SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B)
OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
iCOMMERCE GROUP, INC.
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(Name of small business issuer in its charter)
Delaware 23-2820567
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(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6312 Baum Drive, Knoxville, TN 37919
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(Address of Principal Executive Offices) (Zip Code)
865-584-3398
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(Registrant's Telephone Number, Including Area Code)
Securities to be registered under Section 12(b) of the Act:
Title Of Each Class Name Of Each Exchange On Which
To Be So Registered Each Class Is To Be Registered
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None N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock
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(Title of class)
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TABLE OF CONTENTS
Page No.
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PART I
Item 1. Description of Business....................................................................3
Item 2. Management Discussion and Analysis........................................................23
Item 3. Description of Property...................................................................28
Item 4. Security Ownership of Certain Beneficial
Owners and Management.....................................................................29
Item 5. Directors, Executive Officers and Control Persons.........................................30
Item 6. Executive Compensation....................................................................32
Item 7. Certain Relationships and Related Transactions............................................33
Item 8. Description of Securities.................................................................35
PART II
Item 1. Market Price of and Dividends on the
Registrant's Common Equity And Other
Shareholder Matters.......................................................................38
Item 2. Legal Proceedings.........................................................................39
Item 3. Changes in and Disagreements with Accountants.............................................39
Item 4. Recent Sales of Unregistered Securities...................................................39
Item 5. Indemnification of Directors and Officers.................................................43
PART F/S
Financial Statements.....................................................................F-1
PART III
Item 1. Exhibit Index.............................................................................46
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INFORMATION REQUIRED IN
REGISTRATION STATEMENT
FORWARD-LOOKING STATEMENTS
The forward-looking statements contained in this Form 10-SB are subject
to certain risks and uncertainties. Actual results could differ materially from
current expectations. Among the factors that could affect the Company's actual
results and could cause results to differ from those contained in the
forward-looking statements contained herein is the Company's ability to
implement its business strategy successfully, which will depend on business,
financial, and other factors beyond the Company's control, including, among
others, prevailing changes in consumer preferences, access to sufficient
quantities of raw materials, availability of trained laborers and changes in the
regulation of tobacco products, the Internet, the import and export of tobacco
and other products and laws governing the operation of Free Trade Zones in the
Dominican Republic. There can be no assurance that the Company will continue to
be successful in implementing its business strategy. Other factors could also
cause actual results to vary materially from the future results covered in such
forward-looking statements. Words used in this Form 10-SB, such as "expects,"
"believes," "estimates" and "anticipates" and variations of such words and
similar expressions are intended to identify such forward-looking statements.
When used herein, the "Company" refers to iCommerce Group, Inc. and its
wholly-owned subsidiaries SJI Wholesale, Inc. ("SJI Wholesale"), Caribbean
Company (Cayman) Ltd. ("Carribean Company"), Caribbean Cigar Company (Cayman),
Ltd. ("Caribbean Cigar Cayman"), Inversiones Calle Ocho, S.A. ("Inversiones
Calle Ocho"), Parque Industrial Zona Franca de Jalbon (Cayman) Ltd. ("Zona
Franca"), Internet Laboratories, Inc. ("Internet Laboratories") and SJI Sales
and Marketing, Inc. ("SJI Sales"). The information contained on our web sites is
not part of this registration statement.
PART I
Item 1. Description of Business.
OVERVIEW
The Company operates subsidiaries involved in cigar manufacturing and
distribution, real estate development and the development, design and operation
of Internet properties.
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The Company began its operations in August 1995 under the name Belco
Systems Technologies, Inc. The Company's initial operations were related to the
development of a personal credit card reader that connected directly to a
consumer's telephone line. On March 4, 1998, the Company acquired all of the
outstanding stock of SJI Wholesale from Mr. J.D. Jenkins in exchange for
1,200,000 shares of the Company's common stock and 4,900,000 shares of the
Company's Series A Redeemable preferred stock. Formed in approximately 1982, SJI
Wholesale is a distributor of premium cigars and cigar accessories. Prior to the
acquisition, there was no relationship between Belco Systems Technologies, Inc.
and SJI Wholesale, and the terms of the transaction were the result of
arms-length negotiations. Concurrent with the transaction, the then current
officers and directors of the Company resigned and Messrs. J.D. Jenkins and Ron
Jenkins were appointed officers and directors of the Company. The acquisition
was accounted for as a reverse acquisition, pursuant to which SJI Wholesale has
been considered the acquiring company. As a result, the historical financial
statements of SJI Wholesale are the continuing historical financial statements
of the Company. The fair market value of the assets acquired and liabilities
assumed of the Company at the effective date of the acquisition are consolidated
with the historical financial statements of SJI Wholesale using the purchase
method of accounting. At the time of the acquisition, the Company had no
significant operations and its net assets were approximately $355,000.
Management of the Company believed that the acquisition of an operating company
with revenues was in the best interests of its shareholders.
In connection with the acquisition of SJI Wholesale, the Company formed
a wholly owned subsidiary, Belco Systems Technologies Corp. ("Belco Corp."), and
capitalized it with certain technology and $159,589 in cash. The Company then
sold a 49% interest in Belco Corp. to the former officers, directors and
principal stockholders of the Company in exchange for 666,667 shares of the
Company's common stock valued at $188,863. In September 1998, the Company sold
its 51% interest in Belco Corp. to the minority shareholders for $57,500 in cash
and the cancellation of 170,000 shares of the Company's common stock previously
issued. The Company divested itself of the interest in this company as its
operations did not fall within the Company's then current business model.
In April 1998, the Company formed its wholly owned subsidiary Maverick
Communications Corp. ("Maverick") for the purpose of acquiring, developing, and
marketing Internet properties. On August 3, 1998, Maverick entered into a
management and operating agreement and executed an option agreement with an
unaffiliated third party for the purchase of iSleuth.com, an established
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Internet search engine. On August 10, 1998, before the Maverick exercised the
option to purchase iSleuth.com, the Company sold all of the outstanding shares
of stock in Maverick to the BigHub.com, Inc. in exchange for 1,500,000 shares of
the common stock and 1,000,000 shares of preferred stock of the BigHub.com, Inc.
On August 1, 1999, the Company acquired all of the outstanding capital
stock of Caribbean Cigar Cayman for approximately $809,000 through the issuance
of 905,000 shares of common stock and notes payable of $100,000. Caribbean Cigar
Cayman was formed in 1996 as a subsidiary of Caribbean Cigar Company ("Caribbean
Cigar"), a vertically integrated manufacturer, distributor and retailer of
premium cigars, to conduct its offshore manufacturing operations. Messrs. J.D.
Jenkins and Ron Jenkins, officers and directors of the Company, had been
officers and directors of Caribbean Cigar and Caribbean Cigar Cayman since July
1998. Included in the assets acquired were approximately 1,400,000 premium
cigars, approximately 300,000 pounds of tobacco and equipment used in the
manufacture of cigars.
On July 30, 1999, the Company formed a wholly owned subsidiary, Zona
Franca for the purpose of operating a "Free Zone" in the Dominican Republic. On
August 1, 1999, the Company acquired all of the outstanding capital stock of
Inversiones Calle Ocho, a Dominican Republic cigar manufacturing corporation,
for approximately $471,000 through the issuance of 249,450 shares of the
Company's common stock and notes payable of $125,000 and the assumption of
approximately $150,000 in liabilities. Mr. Ron Jenkins, an officer and director
of the Company, had served as President of Inversiones Calle Ocho since August
of 1998. Included in the assets acquired were the rights to the Free Zone in the
Dominican Republic, including eight acres of land and two buildings with
approximately 60,000 square feet of production and warehousing space.
Prior to its acquisition by the Company, approximately 40% of the stock
of Caribbean Cigar Cayman and approximately 40% of the stock of Inversiones
Calle Ocho was owned by Mr. J.D. Jenkins and approximately 40% of the stock of
Caribbean Cigar Cayman and approximately 40% of the stock of Inversiones Calle
Ocho was owned by Mr. Ron Jenkins. Mr. J.D. Jenkins acquired these interests in
conjunction with the bankruptcy of Caribbean Cigar for a total consideration of
$150,000. While the terms of the acquisitions of Caribbean Cigar Cayman and
Inversiones Calle Ocho were not the result of arms-length negotiations,
management of the Company believes the terms were no less favorable than that
which might have been negotiated with an unaffiliated third party. In connection
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with the acquisition of Caribbean Cigar Cayman and Inversiones Calle Ocho, for
cost allocation purposes the Company obtained an independent appraisal of the
assets acquired which indicated values in excess of the costs paid by the
Company. As discussed later in this registration statement, the Company acquired
these subsidiaries in order to ensure itself of a reliable supply of cigars.
The Company was formed in Delaware in August 1995 under the name Belco
Systems Technologies, Inc. In March 1998 it changed its name to SJI Group, Inc.
and in June 1999 it changed its name to iCommerce Group, Inc.
BUSINESS OF THE COMPANY
iCommerce Group, Inc. is a holding company whose operations are
undertaken by its wholly-owned subsidiaries. These subsidiaries operate within
three divisions, as follows:
Division Subsidiary
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Cigar Manufacturing
and Distribution SJI Wholesale
SJI Sales
Carribean Cigar Cayman
Real Estate Development Zona Franca
Inversiones Calle Ocho
Internet Properties Internet Laboratories
The Company considers its cigar operations to be the Company's core
business, and considers its real estate development division conducted through
its free zone operations to be of growing importance. The Company's Internet
properties represent an insignificant portion of the Company's operations and
management does not anticipate any expansion of these operations in the
foreseeable future.
CIGAR MANUFACTURING AND DISTRIBUTION
For the fiscal years ended December 31, 1999 and 1998, revenues from
the cigar manufacturing and distribution division represented approximately
95.8% and 100.0%, respectively, of the Company's total revenues.
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History of the Division
In 1993 the cigar industry began to experience a dramatic increase in
demand from consumers which had the effect of creating a sizable increase in the
number of both cigar manufacturers and retail tobacconists. Through the end of
1997, many of the cigar manufacturers were able to sell their entire annual
production of cigars. Throughout this period, the larger manufacturers required
more time to meet this demand than did the smaller manufacturers. However, by
early 1998, the supply of cigars from the larger manufacturers exceeded demand
from the retail tobacconists thereby resulting in an oversupply in the market.
This had an adverse effect on both the retailers and manufacturers.
Throughout the period of 1993 to 1997, the Company was able to sell
most of the cigars it could purchase and experienced severe shortages of some of
the more popular cigars. In 1995, seeking to align itself with a large
manufacturer in the hopes that the supply from that manufacturer would fill the
Company's customer demand, the Company entered into an exclusive distribution
agreement for the United States with one of the world's largest cigar
manufacturers who was seeking to expand its distribution channels into the
United States. Shortly after entering into this agreement, other manufacturers
began to curtail shipments to the Company which resulted in the Company being
unable to satisfy orders from its customers for these products. Management
believes this was due to the impression that the Company was an extension of the
manufacturer it represented and therefore a direct competitor to those
manufacturers already distributing in the United States.
The Company worked with the manufacturer to develop cigars for the
United States market. However, the manufacturer was ultimately unable to deliver
quality cigars in the quantities needed to fill the Company's requirements. The
Company was then again without a reliable supply of cigars.
In 1998, the Company identified Caribbean Cigar, a manufacturer of
quality, high rated premium cigars, as a new source of cigar products. During
1998, demand for the Company's products from its customers was returning to
historic levels from the market highs of 1997. On July 28, 1998, Mr. Ron
Jenkins, an officer and director of the Company, entered into an agreement with
Caribbean Cigar under which Mr. Jenkins agreed to facilitate the consummation of
an agreement between the Company and Caribbean Cigar that would grant the
Company the exclusive right to market Caribbean Cigar's products in the United
States and arrange for the Company to purchase certain of the inventory of the
Caribbean Cigar for $500,000, among other terms. Concurrently, Caribbean Cigar
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appointed Messrs. Ron Jenkins and J.D. Jenkins officers and directors.
Subsequently, Caribbean Cigar filed for protection under the United States
Bankruptcy Code. As discussed above, in August 1999 the Company acquired certain
cigar manufacturing operations of Caribbean Cigar, thus giving the Company the
ability to manufacture cigars for itself. While this caused an immediate setback
to the Company's operations, it also brought an opportunity for the Company to
enter into the manufacturing of cigars for itself thus eliminating its historic
problem of the lack of a reliable supply of product.
The above events, which resulted in an unstable supply of cigars,
caused the decline of revenues over the past two years. With the acquisitions
described above, the Company has grown its operations from a marketer of cigars
produced by other third parties to a manufacturer and distributor of 18
propriety brands of cigars. The Company is now concentrating on expanding the
distribution of these proprietary brands. The Company believes that sales of its
cigars will now begin to increase and that the profit margins associated with
sales as a manufacturer should be higher than the profit margins achieved as a
distributor of other manufacturer's products.
Product Lines
The Company is a fully integrated manufacturer and marketer of cigars
and related products. The Company sells a full line of premium cigars and hand
made flavored cigars, in different sizes at varying retail prices, under Company
owned brands Hecho-A-Mano Dominicana, Edgar, Red Head, Cubano-A-Mano, La
O'Paree, Don Escobar, Free Cuba, Calle Ocho, Celestino Vega, Signature
Collection (SC), Rum Runner, West Indies Vanilla and Island Amaretto.
Cigars classified as "premium" are generally hand-made and have a
retail price above $1.00 per cigar. Generally, premium cigars are made with
natural leaf tobacco wrapper, binder and long filler. Higher grades of tobacco
are generally used in premium cigars with tobacco blends varying from brand to
brand depending on the desired characteristics. Premium cigars are made by
wrapping natural leaf binder tobacco around the long filler tobacco to create a
bunch that is placed into a mold to create the shape of the cigar. The natural
leaf wrapper tobacco is hand-rolled around each bunch creating a handmade
premium cigar. Cigars, including premium cigars, are also classified as "large"
cigars - those weighing over 3 pounds per 1,000 cigars and "small" cigars -
those weighing under 3 pounds per 1,000 cigars.
Each of these cigars is offered in a variety of sizes and generally
sells at retail prices ranging from $5.50 to $7.50, depending on the size. Each
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brand of premium cigars is a blend of selected premium tobaccos. Such tobaccos
are combined according to brand-specified formulas to create the cigar. In
addition, the Company offers several premium cigars for more moderate prices in
a variety of sizes and generally sells at retail prices ranging from $2.65 to
$5.95.
In addition to premium brands, the Company also offers three flavored
cigars - Rum Runner, a rum-flavored cigar, West Indies Vanilla, a
vanilla-flavored cigar, and Island Amaretto, an amaretto-flavored cigar. The
flavorings in these cigars are extracts, which are purchased by the Company.
These cigars use premium tobacco. However, the tobacco is short-filler which is
generated from the manufacture of the premium cigar brands. Each of the flavored
cigars is offered in four sizes and generally sells at retail prices between
$2.25 to $2.95.
The Company also offers a variety of pipes.
Sales and Marketing
The Company markets its cigar products on the Internet through its web
site at www.sjitobacco.com, 800 number outbound and inbound telemarketing, mail
order and outside sales representatives directly to consumers, retailers and
wholesalers. The Company has designed its web site to provide a convenient,
cost-effective and informative shopping experience. The Company believes that
these multiple channels allow it to increase the visibility of its brand name
and provide customers with increased shopping flexibility and service.
The Company is focused on building consumer loyalty and brand equity
and has implemented various marketing concepts to differentiate itself from its
competitors. Management of the Company believes these marketing initiatives
include several industry "firsts," including:
o first to operate an Internet site for the purpose of selling
cigars;
o first to develop and market a modular walk-in humidor;
o first in the industry to have operated a coach as a mobile
showroom, "The Cigar Bus," that received media attention
within the industry;
o first cigar wholesaler/retailer to offer a co-branded VISA
credit card program offered in connection with a marketing
agreement with MBNA Bank. This program offers incentives to
customers and provides the Company with additional revenue
from MBNA Bank. Will they ask what $ amount of Revenue?
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The Company has utilized telemarketing as a sales tool since 1996. The
Company currently employ approximately four sales representatives. Its sales
representatives receive and process inbound customer orders, and facilitate our
outbound telemarketing campaigns. The Company designs its telemarketing
campaigns around maximizing customers' reorders on a consistent basis. From time
to time, the Company conducts both outbound and inbound telemarketing campaigns.
The size of each campaign varies depending upon the nature and type of
advertising it is using to drive the campaign.
The Company also seeks to combine its broad product selection with the
unique aspects of the Internet to deliver a convenient and personalized shopping
experience. Customers can shop at the Company's web site by category, product
line or individual product. In January 1998 the Company became a participating
merchant in the Inktomi online e-commerce shopping service.
In addition to its sales and marketing efforts in the United States,
the Company has appointed sales representatives outside the United States. The
sales representatives are based in England and in Germany. These sales
representatives have been in the tobacco business for over 30 years and have
recently appointed distributors in Germany, South Africa, Ukraine, Nova Scotia,
Philippines, Ireland, Antigua, Australia, Estonia, Lithuania, Cyprus, China, and
Israel.
Manufacturing
The Company's premium cigar brands are hand rolled at the Company's
manufacturing facilities in the Dominican Republic. The manufacturing process
for premium cigars includes the selection, purchase and aging of the tobacco and
the hand rolling of the cigars. The tobacco is selected by the Company based
upon the flavor and quality of the tobacco. The availability and quality of
tobacco varies from season to season as a result of such factors as weather
conditions and the demand for the tobacco. As a result of the difference in
taste between different lots, the Company is continuously reformulating the
tobaccos in its premium cigars in order to maintain a consistent taste. The
Company's flavored cigars are manufactured from short-filler tobacco using a
proprietary flavoring process. The cigars are made by using short-filler tobacco
generated from the manufacture of the premium cigar brands. This short-filler
tobacco is then combined and flavored.
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The Company uses tobaccos from the Dominican Republic, Nicaragua,
Ecuador, Indonesia, the United States and Mexico. The Company does not believe
that it is dependent upon any single source for tobacco. Each buying season, the
Company analyzes and evaluates the tobacco producing markets worldwide. The
Company seeks to use, to the extent available, aged leaf that can be blended and
matched to the taste profile of the Company's cigars. The Company has no
long-term commitments to purchase tobacco from any single source. The Company,
however, currently has a supply of tobacco to sustain its needs for the next 12
months.
Government Regulation
Regulation of the Tobacco Industry
The tobacco industry is subject to regulation at federal, state and
local levels. Federal law has recently required states, in order to receive full
funding for federal substance abuse block grants, to establish a minimum age of
18 years for the sale of tobacco products, together with an appropriate
enforcement program. The recent trend is toward increasing regulation of the
tobacco industry, and the increase in popularity of cigars could lead to an
increase in regulation of cigars.
In August 1996, the Food and Drug Administration (the "FDA") determined
that nicotine is a drug and that it had jurisdiction over cigarettes and
smokeless tobacco products, as nicotine-delivering medical devices, and
therefore, promulgated regulations restricting and limiting the sale,
distribution and advertising of cigarette and smokeless tobacco products. Cigars
were not included in the FDA's regulations. The prohibition on retailers from
selling cigarettes, cigarette tobacco or smokeless tobacco to persons under the
age of 18 and requiring retailers to check the photographic identification of
every person under the age of 27 became effective on February 28, 1997.
Additional efforts by the FDA to increase regulation over tobacco and
tobacco-related products have been forestalled by a recent decision in the
Fourth Circuit of the U.S. Court of Appeals. In August 1998, that court ruled
that the FDA lacks jurisdiction to regulate tobacco products and struck down all
the provisions of the FDA's 1996 regulations. Brown & Williamson v. FDA, 153
f.3d 155 (4th Cir. 1998). The Fourth Circuit denied a U.S. Department of Justice
petition for rehearing by the Panel or en banc.
On January 19, 1999, the Solicitor General filed a petition for a writ
of certiorari requesting the U.S. Supreme Court review the August 1998 decision
of the Fourth Circuit. On March 21, 2000 the U.S. Supreme Court ruled that the
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FDA lacks the power to regulate tobacco products.
The U.S. Department of Health and Human Services (the "HHS") Inspector
General issued a report in February 1999, urging the Federal Trade Commission to
require cigars to carry warning labels similar to those contained on cigarette
packages. This report marks the first time that cigars have specifically been
identified for increased regulatory oversight by a federal heath agency.
While the cigar industry has not been subject to federal regulatory
efforts to date, there can be no assurance that there will not be an increase in
federal regulation in the future against cigar manufacturers or distributors.
The HHS report indicates that federal regulatory effort directed toward cigar
manufacturers and distributors may be increasingly likely. The costs to the
Company of increased government regulations could have a material adverse effect
on its business and results of operation.
In addition, the majority of states restrict or prohibit smoking in
certain public places and restrict the sale of tobacco products to minors. Local
legislative and regulatory bodies have also increasingly moved to curtail
smoking by prohibiting smoking in certain buildings or areas or by requiring
designated "smoking" areas. Further restrictions of a similar nature could have
an adverse effect on the Company's sales or operations. Numerous proposals also
have been considered at the state and local level restricting smoking in certain
public areas, regulating point of sale placement and promotion and requiring
warning labels.
Federal law has required health warnings on cigarettes since 1965 and
on smokeless tobacco since 1986. Although there is no federal law currently
requiring that cigars or pipe tobacco carry such warnings, California has
enacted legislation requiring that "clear and reasonable" warnings be given to
consumers who are exposed to chemicals known to the state to cause cancer or
reproductive toxicity, including tobacco smoke and several of its constituent
chemicals. Violations of this law, known as Proposition 65, can result in a
civil penalty not to exceed $2,500 per day for each violation. Although similar
legislation has been introduced in other states, no action has been taken. There
can be no assurance that such legislation introduced in other states will not be
passed in the future or that other states will not enact similar legislation.
Consideration at both the federal and state level also has been given to
consequences of tobacco smoke on others that are not presently smoking
(so-called "second-hand" smoke). There can be no assurance that regulations
relating to second-hand smoke will not be adopted or that such regulations or
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related litigation would not have a material adverse effect on the Company's
results of operations or financial condition.
The U.S. Environmental Protection Agency the "EPA") published a report
in January 1993 with respect to the respiratory health effects of second-hand
smoke, which concluded that widespread exposure to environmental tobacco smoke
presents a serious and substantial public health concern. Issuance of the
report, which is based primarily on studies of passive cigarette smokers, may
lead to further legislation designed to protect non-smokers. Also, a study
recently published in the journal Science reported that a chemical found in
cigarette smoke has been found to cause genetic damage in lung cells that is
identical to damage observed in many malignant tumors of the lung and, thereby,
directly links lung cancer to smoking. The study and these reports could affect
pending and future tobacco regulation and litigation.
Increased cigar consumption and the publicity that such increase has
received may increase the risk of additional regulation. There can be no
assurance as to the ultimate content, timing, or effect of any additional
regulation of tobacco products by any federal, state, local or regulatory body,
and there can be no assurance that any such legislation or regulation would not
have a material adverse effect on the Company's business.
Litigation Involving the Tobacco Industry
Historically, the cigar industry has experienced less health-related
litigation than the cigarette and smokeless tobacco industries have experienced.
Litigation against the cigarette industry has historically been brought
by individual cigarette smokers. In 1992, the United States Supreme Court in
Cippollone v. Liggett Group, Inc. ruled that federal legislation relating to
cigarette labeling requirements preempts claims based on failure to warn
consumers about the health hazards of cigarette smoking, but does not preempt
claims based on express warranty, misrepresentation, fraud, or conspiracy. To
date, individual cigarette smokers' claims against the cigarette industry have
been generally unsuccessful. However, in February 1999, a jury in California,
awarded the plaintiffs a total of $51,500,000 in compensatory and punitive
damages.
Current tobacco litigation generally falls within one of three
categories: class actions, individual actions (which have been filed mainly in
the State of Florida) or actions brought by individual states generally to
recover Medicaid costs allegedly attributable to tobacco-related illnesses. The
pending actions allege a broad range of injuries resulting from the use of
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tobacco products or exposure to tobacco smoke and seek various remedies,
including compensatory and, in some cases, punitive damages together with
certain types of equitable relief such as the establishment of medical
monitoring funds and restitution. The major tobacco companies are vigorously
defending these actions. The Company is not a party to any of these suits.
In May 1996, the Fifth Circuit Court of Appeals in Castano v. American
Tobacco, et al. reversed a Louisiana district court's certification of a
nationwide class consisting essentially of nicotine dependent cigarette smokers.
Notwithstanding the dismissal, new class actions asserting claims similar to
those in Castano have recently been filed in certain states. To date, two
pending class actions against major cigarette manufacturers have been certified.
The first case is limited to Florida citizens allegedly injured by their
addiction to cigarettes; the other is limited to flight attendants allegedly
injured through exposure to second-hand smoke.
The tobacco industry recently negotiated settlements totaling more that
$240 billion with the states seeking reimbursement for expenditures by
state-funded medical programs for treatment of tobacco related illnesses. The
federal government has sued the tobacco industry seeking reimbursement for
billions of dollars spent by government held programs to treat smoking-related
illnesses. This litigation could have a material adverse affect on the
profitability of tobacco and tobacco related products.
While the cigar industry has not been subject to similar health-related
litigation to date, there can be no assurance that there will not be an increase
in health-related litigation in the future against cigar manufacturers or
distributors. While the Company has never been a party to any health-related
litigation, in the event any such litigation was commenced against the Company,
the costs of defending prolonged litigation and a settlement or successful
prosecution of any health-related litigation could have a material adverse
effect on the Company's business and results of operation.
Excise Taxes Related to the Tobacco Industry
Cigars long have been subject to federal, state and local excise taxes,
and such taxes frequently have been increased or proposed to be increased, in
some cases significantly, to fund various legislative initiatives. The federal
excise tax rate on large cigars (weighing more than three pounds per thousand
cigars) is 18.06% of the manufacturer's selling price, capped at $42.50 per
thousand cigars.
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Based on scheduled increases to the federal excise tax on cigarettes,
which result in proportionate tax increases to the federal excise tax on all
other tobacco products, the tax on large cigars is scheduled to be raised to
20.71% and capped at $48.75 per thousand large cigars on January 1, 2002.
The Clinton administration recently proposed additional increases in
the federal excise tax on cigarettes which, if enacted as proposed, would
proportionately increase the tax on large cigars by approximately an additional
64.1% over the already scheduled increases. In addition, the administration has
proposed accelerating the effective date of the scheduled January 1, 2002
increase to become effective October 1, 2000. The Company believes that the
enactment of significantly increased excise taxes could have a material adverse
effect on the business of the Company. The Company is unable to predict the
likelihood of the passage or the enactment of future increases in tobacco excise
taxes as they relate to cigars.
Tobacco products also are subject to certain state and local taxes. As
evidenced by the passage of the Proposition 10 referendum in California, an act
used to fund early childhood development programs, children's health and
development concerns at the state level exert pressure to increase tobacco
taxes. Proposition 10, which became effective on January 1, 1999, raised the tax
on cigars in California from 26.17% of the manufacturer's selling price to
61.53%. This increase in tax on cigars in California had no material affect on
the Company's business.
The number of states that impose excise taxes on cigars is currently
44. Of the states without tobacco taxes, a proposal to add such taxes is pending
in West Virginia. State cigar excise taxes are not subject to caps similar to
the federal excise tax. From time to time, the imposition of state and local
taxes has had some impact on sales regionally. The enactment of new state excise
taxes and the increase in existing state excise taxes are likely to have an
adverse effect on regional sales as cigar consumption generally declines.
Special Regulations Related to Operations in the Dominican Republic
Changes in U.S. or foreign regulation affecting the Company's "free
zone" status, including the addition of import/export tariffs, will be
detrimental to the Company's operations. The Company does not believe that it is
impacted by currency fluctuations. The Company's foreign manufacturing
subsidiaries use the U.S. dollar as the functional currency and translate
monetary assets and liabilities at year-end
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exchange rates, and inventories, property, and non-monetary assets and
liabilities at historical rates. Gains and losses from these translations are
included in the Company's results of operations and were not significant in 1999
or 1998.
