retirement, pension, profit-sharing, stock option, health plan, incentive
compensation and welfare or any other benefit plan or plans of the Company which
may now or hereafter be in effect for executive officers of the Company. The
Company shall pay to Executive a car allowance of $500 per month.
ARTICLE IV
MISCELLANEOUS
4.1 NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given, delivered and received
(a) when delivered, if delivered personally, (b) four days after mailing, when
sent by registered or certified mail, return receipt requested and postage
prepaid, (c) one business day after delivery to a private courier service, when
delivered to a private courier service providing documented overnight service,
and (d) on the date of delivery if delivered by telescope, receipt confirmed,
provided that a confirmation copy is sent on the next business day by first
class mail, postage prepaid, in each case addressed as follows:
To Executive at her home address.
To Company at: Liquor.com, Inc.
4205 W. Irving Park Road
Chicago, IL 60641
Attn: Chief Executive Officer
Ph: 773-427-8624
6
<PAGE>
Fax: 773-427-8628
With a copy to: Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, IL 60611
Attention: James R. Asmussen
Any party may change its address for purposes of this paragraph by giving the
other party written notice of the new address in the manner set forth above.
4.2 ENTIRE AGREEMENT; AMENDMENTS, ETC. This Agreement contains the entire
agreement and understanding of the parties hereto, and supersedes all prior
agreements and understandings relating to the subject matter thereof. No
modification, amendment, waiver or alteration of this Agreement or any provision
or term hereof shall in any event be effective unless the same shall be in
writing, executed by both parties hereto, and any waiver so given shall be
effective only in the specific instance and for the specific purpose for which
given.
4.3 BENEFIT. This Agreement shall be binding upon, and inure to the benefit
of, and shall be enforceable by, the heirs, successors, legal representatives
and permitted assignees of Executive and the successors, assignees and
transferees of the Company. This Agreement or any right or interest hereunder
may not be assigned by Executive without the prior written consent of the
Company.
4.4 NO WAIVER. No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder or pursuant hereto shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder or pursuant thereto.
4.5 SEVERABILITY. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law
but, if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement. If any part of any covenant or
other provision in this Agreement is determined by a court of law to be overly
broad thereby making the covenant unenforceable, the parties hereto agree, and
it is their desire, that the court shall substitute a judicially enforceable
limitation in its place, and that as so modified the covenant shall be binding
upon the parties as if originally set forth herein.
4.6 COMPLIANCE AND HEADINGS. Time is of the essence of this Agreement. The
headings in this Agreement are intended to be for convenience and reference
only, and shall not define or limit the scope, extent or intent or otherwise
affect the meaning of any portion hereof.
7
<PAGE>
4.7 GOVERNING LAW. The parties agree that this Agreement shall be governed
by, interpreted and construed in accordance with the laws of the State of
Illinois, and the parties agree that any suit, action or proceeding with respect
to this Agreement shall be brought in the courts of Cook County in the State of
Illinois or in the U.S. District Court for the Northern District of Illinois.
The parties hereto hereby accept the exclusive jurisdiction of those courts for
the purpose of any such suit, action or proceeding. Venue for any such action,
in addition to any other venue permitted by statute, will be Cook County,
Illinois.
4.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
4.9 RECITALS. The Recitals set forth above are hereby incorporated in and
made a part of this Agreement by this reference.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed and delivered as of the day and year first above written.
LIQUOR.COM, INC.,
a Delaware corporation
By: /s/ BARRY L. GRIEFF
-------------------------------------
EXECUTIVE:
/s/ GAIL P. ZELITZKY
-----------------------------------------
Gail Zelitzky
8
<PAGE>
Exhibit 10.16
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is made as of this 1st day of
March, 2000, by and between Liquor.com, Inc., a Delaware corporation (the
"COMPANY"), and Steven Olsher (the "EXECUTIVE").
RECITALS:
A. The Company is actively engaged in operating an e-commerce site
(Liquor.com) which facilitates both the purchase and sending of liquor, wine,
and other alcoholic or non-alcoholic beverage by businesses and individuals for
gift delivery and personal consumption.
B. The Company is currently expanding its business by further utilizing
its existing network of affiliates in the alcoholic beverage industry to reduce
the cost and increase the efficiency at each tier of the alcoholic beverage
distribution system.
C. Executive is a founding shareholder and executive of the Company and
has obtained certain unique and particular talents and abilities in managing and
developing the Company's business.