REAL ESTATE DEVELOPMENT DIVISION
For the fiscal years ended December 31, 1999 and 1998 revenues from the
real estate development division represented less than 1% of the Company's total
revenues.
The operations of this division are limited to an industrial park
located in the Dominican Republic. The Company's park in the "free zone" is
located in the northwestern Dominican Republic approximately 90 kilometers from
Puerto Plata and Santiago. The Company has been granted formal government
approval to develop and operate an industrial park. The President of the
Dominican Republic, Leonel Fernandez, approved the installation of the Company's
industrial park in his 31st decree of 2000, making it only the 28th recipient of
government approval to operate a private free trade zone industrial park since
1969.
Dominican laws have provisions where companies can import without duty
or tax materials and equipment into a "free zone," as well as manufacture and
export products without duty or tax. These laws were designed to provide
residents with stable employment and allow manufacturers the ability to access
and capitalize on the lower labor rates of the Dominican Republic.
Labor is readily available as evidenced by an unemployment rate of
approximately 80% within the surrounding areas. Many of those employed work in
neighboring cities. Currently, the minimum wage is approximately $30 per week.
Additionally, benefits of approximately 35% of wages paid must be provided to
employees. Wages for supervisors and office personnel are based upon the local
market.
Transportation is also readily available. Goods can be shipped in a
variety of methods, including by air or sea. Shipments would typically be made
from Puerto Plata. American Airlines serves the Puerto Plata area. Numerous
shipping lines service the Puerto Plata port. Shipping rates should depend on
the method of shipment, location shipped to and size of shipments.
It is estimated by the government of the Dominican Republic that the
free zone employs over 190,000 people and represent in excess of 500 businesses.
Among the select list of leading multi-national corporations operating in the
16
<PAGE>
free trade zone industrial parks in the Dominican Republic are GTE,
Westinghouse, Baxter, Abbott Laboratories, Hanes, Timberland, Ayerst
Pharmaceutical, GE, Emerson Electric and Johnson & Johnson.
The Company's park consists of approximately eight acres of land.
Currently, there is approximately 60,000 square feet of manufacturing space
which houses the Company's cigar manufacturing operations and permits the
Company to eliminate taxes and allow it to increase gross profit margins on its
propriety cigar brands. The Company owns fee simple title to this property.
Following the recent approval by the Dominican Republic to operate a
private free trade zone, the Company is engaged in preliminary marketing efforts
to attract tenants. At the present time, management anticipates these marketing
efforts will commence during the fourth quarter of fiscal 2000.
INTERNET PROPERTIES DIVISION
To date, the Company's web sites have not produced the level of
revenues the Company had previously anticipated. For the fiscal years ended
December 31, 1999 and 1998 revenues from the Internet properties division
represented less than 1% of the Company's total revenues during each of those
years. The Company believes that its marginal level of sales are due to the
intense competition from other more established web sites.
Web sites
In addition to its cigar web site at www.sjitobacco.com, the Company
owns and operates the following web sites:
www.247mall.com a diverse Internet mall
which brings consumers a
wide variety of products
and services from leading
manufacturers, retailers
and companies worldwide, in
categories such as gifts,
automobiles, music and
movies, cigars, fashion,
entertainment, electronics,
dining, travel, arcade and
the reading rack.
www.musicinstock.com a full service online music
retailer whose inventory
and fulfillment is handled
by Alliance Entertainment
Corp., an unaffiliated
third party, which is one
of the nation's largest
17
<PAGE>
distributors of music,
video, DVD and games.
www.royalselections.com an online retailer devoted
exclusively to the sale of
fine, upscale and imported
lifestyle items such as
jewelry boxes and chests,
cigar humidors, game boxes,
chess and checker sets and
kinetic watch winders.
www.screenflix.com an online retailer of a
wide variety of VHS and DVD
movies featuring over
25,000 video listings. This
site, whose inventory and
order fulfillment is also
handled by Alliance
Entertainment Corp.,
includes and interactive,
searchable index.
www.dominicanftz.com a marketing site for the
Company's free zone
operations in the Dominican
Republic.
The Company is also a 50% shareholder in CutThePrice.com, Inc., the
owner and operator of www.cuttheprice.com, which was formed in March 1999 with
WebBound Magazine, an unaffiliated their party.
www.cuttheprice.com is an Internet auction site modeled after the shop
at home television and cable retailers. The reverse auction concept is designed
to liquidate merchandise. Under this format, the initial price for the product
is the manufacturer's list price. The price is then lowered until the quantity
is sold out. Instead of bidding on a product, like you would in a traditional
auction, you reserve the product during a CutThePrice sale. At the end of the
auction, all buyers receive the product for the last and lowest price. While
operations have begun, CutThePrice is still in the developmental stage.
The Company is continuing to enhance the content and features of the
web sites www.musicinstock.com and www.screenflix.com and www.cuttheprice.com.
The web sites are designed to generate revenue based upon sales from
users purchasing products while visiting the site, or, in the case of
www.247mall.com, from advertising revenue. The Company markets its web sites
using the Internet and traditional print media. Internet marketing includes
18
<PAGE>
banner and button advertisements, as well as contests and promotions with some
key affiliate partners and may be expanded to include additional traffic
generating programs. In June 1999, the Company launched a traffic building
advertising campaign for its various Internet sites. This program, which ran for
an initial 60-day period, was not renewed because it did not generate sufficient
revenues for the Company to offset its costs. In July 1999, the Company
initiated a traffic building campaign designed under an agreement with ZDNET for
the purchase of 1.5 million banner ads. This program was also not renewed
because it did not generate sufficient revenues.
In December 1999, the Company entered into an agreement to develop and
manage an e-commerce site for V'dora Foods, Inc., a manufacturer of packaged,
health-orientated frozen foods. After the launch of the site, the Company will
manage the site, including the administration of online and inbound telephone
sales, customer service and site advertising. The Company will receive 15% of
the net proceeds from product sales until V'dora Foods has recouped the initial
Internet adverting investment, and thereafter the Company will receive 30% of
the net proceeds from the product sales. The Company has not begun this project
as of the date of this registration statement based upon a delay by V'dora.
There can be no assurances the Company will ultimately move forward on this
project.
COMPETITION
The Company experiences competition with respect to each of its
business units. The cigar manufacturing industry is highly competitive. The
Company believes that as a manufacturer of premium cigars, it competes with a
smaller number of domestic and foreign companies that specialize in premium
cigars, and certain larger companies that maintain premium cigar lines,
including Consolidated Cigar Corporation, 800 JR Cigar and General Cigar
Company.
The online commerce market is new, rapidly evolving and intensely
competitive. Our current or potential competitors include online vendors of
books, music, DVDs, videos, electronics, software and other products. Such
competitors include Amazon.com, Barnesandnoble.com, and Warehouse.com. We
believe that the principal competitive factors in our market include brand
recognition, selection, convenience, price, accessibility, quality of search
tools, quality of editorial and other web site content, reliability, and the
ability to adapt to changing conditions.
19
<PAGE>
Many of our competitors have longer operating histories and
significantly greater manufacturing, financial, technical and marketing
resources and name recognition than iCommerce. No assurance can be given that
the Company will continue to be able to compete effectively against these
competitors or any other or existing or future competitors in any of its market
segments. In addition, many of our competitors offer a wider range of cigar
products and Internet services than iCommerce does.
INTELLECTUAL PROPERTY
Trademarks and brand names are central to the business of marketing and
distributing premium cigars and are, accordingly, highly important to the
Company's business. The Company has received or purchased trademark registration
in the United States on the marks: Hecho-A-Mano Dominicana, Edgar, Red Head,
Cubano-A-Mano, La O'Paree, Don Escobar. On February 17, 2000, the Company
reached an agreement with the U.S. Bankruptcy Court (in conjunction with the
Caribbean Cigar bankruptcy) and Finova Capital Corporation to acquire, for
$325,000, the rights to the following trademarks or common law rights: Signature
Collection, Calle Ocho, Celestino Vega, C.V., Morro Castle, Domino Park, Rum
Runner, Island Amaretto, West Indies Vanilla, Free Cuba, Pachanga, Fun and
Simple 70. The purchase price is to be paid in 36 installments of $8,333 and a
final payment of $25,000.
The Company also relies on certain non-patentable trade secrets to
produce the distinctive flavors and aromas of its brands of cigars. There can be
no assurance that the Company will be able to prevent unauthorized use or
disclosure of such proprietary information or that other competitors will not be
able to develop substantially similar formulations.
The Company has also obtained the right to numerous Internet
addresses, including, www.icommercegroup.com, www. sjitobacco.com,
www.screenflix.com, www.royalselections.com, www.musicinstock.com,
www.247mall.com and www.dominicanftc,com. As with phone numbers, the Company
does not have and cannot acquire any property rights in an Internet address. The
Company does not expect to lose the ability to use the Internet addresses;
however, there can be no assurance in this regard and the loss of one or more
address would have a material adverse effect on its financial position and
results of operations.
EMPLOYEES
The Company currently employs approximately 60 full-time and two
part-time employees, and has eight independent sales representatives. Of its
20
<PAGE>
employees, approximately nine are engaged in sales and marketing, three in
executive and administrative roles, 45 in cigar manufacturing and industrial
park development and five in information services and Internet development. None
of the Company's employees are covered by any labor union. The Company believes
its relationships with its employees are generally good. The Company does not
have an employment contract or agreement with any of its employees.
RISK FACTORS
No Assurance of Profitability
The Company incurred a net loss and comprehensive loss of $1,126,568
for the fiscal year ended December 31, 1999, as compared to net income and
comprehensive income of $2,160,007 for the fiscal year ended December 31, 1998.
The losses in fiscal 1999 are primarily attributable to a significant decrease
in the Company's sales in its cigar manufacturing and distribution division.
There can be no assurances that the Company's revenues will ever return to
historic levels and the Company may continue to incur losses in the future. To
the extent that sales do not increase, the Company may not be able to achieve
profitability in the future. Even if the Company does achieve profitability, it
may not be able to sustain profitability during any future period.
Lack of Revenues from Internet Properties Division
The Company's Internet properties division accounts for less than 1% of
the Company's consolidated revenues. Despite efforts to draw consumers to the
web sites in this division, the Company has been unable to generate sufficient
sales to offset the costs of advertising and marketing the sites. The Company
faces significant competition from a number of e-commerce sites operated by
companies which are better capitalized than the Company. There can be no
assurances the Company will ever generate any significant revenues from this
division.
Potential Conflicts of Interest
Since March 1998 the Company has engaged in numerous transactions with
its officers and directors as described in the registration statement, at Part
II, Item 7, Certain Relationships and Related Transactions beginning on page 33.
While management of the Company believes that the terms of each of these
transactions were at least as favorable as the Company could negotiate with
unaffiliated third parties in arms-length transactions, the Company did not
obtain a fairness opinion for any transaction with affiliates.
21
<PAGE>
As a matter of policy, in the future management will rely upon independent
appraisals in transactions with a potential conflict of interest.
Dependence on Key Management
The Company's performance depends substantially on the continued
services and performance of its senior management and other key personnel.
Senior management and key personnel include J.D. Jenkins, the Company's Chief
Executive Officer, President and Secretary, and Mr. Ron Jenkins, a Director of
the Company. Ron Jenkins is the father of J.D. Jenkins.
The Company is dependent upon the technical skills of the employees in
the development of Internet properties. There is a highly competitive market for
these employees, however, the Company feels it offers employees both competitive
pay and other benefits that should aid in their retention and attract new
employees as the need arises.
In addition, the Company seeks to increase its cigar production and is
dependent upon its ability to hire and retain trained hand rollers. The market
for qualified personnel, particularly hand rollers, is competitive, and the
Company will compete with other cigar companies in seeking to hire such
employees, and no assurance can be given as to the ability of the Company to
employ or retain such persons.
Fluctuating Sales Growth Rates and Inventory Levels
In late 1996 and early 1997, the substantial growth in demand for
cigars, particularly in the U.S. market, caused several of the Company's largest
competitors to experience substantial growth in their order backlog and
difficulty in obtaining sufficient inventories of tobacco and sufficient skilled
rollers to meet market demand. As a reaction to those developments, most cigar
manufacturers increased their purchases of tobacco, hired additional rollers,
manufactured more cigars and moved these additional inventories into their
distribution channels. In late 1997 and into early 1998, the extraordinarily
rapid rate of industry-wide sales growth that had characterized the years from
1993 through mid-1997 began to diminish. As a result, the Company experienced
larger than normal levels of unsold inventory and a resulting strain on its
liquidity. The Company has not experienced shortages of tobacco and skilled
rollers and management believes (i) that its relationships with growers should
ensure it a sufficient supply of tobacco for the foreseeable future and (ii) the
Company's relationships with its workers are sufficiently good and the supply of
22
<PAGE>
skilled workers is sufficient to ensure that it should continue to have an
adequate staff of skilled rollers. There can, of course, be no assurance that
the Company will not experience such shortages.
Online security breaches could harm the Company's business.
The secure transmission of credit card information over the Internet is
essential to maintain consumer confidence in the Company's web sites.
Substantial or ongoing security breaches of our system, or other Internet-based
systems, could significantly harm the Company's business. Any penetration of the
Company's network security or other misappropriation of the Company's users'
personal information could expose the Company to liability. The Company may be
liable for claims based on unauthorized purchases with credit card information,
impersonation or other similar fraud claims. Claims could also be based on other
misuses of personal information, including claims for unauthorized marketing
purposes. These claims could result in litigation and financial liability.
Security breaches also could damage the Company's reputation and expose it to a
risk of loss or litigation, and possible liability. The Company relies on
licensed encryption and authentication technology to effect secure transmission
of confidential information, including credit card numbers. Advances in computer
capabilities, new discoveries or other developments could result in a compromise
or breach of the technology used by the Company to protect customer transaction
data.
The Company may incur substantial expense to protect against and remedy
security breaches and their consequences. A party that is able to circumvent the
Company's security systems could steal proprietary information or cause
interruptions in its operations. There can be no assurances that the Company's
security measures will prevent security breaches.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Introduction
------------
The following discussion is based upon, and should be read in
conjunction with, the audited consolidated financial statements of the Company
as of December 31, 1999 and for each of the years in the two year period ended
December 31, 1999 and 1998, together with the notes thereto.
In 1993, the cigar industry began to experience a dramatic increase in
demand from consumers. This created a sizable increase in the number of both
23
<PAGE>
cigar manufacturers and retail tobacconists. Through the end of 1997, many of
the cigar manufacturers were able to sell their entire production and in fact
some ran out of cigars. Throughout this period, the larger manufacturers
required more time to meet this demand than did the smaller manufacturers.
However, by early 1998, the supply of cigars from the larger manufacturers
exceeded demand from the retail tobacconists thereby causing the market to be
flooded with cigars. This had an adverse effect on both the retailers and
manufacturers. While the Company believes the overall demand from the end
consumer has remained high, the recent glut of cigars forced many small
manufacturers and distributors out of business.
Throughout the period of 1993 to 1997, the Company was able to sell
most of the cigars it could acquire and experienced severe shortages and outages
of specific types and sizes of cigars. In 1995, the Company realized the need to
align itself with a large manufacturer in the hopes that the supply from that
manufacturer would fill the cigar demand of the Company. As such, the Company's
subsidiary SJI Wholesale entered into an exclusive distribution agreement for
the United States with one of the world's largest cigar manufacturers that was
seeking to enter the United States market for the first time. Shortly after
entering into this agreement, other manufacturers began to curtail shipments to
SJI Wholesale. Management believes this was due to the impression that SJI
Wholesale was an extension of the manufacturer it represented on an exclusive
basis and now a direct competitor or threat to those manufacturers already
distributing in the United States.
SJI Wholesale worked with the manufacturer to develop cigars for the
United States market. However, SJI Wholesale later discovered that the
manufacturer, new to the United States market as it related to cigars, was
unable to deliver quality cigars in the quantities needed to fill the Company's
requirements. Within a year of entering into the exclusive distribution
agreement, the manufacturer had breached the agreement. The Company reached an
out-of-court settlement and was compensated by the manufacturer. SJI Wholesale
was again without a reliable supply of cigars.
The Company searched for and found a manufacturer of quality, high
rated premium cigars to align itself with. However, this other manufacturer,
primarily due to poor cash management, eventually filed for protection under the
United States Bankruptcy Code. While this caused an immediate setback to the
Company's operations, it also brought an opportunity for the Company to enter
into the manufacturing of cigars for itself. On August 1, 1999 the Company
acquired certain cigar manufacturing operations of the bankrupt manufacturer,
24
<PAGE>
thus giving the Company the ability to manufacture cigars for itself.
The above caused the decline of revenues over the past two years. The
Company is now concentrating on expanding the distribution of its proprietary
brands. In addition, the Company has begun expanding the distribution of its
proprietary brands internationally. Due to the increased demand, the Company has
recently appointed distributors in Germany, South Africa, Ukraine, Nova Scotia,
Philippines, Ireland, Antigua, Australia, Estonia, Lithuania, Cyprus, China, and
Israel. The Company believes that sales of its cigars will now begin to increase
and that the profit margins associated with sales as a manufacturer should be
higher than the profit margins achieved as a distributor of other manufacturer's
products.
The Company is also involved in designing and developing Internet sites
on an ongoing basis. The Company plans to design, build, and acquire Internet
sites and may choose to operate, sell, or enter into joint ventures with respect
to those Internet sites. While the Company has had success in the Internet field
with Maverick, the current Internet operations are still in the developmental
stages. The Company has invested over $100,000 and many man-hours in the design
of its current Internet sites. While some of its Internet sites are operational,
the Company will be required to invest additional resources, including both time
and cash, to fully develop and market all of its Internet sites.
To fund all or a portion of its working capital needs, the Company
intends to sell or otherwise dispose of all or a portion of its investment
securities. As of the date hereof (and subsequent to December 31, 1999) the
Company has further reduced the amount of its investment securities for such
purposes. In that regard, the Company is cognizant of the implications of
requirements as an "inadvertent investment company" and will monitor its
holdings of investment securities to ensure that they do not exceed the
permissible limits.
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998.
- --------------------------------------------------------------------------
For 1999, revenues were approximately $1.5 million, a decrease of
approximately $3.2 million or 68.1%, as compared to revenues of approximately
$4.7 million for 1998. This decrease is primarily attributable to the decline in
cigar sales.
For 1999, cost of sales were approximately $979,000, a decrease of
approximately $1.8 million or 64.7%, as compared to cost of sales of
25
<PAGE>
approximately $2.8 million for 1998. This decrease is primarily attributable to
the decrease in revenues in addition to a decrease in gross profit margin.
For 1999, depreciation and amortization was approximately $152,000, an
increase of approximately $10,000 or 6.6%, as compared to depreciation and
amortization of approximately $143,000 for 1998. This increase is primarily
attributable to depreciation and amortization of humidors used in the Company's
off-site humidor program.
Other income (expense) consists of investment income, interest expense
and other miscellaneous income and expenses. For 1999, other income was
approximately $817,000, a decrease of approximately $3.3 million, as compared to
other income of approximately $4.1 million for 1998. This decrease is primarily
attributable to a decrease in investment income of approximately $3.2 million.
For 1999, income tax (benefit) was approximately ($175,000) as compared
to income tax expense of approximately $1.4 million for the 1998. This decrease
is attributable to the decrease in income before income taxes (benefit) due the
factors discussed above.
For 1999, net (loss) was approximately ($1.1 million), or ($0.16) per
share, as compared to a net income approximately $2.2 million, or $0.53 per
share, for 1998.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997.
- --------------------------------------------------------------------------
For 1998, revenues were approximately $4.7 million, a decrease of
approximately $2.0 million or 30.2%, as compared to revenues of approximately
$6.7 million for 1997. This decrease is primarily attributable to the decline in
cigar sales.
For 1998, cost of sales were approximately $2.8 million, a decrease of
approximately $2.0 million or 41.7%, as compared to cost of sales of
approximately $4.7 million for 1997. This decrease is primarily attributable to
the decrease in revenues offset by an increase in gross profit margin.
Selling, general and administrative expenses consist of salaries and
wages, advertising, freight, insurance, rent, travel, utilities and other
expenses. For 1998, selling, general and administrative expenses were
approximately $2.3 million, an increase of approximately $420,000 or 21.9%, as
compared to approximately $1.9 million for 1997. This increase is primarily
26
<PAGE>
attributable to an increase in expenditures for salaries, advertising, travel
and entertainment, and utilities.
For 1998, depreciation and amortization was approximately $143,000, an
increase of approximately $76,000 or 113.4%, as compared to depreciation and
amortization of approximately $67,000 for 1997. This increase is primarily
attributable to depreciation and amortization of humidors used in the Company's
off-site humidor program.
Other income (expense) consists of investment income, interest expense
and other miscellaneous income and expenses. For 1998, other income was
approximately $4.1 million, an increase of approximately $4.2 million, as
compared to other (expense) of approximately $(78,000) for 1997. This increase
is attributable to an increase in investment income of approximately $4.1
million and the gain on the sale of subsidiary of approximately $91,000 offset
by the increase in interest expense of approximately ($74,000).
For 1998, income tax expense was approximately $1.4 million as compared
to income tax benefit of approximately ($29,000) for 1997. This increase is
attributable to the increase in income before income taxes (benefit) due the
factors discussed above.
For 1998, net income was approximately $2.2 million, or $0.53 per
share, as compared to a net loss of approximately ($62,000), or ($0.04) per
share, for 1997.
Liquidity And Capital Resources.
- -------------------------------
At December 31, 1999, the Company had working capital of approximately
$3.8 million including approximately $3.4 million related to investment
securities. Since its inception, the Company has sustained operating losses of
approximately $2.8 million. During that period, investment income, net of taxes,
is approximately $3.9 million. The Company's operations and growth has been
funded by the sale of common stock during the years ended December 31, 1998 and
1999 with net proceeds of approximately $1.3 million, and the sale of investment
securities in the year ended December 31, 1999 which netted the Company
approximately $1.3 million. The investment securities are represented by
securities of a third-party, publicly-traded company which the Company received
in August 1998 as consideration for the sale of one of its subsidiaries. The
Company is not engaged nor does it propose to engage in the business of
investing, reinvesting, owning, holding, or trading in securities. These funds
have been used for working capital, capital expenditures, acquisitions,
information systems development, Internet projects and other corporate purposes.
The Company intends to continue to liquidate these investment securities which
27
<PAGE>
it received as consideration for the sale of a subsidiary to fund its needs.
In addition, the Company believes it has enough inventory of tobacco
for the production of cigars for the next twelve months.
For the year ended December 31, 1999, the Company's cash increased by
$10,269. The Company used cash in operations of $1,613,106 for the year ended
December 31, 1999. However, for the year ended December 31, 1999, the Company
provided cash from investing activities and financing activities of $1,224,644
and 398,731, respectively.
In February 2000, the Company agreed to purchase certain trademarks for
$325,000. The purchase price has been financed over a three-year period with 36
equal payments of $8,333 per month and a final payment of $25,000.
Effects of Inflation
The Company does not expect inflation to materially affect its results of
operations. However, it is expected that operating costs and the cost of capital
equipment to be acquired in the future may be subject to general economic and
inflationary pressures.
Item 3. Description of Property.
Beginning August 1, 1996, the Company began to lease from the Company's
Chief Executive Officer, approximately 8,414 feet of office, administrative and
warehouse facilities located at 6312 Baum Drive, Knoxville, Tennessee 37919, at
a monthly rate of $3,500, which lease expires in July 2001.
The Company owns the Zona Franca de Jaibon Industrial Parque (Cayman),
Ltd., "Free Trade Zone" industrial park in the town of Jaibon, Dominican
Republic. The property consists of approximately 8 acres of land. Improvements
to the property consist of two buildings, which total 60,000 square feet
combined. The Company holds title to the property free of any liens or
encumbrances.
The Company believes that all the premises of the Company are in good
condition, reasonably insured and adequate for its foreseeable needs.
28
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management.
As of May 5, 2000, there were 8,131,650 shares of the Company's Common
Stock, 4,900,000 shares of Series A Preferred Stock and 552,623 shares of Series
B Preferred Stock issued and outstanding. The following table sets forth
information with respect to the beneficial ownership of each class of voting
securities of the Company by (i) each person known by the Company to be the
owner of more than 5% of the outstanding shares of any class of voting
securities, (ii) each officer and director, and (iii) all officers and directors
as a group. Unless otherwise indicated, the address for each individual listed
is 6312 Baum Drive, Knoxville, Tennessee 37919.
<TABLE>
<CAPTION>
Beneficial Ownership(1)
-----------------------
Percent of
Name Shares Class
- ---- ------ -----
<S> <C> <C>
Series A Preferred Stock
- ------------------------
J.D. Jenkins 4,900,000 100.0%
Series B Preferred Stock
- ------------------------
Miriam de Rodriguez 552,623 100.0%
Av. Republica de Argentina esq.
Estrella Sadhala,
Apartamento C-1
Santiago, Republica Dominicana
Common Stock
- ------------
J.D. Jenkins 6,460,200 (2) 49.6%
Miriam de Rodriguez 1,105,246 (3) 12.0
Ron Jenkins 292,300 3.6
Edward C. Williams 5,000 *
Daniel Daley 25,000 *
Gabriel Ripoll 25,000 *
All Executive Officers
and Directors as a Group
(five people) 6,827,500 (2) 52.4%
</TABLE>
- ---------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the applicable rules
under the Exchange Act, including any shares of Common or Preferred Stock as to
which a person has sole or shared voting or investment power. Additionally, in
computing the number of shares of Common Stock beneficially owned by a person
and the percentage of ownership of that person, shares of Common Stock subject
to options held by that person that are currently exercisable, or become
29
<PAGE>
exercisable within 60 days from the date hereof, are deemed outstanding.
However, such shares are not deemed outstanding for purposes of computing the
percentage ownership of any other person.
(2) Assumes the conversion of the Series A preferred stock into common stock at
the rate of one share of common stock for every share of Series A preferred
stock outstanding.
(3) Assumes the conversion of the Series B preferred stock into common stock at
the rate of two shares of common stock for every share of Series B preferred
stock outstanding.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The Directors, Executive Officers, Promoters and Control Persons of the
Company are as follows:
<TABLE>
<CAPTION>
Name Age Positions Held
---- --- --------------
<S> <C> <C>
J.D. Jenkins 38 Director, Chief Executive
Officer, President,
Secretary
Ron Jenkins 57 Director, Vice President
Edward C. Williams 39 Director, Chief Financial
Officer, Treasurer,
Assistant Secretary
Dan Daley 38 Director
Gabriel Ripoll, Jr. 57 Director
</TABLE>
J.D. Jenkins was elected as Chairman, Chief Executive Officer,
President and Secretary of the Company on March 4, 1998, following the
acquisition by the Company of SJI Wholesale of which he was sole shareholder.
Since April 1992, J.D. Jenkins has been Chairman of SJI Wholesale. In addition,
J.D. Jenkins may serve as an officer and/or director of one or more of the
subsidiaries of the Company. Mr. Jenkins served as a director and Chief
Executive Officer and President of Caribbean Cigar Company from July 1998 to
January 1999. Mr. Jenkins resigned as director and officer prior to Caribbean
Cigar Company filing Chapter 7 Bankruptcy on or about February 8, 1999. J.D.
Jenkins is the son of Ron Jenkins.
Ron Jenkins was elected as a director of the Company on March 4, 1998,
following the acquisition by the Company of SJI Wholesale. In addition, on May
25, 1999, Ron Jenkins was elected Vice President of the Company. Mr. Ron Jenkins
also served as Executive Vice President, Chief Operating Officer and Director of
Caribbean Cigar Company from July 1998 until February 1999, and he served as an
officer and director of various of it subsidiaries during the same period.
Caribbean Cigar Company filed for bankruptcy protection under Chapter 7 of the
United States Bankruptcy Code on or about February 8, 1999. In October of 1996,
Ron Jenkins was appointed Vice President of SJI Wholesale and currently serves
as President of SJI Wholesale. In addition, Ron Jenkins may
30
<PAGE>
serve as an officer and/or director of one or more of the subsidiaries of the
Company. Ron Jenkins is the father of J.D. Jenkins.
Edward C. Williams was elected as a director of the Company on May 24,
1999, and was appointed Chief Financial Officer, Treasurer and Assistant
Secretary on May 25, 1999. In addition, Edward C. Williams may serve as an
officer and/or director of one or more of the subsidiaries of the Company. From
September 1997 to February 1999, Mr. Williams was the Chief Financial Officer of
Caribbean Cigar Company which company filed for bankruptcy protection under
Chapter 7 of the United States Bankruptcy Code on or about February 8, 1999. He
also served as Interim President from June 1998 to July 1998. He was a Director
from November 1997 to February 1999. From December 1996 to present, he has
served as President and Chief Executive Officer of Williams Financial Group,
Inc., a financial and business consulting firm. Mr. Williams was Vice President
- - Finance of DenAmerica Corp. from April 1996 to July 1996, and he was Chief
Financial Officer of American Family Restaurants, Inc. from February 1993 to
March 1996, when American Family Restaurants, Inc. merged with DenWest
Restaurant Corp. Both of such corporations operated restaurants. From 1987 until
January 1993, Mr. Williams was employed by KPMG, most recently as a senior
manager.
Daniel Daley was elected as a Director of the Company on May 24, 1999.
Mr. Daley has been President of S&D Party Enterprises, Inc., a retail party
goods supplier, since 1993. Mr. Daley has also served as President of Party City
of TN, Inc., a retail party goods supplier, since 1995. Mr. Daley served as a
director of Caribbean Cigar Company from July 1998 to January 1999 which company
filed for bankruptcy protection under Chapter 7 of the United States Bankruptcy
Code on or about February 8, 1999.
Gabriel Ripoll, Jr. was elected as a Director of the Company on May 24,
1999. Mr. Ripoll has been principal officer and director of Tabaqueria de
Filipinas, Inc., a cigar manufacturing company, since March 1993. Between
February 1964 and February 1993, Mr. Ripoll was employed in the Philippine
branch of Compania General de Tobacos de Filipinas, S.A., a Spanish cigar
manufacturing company as General Manager of their cigar factory, La Flor de la
Isabela. From July 1998 to January 1999, Mr. Ripoll served as a director of
Caribbean Cigar Company which company filed for bankruptcy protection under
Chapter 7 of the United States Bankruptcy Code on or about February 8, 1999.
The Company's directors are elected at the annual meeting of
stockholders and hold office for one year and until their successors are elected
and qualified. The Company's officers are appointed by the Board of Directors
and serve at the pleasure of the Board. The Directors do not currently receive
fees for their services as directors. However, each Director is paid for service
on the Board of Directors $500 for each meeting other than telephonic meeting.
The Company also reimburses each Director for reasonable expenses in attending
meeting of the Board of Directors.
31
<PAGE>
The Company's Board of Directors currently has the following
committees:
Audit Committee
- ---------------
The committee consists of Dan Daley and Gabriel Ripoll, Jr. This
committee was established to oversee the auditing procedures of the Company, to
receive and accept the reports of the Company's independent certified public
accountants, to oversee the Company's internal systems of accounting and
management controls and to make recommendations to the full Board of Directors
as to the selection and appointment of auditors for the Company.
Compensation Committee
- ----------------------
The committee consists of Ron Jenkins, Dan Daley, Gabriel Ripoll, Jr.
This committee reviews and recommends to the Board of Directors the appropriate
compensation of directors and executive officers of the Company.
Nominating Committee
- --------------------
The Committee consists of Edward C. Williams, Ron Jenkins and Dan
Daley. This committee reviews and recommends to the Board of Directors
candidates for the executive officers of the Company.
Item 6. Executive Compensation
The following table sets forth information concerning the compensation
of the named executive officers for each of the Company's last three (3) years
ended December 31.
32
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Securities
Other Under-
Annual Restricted lying
Name and Compen- Stock Options/ LTIP All Other
Principal Salary Bonus sation Award(s) SARS Payouts Compen-
Position Year ($) ($) ($) ($) (#) ($) ($) sation
-------- ---- --- --- --- --- --- --- --- ---------
<S> <C> <C>
J.D. Jenkins, 1999 160,200 -- -- -- -- -- --
Director, CEO 1998 166,154 -- -- -- -- -- --
and President 1997 187,365 -- -- -- -- -- --
Ron Jenkins, 1999 142,700 -- -- -- -- -- --
Director and 1998 99,250 -- -- -- -- -- --
Executive Vice 1997 145,954 -- -- -- -- -- --
President
Edward C. Williams, 1999 46,154 -- -- -- -- -- --
Director, CFO 1998 -- -- -- -- -- -- --
and Treasurer(1) 1997 -- -- -- -- -- -- --
</TABLE>
- ---------------------------
(1) Mr. Williams was hired by the Company on May 1, 1999. Mr. Williams is
currently a consultant to the Company. He spends approximately fifty percent of
his time working for the Company. Mr. Williams is compensated on a per diem
basis.
Directors of the Company who are also employees do not receive cash or
stock compensation for their services as directors or members of committees of
the Board of Directors, but are reimbursed for their reasonable expenses
incurred in the course of business.
Item 7. Certain Relationships and Related Transactions
The Company leases its facility from its Chief Executive Officer and
majority stockholder, J.D. Jenkins, under a five year, non-cancelable operating
lease with payments of $42,000 annually. Upon expiration of the lease in July
2001, the Company has the option to renew the lease for five years at an annual
rental of $48,300.
In connection with the acquisitions of Caribbean Cigar Cayman and
Inversiones Calle Ocho, the Company issued 559,600 shares of its restricted
common stock, valued at $392,000, to two officers of the Company, J.D. Jenkins
and Ron Jenkins, in exchange for their respective shares of the acquired
companies. Ron Jenkins held a 40% ownership interest in both Caribbean Cigar
Company and Inversiones Calle Ocho. J.D. Jenkins held a 40% ownership interest
in both acquired companies.
The Company sold cigars and related items during 1998 and 1997 of
approximately $96,000 and $348,000, respectively, with a company, SJI, Inc.,
controlled by a member of the Chief Executive Officer's immediate family. The
33
<PAGE>
majority stockholder of the Company is J.D. Jenkins. Mr. Jenkins' family member
is not an officer, director or stockholder of the Company. Mr. Jenkins has no
ownership interest in SJI, Inc. There was no outstanding balance at December 31,
1998 and $8,755 was outstanding at December 31, 1997.
In 1998, the Company purchased approximately $120,000 of merchandise
from and advanced approximately $41,000 to a company where the Company's
majority stockholder, J.D. Jenkins, was an officer. The merchandise purchased
was cigars and related items. The advance is included in trade receivables in
the accompanying balance sheet at December 31, 1998. In addition, the Company
purchased approximately $500,000 of merchandise from J. D. Jenkins in 1998.
The Company borrowed $140,000 from certain family members of the
majority stockholder, J.D. Jenkins, during 1998. The outstanding balance at
December 31, 1998 was $140,000 and is included in accounts payable on the
accompanying consolidated balance sheet.
During the year ended December 31, 1998, the Company issued 100,000
shares of its Common Stock to the Company's President and Chief Executive
Officer and majority shareholder at a compensation cost of $43,200 in exchange
for his personal guarantee of a note payable in the amount of $1,090,000. The
shares were issued pursuant to an exemption from registration under Section 4(2)
of the Securities Act.
In March 1999, Company converted $552,623 of loans into 552,623 shares
of Series B preferred stock issued to Miriam de Rodriguez. The Company, not the
holder, has the right to convert the Series B preferred stock into common stock
at a rate of two shares of common stock for every one share of Series B
preferred stock so converted. Prior to conversion, the Series B preferred stock
has the right to one vote per share of Series B preferred stock outstanding with
the common stock.
In connection with Belco Systems Technologies, Inc., ("Belco")
acquisition of SJI Wholesale, Inc. the Company issued 170,000 shares of common
stock to former officers, directors and principal stockholders of Belco. In
September 1998, the Company sold its 51% interest in its subsidiary Belco
Systems Technologies Corp. for $57,500 in cash and the cancellation of 170,000
shares of the Company's common stock issued in connection with the transaction.
34
<PAGE>
Management believes that the Company transactions named were at least
as favorable as those that could have been obtained from unaffiliated parties.
Item 8. Description of Securities
Capital Stock
The Company's authorized capital consists of 50,000,000 shares of
common stock, par value $.0001, and 25,000,000 shares of blank check preferred
stock, par value of $.0001.
The Company has designated two classes of Preferred Stock, a "Series A
Preferred Stock" and a "Series B Preferred Stock".
Common Stock
------------
As of May 5, 2000, there were 8,131,650 shares of the Company's
Common Stock issued and outstanding.
Preferred Stock
---------------
Series A
The Series A Preferred Stock has authorized 4,900,000 shares. The holders of the
shares of Series A Preferred Stock have full voting rights, share for share,
with the outstanding common stock of the Company. Each share of Series A
Preferred Stock is convertible into one share of Common Stock of the Company at
the option of the holder. The shares of Series A Preferred Stock are redeemable
at the sole option of the Company at any time and from time to time at a
redemption price to be negotiated by the parties at the time of the redemption.
The shares of Series A Preferred Stock may pay annual dividends out of funds
legally available for the payment of dividends by the Company at the sole
discretion of the Board of Directors. In the event of any voluntary or
involuntary dissolution or winding up of the Company, the holders of shares of
Series A Preferred Stock then outstanding are entitled to be paid out of the
assets of the Company available for distribution to its shareholders an amount
per share equal to $.0001 without interest, and no more, before any payment
shall be made to the holders of any stock of the Company ranking junior to the
Series A Preferred Stock. The share of Series A Preferred Stock may be
transferred at any time at the sole option of the holder. Any Series A Preferred
Stock redeemed or otherwise acquired by the Company in any manner whatsoever
shall constitute authorized but unissued preferred shares and may be reissued as
part of a new series of preferred shares by resolution or resolutions of the
Board of Directors.
As of May 5, 2000, there were 4,900,000 shares of the Company's
Series A preferred stock issued and outstanding.
35
<PAGE>
In March 1999, the Company granted the holders of the Series A
preferred stock the right to convert the Series A preferred stock into common
stock at a rate of one share of common stock for every share of Series A
preferred stock so converted. The Series A preferred stock was issued to J.D.
Jenkins in March 1998 in connection with the acquisition of SJI Wholesale, Inc.
by Belco.
Series B
The number of authorized shares of the Series B Preferred Stock is
570,000 shares. Holders of the shares of Series B Preferred Stock shall be
entitled to full voting rights, share for share, with the outstanding Common
Stock of the Company. Each share of Series B Preferred Stock is convertible at
the sole option of the Company into two shares of common stock of the Company.
The shares of Series B Preferred Stock are redeemable at the sole option of the
Company at any time at a redemption price to be negotiated by the parties at the
time of redemption. The shares of Series B Preferred Stock may pay annual
dividends out of funds legally available for the payment of dividends by the
Company at the sole discretion of the Board of Directors. In the event of any
voluntary or involuntary dissolution or winding up of the Company, the holders
of shares of Series B Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Company available for distribution to its
shareholders an amount per share equal to $.0001 without interest, and no more,
before any payment shall be made to the holders of any stock of the Company
ranking junior to the Series B Preferred Stock, but after payment shall be made
to the holders of the Company's Series A Preferred Stock. The shares of Series B
Preferred Stock may be transferred any time and from time to time at the sole
option of the holder.
As of May 5, 2000, there were 552,623 shares of the Company's
Series B preferred stock issued and outstanding.
In March 1999, the Company authorized the designation of a Series B
preferred stock. The Company then converted $552,623 of loans into 552,623
shares of Series B preferred stock. The Company, not the holder, has the right
to convert the Series B preferred stock into common stock at a rate of two
shares of common stock for every one share of Series B preferred stock so
converted. Prior to conversion, the Series B preferred stock has the right to
one vote per share of Series B preferred stock outstanding with the common
stock.
36
<PAGE>
Stock Option Plan
Under the S.J.I. Group, Inc. Amended 1998 Stock Option Plan (the
"Plan"), 700,000 shares of Common Stock are reserved for issuance. Options to
acquire 103,000 shares of Common Stock at an average exercise price of $.68 per
share are outstanding as of December 31, 1999. The purpose of the Plan is to
provide incentives for officers, directors, consultants and key employees to
promote the success of the Company, and to enhance the Company's ability to
attract and retain the services of such persons. Options granted under the Plan
may be either: (i) options intended to qualify as "incentive stock options"
under Section 422 of the Internal Revenue Code of 1986; or (ii) non-qualified
stock options. Stock options may be granted under the Plan for all employees and
consultants of the Company, or of any present or future subsidiary or parent of
the Company. The Plan is administered by the Board of Directors, which may, and
is expected to, delegate administrative responsibility for the Plan to the
Compensation Committee of the Board of Directors. The Compensation Committee has
the authority to determine exercise prices applicable to the options, the
eligible officers, directors, consultants or employees to whom options may be
granted, the number of shares of the Company's Common Stock subject to each
option and to the extent to which options may be exercisable. The Compensation
Committee is empowered to interpret the Plan and to prescribe, amend and rescind
the rules and regulations pertaining to the Plan. Options granted under the Plan
generally vest over three years. No option is transferable by the optionee other
than by will or the laws of descent and distribution and each option is
exercisable, during the lifetime of the optionee, only by the optionee. The
Compensation Committee may not receive options.
Any incentive stock option that is granted under the Plan may not be
granted at a price less than the fair market value of the Company's Common Stock
on the date of grant (or less than 110% of the fair market value in the case of
holders of 10% or more of the total combined voting power through all classes of
stock of the Company or a subsidiary or parent of the Company.) Non-qualified
stock options may be granted at the exercise price established by the
Compensation Committee, which may be less than the fair market value of the
Company's Common Stock on the date of grant, but in no event shall such exercise
price be less than 55% of such fair market value.
37
<PAGE>
Each option granted under the Plan is exercisable for a period not to
exceed ten years from the date of grant (or five years in the case of a holder
of more than 10% of the total combined voting power of all classes of stock of
the Company or a subsidiary or parent of the Company) and shall lapse upon
expiration of such period, or earlier upon termination of the recipient's
employment with the Company, or as determined by the Compensation Committee.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
The Company's Common Stock is traded on the over-the-counter market.
The following sets forth the range of high and low bid quotations for the
periods indicated as reported by the OTC Bulletin Board. Such quotations reflect
prices between dealers without retail mark-up, markdown or commission and may
not represent actual transactions and is quoted on the OTC Bulletin Board under
the symbol ICGI. The stock is thinly traded and transactions in the stock are
sporadic and infrequent.
Quarter Ended High Bid Low Bid
- ------------- -------- -------
March 31, 2000 $1.1250 $0.4688
December 31, 1999 1.1562 0.3750
September 30, 1999 1.5625 0.6250
June 30, 1999 2.8750 0.4000
March 31, 1999 1.0000 0.1650
December 31, 1998 0.4062 0.1562
September 30, 1998 1.1562 0.2812
June 30, 1998 8.1250 0.5000
March 31, 1998 9.0000 1.0000
December 31, 1997 2.0000 0.7500
September 30, 1997 1.7500 1.0000
June 30, 1997 2.3750 0.8125
March 31, 1997 3.6250 2.2500
38
<PAGE>
As of May 5, 2000, there were approximately 81 holders of record of the
Company's Common Stock.
Dividend Policy
---------------
The Company has never paid a cash dividend on its Common Stock nor does
the Company anticipate paying cash dividends on its Common Stock in the near
future. It is the present policy of the Company not to pay cash dividends on the
Common Stock but to retain earnings, if any, to fund growth and expansion. Any
payment of cash dividends on the Common Stock in the future will be dependent
upon the Company's financial condition, results of operations, current and
anticipated cash requirements, plan for expansion, as well as other factors the
Board of Directors deems relevant.
Item 2. Legal Proceedings.
As of the date hereof, except as described below, the Company is not a
party to any pending legal proceeding and is not aware of any threatened legal
proceeding.
On December 7, 1999, the Company's subsidiary, SJI Wholesale, Inc.
("SJI Wholesale") sued Wal-Mart Stores, Inc. d/b/a Sam's Club in the United
States District Court, Western District of Arkansas, Fayetteville Division. SJI
Wholesale seeks to recover payment of approximately $180,000 for cigars
delivered to certain Sam's Clubs for payment has not been made. In addition, SJI
Wholesale seeks compensatory damages, pre-judgment interest, attorney fees and
restitution for actions taken and money spent in accordance with that certain
vendor agreement and addendum entered into between SJI Wholesale and Wal-Mart
Stores, Inc.
In March 2000, SJI Wholesale filed a complaint in the United District
Court for the Southern District of Ohio, Case No. C-1-00-0225, against Alfred J.
Berger, DSI Limited and American Case & Luggage Co. d/b/a American Western Cigar
Co. (collectively "the Defendants") alleging trademark infringement and unfair
competition under the Lanham Act and common law with respect to the Company's
federally registered marks Celestino Vega and Rum Runner and the common law
marks Island Amaretto and West Indies Vanilla and trade dress involving the
distinctive appearance of the boxes for the cigars. In connection with the
complaint, SJI Wholesale has requested the court for injunctive relief and
damages in excess of 75,000 to prevent the defendants from selling cigars under
the Company's trademarks. On April 20, 2000 the Defendants counterclaimed
against the Company alleging trademark infringement, trade dress infringement
and unfair competition. The Defendants requested an injunction and damages. The
Company plans to vigorously prosecute this lawsuit.
Item 3. Changes in and Disagreements with Accountants.
None.
Item 4. Recent Sales of Unregistered Securities.
The following provides information concerning all sales of securities
within the last three years which were not registered under the Securities Act
of 1933:
In March 1998, the Company issued 1,200,000 shares of its Common Stock
and 4,900,000 shares of its Series A Preferred Stock to Mr. J.D. Jenkins, an
officer and director of the Company, in connection with the acquisition of SJI
Wholesale. These shares were issued pursuant to an exemption from registration
39
<PAGE>
under Section 4(2) of the Securities and Exchange Act. The acquisition was
accounted for a reverse acquisition, pursuant to which SJI Wholesale has been
considered the acquiring company. The fair market value of the assets acquired
and liabilities assumed of the Company at the effective date of the acquisition
are consolidated with the historical financial statements of SJI Wholesale using
the purchase method of accounting.
On March 26, 1998, the Company conducted a private placement of its
Common Stock pursuant to Rule 504 of Regulation D under the Securities Act. The
Company issued to seven (7) investors a total of 2,000,000 shares of Common
Stock at $0.20 per share in exchange for cash consideration. The offering was
made to accredited or otherwise sophisticated investors. Investors who were not
accredited investors had full access to, or were otherwise provided with, all
relevant information reasonably necessary to evaluate the Company.
During the year ended December 31, 1998, the Company issued an
aggregate of 201,668 shares of its Common Stock to three (3) consultants with a
value of $141,181 in exchange for project development services and legal
services rendered. The shares were issued pursuant an exemption from
registration under Section 4(2) of the Securities Act. The recipients were
accredited or otherwise sophisticated investors and had full access to, or were
otherwise provided with, all relevant information reasonably necessary to
evaluate the Company.
During the year ended December 31, 1998, the Company issued 100,000
shares of its Common Stock to the Company's President and Chief Executive
Officer in exchange for his personal guarantee of a note payable in the amount
of $1,090,000. The Company recorded compensation expense of approximately
$42,300 related to this issuance. The shares were issued pursuant to an
exemption from registration under Section 4(2) of the Securities Act.
On June 17, 1998, the Company issued to an accredited investor 55,555
shares of its Common Stock at $0.45 per share in exchange for cash
consideration. The shares were issued pursuant to an exemption under Section
4(2) of the Securities Act.
On June 19, 1998, the Company conducted a private placement of its
Common Stock pursuant to Rule 504 of Regulation D as promulgated under the
Securities Act. The Company issued to an accredited investor 200,000 shares of
its Common Stock at $1.50 per share in exchange for cash consideration.
40
<PAGE>
On June 19, 1998, the Company issued 170,000 shares of its Common Stock
to its former officers and directors pursuant to the anti-dilution provisions of
the agreements executed in connection with the acquisition of SJI Wholesale.
These securities were issued pursuant to an exemption from registration under
Section 4(2) of the Securities Act.
Pursuant to the sale of Belco Corp., in 1998, the Company returned to
treasury 170,000 shares of its common stock valued at $135,053 and issued
143,333 shares of its common stock valued at $116,248 in satisfaction of a
contractual obligation for certain technology. The shares of Common Stock were
issued pursuant to an exemption from registration under Section 4(2) of the
Securities Act.
On August 10, 1998, the Company sold 100% of the outstanding shares of
stock Maverick The BigHub.com, Inc. "BHUB", an unaffiliated third party, in
exchange for 1,500,000 shares of restricted BHUB common stock and 1,000,000
shares of voting, non-convertible, BHUB preferred stock. The estimated fair
value of the BHUB common stock at the date of the transaction was approximately
$4,080,000. BHUB was an accredited investor and the transaction was exempt from
the registration requirements of the Securities Act in reliance on an exemption
under Section 4(2) of the Act.
On June 19, 1998, the Company issued 650,000 shares of its Common Stock
in connection with a private placement at $0.04 cents per share pursuant to an
exemption from registration under Section 4(2) of the Securities Act.
On October 28, 1998, the Company conducted a private placement of its
Common Stock pursuant to Rule 504 of Regulation D under the Securities Act. The
Company issued to an accredited investor 272,727 shares of its Common Stock at
$0.22 per share in exchange for cash consideration.
On November 12, 1998, the Company conducted a private placement of its
Common Stock pursuant to Rule 504 of Regulation D under the Securities Act. The
Company issued to an accredited investor 75,985 shares of its Common Stock at
$0.22 per share in exchange for cash consideration.
On January 1, 1999, the Company issued an aggregate of 190,000 shares
of its Common Stock, at a price of $0.185 per share, to 19 employees in exchange
for services. The Company recorded a compensation expense of $35,000. The
issuance was exempt from registration under Section 4(2) of the Securities Act.
These employees were sophisticated investors and they had full access to, or
41
<PAGE>
were otherwise provided with, all reasonable information necessary to evaluate
the Company.
On January 1, 1999, the Company issued 49,965 shares of Common Stock to
a consultant and recorded legal and professional expenses of approximately
$10,500. The recipient was an accredited investor, and the transaction was
exempt from registration under the Securities Act in reliance on an exemption
pursuant to Rule 504 of Regulation D.
On January 19, 1999, the Company conducted a private placement of its
Common Stock pursuant to Rule 504 of Regulation D as promulgated by the
Securities and Exchange Commission under the Securities Act. The Company issued
to two (2) investors a total of 314,509 shares of its Common Stock, at $0.51 per
share, in exchange for cash consideration.
On March 26, 1999, the Company conducted a private placement of its
Common Stock pursuant to Rule 504 of Regulation D under the Securities Act. The
Company issued to an accredited investor 208,125 shares of its Common Stock at
$0.45 per share in exchange for cash consideration.
In March 1999, the Company converted $552,623 of loans into 552,623
shares of Series B Preferred Stock issued to Miriam de Rodriguez, a principal
shareholder of the Company. Ms. Rodriguez is a sophisticated investor and had
full access to, or was otherwise provided with, all reasonable information
necessary to evaluate the Company. The issuance was exempt from registration
under the Securities Act in reliance on an exemption under Section 4(2) of said
act.
On April 5, 1999, the Company conducted a private placement of its
Common Stock pursuant to Rule 504 of Regulation D under the Securities Act. The
Company issued to an accredited investor 200,000 shares of its Common Stock at
$0.40 per share in exchange for cash consideration.
On April 7, 1999, the Company issued an aggregate of 70,000 shares of
its Common Stock, at a price of $0.42 per share, to two individuals in exchange
for consulting services. The Company recorded an expense of approximately
$29,000 in connection with this issuance. The issuance was exempt from
registration under Section 4(2) of the Securities Act and the recipients were
accredited or otherwise sophisticated investors and had full access to, or were
otherwise provided with, all relevant information reasonably necessary to
evaluate the Company.
42
<PAGE>
On April 7, 1999, the Company issued 100,000 shares of its Common
Stock, at a price of $0.42 per share, to an individual in connection with the
acquisition of an interest in airplane used by the Company. The recipient was an
accredited investor and the issuance was exempt from registration under Section
4(2) of the Securities Act.
On April 29, 1999, the Company issued to an investor 200,000 shares of
its Common Stock at $0.50 per share in exchange for cash consideration. The
issuance was exempt under Section 4(2) of the Securities Act.
In connection with the acquisition of Caribbean Cigar Company Cayman,
on August 1, 1999 the Company issued 905,000 shares of its restricted common
stock valued at approximately $710,000 and notes payable of $100,000 to a
company controlled by officers and directors of the Company. The shares of
Common Stock were issued pursuant to an exemption from registration under
Section 4(2) of the Securities Act.
In connection with the acquisition of Inversiones Calle Ocho, on August
1, 1999 the Company issued 249,450 shares of its restricted common stock valued
at approximately $196,000 and notes payable of $125,000 to a company controlled
by officers and directors of the Company. The shares of Common Stock were issued
pursuant to an exemption from registration under Section 4(2) of the Securities
Act.
On 1998, the Company issued 66,667 shares of its restricted common
stock valued at $39,168, in payment of certain public relation fees and legal
expenses. The shares of Common Stock were issued pursuant to an exemption from
registration under Section 4(2) of the Securities Act.
On November 2, 1999, the Company granted stock options under the
Company's qualified stock option plan to 13 employees to acquire a total of
73,000 shares of common stock at an exercise price of $0.44 per share. The
exercise price represents the fair market value of the common stock on the date
of grant.
Item 5. Indemnification of Directors and Officers.
The Company's Articles of Incorporation, as amended, provide that the
Company must, to the fullest extent permitted by the General Corporation Law of
the State of Delaware, indemnify all persons whom it has the power to indemnify
from and against all expenses, liabilities or other matters. The Company's
By-laws further provide that the Company shall indemnify its directors,
officers, employees and agents to the fullest extent permitted by Delaware law.
43
<PAGE>
The indemnification provided in the By-laws is expressly deemed to not be
exclusive of any other rights to which a person seeking indemnification may
otherwise be entitled. The Company's indemnification obligation applies where
the party to be indemnified acted in good faith and in a manner such party
reasonably believed to be in, or not opposed to, the best interests of the
Company. The foregoing indemnification covers violations of federal securities
laws.
In so far as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
44
<PAGE>
PART F/S
FINANCIAL STATEMENTS
See "Index to Consolidated Financial Statements" for a listing of the
consolidated financial statements filed with this Form 10-SB.
45
<PAGE>
PART III
Item 1. Index to Exhibits.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1 Agreement and Plan of Reorganization between Belco Systems
Technologies, Inc., a Delaware corporation and J. D. Jenkins,
the sole shareholder of SJI Wholesale, Inc., a Tennessee
corporation, dated February 27, 1998.
3.1 Certificate of Incorporation of Belco Systems Technologies,
Inc., filed August 17, 1995.
3.2 Certificate of Amendment to Certificate of Incorporation of
Belco Systems Technologies, Inc. authorizing 10,000,000 shares
of common stock at a par value of $0.0001 per share and
10,000,000 shares of preferred stock at a par value of $0.0001
per share and designating 4,900,000 shares of preferred stock
as Series A Preferred Stock at a par value of $0.0001, filed
February 25,1998.
3.3 Certificate of Amendment to Certificate of Incorporation of
Belco Systems Technologies, Inc., changing the name of Belco
Systems Technologies, Inc. to SJI Group, Inc., filed March 5,
1998.
3.4 Certificate of Amendment to Certificate of Incorporation of
SJI Group, Inc., changing the name of SJI Group, Inc. to
iCommerce Group, Inc., filed June 11, 1999.
3.5 Certificate of Amendment to Certificate of Incorporation of
iCommerce Group, Inc. amending the designations, rights and
preferences of the Series B Preferred Stock, filed December
8,1999.
3.6 Bylaws of the registrant.
10.1 Stock Purchase Agreement between Shady Dale Investments, LLC.,
J. D. Jenkins and Ron Jenkins and iCommerce Group, Inc.
dated August 1, 1999.