D. The Company is undergoing certain fundamental changes to its
business plan, capitalization and management structure pursuant to which
Executive is relinquishing management control of the Company.
E. The Company desires to assure itself of the continued
availability of Executive's talents and abilities and Executive desires to
secure continued employment with the Company, subject to the terms,
conditions and covenants hereinafter set forth;
F. The Executive has previously executed and delivered the
Confidentiality/Proprietary Information Agreement dated January 7, 2000 attached
hereto as EXHIBIT A (the "CONFIDENTIALITY AGREEMENT").
NOW, THEREFORE, in consideration of the foregoing and the agreements,
covenants and conditions set forth herein, the Executive and the Company hereby
agree as follows:
ARTICLE I
EMPLOYMENT
1.1 EMPLOYMENT. The Company hereby employs, engages and hires
Executive, and Executive hereby accepts employment, upon the terms and
conditions set forth in this Agreement. The Executive shall serve as the
Founder, Chief Operating Officer and Chief Libation Officer of the Company and
shall be an Executive Vice President of the Company. Executive shall have and
fully perform such duties and responsibilities that are commensurate with his
position, as may be, from
<PAGE>
time to time, assigned to him by the Board of Directors of the Company and/or
the Chief Executive Officer of the Company. The Executive shall report directly
to the Chief Executive Officer of the Company.
1.2 ACTIVITIES AND DUTIES DURING EMPLOYMENT. Executive represents and
warrants to the Company that he is free to accept employment with the Company,
and that he has no prior or other commitments or obligations of any kind to
anyone else which would hinder or interfere with his acceptance of his
obligations under this Agreement, or the exercise of his best efforts as an
officer and employee of the Company. During the Employment Term (as defined
below), Executive agrees:
(a) to devote substantially all of his business, time,
attention and efforts to the faithful and diligent performance of his
services to the Company;
(b) to faithfully serve and further the interests of the
Company in every lawful way, giving honest, diligent, loyal and
cooperative service to the Company; and
(c) to comply with all rules and policies which, from time to
time, may be adopted by the Company.
ARTICLE II
TERM
2.1 Term. The term of employment under this Agreement shall be three
(3) years (the "INITIAL TERM"), commencing on the date of the Agreement, which
Employment Term shall automatically renew for one year periods unless terminated
by either party by written notice not less than sixty (60) days prior to
expiration of the then-current term (such term of employment, as it may be
extended or terminated, is herein referred to as the "EMPLOYMENT TERM").
2.2 TERMINATION. The employment of Executive may be terminated as
follows:
(a) After the Initial Term, by either party upon at least
sixty (60) days notice to the other party, in which event such
termination shall be effective upon expiration of the notice period. If
Executive terminates his employment pursuant to this SECTION 2.2(a),
such termination is hereinafter referred to as a "VOLUNTARY
TERMINATION".
(b) By the Company immediately for "CAUSE." For the purpose of
this Agreement, "CAUSE" shall mean (i) conduct amounting to fraud,
embezzlement, or willful or illegal misconduct in connection with
Executive's duties under this Agreement; (ii) the indictment or
conviction of Executive by a court of proper jurisdiction of (or his
written voluntary and freely given confession to) a crime which
constitutes a felony and/or results in material injury to the Company's
property, operation or reputation; (iii) breach of the
2
<PAGE>
Confidentiality Agreement; or (iv) substantial and continued
failure to perform duties reasonably directed by the Board of
Directors and/or the Chief Executive Officer after written
notice from the Company and a ten (10) day opportunity to
cure.
(c) Upon the death of Executive.
(d) By either party upon the Total Disability of the
Executive. The Executive shall be considered to have a Total
Disability for purposes of this Agreement if he is unable by
reason of accident or illness to substantially perform his
employment duties, and is expected to be in such condition for
periods totaling six (6) months (whether or not consecutive)
during any consecutive period of twelve (12) months. During a
period of disability prior to termination hereunder, Executive
shall continue to receive his base salary.