10.2 Stock Purchase Agreement between Shady Dale Investments, LLC.,
J. D. Jenkins and Ron Jenkins and iCommerce Group, Inc.
dated August 1, 1999.
10.3 Stock Purchase Agreement by and between SJI Group, Inc. and
Isleuth.com, Inc., dated August 7, 1998.
10.4 1998 Stock Option Plan, as amended, of SJI Group, Inc.
10.5 Trademark Purchase Agreement, dated February 17, 2000, by and
between Finova Capital Corporation and Ann Mostoller, trustee
for Caribbean Cigar Company in Chapter 7 bankruptcy.
21 Subsidiaries of the registrant.
27 Financial Data Schedule.
46
<PAGE>
Item 2. Description Of Exhibits.
See "Exhibit Index"
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant has caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
ICOMMERCE GROUP, INC.
(Registrant)
Date: May 10, 2000 By: /s/ J.D. Jenkins
-----------------------------
J.D. Jenkins
President, Chief Executive Officer
and Chairman
47
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
ICOMMERCE GROUP, INC.
Report of Independent Auditors F-1
Consolidated Balance Sheet as of December 31, 1999 F-2
Consolidated Statements of Operations For the Years Ended
December 31, 1999 and 1998 F-3
Consolidated Statements of Stockholders' Equity For
the Years Ended December 31, 1999 and 1998 F-4
Consolidated Statements of Cash Flows For the Years Ended
December 31, 1999 and 1998 F-5
Notes to Consolidated Financial F-6
<PAGE>
[LETTERHEAD OF REEL & SWAFFORD, PLLC APPEARS HERE]
Report of Independent Auditors
To the Board of Directors and Stockholders
iCommerce Group, Inc.
Knoxville, Tennessee
We have audited the accompanying consolidated balance sheet of
iCommerce Group, Inc. and Subsidiaries (formerly Belco Systems Technologies,
Inc., the Company) as of December 31, 1999, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the two year period then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of iCommerce
Group, Inc. and Subsidiaries as of December 31, 1999 and the results of their
operations and their cash flows for each of the years in the two year period
then ended in conformity with generally accepted accounting principles.
/s/ REEL & SWAFFORD, PLLC
Certified Public Accountants
Knoxville, Tennessee
February 24, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1999
Assets
<S> <C>
Current assets:
Cash and cash equivalents $ 37,197
Investment securities 3,368,065
Accounts receivable, net of allowance for
doubtful accounts of $10,000 for 1999 167,852
Other receivables 58,392
Inventories 1,807,949
------------------
Total current assets 5,439,455
Property and equipment, net 1,184,883
Other assets 45,285
------------------
$ 6,669,623
==================
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 279,681
Accounts payable 195,163
Deferred taxes 1,145,000
Accrued expenses 100,519
------------------
Total current liabilities 1,720,363
------------------
Long-term debt, less current portion 567,669
------------------
Total liabilities 2,288,032
------------------
Stockholders' equity:
Preferred stock, $.0001 par value.
Authorized 25,000,000 shares;
Series A (aggregate liquidation preference
$490 plus accrued and unpaid dividends).
Issued and outstanding 4,900,000
shares at December 31, 1999 490
Series B (aggregate liquidation preference
$55 plus accrued and unpaid dividends).
Issued and outstanding 552,623 shares at
December 31, 1999 55
Common stock, $.0001 par value.
Authorized 50,000,000 shares; issued and
outstanding 8,131,650 shares at December 31, 1999 813
Additional paid-in capital 3,629,770
Retained earnings 885,499
Treasury stock, at cost (135,036)
------------------
Total stockholders' equity 4,381,591
------------------
Commitments and contingencies
$ 6,669,623
==================
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1999 and 1998
1999 1998
----------------- ------------------
<S> <C> <C>
Sales $ 1,497,675 $ 4,692,479
Cost of sales 978,527 2,768,814
----------------- ------------------
Gross profit 519,148 1,923,665
----------------- ------------------
Selling, general and administrative
expenses 2,485,469 2,340,987
Depreciation and amortization 152,109 142,636
----------------- ------------------
Operating loss (2,118,430) (559,958)
Other income (expense):
Investment income, net 972,029 4,146,718
Interest (expense) (130,702) (143,518)
Gain on sale of subsidiaries - 91,470
Minority interest in earnings of consolidated
subsidiary - (30,085)
Minority interest in earnings of unconsolidated
subsidiary (20,455) -
Other income (expense) (4,010) 46,380
----------------- ------------------
Total other income (expense) 816,862 4,110,965
----------------- ------------------
(Loss) income before income tax
(benefit) expense (1,301,568) 3,551,007
Income tax (benefit) expense (175,000) 1,391,000
----------------- ------------------
Net (loss) income and comprehensive
(loss) income $ (1,126,568) $ 2,160,007
================= ==================
Basic and diluted net (loss) income
and comprehensive (loss) income per
common share $ (0.16) $ 0.53
================ =================
Basic and diluted weighted average
number of common shares 7,145,188 4,101,702
================= ==================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1999 and 1998
Preferred stock Common stock
------------------------------------ -----------------
Series A Series B Additional Retained Total
---------------- ---------------- paid-in earnings Treasury stockholders'
Shares Amount Shares Amount Shares Amount capital (deficit) stock equity
-------- ------ ------- ------ ------ ------ ---------- ----------- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December
31, 1997 - $ - - $ - 1,470,333 $ 147 $ 384,853 $ (147,940) $ - $ 237,060
Effect of
reorganization/
acquisition 4,900,000 490 - - 703,333 70 165,467 166,027
Treasury stock
acquired in
connection with
disposal of
subsidiary - - - - (170,000) (17) - - (135,036) (135,053)
Common stock
issued for
cash - - - - 3,254,267 325 835,284 - - 835,609
Common stock
issued for
services - - - - 301,668 31 183,486 - - 183,517
Net income and
comprehensive
income - - - - - - - 2,160,007 - 2,160,007
--------- ------ -------- ------ ----------- ------ ---------- ---------- --------- -----------
Balance at
December
31, 1998 4,900,000 490 - - 5,559,601 556 1,569,090 2,012,067 (135,036) 3,447,167
Common stock
issued for
cash - - - - 922,634 92 433,842 - - 433,934
Common stock
issued for
services - - - - 394,965 39 127,066 - - 127,105
Common stock
issued in
connection
with
acquisitions - - - - 1,254,450 126 947,204 - - 947,330
Conversion of
notes payable
to preferred
stock - - 552,623 55 - - 552,568 - - 552,623
Net loss and
comprehensive
loss - - - - - - - (1,126,568) - (1,126,568)
--------- ------ -------- ------ --------- ------ ---------- ---------- --------- -----------
Balance at
December
31, 1999 4,900,000 $ 490 552,623 $ 55 8,131,650 $ 813 $3,629,770 $ 885,499 $(135,036) $ 4,381,591
========= ====== ======= ====== ========= ====== ========== ========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1999 and 1998
1999 1998
------------------ -----------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (1,126,568)$ 2,160,007
Adjustments to reconcile net (loss) income to
net cash used in operating activities:
Depreciation and amortization 152,109 142,636
Deferred tax (benefit) expense (175,000) 1,391,000
Minority interest in earnings of
consolidated subsidiary - 30,085
Minority interest in earnings of
unconsolidated subsidiaries 20,455 -
Unrealized loss (income) on
investment securities 796,935 (4,336,097)
Realized gain on investment securities (1,768,964) 189,379
Common stock issued for services 116,612 183,517
Gain on sale of subsidiaries - (91,470)
Gain on sale of property and equipment - (5,662)
Allowance for doubtful accounts (33,357) 27,423
Changes in assets and liabilities:
Accounts and other receivables 499,724 (517,051)
Inventories 562,062 969,424
Other assets 1,050 127,340
Accounts payable (600,682) (1,201,635)
Other current liabilities (57,482) 154,783
------------------ -----------------
Net cash used in operating activities (1,613,106) (776,321)
------------------ -----------------
Cash flows from investing activities:
Additions to property and equipment (25,640) (437,489)
Proceeds from sale of property and equipment - 23,515
Proceeds from sale of investment securities 1,270,634 303,374
Purchase of investment securities - (28,523)
Proceeds from sale of subsidiary - 57,500
Retirement of common stock in connection
with acquisition - (188,863)
Acquisition of businesses, net of cash acquired (20,350) (69,670)
------------------- ------------------
Net cash provided by (used in)
investing activities 1,224,644 (340,156)
------------------ -----------------
Cash flows from financing activities:
Proceeds from issuance of notes payable 552,623 -
Proceeds from long-term debt 168,181 326,403
Payments of long-term debt (216,500) (86,705)
Payments on bank line of credit, net (550,000) (7,223)
Proceeds from issuance of common stock 444,427 835,609
Net advances from officer and stockholder - 50,618
------------------ -----------------
Net cash provided by financing activities 398,731 1,118,702
------------------ -----------------
Net increase in cash and cash equivalents 10,269 2,225
Cash and cash equivalents at beginning of year 26,928 24,703
------------------ -----------------
Cash and cash equivalents at end of year $ 37,197 $ 26,928
================== =================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 127,821 $ 143,518
================== =================
Income taxes $ - $ -
================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
(1) Summary of Significant Accounting Policies and Practices
(a) Nature of Operations
iCommerce Group, Inc. and subsidiaries (collectively, the
"Company") is involved in the design, development, marketing and
operation of Internet properties that includes the sale of various
merchandise. The Company's wholly owned subsidiary SJI Wholesale,
Inc. distributes premium cigars and cigar related products. The
Company's wholly owned subsidiary The Caribbean Company (Cayman),
Ltd. manufacturers cigars in the Dominican Republic. The Company's
wholly owned subsidiary Zona Franca De Jaibon Industrial Parque
(Cayman), Ltd. operates an industrial park in the Dominican
Republic that it is developing into a Free Trade Zone under the
laws of the Dominican Republic. The Company has a 50% interest in
two joint ventures, CutThePrice.com, Inc. and Condor International
Air, Inc. As of December, 31, 1999, neither of the joint ventures
had any significant operations.
(b) Basis of Presentation
The consolidated financial statements include the accounts of
iCommerce Group, Inc. (formerly SJI Group, Inc.) and its wholly
owned subsidiaries, SJI Wholesale, Inc. ("SJI Wholesale"), SJI
Sales and Marketing, Inc., Internet Laboratories, Inc. The
Caribbean Company (Cayman), Ltd., and Zona Franca De Jaibon
Industrial Parque (Cayman), Ltd. All significant intercompany
accounts and transactions have been eliminated in consolidation.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with
maturities of three months or less at the time of purchase to be
cash equivalents. Balances of cash and cash equivalents in
financial institutions may at times exceed the government insured
limits.
(d) Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of accounts
receivable. The Company's customers are geographically dispersed
but are concentrated in the tobacco industry. No customer accounts
for 10% or more of the Company's sales.
F-6
(Continued)
<PAGE>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
(e) Investment Securities
Investment securities at December 31, 1999 consisted of equity
securities. Under Statement of Financial Accounting Standards
(SFAS) 115, "Accounting for Certain Investments in Debt and Equity
Securities," the Company classifies its debt and equity securities
in one of three categories: trading, available-for-sale, or
held-to-maturity. Trading securities are acquired and held
principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities that the Company
has the ability and intent to hold until maturity. All other
securities not included in trading or held-to-maturity are
classified as available-for-sale. The Company does not have any
securities classified as available-for-sale or held-to-maturity.
Under SFAS 115, trading securities are carried at fair value. In
determining the fair value of trading securities with temporary
trading restrictions, management considers the effects on quoted
market prices of the temporary restrictions in light of the
volatility in prices of the specific security. Realized and
unrealized holding gains and losses are included in earnings.
Realized gains and losses are derived using the specific
identification method for determining the cost of securities sold.
A decline in the market value of any investment security below
cost that is deemed other than temporary is charged to earnings,
resulting in the establishment of a new cost basis for the
security.
(f) Inventories
Inventories consist of cigars and cigar related products and are
stated at the lower of cost (using the first-in, first-out method)
or market.
(g) Property and Equipment
Property and equipment are stated at cost. Leasehold improvements
are amortized straight line over the shorter of their estimated
useful life or the lease term. Depreciation is calculated using
the straight-line method over the following estimated useful lives
of the assets:
Buildings 40 Years
Furniture, fixtures and office equipment 5 - 7 Years
Machinery and equipment 5 - 7 Years
Vehicles 5 - 15 Years
(h) Trademarks
Trademarks are amortized using the straight-line method over an
estimate useful life of 10 years.
(i) Foreign Currency Translation
The Company's foreign manufacturing subsidiaries use the U.S.
dollar as the functional currency and translate monetary assets
and liabilities at year-end exchange rates, and inventories,
F-7
(Continued)
<PAGE>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
property, and non-monetary assets and liabilities at historical
rates. Gains and losses from these translations are included in
the Company's results of operations and were not significant in
1999 or 1998.
(j) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as
income in the period that includes the enactment date.
(k) Advertising Costs
Advertising costs are expensed as incurred. Advertising costs for
the years ended December 31, 1999 and 1998 were approximately
$64,000 and $139,000, respectively.
(l) Revenue Recognition
Sales and the related cost of sales are recognized when orders are
received and goods shipped or services delivered. The Company
generally accepts returns of cigars that are damaged in transit,
such sales returns are not material for the years ended December
31, 1999 and 1998.
(m) Income Per Share
The Company has adopted SFAS 128, "Earnings Per Share". SFAS 128
requires companies with complex capital structures that have
publicly held common stock or common stock equivalents to present
both basic and diluted earnings per share ("EPS") on the face of
the income statement. Basic EPS is calculated as income available
to common stockholders divided by the weighted average number of
common shares outstanding during the period. Diluted EPS is
calculated using the "if converted" method for convertible
securities and the treasury stock method for options and warrants
as previously prescribed by Accounting Principles Board Opinion
No. 15, "Earnings Per Share." The adoption of SFAS 128 did not
have a material impact on the Company's reported EPS for any
periods presented.
(n) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare
F-8
(Continued)
<PAGE>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
(o) Stock Based Compensation
The Company measures its equity transactions with non-employees
using the fair value based method of accounting prescribed by
Statement of Financial Accounting Standards Board No. 123 (SFAS
123), "Accounting for Stock-Based Compensation." Under the
provisions of SFAS 123, the Company recognizes as a cost or
expense, the fair value of stock awards and options to
non-employees at the date of grant.
The Company continues to use the intrinsic value approach as
prescribed by APB Opinion No. 25, (APB 25) in measuring equity
transactions with employees. Under APB 25, compensation cost for
equity transactions with employees is recognized only to the
extent the fair value of the equity instrument at the grant date
exceeds the exercise price the employee is required to pay.
(p) Comprehensive Income (Loss)
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for
reporting and presentation of comprehensive income (loss) and its
components in a full set of financial statements. SFAS 130
requires only additional disclosures in consolidated financial
statements, it does not affect the Company's financial position or
results of operations. The Company does not have any components
affecting comprehensive income (loss).
(q) Treasury Stock
The Company values treasury stock at cost, based upon the cost of
the consideration given or the market value of the stock acquired,
whichever is the clearer indication of value.
(2) Reorganization/Acquisitions and Dispositions
On March 4, 1998, Belco Systems Technologies, Inc. ("Belco") acquired all
of the outstanding stock of SJI Wholesale, Inc. ("SJI Wholesale") in
exchange for 1,200,000 shares of Belco's common stock and 4,900,000
shares of Belco's Series A Redeemable preferred stock. Belco was
subsequently renamed SJI Group, Inc. On June 11, 1999, the Company
changed its name to iCommerce Group, Inc. ("iCommerce Group"). As a
result of the acquisition, SJI Wholesale became a subsidiary of iCommerce
Group. Upon consummation of the acquisition, the existing shareholder of
SJI Wholesale held a majority of the voting power of iCommerce Group.
Accordingly, the acquisition has been accounted for as a reverse
acquisition, pursuant to which SJI Wholesale has been considered the
acquiring company. As a result, the historical financial statements of
SJI Wholesale are the continuing historical financial statements of the
Company. The fair market value of the assets acquired and liabilities
assumed of Belco at the effective date of the acquisition are
F-9
(Continued)
<PAGE>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
consolidated with the historical financial statements of SJI Wholesale
using the purchase method of accounting. At the time of the acquisition,
Belco had no significant operations and its net assets were approximately
$355,000. The Company issued 170,000 shares of its common stock to the
former officers, directors and principal stockholders of Belco pursuant
to anti-dilution provisions contained in agreements related to the
acquisition of Wholesale.
In connection with the acquisition of SJI Wholesale, the Company formed a
wholly owned subsidiary Belco Systems Technologies Corp. ("Belco Corp."),
and capitalized it with certain technology and $159,589 in cash. The
Company then sold a 49% interest in Belco Corp. to the former officers,
directors and principal stockholders of the Company in exchange for
666,667 shares of the Company's common stock valued at $188,863. In
September 1998, the Company sold its 51% interest in Belco Corp. for
$57,500 in cash and the cancellation of 170,000 shares of the Company's
common stock issued in connection with the acquisition of SJI Wholesale.
The Company recorded a gain on the disposal of Belco Corp. of $15,759.
In April 1998, the Company formed its wholly owned subsidiary Maverick
Communications Corp. ("Maverick") for the purpose of acquiring,
developing, and marketing Internet properties. On August 3, 1998,
Maverick entered into an option agreement for the purchase of an
established Internet search engine. On August 10, 1998, the Company sold
all of the outstanding shares of stock in Maverick to The BigHub.com,
Inc. (formerly iSleuth.com, Inc.) ("BigHub") in exchange for 1,500,000
shares of BigHub common stock and 1,000,000 shares of BigHub preferred
stock. The estimated fair value of the BigHub stock at the date of the
transaction was approximately $4,080,000. In accordance with SFAS 115,
the Company recognized a gain of $75,711, which represents losses
reported by Maverick through the date of disposition. The securities
received in the transaction are accounted for as trading securities under
SFAS 115 (see note 3).
On July 30, 1999, the Company formed a wholly owned subsidiary, The
Caribbean Company (Cayman), Ltd., for the purpose of manufacturing
cigars. On August 1, 1999, the Company acquired all of the outstanding
capital stock of Caribbean Cigar Company (Cayman), Ltd. ("Caribbean"), a
Cayman corporation owned by a group of investors including J.D. Jenkins,
an officer and director of iCommerce Group, Inc., for approximately
$809,000 by issuing 905,000 shares of its restricted Common Stock and
notes payable of $100,000. The acquisition has been accounted for using
the purchase method of accounting for acquisitions. Included in the
assets acquired where approximately 1,400,000 premium cigars,
approximately 300,000 pounds of tobacco and equipment used in the
manufacture of cigars. The estimated fair value of the assets acquired
exceeds the purchase price. Therefore, the purchase price has been
allocated entirely to inventory.
On July 30, 1999, the Company formed a wholly owned subsidiary, Zona
Franca de Jaibon Industrial Parque (Cayman), Ltd., for the purpose of
operating a "Free Zone" in the Dominican Republic. On August 1, 1999, the
Company acquired all of the outstanding capital stock of Inversiones
Calle Ocho ("Calle Ocho"), a Dominican Republic corporation owned by a
F-10
(Continued)
<PAGE>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
group of investors including J.D. Jenkins, an officer and director of
iCommerce Group, Inc., for approximately $471,000 by issuing 249,450
shares of its restricted Common Stock, notes payable of $125,000 and the
assumption of approximately $150,000 in liabilities. The acquisition has
been accounted for using the purchase method of accounting for
acquisitions. Included in the assets acquired were the rights to the Free
Zone in the Dominican Republic, approximately 8 acres of land and two
buildings with approximately 60,000 square feet of production and
warehousing space. The estimated fair value of the assets acquired
exceeds the purchase price. Therefore, the purchase price has been
allocated entirely to land and buildings.
The following represents the pro forma (unaudited) results of operations
as if the acquisitions of Caribbean and Calle Ocho had occurred at the
beginning of 1998. The pro forma results are not necessarily indicative
of the results that will occur in the future.
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
<S> <C> <C>
Sales $ 1,497,075 $ 6,123,467
Net (loss) income (829,280) 2,443,070
Net (loss) income per common share (0.12) 0.47
</TABLE>
(3) Investment Securities
Investment securities consist of common and preferred stock investments
in The BigHub.com, which are classified as trading securities. A summary
of investment securities held by the Company consists of the following:
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------
Aggregate
Fair Cost
Value Basis
--------------- ----------------
<S> <C> <C>
Common stock $ 3,368,065 $ -
Preferred stock - -
--------------- ----------------
$ 3,368,065 $ -
=============== ================
</TABLE>
Investment income is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
<S> <C> <C>
Change in unrealized holding gain
(loss) on trading securities $ (796,935) $ 4,336,097
Realized gain (loss) from sales, net 1,768,964 (189,379)
--------------- ----------------
$ 972,029 $ 4,146,718
=============== ================
</TABLE>
F-11
(Continued)
<PAGE>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
In 1999, the Company sold 150,000 shares of the BigHub.com common stock
and all of its preferred shares in The BigHub.com and realized a gain of
$1,270,634. Also in 1999, the Company satisfied debt with 193,252 shares
of BigHub.com common stock and realized a gain of $498,330. In 1998, the
Company sold 100,000 shares of the BigHub.com common stock and realized a
loss of approximately $(195,000). In addition, in 1998, the Company sold
its shares in Belco and realized a gain of approximately $5,621.
(4) Inventories
<TABLE>
<CAPTION>
Inventories consisted of the following:
1999
----------------
<S> <C>
Raw materials $ 599,891
Finished goods 1,208,058
----------------
Inventories $ 1,807,949
================
</TABLE>
(5) Property and Equipment
<TABLE>
<CAPTION>
Property and equipment consisted of the following:
1999
----------------
<S> <C>
Land $ 40,000
Buildings and leasehold improvements 495,597
Furniture, fixtures and office equipment 385,696
Machinery and equipment 234,704
Vehicles 370,060
----------------
1,526,057
Less accumulated depreciation and amortization 341,174
----------------
Property and equipment, net $ 1,184,883
================
</TABLE>
F-12
(Continued)
<PAGE>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
(6) Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt consisted of the following:
1999
----------------
<S> <C>
Note payable to bank, interest at prime plus 2% per annum. Monthly
payments of $12,761 including interest through April 1 2001 with a
balloon payment for the remaining balance on May 1, 2001 secured by
receivables and the personal guarantee of the Company's majority
stockholder. $ 441,995
Notes payable to credit corporations, interest Ranging from 2.9% to 9.25%
per annum. Monthly Payments of $4,833 including interest through
August 2004, secured by vehicles. 180,941
Note payable to credit corporation, interest at 10.25% per annum. Monthly
payments of $1,090 including interest through April 2012, secured
by motor coach. 91,675
Capital lease obligations, interest at 19% per
annum. Monthly payments of $10,105 including
interest through February 2002, secured by
various equipment. 132,739
----------------
847,350
Less current portion 279,681
----------------
$ 567,669
================
Future maturities of long-term debt as of December 31, 1999 are as
follows:
2000 $ 279,681
2001 408,140
2002 57,179
2003 26,533
2004 8,628
Thereafter 67,189
----------------
$ 847,350
================
</TABLE>
The Company had short-term borrowings under a bank line of credit of
$1,038,743 at December 31, 1998. On February 19, 1999, the Company paid
$550,000 to the bank, including accrued interest, and converted the
balance of $494,570 into a note payable.
F-13
(Continued)
<PAGE>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
(7) Stockholders' Equity
In March 1999, the authorized capital stock of the Company was increased
to 50,000,000 shares of common stock and 25,000,000 shares of preferred
stock.
Common stock
In February 1998, prior to the acquisition by Wholesale, the Company's
Board of Directors authorized a 1-for-3 reverse split on all issued and
outstanding shares of the Company's common stock held by each holder of
record on March 4, 1998. All per share amounts have been presented giving
effect to the reverse split.
In March 1998, the Company issued 1,200,000 shares of common stock to the
shareholder of SJI Wholesale in connection with the reorganization/
acquisition. In March 1998, the former Belco shareholders acquired a 49%
interest in a subsidiary of the Company for 666,667 shares of the
Company's common stock. In connection with anti-dilution provisions
contained in the agreements related to the acquisition of SJI Wholesale,
the Company issued 170,000 shares to the former Belco shareholders in
June 1998. In June 1998, the Company issued 650,000 shares of common
stock to the former Belco shareholders in connection with agreements
related to the acquisition of SJI Wholesale.
Also in 1998, the Company issued 2,604,267 shares of common stock for
cash consideration of approximately $835,300; issued 201,668 shares of
common stock to outside consultants and recorded compensation expense of
approximately $141,200; and issued 100,000 shares of common stock to the
President of the Company and recorded compensation expense of
approximately $42,300 in connection with his personal guarantee of a note
payable of $1,090,000..
From January 1999 to April l999, the Company issued 922,634 shares of
common stock for cash consideration of approximately $434,000. In January
1999, the Company issued 49,965 shares of common stock to a consultant
and recorded legal and professional expenses of approximately $10,500. In
addition, in January 1999, the Company issued 190,000 shares of common
stock to 19 employees and recorded compensation expense of approximately
$35,000. In April 1999, the Company issued 70,000 shares of common stock
to two consultants and recorded compensation expense of approximately
$29,000.
In April 1999, the Company issued 100,000 shares of common stock in
connection with the formation of the Condor International Air, Inc. joint
venture. This investment was valued at $42,000.
Preferred stock
Series A
In March 1999, the Company granted the holders of the Series A preferred
stock the right to convert the Series A preferred stock into common stock
at a rate of one share of common stock for every share of Series A
preferred stock so converted. The holders of shares of preferred stock
F-14
(Continued)
<PAGE>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
have the right to one vote for each share of preferred stock issued.
Dividends on the Series A preferred stock are payable at the sole
discretion of the Company's Board of Directors.
Series B
In March 1999, the Company authorized the designation of a Series B
preferred stock. The Company then converted $552,623 of loans into
552,623 shares of Series B preferred stock. The Company has the right to
convert the Series B preferred stock into common stock at a rate of two
shares of common stock for every one share of Series B preferred stock so
converted. Prior to conversion, the Series B preferred stock has the
right to one vote per share of Series B preferred stock outstanding.
Stock Option Plan
Under the S.J.I. Group, Inc. Amended 1998 Stock Option Plan (the "Plan"),
700,000 shares of Common Stock are reserved for issuance. The purpose of
the Plan is to provide incentives for officers, directors, consultants
and key employees to promote the success of the Company, and to enhance
the Company's ability to attract and retain the services of such persons.
Options granted under the Plan may be either: (i) options intended to
qualify as "incentive stock options" under Section 422 of the Internal
Revenue Code of 1986; or (ii) non-qualified stock options. Stock options
may be granted under the Plan for all employees and consultants of the
Company, or of any present or future subsidiary or parent of the Company.
The Plan is administered by the Board of Directors, which may, and is
expected to, delegate administrative responsibility for the Plan to the
Compensation Committee of the Board of Directors. The Compensation
Committee has the authority to determine exercise prices applicable to
the options, the eligible officers, directors, consultants or employees
to whom options may be granted, the number of shares of the Company's
Common Stock subject to each option and to the extent to which options
may be exercisable. The Compensation Committee is empowered to interpret
the Plan and to prescribe, amend and rescind the rules and regulations
pertaining to the Plan. Options granted under the Plan generally vest
over three years. No option is transferable by the optionee other than be
will or the laws of descent and distribution and each option is
exercisable, during the lifetime of the optionee, only by the optionee.
The Compensation Committee may not receive options.
Any incentive stock option that is granted under the Plan may not be
granted at a price less than the fair market value of the Company's
Common Stock on the date of grant (or less than 110% of the fair market
value in the case of holders of 10% or more of the total combined voting
power through all classes of stock of the Company or a subsidiary or
parent of the Company.) Non-qualified stock options may be granted at the
exercise price established by the Compensation Committee, which may be
less than the fair market value of the Company's Common Stock on the date
of grant, but in no event shall such exercise price be less than 55% of
such fair market value.
F-15
(Continued)
<PAGE>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
Each option granted under the Plan is exercisable for a period not to
exceed ten years from the date of grant (or five years in the case of a
holder of more than 10% of the total combined voting power of all classes
of stock of the Company or a subsidiary or parent of the Company) and
shall lapse upon expiration of such period, or earlier upon termination
of the recipient's employment with the Company, or as determined by the
Compensation Committee.
On March 24, 1999, the Company granted stock options to an employee to
acquire 30,000 shares common stock at an exercise price of $1.2625 per
share. The exercise price was below the fair market value of the
Company's common stock on the date of grant and, accordingly, the Company
has recorded compensation expense of $1,750 for the year ended December
31, 1999.
On November 2, 1999, the Company granted stock options to 13 employees to
acquire a total of 73,000 shares of common stock at an exercise price of
$0.44 per share. The exercise price represents the fair market value of
the common stock on the date of grant.
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation. Accordingly, no compensation cost has been recognized for
the employee option plan. Had compensation cost for the Company's stock
option plan been determined based on the fair value at the grant date for
awards in 1999 consistent with the fair value provisions of SFAS No. 123,
the Company's net earnings and earnings per share would have been the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
----------------- ----------------
<S> <C> <C>
Net (loss) income $ (1,187,669) $ 2,160,007
Net (loss) income per common share (0.17) 0.53
</TABLE>
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1999: 110% volatility,
expected life of the options of four years, zero dividend yield, and
risk-free interest rate of 6.00%
F-16
(Continued)
<PAGE>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
The following table represents information related to the Company's stock
option activity for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------------------ ---------------------
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
----------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Outstanding at beginning of period - $ - - $ -
Granted 103,000 0.68 - -
Exercised - - - -
Expired - - - -
----------- ----------- --------- ----------
Outstanding at end of period 103,000 0.68 - -
=========== ========== ========= ==========
Options exercisable at end of period - $ - - $ -
=========== ========== ========= ==========
Weighted average fair value $ 0.59 $ -
========== ==========
</TABLE>
At December 31, 1999, the weighted-average remaining contractual life of
outstanding options was approximately 9.7 years.
(8) Commitments and Contingencies
Lease Commitments
The Company leases land, buildings, building improvements and certain
office equipment for operations under non-cancelable, capital and
operating leases that expire over the next 3 years. The lease agreements
provide for certain minimum fixed rental increases and/or increases based
upon changes in the consumer price index. The leases generally obligate
the Company for the cost of property taxes, insurance and maintenance.
The agreements also contain options to extend the term of the lease.
The approximate future minimum lease payments at December 31, 1999, were
as follows:
<TABLE>
<CAPTION>
Operating Capital Total
---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
2000 $ 42,000 $ 118,564 $ 160,564
2001 24,500 25,346 49,846
2002 - 2,220 2,220
2003 - - -
2004 - - -
Thereafter - - -
---------------- ---------------- ----------------
$ 66,500 146,130 $ 212,630
================ ================
Less: amounts representing interest (13,391)
----------------
Present value of minimum lease payments included
in long-term debt (see note 5) $ 132,739
================
</TABLE>
F-17
(Continued)
<PAGE>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
Included in property and equipment are the following assets held under
capital leases:
<TABLE>
<CAPTION>
1999
----------------
<S> <C>
Furniture, fixtures and office equipment $ 264,911
Less accumulated amortization 79,432
----------------
$ 185,479
================
</TABLE>
Rent expense amounted to approximately $57,000 and $48,000 in the years
ended December 31, 1999 and 1998, respectively.
Litigation
From time to time, the Company is involved in various legal proceedings,
including pending litigation. Management does not believe the ultimate
outcome of any or all potential litigation would have a material adverse
effect on the Company's operating results, cash flows or financial
position.
(9) Income Taxes
A summary of income tax expense for the years ended December 31, 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Federal deferred tax (benefit) expense $ (124,500) $ 1,177,000
State deferred tax (benefit) expense (50,500) 214,000
--------------- ---------------
$ (175,000) $ 1,391,000
=============== ===============
</TABLE>
Income tax (benefit) expense attributable to (loss) income before income
taxes was ($175,000) and $1,391,000 for the years ended December 31, 1999
and 1998, respectively, and differed from the amounts computed by
applying the U.S. federal income tax rate of 34% to (loss) income before
income taxes as a result of the following:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Computed expected income tax expense $ (442,500) $ 1,208,000
Increase in income tax expense
resulting from:
Reversals of temporary differences at
lower than expected rates - 18,696
Valuation allowance 319,000 -
Other - 4,544
State income taxes, net of federal income
tax benefit (51,500) 159,760
--------------- ---------------
$ (175,000) $ 1,391,000
=============== ===============
</TABLE>
F-18
(Continued)
<PAGE>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
<TABLE>
<CAPTION>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities at December 31, 1999 and 1998
are as follows:
1999
---------------
<S> <C>
Deferred tax assets:
Net operating loss carryovers $ (543,000)
Allowance for doubtful accounts (4,000)
---------------
Gross deferred tax assets (547,000)
Less valuation allowance 319,000
---------------
Net deferred tax assets (228,000)
---------------
Deferred tax liabilities:
Unrealized holding gain in marketable
securities 1,303,000
Property and equipment basis difference 70,000
---------------
Gross deferred tax liabilities 1,373,000
---------------
Net deferred tax liabilities $ 1,145,000
===============
</TABLE>
The valuation allowance for deferred tax assets at December 31, 1999 was
$319,000. The net change in the total valuation allowance for the year
ended December 31, 1999 was an increase of $319,000. In assessing the
realizability of deferred tax assets, the Company considers whether it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods
in which those temporary differences become deductible.
The Company has tax net operating loss carryovers for federal income tax
purposes available to offset future federal taxable income, if any, of
approximately $2,000,000, expiring at various dates beginning in 2002.
Certain provisions of the tax law may limit such net operating loss
carryforwards available for use in any given year due to a change in
ownership interest.
(10) Related Party Transactions
The Company leases its facility from its majority stockholder under a
non-cancelable operating lease with payments of $42,000 annually. Upon
expiration of the lease in 2001, the Company has the option to renew the
lease for five years at an annual rental of $48,300.
In connection with the acquisitions of Caribbean Cigar Company (Cayman),
Ltd. and Inversiones Calle Ocho, the Company issued 559,600 shares of its
restricted common stock, valued at $392,000, to two officers of the
Company in exchange for their respective shares of the acquired
companies.
In 1998, the Company purchased from an officer and from a director, goods
approximating $120,000 and $500,000, respectively. Also in 1998, the
Company issued 100,000 shares of its Common Stock to the Company's
President and majority shareholder in exchange for his personal guarantee
on Company indebtedness of $1,090,000 and recorded $43,200 in
compensation.
F-19
(Continued)
<PAGE>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
(11) Fair Value of Financial Instruments
Cash and cash equivalents, accounts and other receivable, accounts
payable and accrued liabilities are stated at cost, which approximates
fair value because of the short term maturity of those items. The
estimated fair value of the Company's short-term and long-term borrowings
approximate the carrying value because of their recent origination and
because interest rates and terms approximate market conditions.
(12) Supplemental Disclosure of Non-Cash Investing and Financing Activities
During the year ended December 31, 1999, the following transactions not
affecting cash flows occurred:
(a) In March 1999, the Company converted $552,623 of its notes payable
into 552,623 shares of its Series B preferred stock. (see note 6).
(b) The Company issued 190,000 shares of its restricted common stock
valued at $35,150, in payment of compensation to two officers and
seventeen other employees of the Company. The related expense is
included in the accompanying consolidated statement of operations
under selling, general and administrative expenses.
(c) In connection with the acquisition of Caribbean Cigar Company
(Cayman), Ltd., the Company issued 905,000 shares of its
restricted common stock valued at approximately $710,000 and notes
payable of $100,000.
(d) In connection with the acquisition of Inversiones Calle Ocho, the
Company issued 249,450 shares of its restricted common stock
valued at approximately $196,000 and notes payable of $125,000.
(e) In December 1999, the Company issued 35,000 shares of its common
stock to three consultants for services rendered and 50,000 shares
of its common stock to two outside directors for services rendered
and recorded compensation expense of approximately $52,000.
(f) In December 1999, the Company paid approximately $500,000 of debt
by transferring approximately 193,400 shares of its common stock
in the BigHub.com to the respective debt holders.
During the year ended December 31, 1998, the following transactions not
affecting cash flows occurred:
(a) In March 1998, the Company issued shares of its preferred and
common stock in exchange for all of the outstanding common stock
of SJI Wholesale, Inc. in a reverse acquisition (see note 2). The
estimated fair value of the net assets acquired totaled $354,890.
(b) Pursuant to the sale of a subsidiary, the Company returned to
treasury 170,000 shares of its common stock valued at $135,053 and
issued 143,333 shares of its common stock valued at $116,248 in
satisfaction
F-20
(Continued)
<PAGE>
iCOMMERCE GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
of a contractual obligation for certain technology (see note 2).
(c) The Company issued 66,667 shares of its restricted common stock
valued at $39,168, in payment of certain public relation fees and
legal expenses. The related expense is included in the
accompanying consolidated statement of operations under selling
general and administrative expenses.
(13) Subsequent Events
In February 2000, SJI Wholesale, a subsidiary of the Company, acquired
the rights to certain trademarks and trade names for a note payable of
$325,000. The note is payable in 36 equal monthly payments of $8,333
and a final payment of $25,000. The note is non-interest bearing and is
secured by the trademarks and trade names, 100,000 shares of common
stock of The BigHub.com and the personal guarantee of the President of
SJI Wholesale.
F-21
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1 Agreement and Plan of Reorganization between Belco Systems
Technologies, Inc., a Delaware corporation and J. D. Jenkins,
the sole shareholder of SJI Wholesale, Inc., a Tennessee
corporation, dated February 27, 1998.
3.1 Certificate of Incorporation of Belco Systems Technologies,
Inc., filed August 17, 1995.
3.2 Certificate of Amendment to Certificate of Incorporation of
Belco Systems Technologies, Inc. authorizing 10,000,000 shares
of common stock at a par value of $0.0001 per share and
10,000,000 shares of preferred stock at a par value of $0.0001
per share and designating 4,900,000 shares of preferred stock
as Series A Preferred Stock at a par value of $0.0001, filed
February 25,1998.
3.3 Certificate of Amendment to Certificate of Incorporation of
Belco Systems Technologies, Inc., changing the name of Belco
Systems Technologies, Inc. to SJI Group, Inc., filed March 5,
1998.
3.4 Certificate of Amendment to Certificate of Incorporation of
SJI Group, Inc., changing the name of SJI Group, Inc. to
iCommerce Group, Inc., filed June 11, 1999.
3.5 Certificate of Amendment to Certificate of Incorporation of
iCommerce Group, Inc. amending the designations, rights and
preferences of the Series B Preferred Stock, filed December
8,1999.
3.6 Bylaws of the registrant.
10.1 Stock Purchase Agreement between Shady Dale Investments, LLC.,
J. D. Jenkins and Ron Jenkins and iCommerce Group, Inc.
dated August 1, 1999.
10.2 Stock Purchase Agreement between Shady Dale Investments, LLC.,
J. D. Jenkins and Ron Jenkins and iCommerce Group, Inc.
dated August 1, 1999.
10.3 Stock Purchase Agreement by and between SJI Group, Inc. and
Isleuth.com, Inc., dated August 7, 1998.
10.4 1998 Stock Option Plan, as amended, of SJI Group, Inc.
10.5 Trademark Purchase Agreement, dated February 17, 2000, by and
between Finova Capital Corporation and Ann Mostoller, trustee
for Caribbean Cigar Company in Chapter 7 bankruptcy.
21 Subsidiaries of the registrant.
27 Financial Data Schedule.
AGREEMENT AND PLAN OF REORGANIZATION
between
BELCO SYSTEMS TECHNOLOGIES, INC., a Delaware corporation and
J. D. JENKINS, the Sole Shareholder
of
SJI WHOLESALE, INC., a Tennessee corporation
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), made the
27th day of February, 1998, between Belco Systems Technologies, Inc., a Delaware
corporation ("Belco") and J. D. Jenkins ("Jenkins"), the sole shareholder of SJI
Wholesale, Inc., a Tennessee corporation ("SJI").
WHEREAS, Belco has authorized capital stock consisting of 10,000,000
shares of common stock, par value $.0001 per share (the "Belco Common Stock") of
which 1,478,667 shares have been duly issued and outstanding and 10,000,000
shares of preferred stock, par value $.0001 per share, of which 4,900,000 shares
have been designated as Series A Preferred Stock, the designations, rights and
preferences of which are attached hereto as Exhibit A and incorporated herein by
such reference.
WHEREAS, SJI has authorized 2,000 shares of common stock, no par value
(the "SJI Stock"), of which 1,020 shares are issued and outstanding which are
owned beneficially and of record by Jenkins.
WHEREAS, Belco desires to acquire 100% of the SJI Stock from Jenkins in
exchange for 1,200,000 shares of Belco's Common Stock and 4,900,000 shares of
Series A Preferred Stock (collectively, the "Belco Stock") pursuant to the terms
and conditions set forth herein.
WHEREAS, Jenkins desire to exchange his stock in SJI for the Belco
Stock pursuant to the terms and conditions set forth herein.
WHEREAS, the Board of Directors of Belco deem it advisable and
generally to the advantage and welfare of Belco's shareholders that the parties
enter into this Agreement pursuant to the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth herein, it is agreed as follows:
1. Recitals. The above recitals are true, correct and are herein
incorporated by reference.
2. Plan of Reorganization. Jenkins is the owner of 100% of the issued
and outstanding shares of SJI Stock. It is the intention of the parties hereto
that 100% of the SJ1
1
<PAGE>
Stock shall be acquired by Belco in exchange solely for the Belco Stock which is
voting stock.
3. Exchange of Shares. Subject to the terms and conditions herein,
Jenkins hereby agrees that the SJI Stock shall be exchanged with Belco for the
Belco Stock at the closing of the transactions contemplated herein in a private
transaction exempt from registration under the Securities Act of 1933, as
amended (the "Act") and applicable state securities laws and Belco agrees to
deliver to Jenkins certificates representing the Belco Stock. The parties hereto
acknowledge that it is the intent that the transactions contemplated herein
shall be tax free, pursuant to Section 368 of the Internal Revenue Code of 1986,
as amended. The shares of the Belco Stock shall be issued in such name or names
as may be requested by Jenkins.
4. Closing Date. The closing (the "Closing Date") shall be held on
March 5, 1998, 9a.m, or such other date and time as may be agreed upon by
Belco and Jenkins, by telecopy.
5. Delivery of Shares. Upon execution of this Agreement, Jenkins will
deliver certificates for the SJI Stock duly endorsed and with documentary stamps
affixed at the his expense so as to make Belco the sole owner thereof, free and
clear of all claims and encumbrances, and on the Closing Date delivery of the
certificates representing the 1,200,000 shares of Belco's Common Stock and
4,900,000 shares of Belco's Series A Preferred Stock, on which documentary stamp
taxes will have been paid by Belco, will be made to Jenkins. Time is of the
essence.
6. Belco Subsidiary. Belco has formed a wholly-owned subsidiary, Belco
Systems Technologies Inc., a Florida corporation ("Belco Subsidiary"), of which
1,000 shares of common stock, par value $.001 are presently issued and
outstanding (the "Belco Subsidiary Stock"). Immediately preceding the closing of
the transactions contemplated herein, each of Belco and Lionel Beloyan and
Stephen Beloyan (collectively, the "Beloyan Family"), shall concurrently take
the following actions:
(a) Belco shall capitalize the Belco Subsidiary with;
(i) all tights and interests in the Technology (as hereinafter
defined) it currently owns, or may at any time in the future own, in connection
with process and products that transmit certain credit card information and
verification safely via telephone lines (the "PRCTT"). For the purposes of this
Agreement, the term "Technology" shall mean all of the trade secrets, know-how,
show-how, inventions, patents pending, including U.S. Patent Applications No.
08/5 12,798 and International Patent Application No. PCTIUS96/12704, as each may
be modified from time to time, contracts, licenses, lab books, formulae,
processes, computer systems, methods, prototypes, discoveries, business methods,
confidential information, expertise, copyrights, trademarks, service marks,
plans, drawings, sketches, prototypes, tooling and information of any nature
whatsoever which relates to the design, manufacture, assembly and sale of the
PRCTT, developed, possessed, conceived or used by Belco relating to the PRCTT
including any modifications, derivations and translations thereof; and
2
<PAGE>
(ii) $155,000 in cash.
(b) The Beloyan Family shall purchase 490 shares of the Belco
Subsidiary Stock, all cash in the Belco Subsidiary in excess of $100,000 and the
40,000 shares of the common stock of Solucorp Industries Limited (the
"Marketable Securities") owned by Belco in exchange for an aggregate of 666,667
shares of Belco Common Stock currently owned beneficially and of record by the
Beloyan Family, as more fully set forth on Exhibit B attached hereto and
incorporated hereby by such reference. Upon the exchange thereof, the shares of
Belco Subsidiary Stock to be issued to the Beloyan Family shall be fully paid
and non-assessable and the shares of Belco Common Stock tendered in payment
therefor shall be canceled and returned to the treasury of Belco with the status
of authorized but unissued shares.
(c) Lionel Beloyan, Stephen Beloyan and Fred Baradari, the nominee of
International Management Consulting, Inc. ("IMCI"), shall serve as the directors
of the Belco Subsidiary and the Beloyan Family shall manage the Belco
Subsidiary.
(d) Other than the transfer of the cash as set forth in sub-paragraph
(a)(ii) of the Paragraph 6, Belco shall have no further or continuing
obligations to provide the Belco Subsidiary with any operating funds, loans,
capital or similar monies, it being the specific representation of Belco and
Lionel Beloyan to Jenkins that the $100,000 in cash remaining in the Belco
Subsidiary after the transaction contemplated in sub-paragraph 6(b) hereof is
sufficient to fund the operations of the Belco Subsidiary, including, but not
limited to, selling, general and administrative expenses.
(e) Notwithstanding the foregoing, Belco acknowledges its obligations
to issue shares of its Common Stock pursuant to that certain Agreement dated
January 16, 1998 by and between Belco and 1MCI, a copy of which is attached as
Exhibit C hereto and incorporated herein by such reference.
(f) Immediately upon the conclusion of the transactions between Belco,
the Belco Subsidiary and the Beloyan Family as contemplated in the Paragraph 6,
the Belco Subsidiary and the Beloyan Family shall enter into that certain Option
Agreement, a copy of which is attached hereto as Exhibit D and incorporated
herein by such reference.
7. Belco Board of Directors. Subsequent to such Closing Date, Jenkins
shall have the right to appoint such additional members to the Board of
Directors at any time and from time to dine as he deems appropriate.
8. Anti-Dilution Provisions.
(a) Giving effect to the transactions contemplated in Paragraph 6
hereof, as well as the split of Belco's Common Stock as contemplated in
Paragraph 11(b)(ii) hereof, the Beloyan Family shall be the record and
beneficial owners of an aggregate of 350,000 shares of Belco's Common
3
<PAGE>
Stock. In addition, it is the understanding of the parties hereto that
subsequent to the Closing Date, Belco has reserved for future issuance an
aggregate of 266,668 shares of its Common Stock (the "Reserved Stock"). For the
period of 12 months following the Closing Date, should Belco issue more than
300,000 additional shares of its Common Stock in addition to the Reserved Stock
without the prior consent of the Beloyan Family, then Belco shall issue the
Beloyan Family for no charge such number of additional shares of its Common
Stock equal to 10% of any excess over the 300,000 share threshold. For example,
should Belco enter into a transaction with X entity whereby it agreed to issue X
entity 567,000 shares of Belco's Common Stock, and the Beloyan Family did not
consent to such transaction, then upon the issuance of the 567,000 shares to X
entity Belco would issue the Beloyan Family an additional 26,700 shares of Belco
Common Stock, representing 10% of the 267,000 share difference. Notwithstanding
the foregoing, no additional or special voting powers are conferred upon the
Beloyan Family by reason of this anti-dilution provision as to their holdings in
Belco following the Closing Date.
(b) The parties hereto acknowledge their agreement to enter into a
separate agreement subsequent to the Closing Date between Belco, the Belco
Subsidiary and the Beloyan Family regarding the sub-licensing of the Technology
by the Belco Subsidiary to other corporations and limitations involving Belco's
ownership interest in such other corporations.
(c) During the period commencing on the Closing Date and ending on the
first anniversary thereof, in the event the Company should issue additional
shares of its Common Stock, or securities which are convertible into Common
Stock, to an unaffiliated third party in connection with a business combination,
stock or asset purchase, then, upon the written request of Jenkins, the Company
shall immediately issued to Jenkins such number of additional shares of Common
Stock so as to maintain his 85% voting control of the Company, giving effect to
the transactions herein contemplated and assuming the issuance of the Reserved
Securities.
9. Representation of Jenkins. Jenkins hereby makes the following
representations and warranties to Belco, each of which is true as of the date
hereof and will be true as of the Closing Date with the same effect as though
such representations and warranties had been made on the closing date:
(a) Jenkins is the sole shareholder of SJI and there are no warrants,
options or other rights outstanding to acquire any shares of the capital stock
of SJI. The shares of SJI to be transferred by Jenkins to Belco hereunder are
free and clear of all voting trusts, agreements, arrangements, encumbrances,
liens, claims, equities and liabilities of every nature and Jenkins is conveying
clear and unencumbered tide thereto to Belco. The shares of SJI are fully paid
and non-assessable.
(b) This Agreement constitutes the valid and binding obligation of
Jenkins, enforceable against him in accordance with its terms, except that such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors rights.
4
<PAGE>
(c) Jenkins knows of no other person, corporation or firm that owns any
interest in any property, invention, patent, patent application, copyright,
trade secret, service mark or trademark used by SJI relating to any product or
process used by SJI or relating in any way to its business except as may be set
forth on Schedule 9(c) attached hereto and incorporated herein by such
reference. Except as set forth on Schedule 9(c), SJI owns or have the rights to
use all those rights presently necessary to the operation of its businesses.
(d) There are no agreements to which Jenkins or SJI is a party that in
any way restrict or infringe upon the business of SJI or the benefit of which
SJI requires or presently has in its business, nor does Jenkins know of any
other agreements that in any way restrict or infringe upon the business of SJI
or the benefit of which SJI requires or presently has in its business.
(e) To the best of his knowledge, the execution and delivery of this
Agreement by Jenkins does not, and the consummation of the transactions
contemplated herein, will not violate or constitute an occurrence of default (or
an event which, with notice or lapse of time or both would constitute a default)
under any provision of, or conflict with, or result in acceleration of any
obligations under, or result in the creation or imposition of any security
interest, lien or other encumbrance, or give rise to a right by any party to
terminate its obligations under any mortgage, deed of trust, conveyance to
secured debt, note, loan, lien, lease, agreement, instrument, order, judgment,
decrees or other arrangement to which Jenkins or SJI is a party or to which he
or it is bound, except as set forth on Schedule 9(e) attached hereto and
incorporated herein by such reference.
(1) Neither the execution nor the delivery of this Agreement, nor the
consummation of the transactions herein contemplated, nor compliance with the
terms hereof, will conflict with or result in a breach of any of the terms,
conditions or provisions of the Articles of Incorporation or Bylaws of SJI as
amended, or any agreement or instrument to which Jenkins or SJI is now a party.
(g) Neither the execution, delivery and performance of this Agreement
nor the consummation of the transactions contemplated hereby will violate any
statue or law or any judgment, decree, order, award, regulation or rule of any
court, governmental authority or arbitration panel applicable to Jenkins or SJI;
or give rise to the right of any termination by any governmental authority of
any license, registration, certificate or right of authority to engage in
business in such places where SJI now does or has a right to engage in business.
(h) Jenkins has heretofore delivered to Belco true and correct copies
of the SJI Financial Statements for the year ended October 31, 1997 and the
three months ended January 31, 1998, copies of which are attached hereto as
Exhibit 9(h) and incorporated herein by such reference. To the best of Jenkins'
knowledge, such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied. Since January 31,
1998, SJI has (i) no short term or long term debt or other obligations other
than as set forth in the financial statements for which are attached hereto as
Exhibit 9(h), excluding trade payables
5
<PAGE>
incurred in the ordinary course of business, (ii) no tax liens or encumbrances
of any nature on its assets, (iii) continued its operations and business as they
are presently conducted, (iv) entered into no employment, consulting or similar
agreements, and (v) not issued or agreed to issue any equity security or any
other securities or obligations of SJI which are convertible into or
exchangeable for such equity securities. Since January 31, 1998, to the best of
his knowledge Jenkins is not aware of any events affecting SJI, including, but
not limited to, a loss of a material customer or contract, which would result in
a reduction in revenues or operating results in the aggregate of greater than
10% for the fiscal year ended October 31, 1998 from those reported for the
fiscal year ended October 31, 1997. Since January 31, 1998 there has not have
been (i) any material adverse change in the business, condition (financial or
otherwise), results of operation, prospects, properties, assets or liabilities
of SJI, (ii) any damage, destruction or loss (whether or not covered by
insurance) affecting SJI's properties, assets or business, (iii) any increase in
the rate of compensation or in bonus payments payable or to become payable to
any of SJI's salaried employees, or (iv) any other event or condition of any
character which may reasonably be expected to have an effect as described in
clauses (i) through (iii) of this Paragraph 9(h).
(i) Except for liability or obligations disclosed or provided for the
in the financial statements attached hereto as Exhibit 9(h), and except for
liability or obligations incurred in the ordinary course of business consistent
with past practices, to the best of Jenkins knowledge, SJI does not have any
liabilities or obligations or any nature, whether absolute, accrued, contingent,
potential or unassented or otherwise, that would be required to be disclosed on
a balance sheet of SJI.
C) Jenkins is acquiring the Belco Stock in a private transaction exempt
from registration under applicable federal and state securities laws, for his
own account and for investment and not with a view to the distribution or resale
of any thereof The certificates representing the Belco Stock shall bear the
following legend pursuant to Rule 144 as promulgated under the Act:
"These securities have not been registered under any state or Federal
securities laws and may not be sold or otherwise transferred or
disposed of except pursuant to an effective registration statement
under any applicable Federal or state securities laws, or an opinion of
counsel satisfactory to counsel to the Company that an exemption 1mm
registration under any applicable Federal or state securities laws is
available."
(k) Except as may be set forth on Schedule 9(k), to the best of
Jenkins' knowledge, SJI has applied for and received all licenses and permits
from all governmental authorities (the "Licenses") used in the business of SJI
which are necessary to permit SJI to conduct its business
6
<PAGE>
and operations as currently conducted. No License has been revoked, is subject
to revocation pursuant to a current regulatory review or, to the best of
Jenkins' knowledge, has been challenged or otherwise contested by any person,
except for immaterial deficiencies or other issues noted by regulatory review,
challenge or contest which are being corrected in the ordinary course of
business without material disruption or cost to SJI in respect of such License
or business reasonable related thereto.
(l) To the best of his knowledge, Jenkins and SJI have complied in all
material respects with all federal, state, county and local laws, ordinances,
regulations, inspections, orders, judgements, injunctions, awards or decrees
applicable to SJI.
(m) There is no outstanding order, judgment, injunction, award or
decree of any court, governmental or regulatory body or arbitration tribunal
against or involving Jenkins or SJI in respect of, or in connection with, SJI.
There is no action, suit, claim or legal, administrative or arbitration
proceeding, or, to the best knowledge of Jenkins after due inquiry, any
investigation (whether or not the defense or liabilities in respect thereof are
covered by insurance) pending, or to the best knowledge of Jenkins, after due
inquiry, threatened against or involving SJI or any of its assets. To the best
knowledge of Jenkins, after due inquiry, there is no fact, event or
circumstances that are likely to give rise to any suit, action, claim,
investigation or proceeds that would be required to be disclosed if currently
pending or threatened, other than a termination of exclusive rights to certain
products which is pending between SJI and Swedish Match, AB.