(e) By the Executive upon five (5) business days
notice to the Company for Good Reason, which notice shall
state the reason for termination. For the purpose of this
Agreement, "GOOD REASON" shall mean:
(i) the assignment to the Executive of any
duties inconsistent with the Executive's position
(including status, offices and titles, office
facilities, staff support and reporting
requirements), authority, duties or responsibilities
as contemplated by ARTICLE I of this Agreement, or
any other action by the Company which results in a
diminution in such position, authority, duties or
responsibilities without prior written consent of the
Executive, excluding for this purpose an isolated
action not taken in bad faith and which is remedied
by the Company within five (5) business days after
receipt of written notice thereof given by the
Executive;
(ii) any material failure by the Company to
comply with any of the provisions of this Agreement,
other than an isolated failure not occurring in bad
faith and which is remedied by the Company within
five (5) business days after receipt of written
notice thereof given by the Executive;
(iii) any purported termination by the
Company of the Executive's employment otherwise than
as expressly permitted by this Agreement; or
(iv) the failure of the Company to appoint
Executive as a director of the Company upon the
increase of the number of directors from five to
seven which shall occur no later than 180 days from
the date hereof, and thereafter, any action taken by
the Company, including a proxy solicitation, failure
to nominate and/or recommend Executive as a
director of the corporation, that results in or is
intended to result in the removal of Executive from
the Board of Directors.
If there is any dispute between the parties as to whether Cause, Good Reason,
or Total Disability exists, either party may submit the dispute to binding
arbitration. Any such arbitration proceeding will be conducted in Chicago,
Illinois and except as otherwise provided in this Agreement, will be
3
<PAGE>
conducted under the auspices of JAMS/Endispute, in accordance with the then
current Commercial Arbitration Rules of the American Arbitration Association.
The arbitrator(s) shall allow such discovery as the arbitrator(s) determines
appropriate under the circumstances. The arbitrator(s) shall determine which
party, if either, prevailed and shall award the prevailing party its costs
and attorneys fees. The award and decision of the arbitrator shall be
conclusive and binding on all parties to this Agreement and judgment on the
award may be entered in any court of competent jurisdiction. The parties
acknowledge and agree that any arbitration award may be enforced against
either or both of them in a court of competent jurisdiction and each waives
any right to contest the validity or enforceability of such award. The
parties further agree to be bound by the provisions of any statute of
limitations which would be applicable in a court of law to the controversy or
claim which is the subject of any arbitration proceeding initiated under this
Agreement. The parties further agree that they are entitled in any
arbitration proceeding to the entry of an order, by a court of competent
jurisdiction pursuant to an opinion of the arbitrator, for specific
performance of any of the requirements of this Agreement.
2.3 CESSATION OF RIGHTS AND OBLIGATIONS; SURVIVAL OF CERTAIN
PROVISIONS. On the date of expiration or earlier termination of the
Employment Term for any reason, all of the respective rights, duties,
obligations and covenants of the parties, as set forth herein, shall, except
as specifically provided herein to the contrary, cease and become of no
further force or effect as of the date of said termination, and shall only
survive as expressly provided for herein.
2.4 TREATMENT OF EXECUTIVE UPON TERMINATION OF EMPLOYMENT. In lieu
of any severance under any severance plan that the Company may then have in
effect, and subject to any set-offs for any damages suffered by the Company
or other amounts owed by the Executive to the Company, the Company shall pay
to the Executive, and the Executive shall be entitled to receive in one lump
sum payment, the following amounts within thirty (30) days of the date of a
termination of the Employment Term:
(a) VOLUNTARY TERMINATION OR FOR CAUSE. Upon a Voluntary
Termination of the Employment Term by the Executive, the expiration of
the Employment Term because the Executive elects not to extend the
Employment Term, or a termination of the Employment Term for Cause by
the Company, the Executive shall be entitled to receive his current
Base Salary (as defined herein) and expense reimbursement through the
date of termination and pro rata portion of the prior year's
Performance Bonus (as defined herein).
(b) DEATH OR TOTAL DISABILITY. Upon the termination of the
Employment Term by either party by reason of the Death or Total
Disability of the Executive, the Executive shall be entitled to receive
(i) Base Salary and expense reimbursement through the date of
termination, (ii) an amount equal to the prior year's Performance
Bonus, and (iii) an amount equal to one year of his current Base
Salary.
(c) GOOD REASON; INVOLUNTARY PRIOR TO MARCH 1, 2002. Upon the
termination of the Employment Term by the Executive for Good Reason, or
by the Company in breach of this Agreement in either case at any time
before March 1, 2002, the Executive shall be
4
<PAGE>
entitled to receive (i) the Base Salary and expense reimbursement
through the date of termination, (ii) the balance of his current Base
Salary due through the end of the Initial Term, and (iii) an amount
equal to the number of years remaining (including the year of
termination) in the Initial Term multiplied by the prior year's
Performance Bonus.