(n) SJI has good and valid title to all the properties and assets of
the type required to be reflected on a balance sheets attached hereto as Exhibit
9(h) which it purports to own, subject to security interests filed by third
parties related to loans with First Tennessee Bank, and those related to the
purchase by SJI of its telephone systems and certain automobiles
(o) SJI has timely filed all tax returns and reports required to be
filed by it, including, where applicable, all federal, state, county and local
income, gross receipts, excise, import, property, franchise, ad valorem,
license, sales, use and withholding tax reports and returns. All returns are
true and correct. To the best of Jenkins' and SJI's knowledge, there is no basis
for any additional claim or assessment.
(p) SJI currently maintain policies of property insurance that provide
coverage in kind and amount reasonably necessary to protect against the risks
inherent or associated with the operation of SJI. All insurance polices are in
full force and effect. There is not any state of facts and no event has occurred
forming the basis for any claim covered by a property, casualty, fidelity,
automobile, general liability, libel or slander, workman's compensation, health
insurance or reinsurance or excess polity that is not fully covered by insurance
or that may be expected to exceed the available limits of liability of the
applicable insurance policies, nor has any carried declined coverage or reserved
its rights to determine its liability to provide coverage to SJI with respect to
any claim or circumstance.
7
<PAGE>
(q) SJI has complied in all material respect with all laws, including
applicable rules and regulations, or all applicable federal, state, local and
foreign governments and their respective agencies concerning the environment,
public health and safety and employee health and safety, and no complaint,
action, suit, proceeding, hearing, investigation, claim, demand or notice has
been filed or commenced against SJI alleging any failure to comply with any such
law or regulation, including, without limitation, any law of any government or
agency concerning release or threatened release of hazardous substances, public
health and safety or pollution or protection of the environment.
10. Representations of Belco. Belco hereby makes the following
representations and warranties to Jenkins, each of which is true as of the date
hereof and will be true as of the closing date with the same effect as though
such representations and warranties had been made on the closing date:
(a) Belco is a corporation duly organized and existing under and by
virtue of the laws of the Stare of Delaware, and is in good standing under the
laws thereof, and is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each jurisdiction wherein
the location of its properties or the character of its operations make such
qualification necessary, except where the failure to be so qualified would not
have a material adverse effect on the Company. The shares of Belco Stock to be
issued to Jenkins hereunder are free and clear of all voting trusts, agreements,
arrangements, encumbrances, liens, claims, equities and liabilities of every
nature and Belco is conveying clear and unencumbered title thereto to Jenkins.
The shares of Belco Stock have been duly authorized and when delivered pursuant
to the terms of this Agreement, will be fully paid and non-assessable.
(b) This Agreement constitutes the valid and binding obligation of
Belco, enforceable against it in accordance with its terms, except that such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors rights.
(c) Belco knows of no other person, corporation or firm that owns any
interest in any property, invention, patent, patent application, copyright,
trade secret, service mark or trademark used by Belco relaxing to any product or
process used by Belco or relating in any way to its business except as may be
set forth on Schedule 10(c) attached hereto and incorporated herein by such
reference. Belco owns or have the rights to use all those rights presently
necessary to the operation of its businesses.
(d) There are no agreements to which Belco is a party that in any way
restrict or infringe upon the business of Belco or the benefit of which Belco
requires or presently has in its business, nor does Belco know of any other
agreements that in any way restrict or infringe upon the business of Belco or
the benefit of which Belco requires or presently has in its business.
(e) To the best of its knowledge, the execution and delivery of this
Agreement by Belco
8
<PAGE>
does not, and the consummation of the transactions contemplated herein, will not
violate or constitute an occurrence of default (or an event which, with notice
or lapse of time or both would constitute a default) under any provision of, or
conflict with, or result in acceleration of any obligations under, or result in
the creation or imposition of any security interest, lien or other encumbrance,
or give rise to a right by any party to terminate its obligations under any
mortgage, deed of trust, conveyance to secured debt, note, loan, lien, lease,
agreement, instrument, order, judgment, decrees or other arrangement to which
Belco is a party or to which he or it is bound, except as set forth on Schedule
10(e) attached hereto and incorporated herein by such reference.
(t) Neither the execution nor the delivery of this Agreement, nor the
consummation of the transactions herein contemplated, nor compliance with the
terms hereof, will conflict with or result in a breach of any of the terms,
conditions or provisions of the Certificate of Incorporation or Bylaws of Belco
as amended, or any agreement or instrument to which Belco is now a party.
(g) Neither the execution, delivery and performance of this Agreement
nor the consummation of the transactions contemplated hereby will violate any
statue or law or any judgment, decree, order, award, regulation or rule of any
court, governmental authority or arbitration panel applicable to Belco; or give
rise to the right of any termination by any governmental authority of any
license, registration, certificate or right of authority to engage in business
in such places where Belco now does or has a right to engage in business.
(h) Belco has heretofore delivered to Jenkins true and correct copies
of Belco's Audited Financial Statements for the period commencing on August 17,
1995 (date of inception) to December 31, 1997, copies of which are attached
hereto as Exhibit 10(h) and incorporated herein by such reference. Such
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied. Since December 31, 1997, Belco has
(i) no short term or long term debt or other obligations other than as set forth
in the financial statements which are attached hereto as Exhibit 10(h),
excluding trade payables incurred in the ordinary course of business, (ii) no
tax liens or encumbrances of any nature on its assets, (iii) continued its
operations and business as they are presently conducted, (iv) entered into no
employment, consulting or similar agreements, and (v) not issued or agreed to
issue any equity security or any other securities or obligations of Belco which
are convertible into or exchangeable for such equity securities, other than
pursuant to the IMCI agreement, a copy of which is attached hereto as Exhibit C.
Since December 31, 1997 Belco is not aware of any events affecting Belco,
including, but not limited to, a loss of a material customer or contract, which
would result in a reduction in revenues or operating results in the aggregate of
greater than 10% for the fiscal year ended December 31, 1998 from those reported
for the fiscal year ended December 31, 1997. Since December 31, 1997 there has
not have been (i) any material adverse change in the business, condition
(financial or otherwise), results of operation, prospects, properties, assets or
liabilities of Belco, (ii) any damage, destruction or loss (whether or not
covered by insurance) affecting Belco's properties, assets or business, (iii)
any increase in the rate of compensation or in bonus payments payable or to
become payable to any of Belco's salaried employees, or (iv) any other
9
<PAGE>
event or condition of any character which may reasonably be expected to have an
effect as described in clauses (i) through (iii) of this Paragraph 10(h).
(i) Except for liability or obligations disclosed or provided for the
in the financial statements attached hereto as Exhibit 10(h), and except for
liability or obligations incurred in the ordinary course of business consistent
with past practices, Belco does not have any liabilities or obligations or any
nature, whether absolute, accrued, contingent, potential or unassented or
otherwise, that would be required to be disclosed on a balance sheet of Belco.
(j) Belco is acquiring the SJI Stock from Jenkins in a private
transaction exempt from registration under applicable federal and state
securities laws, for his own account and for investment and not with a view to
the distribution or resale of any thereof. The certificates representing the SJI
Stock acquired by Belco shall bear the following legend pursuant to Rule 144 as
promulgated under the Act:
"These securities have not been registered under any state or Federal
securities laws and may not be sold or otherwise transferred or
disposed of except pursuant to an effective registration statement
under any applicable Federal or state securities laws, or an opinion of
counsel satisfactory to counsel to the Company that an exemption from
registration under any applicable Federal or state securities laws is
available."
(k) Except as may be set forth on Schedule 10(k), to the best of its
knowledge, Belco has applied for and received all licenses and permits from all
governmental authorities (the "Licenses") used in the business of Belco which
are necessary to permit Belco to conduct its business and operations as
currently conducted. No License has been revoked, is subject to revocation
pursuant to a current regulatory review or, to the best of Belco's knowledge,
has been challenged or otherwise contested by any person, except for immaterial
deficiencies or other issues noted by regulatory review, challenge or contest
which are being corrected in the ordinary course of business without material
disruption or cost to Belco in respect of such License or business reasonable
related thereto.
(l) To the best of its knowledge, Belco has complied in all material
respects with all federal, state, county and local laws, ordinances,
regulations, inspections, orders, judgements, injunctions, awards or decrees
applicable to Belco.
(m) There is no outstanding order, judgment, injunction, award or
decree of any court, governmental or regulatory body or arbitration tribunal
against or involving Belco. There is no action, suit, claim or legal,
administrative or arbitration proceeding, or, to the best knowledge of Belco
after due inquiry, any investigation (whether or not the defense or liabilities
in respect thereof are covered by insurance) pending, or to the best knowledge
of Belco, after due inquiry, threatened against or involving Belco or any of its
assets. To the best knowledge of Belco, after due inquiry, there is no fact,
event or circumstances that are likely to give rise to any suit, action,
10
<PAGE>
claim, investigation or proceeds that would be required to be disclosed if
currently pending or threatened.
(n) Belco has good and valid title to all the properties and assets of
the type required to be reflected on a balance sheets attached hereto as Exhibit
10(h) which it purports to own and all such properties and assets are free and
clear of all title defects or objections, liens, claims, charges, security
interests or other encumbrances of any nature whatsoever.
(o) Belco has timely filed all tax returns and reports required to be
filed by it, including, where applicable, all federal, state, county and local
income, gross receipts, excise, import, property, franchise, ad valorem,
license, sales, use and withholding tax reports and returns. All returns are
true and correct. To the best of Belco's knowledge, there is no basis for any
additional claim or assessment.
(p) Belco has complied in all material respect with all laws, including
applicable rules and regulations, or all applicable federal, state, local and
foreign governments and their respective agencies concerning the environment,
public health and safety and employee health and safety, and no complaint,
action, suit, proceeding, hearing, investigation, claim, demand or notice has
been filed or commenced against Belco alleging any failure to comply with any
such law or regulation, including, without limitation, any law of any government
or agency concerning release or threatened release of hazardous substances,
public health and safety or pollution or protection of the environment.
11. Conditions of Closing. All of the obligations of the parties under
this Agreement are subject to the fulfillment, prior to or on the closing date
set forth in Section 4 of this Agreement, of each of the following conditions:
(a) Delivery by Jenkins of the following:
(i) Certificates for the SJI Stock described in Section 5
hereof, endorsed in blank; and
(ii) A certificate of Jenkins that all representations and
warranties made by him contained in Section 9 of this Agreement shall be true on
and as of the closing date set forth in Section 4 of this Agreement as though
such representations and warranties were made at and as of such date, and shall
be true on and as of said closing date as though such representations and
warranties were made at and as of such date.
(b) Delivery by Belco of the following:
(i) Evidence of the filing of the Certificate of Amendment to
Belco's Certificate of Incorporation creating a series of 10,000,000 shares of
blank check preferred stock and designating a series consisting of 4,900,000
shares of Series A Preferred Stock, which such Series
11
<PAGE>
A Preferred Stock is a component of the Belco Stock;
(ii) Evidence of the subsequent filing of the Certificate of
Amendment to Belco's Certificate of Incorporation effecting a 3:1 stock split of
Belco's issued and outstanding common stock and notification of such action to
Belco's shareholders;
(iii) Evidence of the formation of the Belco Subsidiary and
the conclusion of the transactions related thereto, all as set forth in Section
6 hereof;
(iv) Delivery of the resignation of Lionel Beloyan as an
officer and director of Belco to be effective on the Closing Date;
(v) Delivery of the resignation of Stephen Beloyan as an
officer and director of Belco to be effective on the Closing Date;
(vi) Written consent of the Belco Board of Directors electing
J. D. Jenkins and Ron Jenkins to the Board of Belco effective on the Closing
Date and appointing J. D. Jenkins President of Belco on the Closing Date;
(vii) Certificates for the 1,200,000 shares of Belco Common
Stock and 4,900,000 shares of Belco Series A Preferred Stock described in
Section 5 hereof; and
(viii) A certificate of Belco that all representations and
warranties made by it contained in Section 10 of this Agreement shall be true on
and as of the closing date set forth in Section 4 of this Agreement as though
such representations and warranties were made at and as of such date, and shall
be true on and as of said closing date as though such representations and
warranties were made at and as of such date.
12. Investment Purpose. Jenkins represents and warrants that he is
acquiring the Belco Stock to be delivered upon the execution of this Agreement
solely for investment purposes and not for distribution or resale.
Sales of such stock may be made only as permitted by Rule 145(d)
of the Act. Jenkins further acknowledges that he has been advised by Belco that
the Belco Stock has not been registered under the Act and that Belco has no
obligation to so register.
13. Representations to Survive Closing. All the terms, conditions,
warranties, representations and guarantees contained in this Agreement shall
survive delivery of the shares of SJI Stock and the Belco Stock transferred as
the closing hereunder and any investigations made by or on behalf of Belco or
Jenkins at any time.
14. Miscellaneous.
(a) Each of the parties hereto will bear its own legal fees
and other expenses in connection with the transactions contemplated by this
Agreement.
12
<PAGE>
(b) If any term or provision of this Agreement or any exhibits
thereto or the application thereof to any person, property or circumstances
shall to any extent be invalid or unenforceable, the remainder of this Agreement
or the exhibits thereto or the application or such term or provision to person,
property or circumstances other than those as to which it is invalid and
unenforceable shall not be affected thereby, and each term and provision of this
Agreement or the exhibits thereto shalt be valid and enforced to the fullest
extent permitted by law.
(c) Any notices, requests or consents hereunder shall be deemed given,
and any instruments delivered, two days after they have been mailed by first
class mail, postage prepaid, or upon receipt if delivered personally or by
facsimile transmission, as follows:
If to Belco: 308 Hill Avenue
Post Office Box L-20l
Langhorne, PA 19047
If to Jenkins: 63l2 Baum Drive
Knoxville, Tennessee 37919
except that any of the foregoing may from time to time by written notice to the
other designate another address which shall thereupon become its effective
address for the purposes of this paragraph.
(d) This Agreement, including the exhibits and documents
referred to herein which are a part hereof, contain the entire understanding of
the parties hereto with respect to the subject matter and may be amended only by
a written instrument executed by the parties hereto or their successors or
assigns. Any paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(e) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(f) This Agreement shall inure to the benefit of and be binding in upon
the parties hereto and their respective successors but shall not inure to the
benefit of anyone other than the parties signing this Agreement and their
respective successors.
(g) This Agreement is governed by, interpreted under and construed in
all respects in accordance with the substantive laws of the State of Florida,
without regard to the conflicts of law provision thereof, and irrespective of
the place of domicile or resident of the party. In the event of a controversy
arising out of the interpretation, construction, performance or breach of this
agreement, the parties hereby agree and consent to the jurisdiction and venue
of the Courts of the State of Florida, or the United States District Court for
the Southern District of Florida; and
13
<PAGE>
further agree and consent that personal service of process in any such action or
preceding outside the State of Florida shall be tantamount to service in person
in Florida.
(h) The parties have either (1) been represented by independent legal
counsel in connection with the negotiations and execution of this Agreement, or
(ii) each has had the opportunity to obtain independent legal counsel, has been
advised that it is in their best interests to do so and by execution of this
Agreement has waive the right.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Belco Systems Technologies, Inc., a
Delaware corporation
By: /s/ Lionel Beloyan
-------------------------------
Lionel Beloyan,
President
/s/ J. D. Jenkins
-------------------------------
J. D. Jenkins
14
State of Department
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
Incorporation of "Belco Systems Technologies, Inc.", filed in this office on the
seventeenth Day of August, A.D. 1995, at 4 O'Clock P.M.
A Certified Copy of this certificate has been forwarded to the New
Castle County Recorder of Deeds for Recording.
(Seal) /s/ Edward J. Freel
___________________________________
Edward J. Freel, Secretary of State
Authentication: 7613324
Date: 08-18-95
<PAGE>
Certificate of Incorporation
of
Belco Systems Technologies, Inc.
1. The Name of the corporation is:
Belco Systems Technologies, Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is the
Corporation Trust Company.
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 if Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue to Ten Million (10,000,000) and the par value of each of
such shares is One Hundred of One Cent ($.0001) amounting in the aggregate to
One Thousand Dollars ($1,000.00).
5. The board of directors is authorized to make, alter or repeal the
by-laws of the corporation. Election of directors need not be written ballot.
6. The name and mailing address of the incorporator is:
L. J. Vitalo
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
I, The undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
Delaware, do make this certificate, hereby declaring and certifying that this
is my act and deed and the facts herein stated are true, and accordingly
have hereunto set my hand this 17th day of August, 1995
/s/ L. J. Vitalo
------------------
State of Delaware
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 Amendment
of "Belco Systems Technologies, Inc.", filed in this office on the twenty-fifth
day of February, A.D. 1998, at 4:30 o'clock p.m.
(Seal) /s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State
Authentication: 8941870
Date: 02-26-98
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE CERTIFICATE OF INCORPORATION
OF
BELCO SYSTEMS TECHNOLOGIES, INC.
The undersigned, being a natural person competent to contract, does
hereby make, subscribe and file this Certificate of Amendment to its Certificate
of Incorporation of Belco Systems Technologies, Inc., a Delaware corporation,
pursuant to Section 242 of the Delaware Code Annotated:
1. The name of the corporation is Belco Systems Technologies, Inc. (the
"Corporation").
2. Paragraph 4 of the Corporation's Certificate of Incorporation shall be
deleted in its entirety and replaced with the following:
4. The total number of shares of stock which the corporation shall
have the authority to issue is Ten Million (10,000,000) shares of
common stock, par value 5.0001 per share, and Ten Million (10,000,000)
shares of preferred stock, par value 5.0001 per share, issuable in
such series and bearing such voting, dividend, conversion, liquidation
and other rights and preferences as the Board of Directors may
determine.
3. The Corporation be and hereby determines that 4,900,000 shares of
preferred stock are designated as Series A Preferred Stock, with the following
designations, rights and preferences:
1. Designation and Initial Number. The series of preferred stock
hereby classified shall be designated "Series A Preferred Stock" (the
"Series A Preferred Stock".) The initial number of authorized shares
of the Series A Preferred Stock shall be 4,900,000 shares. Upon
issuance of the thares of Series A Preferred Stock 5.0001 per share
shall be the stated capital of the Corporation.
2. Voting Rights. Holders of the shares of Series A Preferred Stock
shall be entitled to full voting rights, share for share, with the
then outstanding Common Stock as well as with any other class or
series of stock of the Corporation which have general voting power
with the Common Stock concerning any matter being voted upon. Except
as so provided, shares of Series A Preferred Stock shall at no time be
entitled, as a series, class or otherwise, to any other or special or
restrictive voting rights of any kind whatsoever, except as then and
when and to the extent required by applicable law. On all matters on
which the Series A Preferred Stock is entitled to vote by law, the
Series A Preferred Stock holders shall be entitled to one vote per
share of Series A Preferred Stock, voting separately as a single
class, and the presence, in person or by proxy, of the holders of a
majority of the outstanding shares
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<PAGE>
of Series A Preferred Stock shall constitute a quorum.
3. Conversion Privilege. The shares of Series A Preferred Stock are
not convertible into any other class of capital stock of the
Corporation.
4. Redemption. The shares of Series A Preferred Stock are redeemable
at the sole option of the Corporation at any time and from time to
time at a redemption price to be negotiated by the parties at the time
of redemption.
5. Dividends. The shares of Series A Preferred Stock may pay annual
dividends out of funds legally available for the payment of dividends
by the Corporation at the sole discretion of the Board of Directors.
6. Liquidation. In the event of any voluntary or involuntary
dissolution or winding up of the Corporation, the holders of shares of
Series A Preferred Stock then outstanding shall be entitled to be paid
out of the assets of the Corporation available for distribution to its
shareholders an amount per share equal to 5.0001 without interest, and
no more, before any payment shall be made to the holders of any stock
of the Corporation ranking junior to the Series A Preferred Stock. A
merger of consolidation of the Corporation with or into any other
corporation, share exchange or sale of conveyance of all or any part
of the assets of the Corporation which shall not in fact result in the
liquidation of the Corporation and the distribution of assets to its
shareholders shall not be deemed to be a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation within the
meaning of this Paragraph 6.
7. Transferability. The shares of Series A Preferred Stock may be
transferred at any time and from time to time at the sole option of
the holder.
8. Reacquired Shares. Any Series A Preferred Stock redeemed or
otherwise acquired by the Company in any manner whatsoever shall
constitute authorized but unissued preferred shares and may be
reissued as part of a new series of preferred shares by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein, the Certificate of
Incorporation, or in any other Certificate of Designation creating a
series of preferred shares or as otherwise required by law.
4. All issued and outstanding shares of Common Stock of the Corporation
held by each holder of record on March 4, 1998 shall be automatically combined
at a rate of three for one (3:1).
5. The foregoing amendment was duly adopted by written consent of the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to
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<PAGE>
authorize or take such action at a meeting at which all shares entitled
to vote thereon were present and voted, and the unanimous written
consent of the Board of Directors on February 18, 1998.
IN WITNESS WHEREOF, this Certificate of Amendment to the
Certificate of Incorporation have been executed this as of 18th day of
February, 199$.
/s/ Lionel Beloyan
----------------------------
Lionel Beloyan, President
3
State of Delaware
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 amended
of "Belco Systems Technologies, Inc.", changing its name from "Belco Systems
Technologies, Inc. to SJI Group, Inc., filed in this office on the fifth day of
March, A.D. 1998, at 1 O'Clock p.m.
(Seal) /s/ Edward J. Freel
____________________________________
Edward J. Freel, Secretary of State
Authentication: 8955084
Date: 03-05-98
State of Delaware
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
Amendment of "SJI Group, Inc.", changing its Name From "SJI Group, Inc.", to
"iCommerce Group, Inc.", filed in this office on the Eleventh Day of June, A.D.
1999, at 1 O'Clock P.M.
A Filed Copy of this Certificate has been forwarded to the New Castle
County recorder of Deeds.
(Seal) /s/ Edward J. Freel
--------------------------------
Edward J. Freel, Secretary of State
Authentication: 9806631
Date: 06-16-99
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE CERTIFICATE OF INCORPORATION
OF
SJI GROUP, INC.
The undersigned, being a natural person competent to contract, does
hereby make, subscribe and file this Certificate of Amendment to its Certificate
of Incorporation of SJI Group, Inc., a Delaware corporation (the "Corporation"),
pursuant to Section 242 of the Delaware Code Annotated:
1. Paragraph 1 of the Corporation's Certificate of Incorporation shall
be deleted in its entirety and replaced with the following:
1. The name of the Corporation is iCommerce Group, Inc.
2. Paragraph 4 of the Corporation's Certificate of Incorporation shall
be deleted in its entirety and replaced with the following:
4. The total number of shares of stock which the corporation shall
have the authority to issue is Fifty Million (50,000,000) shares
of common stock, par value $.0001 per share, and Twenty Five
Million (25,000,000) shares of preferred stock, par value $.0001
per share, issuable in such series and bearing such voting,
dividend, conversion, liquidation and other rights and
preferences as the Board of Directors may determine.
The Board of Directors of the Corporation, a majority of the
holders of outstanding common 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 entitled to vote thereon were present and voted and the sole
holder of the Corporation's Series A Preferred Stock consented in writing on
March 29, 1999, to authorize the following restatement and amendment of the
designations, rights and preferences of the Corporations previously designated
Series A Preferred Stock:
1. Designation and Initial Number. The series of preferred stock
hereby classified shall be designated "Series A Preferred Stock"
(the "Series A Preferred Stock".) The initial number of
authorized shares of the Series A Preferred Stock shall be
4,900,000 shares. Upon issuance of the shares of Series A
Preferred Stock $.0001 per share shall be the stated capital of
the Corporation.
2. Voting Rights. Holders of the shares of Series A Preferred
Stock shall be entitled to full voting rights, share for share,
with the then outstanding Common Stock of the Corporation as
well as with any other class or series
1
<PAGE>
of stock of the Corporation which have general voting power with
the Common Stock concerning any matter being voted upon Except
as so provided, shares of Series A Preferred Stock shall at no
time be entitled, as a series, class or otherwise, to any other
or special or restrictive voting rights of any kind whatsoever,
except as then and when and to the extent required by applicable
law. On all matters on which the Series A Preferred Stock is
entitled to vote by law, the Series A Preferred Stock holders
shall be entitled to one vote per share of Series A Preferred
Stock, voting separately as a single class, and the presence, in
person or by proxy, of the holders of a majority of the
outstanding shares of Series A Preferred Stock shall constitute
a quorum.
3. Conversion Privilege. Each share of Series A Preferred
Stock is convertible into one share of common stock of the
Corporation at the option of the holder.
4. Redemption. The shares of Series A Preferred Stock are
redeemable at the sole option of the Corporation at any time and
from time to time at a redemption price to be negotiated by the
parties at the time of redemption.
5. Dividends. The shares of Series A Preferred Stock may pay
annual dividends out of funds legally available for the payment
of dividends by the Corporation at the sole discretion of the
Board of Directors.
6. Liquidation. In the event of any voluntary or involuntary
dissolution or winding up of the Corporation, the holders of
shares of Series A Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation
available for distribution to its shareholders an amount per
share equal to $.0001 without interest, and no more, before any
payment shall be made to the holders of any stock of the
Corporation ranking junior to the Series A Preferred Stock. A
merger of consolidation of the Corporation with or into any
other corporation, share exchange or sale of conveyance of all
or any part of the assets of the Corporation which shall net in
fact result in the liquidation of the Corporation and the
distribution of assets to its shareholders shall not be deemed
to be a voluntary or involuntary liquidation. dissolution or
winding up of the Corporation within the meaning of this
Paragraph 6.
7. Transferability. The shares of Series A Preferred Stock may
be transferred at any time and from time to time at the sole
option of the holder.
8. Reaquired Shares. Any Series A Preferred Stock redeemed or
otherwise acquired by the Corporation in any manner whatsoever
shall
2
<PAGE>
constitute authorized but unissued preferred shares and may be
reissued as part of a new series of preferred shares by
resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein, the
Certificate of Incorporation, or in any other Certificate of
Designation creating a series of preferred shares or as otherwise
required by law.
The Corporation does hereby certify that, pursuant to authority
centered upon the Board of Directors of the Corporation by the Certificate of
Incorporation, as amended, of the Corporation, and pursuant to Section 151 of
the General Corporation Law of the State of Delaware, the Board of Directors of
the Corporation acting by written consent dated March 29, 1999, adopted
resolutions providing for the designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations or
restrictions thereof, of 600,000 shares of Series B Preferred Stock of the
Corporation, as follows:
Resolved, the Board of Directors of the Corporation desires, pursuant
to its authority as aforesaid, to determine and fix the rights, preferences,
privileges and restrictions relating to a class of said Preferred Stock to be
designated as follows:
1. Designation and Initial Number. The series of preferred
stock hereby classified shall be designated "Series B Preferred
Stock" (the "Series B Preferred Stock".) The initial number of
authorized shares of the Series B Preferred Stock shall be
570,000 shares. Upon issuance of the shares of Series B
Preferred Stock $.0001 per share shall be the stated capital of
the Corporation.
2. Voting Rights. Holders of the shares of Series B Preferred
Stock shall be entitled to full voting rights, share for share,
with the then outstanding Common Stock of the Corporation as
well as with any other class or series of stock of the
Corporation which have general voting power with the Common
Stock concerning any matter being voted upon. Except as so
provided, shares of Series B Preferred Stock shall at no time be
entitled, as a series, class or otherwise, to any other or
special or restrictive voting rights of any kind whatsoever,
except as then and when and to the extent required by
applicable law. On all matters on which the Series B Preferred
Stock is entitled to vote by law, the Series B Preferred Stock
holders shall be entitled to one vote per share of Series B
Preferred Stock, voting separately as a single class, and the
presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Series B Preferred Stock shall
constitute a quorum.
3. Conversion Privilege. Each share of Series B Preferred Stock
is
3
<PAGE>
convertible at the sole option of the Corporation into one share
of common stock of the Corporation.
4. Redemption, The shares of Series B Preferred Stock are
redeemable at the sole option of the Corporation at any time and
from time to time at a redemption price to be negotiated by the
parties at the time of redemption.
5. Dividends The shares of Series B Preferred Stock may pay
annual dividends out of funds legally available for the payment
of dividends by the Corporation at the sole discretion of the
Board of Directors.
6. Liquidation. In the event of any voluntary or involuntary
dissolution or winding up of the Corporation, the holders of
shares of Series B Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation
available for distribution to its shareholders an amount per
share equal to $.0001 without interest, and no more, before any
payment shall be made to the holders of any stock of the
Corporation ranking junior to the Series B Preferred Stock but
after payment shall be made to the holders of the Corporation's
Series A Preferred Stock. A merger of consolidation of the
Corporation wit or into any other corporation, share exchange or
sale of conveyance of all or any part of the assets of the
Corporation which shall not in fact result in the liquidation of
the Corporation and the distribution of assets to its
shareholders shall not be deemed to be a voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation within the meaning of this Paragraph 6.
7. Transferability. The shares of Series B Preferred Stock may
be transferred at any time and from time to time at the sole
option of the holder in accordance with federal and state
securities laws or any other applicable laws.
8. Reacquired Shares Any Series B Preferred Stock redeemed or
otherwise acquired by the Corporation in any manner whatsoever
shall constitute authorized but unissued preferred shares and
may be reissued as part of a new series of preferred shares by
resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein,
the Certificate of Incorporation, or in any other Certificate of
Designation creating a series of preferred shares or as
otherwise required by law.
3. The foregoing amendment was duly adopted by written consent of the
holders of outstanding common 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
4
<PAGE>
entitled to vote thereon were present and voted, the sole holder of the Series A
Preferred Stock and the unanimous written consent of the Board of Directors on
March 29, 1999.
5
<PAGE>
IN \WITNESS WHEREOF, this Certificate of Amendment to the Certificate
of Incorporation have been executed this as of 29 day of March, 1999.
/s/ J. D. Jenkins
-----------------------------
J. D. Jenkins, President
Attest:April S. Tate
6
State of Delaware
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 Amendment
of "iCommerce Group, Inc.", filed in this office on the Eighteenth Day of
December, A.D. 1999, at 10 O'Clock A.M. A Filed Copy of this Certificate has
been Forwarded to the New Castle County Recorder of Deeds.
(Seal) /s/ Edward J. Freel
--------------------------------
Edward J. Freel, Secretary of State
Authentication: 0127411
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
iCommerce GROUP, INC,
iCommerce Group, Inc., (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
The amendment to the Corporation's Certificate of Incorporation as set
forth in the following resolution approved, by the Corporation's Board of
Directors and sole Series Preferred Shareholder was duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware:
RESOLVED, that the Board of Directors hereby authorizes an amendment to
its Certificate of Incorporation to correct a scrivener's error which
incorrectly stated the conversion rights and voting rights of the Series B
Preferred Stock, and as such, the Board hereby approved an amendment to the
Certificate of Incorporation, as amended, to change the conversion ratio of the
Series B Preferred Stock to 1:2, and the Voting rights such that each share of
Series B Preferred Stock shall be entitled to two votes. Accordingly, with
reference to Paragraph 4, the designated Series B Preferred Stock, the sections
entitled "Voting Rights" and "Conversion Privilege shall read, respectively, as
follows:
2. Voting Rights. Holders of the shares of Series B Preferred
Stock shall be entitled to full voting rights, share for share, with
the then outstanding Common Stock of the Corporation as well as with
any other class or series of stock of the Corporation which have
general voting power with the Common Stock concerning any matter being
voted upon. Except as so provided, shares of Series B Preferred Stock
shall at no time be entitled, as a series, class or otherwise, to any
other or special or restrictive voting rights of any kind whatsoever,
except as then and when and to the extent required by applicable law.
On all matters on which the Series B Preferred Stock is entitled to
vote by law, the Series B Preferred Stock holders shall be entit1ed to
two (2) votes per share of Series B Preferred Stock, voting separately
as a single class, and the presence, in person or by proxy, of the
holders of a majority of the outstanding shares of Series B Preferred
Stock shall constitute a quorum.
3. Conversion Privilege. Each share of Series B Preferred Stock
is convertible at the sole option of the Corporation into two (2)
shares of Common Stock of the Corporation.
<PAGE>
The foregoing amendment was duly adopted by written consent of the sole
holder of the issued and outstanding Series B Preferred Shares, and by the
unanimous written consent of the Board of Directors on November 24, 1999.
IN WITNESS WHEREOF, iCommerce Group, Inc. has caused this Certificate
of Amendment to the Certificate of Incorporation to be signed by J. D. Jenkins,
President, and attested to by J. D. Jenkins, Secretary and the seal of the
Corporation has been duty affixed hereto, this 7th day of December, 1999.
iCommerce GROUP. INC.
By: /s/ J. D. Jenkins
---------------------
J. D. Jenkins, President
ATTEST:
J. D. Jenkins
- ------------------------
J. D. Jenkins, Secretary
BYLAWS
OF
BELCO SYSTEMS TECHNOLOGIES. INC.
a Delaware corporation
<PAGE>
BYLAWS
OF
BELCO SYSTEMS TECHNOLOGIES. INC.
--------------------------------
a Delaware corporation
ARTICLE I
STOCKHOLDERS
------------
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in
the corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the President
or a Vice President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or
uncertificated shares in place of any certificate theretofore issued by it,
alleged to have been lost, stolen, or destroyed, and the Board of Directors 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
any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
by resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a reasonable
time after the
2
<PAGE>
issuance or transfer of any uncertificated shares, the corporation shall send to
the registered owner thereof any written notice prescribed by the General
Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (a) arrange for the disposition of fractional
interests by those entitled thereto, (b) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (c) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. 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, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than 60 nor less than 10 days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. 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
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<PAGE>
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 10 days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. If no record date has been
fixed by the Board of Directors, the record date for determining the
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by the
General Corporation Law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is 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. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by the General Corporation Law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action. In order that
the corporation may determine the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than 60 days prior to such action. If no
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the Certificate of Incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the Certificate of Incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under
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<PAGE>
the provisions of the Certificate of Incorporation, except as any provision of
law may otherwise require.
7. STOCKHOLDER MEETINGS.
A. Time. The annual meeting shall be held on the date and at the
time fixed, from time to time, by the Board of Directors, provided, that the
first annual meeting shall be held on a date within 13 months after the
organization of the corporation, and each successive annual meeting shall be
held on a date within 13 months after the date of the preceding annual meeting.
A special meeting shall be held on the date and at the time fixed by the Board
of Directors.
B. Place. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the Board of Directors may,
from time to time, fix. Whenever the directors shall fail to fix such place, the
meeting shall be held at the registered office of the corporation in the State
of Delaware.
C. Call. Annual meetings and special meetings may be called by a
majority of the Board of Directors or by any officer instructed by a majority of
the Board of Directors to call the meeting.
D. Notice or Waiver of Notice. Written notice of all meetings shall
be given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than 10 days nor more than 60 days before the date of the
meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited,
with postage thereon prepaid, in the United States mail. If a meeting is
adjourned to another time, not more than 30 days hence, and/or to another place,
and if an announcement of the adjourned time and/or place is made at the
meeting, it shall not be necessary to give notice of the adjourned meeting
unless the directors, after adjournment, fix a new record date for the adjourned
meeting. Notice need not be given to any stockholder who submits a written
waiver of notice signed by him before or after the time stated therein.
Attendance of a stockholder at a meeting of stockholders shall
5
<PAGE>
constitute a waiver of notice of such meeting, except when the stockholder
attends the meeting 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. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders need be specified
in any written waiver of notice.
E. Stockholder List. The officer who has charge of the stock ledger
of the corporation shall prepare and make, at least 10 days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least 10 days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
F. Conduct of Meeting. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, the President, a Vice-President, or, if none of the foregoing is
in office and present and acting, by a chairman to be chosen by the
stockholders. The Secretary of the corporation, or in his absence, an Assistant
Secretary, shall act as secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present the Chairman of the meeting shall appoint
a secretary of the meeting.
G. Proxy Representation. Every stockholder may authorize another
person or persons to act for him by proxy in all matters in which a stockholder
is entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
H. Inspectors. The directors, in advance of any meeting, may, but
need not, appoint one or more inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the
6
<PAGE>
meeting may, but need not, appoint one or more inspectors. In case any person
who may be appointed as an inspector fails to appear or act, the vacancy may be
filled by appointment made by the Board of Directors in advance of the meeting
or at the meeting by the person presiding thereat. Each inspector, if any,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspectors at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots, or
consents, here and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots, or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question, or matter determined by him or them and execute a
certificate of any fact found by him or them.
I. Quorum. The holders of a majority of the outstanding shares of
stock shall constitute a quorum at a meeting of stockholders for the transaction
of any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
J. Voting. Each share of stock shall entitle the holders thereof to
one vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Any other action shall be authorized by a majority of
the votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the Certificate of
Incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law 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 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 entitled to vote thereon were present and
voted. 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. Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.
7
<PAGE>
ARTICLE II
DIRECTORS
---------
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The number
of directors constituting the whole board shall be at least one. Subject to the
foregoing limitation and except for the first Board of Directors, such number
may be fixed from time to time by action of the stockholders or of the Board of
Directors. The number of directors may be increased or decreased by action of
the stockholders or of the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the Certificate of Incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
4. MEETINGS.
A. Time. Meetings shall be held at such time as the Board of
Directors shall fix, except that the first meeting of a newly elected Board of
Directors shall be held as soon after its election as the directors may
conveniently assemble.
B. Place. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board of Directors.
8
<PAGE>
C. Call. No call shall be required for regular meetings for which
the time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, of the President, or of a majority of the directors in office.
D. Notice or Actual or Constructive Waiver. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be given
for special meetings in sufficient time for the convenient assembly of the
directors thereat. Notice need not be given to any director or to any member of
a committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting 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. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
E. Quorum and Action. A majority of the whole Board of Directors
shall constitute a quorum except when a vacancy or vacancies prevents such
majority, whereupon a majority of the directors in office shall constitute a
quorum, provided, that such majority shall constitute at least one-third of the
whole Board of Directors. A majority of the directors present, whether or not a
quorum is present, may adjourn a meeting to another time and place. Except as
herein otherwise provided, and except as otherwise provided by the General
Corporation Law, the vote of the majority of the directors present at a meeting
at which a quorum is present shall be the act of the Board of Directors. The
quorum and voting provisions herein stated shall not be construed as conflicting
with any provisions of the General Corporation Law and these By-Laws which
govern a meeting of directors held to fill vacancies and newly created
directorships in the Board of Directors or action of disinterested directors.
Any member or members of the Board of Directors or of any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
F. Chairman of the Meeting. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board of Directors, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed,
9
<PAGE>
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board of Directors, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of any member of any such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise the powers and authority of the Board of Directors
in the management of the business and affairs of the corporation with the
exception of any authority the delegation of which is prohibited by Section 141
of the General Corporation Law, and may authorize the seal of the corporation to
be affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board of Directors or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee.
ARTICLE III
OFFICERS
--------
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the
Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an
Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
with such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or Vice-Chairman of
the Board of Directors, if any, need be a director. Any number of offices may be
held by the same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
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<PAGE>
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and choosing
such officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
--------------
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
ARTICLE VI
AMENDMENT OF BYLAWS
-------------------
The power to adopt alter, amend or repeal Bylaws shall be vested in
the Board of Directors. The fact that such power has been so conferred upon the
directors shall not divest the stockholders of the power, nor limit their power
to adopt, amend or repeal Bylaws. Bylaws adopted by the Board of Directors or by
the stockholders may be repealed or changed, new Bylaws may be adopted by the
stockholders, and the stockholders may prescribe in any Bylaw made by them that
such Bylaw shall not be altered, amended or repealed by the Board of Directors.
11
STOCK PURCHASE AGREEMENT
BETWEEN
SHADY DALE INVESTMENTS, LLC.,
J. D. JENKINS AND RON JENKINS
AND
iCOMMERCE GROUP, INC.
AUGUST 1, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
Section 1. Definitions.................................................. 1
Section 2. Purchase and Sale of Company shares.......................... 3
(a) Basic Transaction............................................ 3
(b) Purchase Price............................................... 3
(c) The Closing ................................................. 3
(d) Deliveries at the Closing.................................... 3
Section 3. Representations and Warranties Concerning the Transaction.... 4
(a) Representations and Warranties of Sellers.................... 4
(b) Representations and Warranties of Buyer...................... 4
Section 4. Representations and Warranties Concerning the Company and its
Subsidiaries............................................... 5
(a) Organization, Qualification, and Corporate Power............. 5
(b) Capitalization............................................... 5
(c) Noncontravention............................................. 6
(d) Brokers' Fees................................................ 6
(e) Title to Personal Properties................................. 6
(f) Events Subsequent to June 30, 1999........................... 6
(g) Compliance with Law and Other Related Regulations............ 7
(h) Intellectual Property........................................ 8
(i) Employee Benefits............................................ 8
(j) Certain Business Relationships With the Company and its
Subsidiaries............................................... 8
(k) Minute Books................................................. 8
(l) Accuracy of Statements....................................... 8
Section 5. Pre-Closing Covenants........................................ 8
(a) General...................................................... 8
(b) Notice of Developments....................................... 8
(c) Exclusivity.................................................. 9
(d) Covenants of Sellers......................................... 9
Section 6. Post-Closing Covenants....................................... 11
(a) General...................................................... 11
(b) Litigation Support........................................... 11
(c) Transition................................................... 11
(d) Prepayment of Buyer Note..................................... 11
Section 7. Conditions to Obligation to Close............................ 12
(a) Conditions to Obligation of Buyer............................ 12
(b) Conditions to Obligation of Sellers.......................... 12
Section 8. Remedies for Breaches of This Agreement...................... 13
(a) Survival of Representations and Warranties................... 13
(b) Indemnification Provisions for Benefit of Buyer.............. 13
(c) Indemnification Provisions for Benefit of Sellers............ 14
(d) Matters Involving Third Parties.............................. 14
Section 9. Termination.................................................. 15
(a) Termination of Agreement..................................... 15
(b) Effect of Termination........................................ 16
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Section 10. Miscellaneous................................................ 16
(a) Press Releases and Public Announcements...................... 16
(b) No Third Party Beneficiaries................................. 16
(c) Entire Agreement............................................. 16
(d) Succession and Assignment.................................... 16
(e) Counterparts................................................. 17
(f) Headings..................................................... 17
(g) Notices..................................................... 17
(h) Governing Law............................................... 17
(i) Amendments and Waivers...................................... 18
(j) Severability................................................ 18
(k) Expenses.................................................... 18
(l) Construction................................................ 18
(m) Incorporation of Exhibits and Schedules..................... 18
(n) Confidentiality............................................. 18
</TABLE>
EXHIBITS
Exhibit A - Form of Buyer Note
ii
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT entered into as of August 1, 1999, by and between iCommerce
Group, Inc., a Delaware corporation ("Buyer"), Shady Dale Investments, LLC., a
Georgia Limited Liability Company ("LLC"), J. D. Jenkins and Ron Jenkins
(collectively, the "Sellers"). Buyer and Sellers are referred to herein at times
as the "Parties." Other capitalized terms used herein are defined in Section 1.
WHEREAS, Sellers own all of the outstanding capital stock of Caribbean
Cigar Company (Cayman), Ltd., a Cayman Island corporation (the "Company");
WHEREAS, the Company is engaged in the business of manufacturing and
distributing premium and other cigars;
WHEREAS, subject to the terms and conditions set forth in this
Agreement, Buyer desires to purchase from Sellers, and Sellers desire to sell to
Buyer, all of the outstanding capital stock of the Company; and
WHEREAS, the purchase price for the capital stock of the Company will
consist of shares of common stock of the Buyer and promissory notes payable by
Buyer;
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
Section 1. Definitions.
"Adverse Consequences" means (i) all actions, suits, proceedings,
investigations, charges, complaints, claims, injunctions, judgments, orders,
decrees, rulings, damages, dues, penalties, fines, costs, reasonable amounts
paid in settlement, liabilities, obligations, taxes, liens, losses, expenses,
and fees, including court costs and reasonable attorneys' fees and expenses and
(ii) the amount of the loss, damage or expense (or decrease in the value of the
business of the Company) that is actually suffered or incurred by reason of a
breach of a representation or warranty or a covenant or agreement that would not
have been suffered or incurred if the representation or warranty or covenant or
agreement had not been breached.
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the first mentioned Person
within the meaning of the Securities Exchange Act.
"Applicable Rate" means the corporate base rate of interest announced
from time to time by Chemical Bank (or its successors).
"Business" means the cigar manufacturing and distributing operations of
Caribbean Cigar Company (Cayman), Ltd.
"Buyer" has the meaning set forth in the preface above.
"Buyer Notes" has the meaning set forth in Section 2(b) below.
"Closing" has the meaning set forth in Section 2(c) below.
"Closing Date" has the meaning set forth in Section 2(c) below.
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"Code" where applicable in this Agreement means the Internal Revenue
Code of 1986, as amended.
"Company" has the meaning set forth in the preface above.
"Company Shares" means the shares of common stock, par value $.01 per
share, of the Company.
"Disclosure Schedule" has the meaning set forth in Section 4 below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan, or (d)
Employee Welfare Benefit Plan.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Income Tax" means any federal, state, local, or foreign income tax,
including any interest, penalty, or addition thereto, whether disputed or not.
"Income Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto.
"Indemnified Party" has the meaning set forth in Section 8(d) below.
"Indemnifying Party" has the meaning set forth in Section 8(d) below.
"Intellectual Property" has the meaning set forth in Section 4(i)
below.
"Knowledge" means actual knowledge without independent investigation.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice.
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof), or any other entity.
"Securities Act" means the Securities Act of 1933, as amended.
"SEC" means the Securities and Exchange Commission.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens on personal properties and liens securing rental payments
under capital lease arrangements for real or personal properties, and (d) other
2
<PAGE>
liens arising in the Ordinary Course of Business and not incurred in connection
with the borrowing of money.
"Sellers" has the meaning set forth in the preface above.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) directly or indirectly owns a majority of the
common stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors (or any partnership as to which
such Person has a similar ownership or voting interest).
"Third Party Claim" has the meaning set forth in Section 8(d) below.
Section 2. Purchase and Sale of Company Shares.
(a) Basic Transaction. On and subject to the terms and conditions of
this Agreement, Buyer agrees to purchase from Sellers, and Sellers agrees to
sell to Buyer, all of the outstanding Company Shares for the consideration
specified in Section 2(b).
(b) Purchase Price. At the Closing, Buyer shall pay to Sellers the
following as the purchase price for the Company Shares: (i) 650,000 shares of
common stock of the Buyer and (ii) a negotiable promissory note in the principal
amount of $100,000 payable by Buyer to Sellers in the form of Exhibit A hereto
(the "Buyer Notes"). The number of shares representing all the outstanding
shares of the Company being purchased and the allocation is as follows:
<TABLE>
<CAPTION>
Payment of Purchase Price
-------------------------
Note
Name # of Shares Being Sold Stock Amount
---- ---------------------- ----- ------
<S> <C> <C> <C>
Shady Dale
Investments, LLC 1,000 130,000 20,000
J. D. Jenkins 2,001 260,000 40,000
Ron Jenkins 2,000 260,000 40,000
---------- ------------- -------------
5,001 650,000 $ 100,000
========== ============= =============
</TABLE>
(c) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of the Company at
10:00 a.m. local time on September 30, 1999 (or, if later, the second business
day following the satisfaction or waiver of all conditions to the obligations of
the Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at the
Closing itself)) (the "Closing Date").
(d) Deliveries at the Closing. At the Closing, (i) Sellers will deliver
to Buyer the various instruments and documents referred to in Section 7(a)
below, (ii) Buyer will deliver to Sellers the various instruments and documents
referred to in Section 7(b) below (including the Buyer Notes), (iii) Sellers
will deliver to Buyer stock certificates representing all of the outstanding
Company Shares, endorsed in blank or accompanied by duly executed assignment
documents and (iv) Buyer will deliver to Sellers the consideration specified in
Section 2(b) above for the outstanding Company Shares.
3
<PAGE>
Section 3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of Sellers. Sellers as defined in
Section 1. Definitions, or individually as identified herein, as the case may
be, represent and warrant to Buyer that the statements contained in this Section
3(a) are true and correct as of the date of this Agreement.
(i) Organization. Shady Dale Investments, LLC is a limited
liability company, duly organized and validly existing under the laws of
Georgia.
ii) Authorization of Transaction. Shady Dale Investments, LLC
has full power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of Sellers, enforceable against them in accordance
with its terms. Sellers do not need to give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by this
Agreement.
(iii) Brokers' Fees. Neither the Sellers nor the Company have
any liability or obligation to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated by this Agreement
for which Buyer could become liable or obligated.
(iv) Company Shares. Sellers hold of record and own
beneficially all of the issued and outstanding Company Shares free and clear of
any restrictions on transfer (other than restrictions under the Securities Act
and state securities laws), taxes, security interests, options, warrants,
purchase rights, contracts, commitments, equities, claims, demands, liens,
claims, charges and encumbrances. Sellers are not party to any option, warrant,
purchase right, or other contract or commitment that could require them to sell,
transfer, or otherwise dispose of any capital stock of the Company. Sellers are
not party to any voting trust, proxy, or other agreement or understanding with
respect to the voting of any capital stock of the Company.
(v) Investment. Sellers are not acquiring their i-Commerce
Group Notes with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities Act.
(b) Representations and Warranties of Buyer. Buyer represents and
warrants to Sellers that the statements contained in this Section 3(b) are true
and correct as of the date of this Agreement.
(i) Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the Cayman Islands.
(ii) Authorization of Transaction. Buyer has the corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of Buyer, enforceable against it in accordance with its terms. Buyer
need not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(iii) Buyer Notes, etc. Buyer has the corporate power and
authority to execute, issue and deliver the Buyer Notes and to perform its
obligations thereunder. The Buyer Notes have been duly authorized and, when
executed, issued and delivered to Sellers, will constitute the valid and binding
4
<PAGE>
obligation of Buyer, enforceable against Buyer in accordance with its terms.
(iv) Noncontravention. The execution, delivery and performance
of this Agreement, the Buyer Notes, and the issuance of capital stock of Parent
will not (i) violate any statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which Buyer is subject or any provision of the charter or
bylaws of Buyer or (ii) result in a breach of, constitute a default under,
result in the acceleration or termination of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice or consent
(other than notices previously given or consents previously obtained) under any
agreement, contract, lease, license, instrument, or other arrangement to which
Buyer is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets). The issuance of capital stock of Parent will not breach or conflict
with any preemptive, first refusal or similar rights of any holder of Buyer's
securities.
(v) No Material Adverse Change. Since January 1, 1999, there
has not been any material adverse change in the business or financial condition
of the Buyer.
(vi) Brokers' Fees. Neither Buyer nor any of its Affiliates
have any liability or obligation to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated by this Agreement
for which Sellers or any of its Affiliates could become liable or obligated.
(vii) Investment. Buyer is not acquiring the Company Shares
with a view to or for sale in connection with any distribution thereof within
the meaning of the Securities Act.
Section 4. Representations and Warranties Concerning the Company.
Sellers represent and warrant to Buyer that the statements contained in this
Section 4 are true and correct as of the date of this Agreement.
(a) Organization, Qualification, and Corporate Power. The Company is
duly organized, validly existing, and in good standing under the laws of the
jurisdiction of its organization. The Company is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required, except where the lack of such qualification or good
standing would not materially interfere with the ability of the Company and its
Subsidiaries to conduct business or have a material adverse effect on the
Company. The Company has full corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it.
(b) Capitalization. The entire authorized capital stock of the Company
consists of 50,000 shares of common stock, par value $.01 per share, of which
5,001 shares are issued and outstanding. All of the issued and outstanding
Company Shares have been duly authorized, are validly issued, fully paid, and
nonassessable, and are held of record by Sellers. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
the Company to issue, sell, or otherwise cause to become outstanding any
additional shares of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights
issued by the Company (or with respect to which the Company could be required to
make payments or issue any capital stock).
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(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Company is subject or any provision of the charter or bylaws
of the Company or (ii) result in a breach of, constitute a default under, result
in the acceleration or termination in accordance with its terms of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Company is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets), except where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation, failure to give
notice, or Security Interest would not have a material adverse effect on the
Company or on the ability of the Parties to consummate the transactions
contemplated by this Agreement. The Company does not need to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(d) Brokers' Fees. The Company has no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(e) Title to Personal Properties. The Company has good and marketable
title to, or a valid and effective right to use, all of their respective
personal properties, including all personal properties reflected on the Latest
Balance Sheet or acquired since the date of the Latest Balance Sheet (except
property disposed of subsequent to that date in the Ordinary Course of Business
and except other immaterial items). Such assets and properties are not subject
to any mortgage, pledge, lien, claim, encumbrance, charge, security interest or
title retention or other security arrangement except for liens for the payment
of federal, state and other taxes, the payment of which is neither delinquent
nor subject to penalties, and except for other liens and encumbrances incidental
to the conduct of the business of the Company and its Subsidiaries or the
ownership of their assets or properties which were not incurred in connection
with the borrowing of money or the obtaining of advances and which do not in the
aggregate materially detract from the value of the assets or properties of the
Company or materially impair the use thereof in the operation of the Business.
All leases pursuant to which the Company leases any substantial amount of
personal property are valid and effective in accordance with their respective
terms.
(f) Events Subsequent to June 30, 1999.
(i) Since June 30, 1999, the Company has not (A) taken any
material action outside the Ordinary Course of Business; (B) borrowed any money;
(C) become contingently liable for any borrowings of another Person (or
guaranteed or become contingently liable for the performance of contractual
obligations of another Person); (D) failed to use its reasonable efforts to
preserve its business organization intact, to keep available the services of its
employees and independent contractors, or to preserve its relationships with its
customers, suppliers and other Persons with which it deals; or (E) increased or
committed to increase the salary or compensation of any officer.
(ii) Since June 30, 1999, the Company has not engaged in any
material practice, taken any material action or entered into any material
transaction outside the Ordinary Course of Business (other than the transactions
contemplated by this Agreement). Without limiting the generality of the
foregoing, since that date:
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(A) there has been no change made or authorized in
the charter or bylaws of the Company;
(B) the Company has not issued, sold or otherwise
disposed of any of its capital stock, or granted any options, warrants or other
rights to purchase or obtain (including upon conversion, exchange or exercise)
any of its capital stock;
(C) the Company has not declared, set aside or paid
any dividend or made any distribution with respect to its capital stock (whether
in cash or in kind), or redeemed, purchased or otherwise acquired any of its
capital stock;
(D) the Company has not created, incurred, assumed or
guaranteed more than $100,000 in aggregate indebtedness for borrowed money and
capitalized lease obligations;
(E) the Company has not sold, leased, transferred or
assigned any material assets, tangible or intangible, outside the Ordinary
Course of Business;
(F) there has not been any material adverse change in
the financial condition, business, properties, assets or results of operations
of the Company (provided that no representation or warranty is made as to the
decline in the performance of the business experienced to date, the
circumstances or factors giving rise to such decline or any continuation of such
decline, circumstances or factors in the future, all of which risks are being
assumed by Buyer);
(G) there has not been any destruction, damage or
loss (whether or not covered by insurance) to the assets or properties of the
Company which materially affects or impairs the ability of the Company to
conduct its business;
(H) there has not been any mortgage or pledge of any
material amount of the assets or properties of the Company; and
(I) the Company has not committed to any of the
foregoing.
(g) Compliance with Law and Other Related Regulations. Except in the
case of environmental, franchise and labor matters (which are exclusively
covered by the representations and warranties contained in Sections 4(q), (x)
and (y), respectively):
(i) The Company is in compliance with applicable laws within
the jurisdiction of its incorporation and all other jurisdictions in which the
Company is doing business, except where failure to comply would not have a
material adverse effect on the Company.
(ii) Without limiting the foregoing, the Company has properly
filed all material reports, paid all fees and obtained all material licenses,
permits, certificates and authorizations needed or required for the conduct of
its business and the use of its assets and properties and the premises occupied
by it in connection therewith and is in compliance in all material respects with
all conditions, restrictions and provisions of all such material licenses,
permits, certificates and authorizations.
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(h) Intellectual Property.