(d) Good Reason; Involuntary After March 1, 2002. Upon the
expiration of the Employment Term by the Company by not electing to
extend the Employment Term, by the Company pursuant to SECTION 2.2
(a), by the Company in breach of this Agreement after March 1, 2002, or
by Executive for Good Reason after March 1, 2002, the Executive shall
be entitled to receive (i) his Base Salary and expense reimbursement
through the date of termination, (ii) one year's Base Salary, and (iii)
an amount equal to the prior year's Performance Bonus.
In addition, the Executive shall be entitled to continue to receive, at the
Company's sole expense, all health and disability benefits for a period of
one year after the termination date. If the Executive's employment is
terminated in the first year of the Initial Term, his prior year "Performance
Bonus" shall be deemed to be $50,000.
2.5 NO MITIGATION OF DAMAGES DEFENSE. The Company shall not be entitled
to interpose in any forum or proceedings whatsoever the defense of "mitigation
of damages," notwithstanding that the Executive shall have entered into or could
have entered into any other employment.
ARTICLE III
COMPENSATION OF BENEFITS
3.1 COMPENSATION.
(a) During the Employment Term, the Company shall pay
Executive a base salary ("BASE SALARY") of One Hundred Fifty Thousand
Dollars ($150,000) per year. The Base Salary will be reviewed annually
by the Board of Directors with a view to increasing it. The Company
shall not be permitted to reduce the Base Salary.
(b) The Company shall, in addition to Executive's Base Salary,
pay Executive an annual performance bonus (the "PERFORMANCE BONUS")
based on the Company obtaining certain targeted financial goals, as
established by the Board of Directors of the Company after consultation
with the Executive.
(c) The Company may pay such additional bonuses as the Board
of Directors of the Company may deem appropriate.
(d) The Company shall pay Executive a bonus of $50,000 within
thirty days of the closing of an initial public offering or other
significant financing event for the Company.
5
<PAGE>
3.2 PAYMENT. All compensation shall be payable in intervals in
accordance with the general payroll payment practice of the Company. The
compensation shall be subject to such withholdings and deductions by the Company
as are required by law.
3.3 BUSINESS EXPENSES.
(a) REIMBURSEMENT. The Company shall reimburse the Executive
for all reasonable, ordinary, and necessary business expenses incurred
by him in connection with the performance of his duties hereunder,
including, but not limited to, ordinary and necessary travel expenses
and entertainment expenses.
(b) ACCOUNTING. The Executive shall provide the Company with
an accounting of his expenses, which accounting shall clearly reflect
which expenses are reimbursable by the Company. The Executive shall
provide the Company with such other supporting documentation and other
substantiation of reimbursable expenses as will conform to Internal
Revenue Service or other requirements. All such reimbursements shall be
payable by the Company to the Executive within a reasonable time after
receipt by the Company of appropriate documentation therefor.
3.4 OTHER BENEFITS. Executive shall be entitled to participate in any
retirement, pension, profit-sharing, stock option, health plan, incentive
compensation and welfare or any other benefit plan or plans of the Company which
may now or hereafter be in effect for executive officers of the Company. The
Company shall pay to Executive a car allowance of $500 per month.
ARTICLE IV
MISCELLANEOUS
4.1 NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given, delivered and received
(a) when delivered, if delivered personally, (b) four days after mailing, when
sent by registered or certified mail, return receipt requested and postage
prepaid, (c) one business day after delivery to a private courier service, when
delivered to a private courier service providing documented overnight service,
and (d) on the date of delivery if delivered by telecopy, receipt confirmed,
provided that a confirmation copy is sent on the next business day by first
class mail, postage prepaid, in each case addressed as follows:
To Executive at his home address.
To Company at: Liquor.com, Inc.
4205 W. Irving Park Road
Chicago, IL 60641
Attn: Chief Executive Officer
6
<PAGE>
Ph: 773-427-8624
Fax: 773-427-8628
With a copy to: Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, IL 60611
Attention: James R. Asmussen
Any party may change its address for purposes of this paragraph by giving the
other party written notice of the new address in the manner set forth above.
4.2 ENTIRE AGREEMENT: AMENDMENTS, ETC. This Agreement contains the
entire agreement and understanding of the parties hereto, and supersedes all
prior agreements and understandings relating to the subject matter thereof.
No modification, amendment, waiver or alteration of this Agreement or any
provision or term hereof shall in any event be effective unless the same
shall be in writing, executed by both parties hereto, and any waiver so given
shall be effective only in the specific instance and for the specific purpose
for which given.
4.3 BENEFIT. This Agreement shall be binding upon, and inure to the
benefit of, and shall be enforceable by, the heirs, successors, legal
representatives and permitted assignees of Executive and the successors,
assignees and transferees of the Company. This Agreement or any right or
interest hereunder may not be assigned by Executive without the prior written
consent of the Company.
4.4 NO WAIVER. No failure or delay on the part of any party hereto in
exercising any right, power or remedy hereunder or pursuant hereto shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder or pursuant
thereto.
4.5 SEVERABILITY. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law but, if any provision of this Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement. If any part
of any covenant or other provision in this Agreement is determined by a court
of law to be overly broad thereby making the covenant unenforceable, the
parties hereto agree, and it is their desire, that the court shall substitute
a judicially enforceable limitation in its place, and that as so modified the
covenant shall be binding upon the parties as if originally set forth herein.
4.6 COMPLIANCE AND HEADINGS. Time is of the essence of this Agreement.
The headings in this Agreement are intended to be for convenience and
reference only, and shall not define or limit the scope, extent or intent or
otherwise affect the meaning of an portion hereof.
7
<PAGE>
4.7 GOVERNING LAW. The parties agree that this Agreement shall be
governed by, interpreted and construed in accordance with the laws of the
State of Illinois, and the parties agree that any suit, action or proceeding
with respect to this Agreement shall be brought in the courts of Cook County
in the State of Illinois or in the U.S. District Court for the Northern
District of Illinois. The parties hereto hereby accept the exclusive
jurisdiction of those courts for the purpose of any such suit, action or
proceeding. Venue for any such action, in addition to any other venue
permitted by statute, will be Cook County, Illinois.
4.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which
together will constitute one and the same instrument.
4.9 RECITALS. The Recitals set forth above are hereby incorporated in
and made a part of this Agreement by this reference.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed and delivered as of the day and year first above written.
LIQUOR.COM, INC.,
a Delaware corporation
By: /s/ Barry Grieff
---------------------------
EXECUTIVE:
/s/ Steven Olsher
----------------------------
Steven Olsher
8
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form SB-2
of our report dated February 15, 2000, relating to the financial statements
of Liquor.com, Inc. We also consent to the reference to our firm under the
caption "Experts" in the prospectus.
/s/Blackman Kallick Bartelstein, LLP
Blackman Kallick Bartelstein, LLP
Chicago, Illinois
April 12, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LIQUOR.COM,
INC. BALANCE SHEETS AS OF DECEMBER 31, 1998 AND DECEMBER 31, 1999 AND STATEMENTS
OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, DECEMBER 31, 1998 AND
DECEMBER 31, 1999.
</LEGEND>
<MULTIPLIER> 1
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-1-1997 JAN-1-1998 JAN-1-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 DEC-31-1999
<CASH> 0 461,924 340,786
<SECURITIES> 0 0 0
<RECEIVABLES> 0 74,155 520,312
<ALLOWANCES> 0 0 10,000
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 0 560,389 912,174
<PP&E> 0 20,742 248,361
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 0 603,377 1,212,310
<CURRENT-LIABILITIES> 0 663,118 1,130,739
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 0 1,200 1,204
<OTHER-SE> 0 18,000 167,996
<TOTAL-LIABILITY-AND-EQUITY> 0 603,377 1,212,310
<SALES> 1,281,453 1,818,960 2,788,187
<TOTAL-REVENUES> 1,281,453 1,818,960 2,788,187
<CGS> 704,486 1,076,197 1,946,758
<TOTAL-COSTS> 1,328,104 1,776,344 2,964,607
<OTHER-EXPENSES> (7,470) (7,053) (18,780)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (7,470) (7,053) (18,780)
<INCOME-PRETAX> (54,121) 35,563 (195,200)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (54,121) 35,563 (195,200)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (54,121) 35,563 (195,200)
<EPS-BASIC> (.02)<F1> (.01)<F1> (.06)
<EPS-DILUTED> (.02)<F1> (.01)<F1> (.06)
<FN>
<F1>1997 Balance Sheet is not included in filing.
</FN>
</TABLE>