(i) Section 4(i) of the Disclosure Schedule identifies the
following owned or used by any of the Company: (A) patents and pending patent
applications; (B) trademark, service mark and trade name registrations and
applications therefor; (C) copyright registrations and applications therefor;
and (D) licenses and similar agreements for the use of any intellectual property
(including, without limitation, patents, unpatented inventions and technology,
trademarks, service marks and trade names, copyrights and copyrightable works,
know-how and trade secrets, hereinafter collectively referred to as
"Intellectual Property") to which the Company is a party, either as licensee or
licensor (other than licenses for the use of commercially available computer
software and related documentation).
(ii) The Company owns and possess all right, title and
interest in and to, or have a valid and enforceable license to use, the
Intellectual Property necessary for the operation of the Business and no written
claim by any third party contesting the validity, enforceability, use or
ownership of any of the Intellectual Property has been made or, to the Knowledge
of Sellers, threatened in the last three years or is currently outstanding.
(i) Employee Benefits. The Company does not maintain any Employee
Benefit Plan for the benefit of its employees.
(j) Certain Business Relationships With the Company and its
Subsidiaries. Neither the Sellers or its Affiliates (excluding for this purpose
the Company) own any material asset, tangible or intangible, which is used in
the business of, or provides any material service to, the Company.
(k) Minute Books. The minute book of the Company accurately records all
material actions taken its shareholders and directors.
(l) Accuracy of Statements. Neither this Agreement nor the Disclosure
Schedule contains an untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading.
Section 5. Pre-Closing Covenants. The Parties agree as follows with
respect to the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use its reasonable efforts to
take all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 7 below).
(b) Notice of Developments.
(i) Sellers may elect at any time to notify Buyer in writing
of any development causing a breach of any of its representations and warranties
in Section 4 above. Unless Buyer has the right to terminate this Agreement
pursuant to Section 9(a)(ii) below by reason of the development and exercises
that right within the period of 10 business days referred to in Section 9(a)(ii)
below, the written notice pursuant to this Section 5(b)(i) will be deemed to
have amended the Disclosure Schedule, to have qualified the representations and
warranties contained in Section 4 above, and to have cured any misrepresentation
or breach of warranty that otherwise might have existed hereunder by reason of
the development, in each case to the extent of the disclosure contained in such
written notice.
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(ii) Each Party will give prompt written notice to the other
of any development causing a breach of any of its own representations and
warranties in Section 3 above. No disclosure by any Party pursuant to this
Section 5(b)(ii), however, shall be deemed to amend or supplement the Disclosure
Schedule or to prevent or cure any misrepresentation or breach of warranty.
(c) Exclusivity. The Sellers will not solicit, initiate, or encourage
the submission of any proposal or offer from any Person or enter into any
discussions, negotiations or agreements relating to the acquisition of all or
substantially all of the capital stock or assets of any of the Company and its
Subsidiaries (including any acquisition structured as a merger, consolidation,
or share exchange).
(d) Covenants of Sellers. Sellers agree that, unless Buyer otherwise
agrees in writing and except as set forth in the Disclosure Schedule, prior to
the Closing Date:
(i) Truth of Representations and Warranties. Sellers shall use
reasonable efforts to assure that the Company does not take any action which
would render untrue in any material respect any of the representations or
warranties of Sellers herein contained, and Sellers shall use reasonable efforts
to assure that the Company does not omit to take any action, the omission of
which would render untrue in any material respect any such representation or
warranty. If the Closing occurs, Buyer shall not have any right of action or
remedy against Sellers for breach of this Section 5(d)(i).
(ii) Preservation of Business. Sellers shall cause the Company
to use its reasonable efforts to (i) preserve intact the present business
organization of the Company, (ii) preserve the present goodwill and
relationships of the Company with all Persons having business dealings with the
Company, and (iii) preserve and maintain in force all material licenses,
registrations, franchises, patents, trademarks, copyrights, bonds and other
similar rights of the Company. Sellers shall cause the Company to refrain from
entering into any employment agreements with any of their officers or management
personnel which may not be cancelled without penalty upon notice not exceeding
90 days.
(iii) Ordinary Course. Sellers shall use reasonable efforts to
not cause or permit the Company to engage in any material practice, take any
material action, or enter into any material transaction outside the Ordinary
Course of Business. Sellers shall use reasonable efforts to cause the Company to
operate their businesses only in the usual, regular and Ordinary Course of
Business and to maintain all supplies and inventory at levels commensurate with
those customarily maintained by the Company in the Ordinary Course of Business.
Sellers shall use reasonable efforts to cause the Company to operate their
businesses in material compliance with their contractual obligations. Without
limiting the foregoing, Sellers shall use reasonable efforts to assure that the
Company does not (i) place a Security Interest on any property or assets, (ii)
except in the Ordinary Course of Business, incur any material obligation
(contingent or otherwise), or purchases or acquires, or transfers or conveys,
any material assets or properties or enters into any material transaction, or
(iii) acquire any stock or other equity interest in any corporation, trust or
other entity.
(iv) Books and Records. Sellers shall cause the Company to
maintain its books, accounts and records in the usual, regular and ordinary
manner, and on a basis consistent with prior years.
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(v) No Organizational Changes. Except as contemplated by this
Agreement, Sellers shall assure that the Company does not (i) amend its charter
or by-laws, (ii) make any change in its capital stock by reclassification,
subdivision, reorganization or otherwise, or (iii) merge or consolidate with any
other corporation, trust or entity or change the character of its business.
(vi) No Issuance of Shares, Options or Other Securities.
Sellers shall assure that the Company does not (i) issue any shares of capital
stock or (ii) grant any option, warrant or other right to purchase or to convert
any obligation into shares of capital stock.
(vii) Compensation. Sellers shall assure that the Company does
not (i) increase the compensation payable to any officer or to other management
personnel from the amount payable as of the date of this Agreement, except in
accordance with normal and customary practice, or (ii) introduce or change any
pension or profit sharing plan, or any other employee benefit arrangement,
except for insubstantial changes necessary to comply with the minimum
requirements of the Code or ERISA, or except as disclosed in the Disclosure
Schedule or as contemplated by this Agreement.
(viii) Dividends. Sellers shall assure that the Company does
not (i) declare, make or pay any dividend or other distribution with respect to
its capital stock or otherwise, (ii) purchase, redeem or otherwise acquire any
shares of its capital stock, or (iii) transfer, distribute or pay, directly or
indirectly, any assets or properties (other than money) to any shareholders of
the Company, except in each case as otherwise permitted in this Agreement.
(ix) Right of Inspection. Sellers shall cause the Company to
make available to Buyer and its representatives for inspection at all reasonable
times all of the assets, properties, facilities, records, agreements (including
all documents of any description evidencing any right or obligation of the
Company) and the consolidated financial statements of the Company and allow
Buyer and its representatives the right to make whatever copies of such
materials it requires, and Sellers shall cause the Company to permit Buyer and
its independent accountants to audit or make such audit tests respecting the
accounts of the Company as Buyer or its accountants consider appropriate.
(x) Entry Into Obligations. Sellers shall assure that the
Company does not (i) enter into any lease, contract, agreement or other
obligation with any Person other than contracts for the sale of products or
services and contracts for the purchase of supplies or services in the Ordinary
Course of Business (or, whether or not in the Ordinary Course of Business, which
involve obligations in excess of $10,000) or (ii) enter into any service
agreements, maintenance agreements, contracts or other arrangements relating to
the operation or maintenance of the Business other than in the Ordinary Course
of Business.
(xi) Confidentiality. Sellers shall assure that the Company
does not reveal, orally or in writing, to any Person, other than Buyer and its
representatives, any of the confidential business procedures or practices
followed by it in the conduct of its business or any other information of a
confidential nature.
(xii) Maintenance of Assets and Properties. Sellers shall use
reasonable efforts to cause the Company to keep the premises occupied by it and
all of the equipment and other tangible assets and personal property of the
Company and its Subsidiaries in substantially the same condition as on the date
of this Agreement. Sellers shall assure that the Company does not remove any
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personal property from the Business unless same are replaced with similar items
of at least equal quality prior to the Closing Date. Sellers shall assure that
the Company does not sell or permit to be sold or otherwise transferred or
disposed of any material item or group of items constituting personal property,
except items sold in the Ordinary Course of Business. Sellers shall assure that
the Company does not convey any ownership or leasehold interest in the Business.
(xiii) Satisfaction of Obligations and Liabilities. Sellers
shall use reasonable efforts to cause the Company to (i) pay or cause to be paid
all of the obligations and liabilities arising out of its business as they
mature, other than immaterial items disputed in good faith by Sellers or other
items disputed with the written approval of Buyer, (ii) maintain in all material
respects and perform in all material respects its obligations under all
agreements and contracts to which it is bound in a manner consistent with past
practice, and (iii) comply in all material respects with all requirements of
applicable laws within the jurisdiction of its incorporation and all other
jurisdictions in which the Company is doing business in a manner consistent with
past practice. Sellers shall cause the Company to pay or cause to be paid in
full when due all bills and invoices for labor, goods, materials, services and
utilities of any kind relating to the Business which were contracted for by the
Company or which were delivered to or performed on the Business other than
immaterial items disputed by Sellers or other items disputed with the written
approval of Buyer.
Section 6. Post-Closing Covenants. The Parties agree as follows with
respect to the period following the Closing.
(a) General. In case at any time after the Closing any further
reasonable action is necessary to carry out the purposes of this Agreement, each
of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party may
reasonably request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
Section 8 below).
(b) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving each of the other Parties shall cooperate with
such Party or its counsel in the defense or contest, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the defense or contest, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Section 8 below).
(c) Transition. The Sellers will not take any action that is designed
or intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Company from maintaining the same
business relationships after the Closing as it maintained with the Company prior
to the Closing.
(d) Prepayment of Buyer Notes. Buyer will use its reasonable efforts to
pay the outstanding Principal amount of the Buyer Notes plus all accrued and
unpaid interest thereon prior to maturity.
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Section 7. Conditions to Obligation to Close.
(a) Conditions to Obligation of Buyer. The obligation of Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties of Sellers herein
contained shall have been true and correct in all material respects when made
and, in addition, shall be true and correct in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date, except as affected by transactions contemplated hereby;
(ii) Sellers shall have in all material respects performed all
obligations and agreements and complied in all material respects with all their
covenants and conditions contained in this Agreement to be performed and
complied with by them or on or prior to the Closing Date;
(iii) there shall be no material adverse change in the
business, properties or financial condition of the Company (other than any
material adverse change resulting from or relating to (A) the decline in the
performance of the business experienced to date, the circumstances or factors
giving rise to such decline or any continuation of such decline, circumstances
or factors in the future or (B) any actions taken or announced by Buyer in
connection with the transactions contemplated by this Agreement or any reaction
of employees or business relations of the Company to the transactions
contemplated by this Agreement, all of which risks are being assumed by the
Buyer);
(iv) (A) no action or proceeding before any court or
governmental agency shall have been instituted or threatened which would enjoin,
restrain or prohibit (or which seeks substantial damages as a result of or in
connection with) the transactions contemplated by this Agreement and which would
in the reasonable judgment of Buyer make it inadvisable to consummate such
transactions and (B) no court order shall have been entered in any action or
proceeding instituted by any other Person which enjoins, restrains or prohibits
the consummation of the transactions contemplated by this Agreement;
(v) Buyer shall have received from counsel to Sellers an
opinion in form and substance as set forth in Exhibit B attached hereto,
addressed to Buyer, and dated as of the Closing Date;
(vi) Buyer shall have received from LLC a certificate signed
by the Chief Manager and Secretary and from the individual Sellers, dated the
date of the Closing Date, certifying that the closing conditions set forth in
Sections 7(a)(i), (ii) and (vii) are satisfied; and
(vii) all other documents required to be delivered by Sellers,
the Company or its Subsidiaries under this Agreement at or prior to the Closing
Date shall be delivered or shall be tendered by the Closing Date.
Buyer may waive any condition specified in this Section 7(a).
(b) Conditions to Obligation of Sellers. The obligation of Sellers to
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties of Buyer herein
contained shall have been true and correct in all material respects when made
and, in addition, shall be true and correct in all material respects on and as
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of the Closing Date with the same force and effect as though made on and as of
the Closing Date, except as affected by transactions contemplated hereby;
(ii) Buyer shall have in all material respects performed all
obligations and agreements and complied in all material respects with all their
covenants and conditions contained in this Agreement to be performed and
complied with by them on or prior to the Closing Date;
(iii) no action or proceeding before any court or governmental
agency shall have been instituted or threatened which would enjoin, restrain or
prohibit (or seeks substantial damages as a result of or in connection with) the
transactions contemplated by this Agreement and which would in the reasonable
judgment of Sellers make it inadvisable to consummate such transactions, and no
court order shall have been entered in any action or proceeding instituted by
any other Person which enjoins, restrains or prohibits the consummation of the
transactions contemplated by this Agreement;
(iv) Buyer shall have executed and delivered the Buyer Notes;
(v) Sellers shall have received from counsel to Buyer an
opinion in form and substance as set forth in Exhibit C attached hereto,
addressed to Sellers, and dated as of the Closing Date;
(vi) Sellers shall have received from Buyer a certificate of
the president and secretary of Buyer, dated as of the Closing Date, certifying
that the closing conditions set forth in Sections 7(b)(i), (ii), (iv), (v) and
(vii) are satisfied; and
(vii) all other documents required to be delivered by Buyer
under this Agreement at or prior to the Closing Date shall be delivered or shall
be tendered by the Closing Date.
Sellers may waive any condition specified in this Section 7(b).
Section 8. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. All of the
representations and warranties of the Parties contained in Sections 3 and 4
above shall survive the Closing hereunder and shall continue in full force and
effect for a period of one year thereafter.
(b) Indemnification Provisions for Benefit of Buyer.
(i) In the event that (A) the Sellers breach any
representation or warranty contained herein and (B) Buyer makes a written claim
for indemnification against Sellers with respect thereto within one year after
the Closing (which written claim shall specify in reasonable particulars the
basis of the breach being asserted and, to the extent then determinable, a
calculation of any Adverse Consequences which Buyer claims to suffer as a result
thereof), then the Sellers agree to indemnify Buyer from and against any Adverse
Consequences Buyer suffers which are proximately caused by the breach; provided,
however, that Sellers shall not have any obligation to indemnify Buyer from and
against any Adverse Consequences caused by the breach of any representation or
warranty of Sellers contained in Section 4 above unless and until Buyer has
suffered Adverse Consequences in excess of a $25,000 deductible per occurrence
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(after which point Sellers will be obligated only to indemnify Buyer from and
against further Adverse Consequences associated with the occurrence in
question).
(ii) Sellers shall indemnify Buyer and its Affiliates from and
against any Adverse Consequences which it suffers in connection with any action,
suit or proceeding brought by any franchisee of the Company or its Subsidiaries
if and to the extent that such action, suit or proceeding seeks relief in
respect of actions or omissions which occur prior to the Closing; provided that
(A) a $25,000 per occurrence deductible shall apply to indemnification claims
under this Section 8(b)(ii); (B) Sellers shall not be obligated to indemnify
Buyer or its Affiliates in respect of any actions or omissions of Buyer or its
Affiliates at any time before or after the Closing or any actions or omissions
of the Company or its Subsidiaries after the Closing; and (C) Sellers shall not
be obligated to indemnify Buyer or its Affiliates in respect of any actions,
suits or proceedings if and to the extent they relate to the identity, finances
or business strategy of Buyer or its Affiliates.
(iii) Any indemnification for Adverse Consequences suffered by
Buyer or its Affiliates shall first be paid by reducing pro rata the outstanding
principal amount of the Buyer Note; provided, however, that no such reduction
shall occur unless (A) Buyer has made its claim for indemnification in
accordance with this Section 8(b) and (B) Sellers has agreed to such claim or,
if Sellers does not so agree, Buyer has obtained a judgement in favor of Buyer
from a court of competent jurisdiction. Buyer and its Affiliates shall not be
entitled to payment in cash for any claim for indemnification unless and until
(C) the principal amount of the Buyer Note has been repaid and/or canceled in
full (or reduced to zero pursuant to this Section 8(b)(iii)) or (D) Sellers has
transferred the Buyer Notes to any Person.
(c) Indemnification Provisions for Benefit of Sellers.
(i) In the event (A) Buyer breaches any representation or
warranty contained in Section 3 above and (B) Sellers make a written claim for
indemnification against Buyer with respect thereto within one year after the
Closing (which written claim shall specify in reasonable particulars the basis
of the breach being asserted and, to the extent then determinable, a calculation
of any Adverse Consequences which Sellers claims to suffer as a result thereof),
then Buyer agrees to indemnify Sellers from and against any Adverse Consequences
Sellers suffers through and after the date of the claim for indemnification
proximately caused by the breach.
(ii) Except in the case of matters for which Buyer is entitled
to indemnification from Sellers under Section 8(b) above, in the event that
Sellers or any of LLC's Affiliates are named as a party to any action, suit or
proceeding arising from, relating to or in connection with any actions or
omissions of the Company (whether before or after the Closing Date), then Buyer
shall fully indemnify and hold harmless Sellers and any of LLC's Affiliates from
all Adverse Consequences in connection therewith.
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 8, then the Indemnified Party shall
promptly (and in any event within 5 business days after receiving notice of the
Third Party Claim) notify each Indemnifying Party thereof in writing; provided,
however, that failure to provide such notice on a timely basis shall not release
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the Indemnifying Party from any of its obligations under this Section 8 except
to the extent the Indemnifying Party is materially prejudiced by such failure.
(ii) The Indemnifying Party will have the right at any time to
assume and thereafter conduct the defense of the Third Party Claim with counsel
of its choice; provided, however, that the Indemnifying Party will not consent
to the entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified Party
(not to be unreasonably withheld or delayed) unless the judgment or proposed
settlement involves only the payment of money damages by the Indemnifying Party
and does not impose an injunction or other equitable relief upon the Indemnified
Party.
(iii) Unless and until the Indemnifying Party assumes the
defense of the Third Party Claim as provided in Section 8(d)(ii) above, the
Indemnified Party may defend against the Third Party Claim in any manner it
reasonably may deem appropriate.
(iv) In no event will the Indemnified Party consent to the
entry of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of each of the Indemnifying
Parties (not to be unreasonably withheld or delayed).
(v) In the event that any Party suffers damage or loss in
respect of which it has or makes a valid claim against another Party for
indemnification, it must take reasonable steps to mitigate its loss or damage.
Section 9. Termination.
(a) Termination of Agreement. This Agreement may be terminated as
provided below:
(i) Buyer and Sellers may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) Buyer may terminate this Agreement by giving written
notice to Sellers at any time prior to the Closing in the event that (A) Sellers
have within the previous 10 business days given the Buyer any notice pursuant to
Section 5(b)(i) above and (B) the development that is the subject of the notice
(taken together with developments which were the subject of any previous notices
pursuant to Section 5(b)(i)) has had a material adverse effect upon the Company
and its Subsidiaries taken as a whole (other than any material adverse effect
resulting from or relating to (1) the decline in the performance of the business
(including but not limited to the decline in comparable store sales) experienced
to date, the circumstances or factors giving rise to such decline or any
continuation of such decline, circumstances or factors in the future, (2) any
pending or threatened litigation by or on behalf of franchisees or (3) any
actions taken or announced by Buyer in connection with the transactions
contemplated by this Agreement or any reaction of employees or business
relations of the Company or its Subsidiaries to the transactions contemplated by
this Agreement, all of which risks are being assumed by the Buyer);
(iii) Buyer may terminate this Agreement by giving written
notice to Sellers at any time prior to the Closing (A) in the event that (1)
Sellers have breached any representation, warranty or covenant contained in this
Agreement, (2) such breach would have a material adverse effect on the Company
and its Subsidiaries taken as a whole, (3) Buyer has notified Sellers in writing
of such breach and (4) such breach has continued without cure for a period of 30
15
<PAGE>
days after the notice of breach or (B) if the Closing shall not have occurred on
or before October 31, 1999 by reason of the failure of any condition precedent
under Section 7(a) hereof (unless the failure results primarily from Buyer
breaching any representation, warranty or covenant contained in this Agreement);
and
(iv) Sellers may terminate this Agreement by giving written
notice to Buyer at any time prior to the Closing (A) in the event that (1) Buyer
has breached any representation, warranty or covenant contained in this
Agreement, (2) such breach would have a material adverse effect on Buyer, (3)
Sellers has notified Buyer in writing of such breach, and (4) such breach has
continued without cure for a period of 30 days after the notice of breach or (B)
if the Closing shall not have occurred on or before October 31, 1999 by reason
of the failure of any condition precedent under Section 7(b) hereof (unless the
failure results primarily from Sellers breaching any representation, warranty or
covenant contained in this Agreement).
(b) Effect of Termination. If either Party terminates this Agreement
pursuant to Section 9(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party which has committed a willful breach
hereof or any Party which fails to consummate the Closing notwithstanding the
fact that (1) all of the conditions running in its favor under Section 7 hereof
have been satisfied and (2) all of the conditions running in the favor of the
other Party under Section 7 have been satisfied or waived); provided, however,
that the Confidentiality Agreement shall survive termination.
Section 10. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
other Party; provided, however, that either Party may make any public disclosure
it believes in good faith is required by applicable law, the regulations of the
SEC, or any listing or trading agreement concerning its publicly-traded
securities (in which case the disclosing Party will use its reasonable efforts
to consult the other Party prior to making the disclosure).
(b) No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the exhibits and
schedules hereto referred to herein) constitutes the entire agreement between
the Parties and supersedes any prior understandings, agreements, or
representations by or between the Parties, written or oral, to the extent they
related in any way to the subject matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns and heirs. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Party; provided, however, that any Party may (i) assign
any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the assigning Party
nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
16
<PAGE>
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The Section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then five
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
<TABLE>
<CAPTION>
<S> <C> <C>
If to Sellers: Copy to:
J. D. Jenkins
913 Glensprings Drive
Knoxville, TN 37922
Ron Jenkins
5000 Cloverhill Lane
Knoxville, TN 37922
Shady Dale Investments, LLC. Morris, Manning & Martin
2239 Goode Rd. 3343 Peachtree Rd., N.E.
Conyers, GA 30094 1600 Atlanta Financial Center
Attn: President Atlanta, GA 30326
Attn: Oby T. Brewer, Esq.
If to Buyer: Copy to:
iCommerce Group, Inc. Stone & Hinds, PC
6312 Baum Drive 700 First American Center
Knoxville, TN 37919 507 Gay Street, S.W.
Knoxville, TN 37902
Attn: Maurice W. Gerard
</TABLE>
Either Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Tennessee without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Tennessee or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Tennessee.
17
<PAGE>
(i) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by duly
authorized representatives of Buyer and Sellers. No waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any such prior or subsequent
occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation or in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(k) Expenses. Each of Buyer and Sellers will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
(m) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(n) Confidentiality. Following the Closing, Sellers and its Affiliates
shall maintain the confidentiality of all nonpublic information concerning the
Company and its Subsidiaries; provided that Sellers and its Affiliates shall be
entitled to use and/or disclose relevant portions of such information for tax,
accounting and financial reporting purposes and in connection with the
enforcement of their rights under this Agreement.
18
<PAGE>
* * * * * *
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
iCOMMERCE GROUP, INC.
By: _______________________________
Title:
J. D. JENKINS
By: _______________________________
An Individual
RON JENKINS
By: _______________________________
An Individual
SHADY DALE INVESTMENTS, LLC
By: _______________________________
Title:
19
STOCK PURCHASE AGREEMENT
BETWEEN
SHADY DALE INVESTMENTS, LLC.,
J. D. JENKINS AND RON JENKINS
AND
iCOMMERCE GROUP, INC.
AUGUST 1, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
Section 1. Definitions.................................................. 1
Section 2. Purchase and Sale of Company shares.......................... 3
(a) Basic Transaction............................................ 3
(b) Purchase Price............................................... 3
(c) The Closing ................................................. 3
(d) Deliveries at the Closing.................................... 3
Section 3. Representations and Warranties Concerning the Transaction.... 4
(a) Representations and Warranties of Sellers.................... 4
(b) Representations and Warranties of Buyer...................... 4
Section 4. Representations and Warranties Concerning the Company and its
Subsidiaries............................................... 5
(a) Organization, Qualification, and Corporate Power............. 5
(b) Capitalization............................................... 5
(c) Noncontravention............................................. 6
(d) Brokers' Fees................................................ 6
(e) Title to Personal Properties................................. 6
(f) Events Subsequent to June 30, 1999........................... 6
(g) Compliance with Law and Other Related Regulations............ 7
(h) Intellectual Property........................................ 8
(i) Employee Benefits............................................ 8
(j) Certain Business Relationships With the Company and its
Subsidiaries............................................... 8
(k) Minute Books................................................. 8
(l) Accuracy of Statements....................................... 8
Section 5. Pre-Closing Covenants........................................ 8
(a) General...................................................... 8
(b) Notice of Developments....................................... 8
(c) Exclusivity.................................................. 9
(d) Covenants of Sellers......................................... 9
Section 6. Post-Closing Covenants....................................... 11
(a) General...................................................... 11
(b) Litigation Support........................................... 11
(c) Transition................................................... 11
(d) Prepayment of Buyer Note..................................... 11
Section 7. Conditions to Obligation to Close............................ 12
(a) Conditions to Obligation of Buyer............................ 12
(b) Conditions to Obligation of Sellers.......................... 12
Section 8. Remedies for Breaches of This Agreement...................... 13
(a) Survival of Representations and Warranties................... 13
(b) Indemnification Provisions for Benefit of Buyer.............. 13
(c) Indemnification Provisions for Benefit of Sellers............ 14
(d) Matters Involving Third Parties.............................. 14
Section 9. Termination.................................................. 15
(a) Termination of Agreement..................................... 15
(b) Effect of Termination........................................ 16
i
<PAGE>
Section 10. Miscellaneous................................................ 16
(a) Press Releases and Public Announcements...................... 16
(b) No Third Party Beneficiaries................................. 16
(c) Entire Agreement............................................. 16
(d) Succession and Assignment.................................... 16
(e) Counterparts................................................. 17
(f) Headings..................................................... 17
(g) Notices..................................................... 17
(h) Governing Law............................................... 17
(i) Amendments and Waivers...................................... 18
(j) Severability................................................ 18
(k) Expenses.................................................... 18
(l) Construction................................................ 18
(m) Incorporation of Exhibits and Schedules..................... 18
(n) Confidentiality............................................. 18
</TABLE>
EXHIBITS
Exhibit A - Form of Buyer Note
ii
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT entered into as of August 1, 1999, by and between iCommerce
Group, Inc., a Delaware corporation ("Buyer"), and Shady Dale Investments, LLC.,
a Georgia Limited Liability Company ("LLC"), J. D. Jenkins and Ron Jenkins
(collectively, the "Sellers"). Buyer and Sellers are referred to herein at times
as the "Parties." Other capitalized terms used herein are defined in Section 1.
WHEREAS, Sellers own all of the outstanding capital stock of
Inversiones Calle Ocho, S.A., a Dominican Republic corporation (the "Company");
WHEREAS, the Company is engaged in the business of owning land and
buildings and operating a Free Trade Zone under the laws of the Dominican
Republic;
WHEREAS, subject to the terms and conditions set forth in this
Agreement, Buyer desires to purchase from Sellers, and Sellers desire to sell to
Buyer, all of the outstanding capital stock of the Company; and
WHEREAS, the purchase price for the capital stock of the Company will
consist of shares of common stock of the Buyer and promissory notes payable by
Buyer;
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows:
Section 1. Definitions.
"Adverse Consequences" means (i) all actions, suits, proceedings,
investigations, charges, complaints, claims, injunctions, judgments, orders,
decrees, rulings, damages, dues, penalties, fines, costs, reasonable amounts
paid in settlement, liabilities, obligations, taxes, liens, losses, expenses,
and fees, including court costs and reasonable attorneys' fees and expenses and
(ii) the amount of the loss, damage or expense (or decrease in the value of the
business of the Company) that is actually suffered or incurred by reason of a
breach of a representation or warranty or a covenant or agreement that would not
have been suffered or incurred if the representation or warranty or covenant or
agreement had not been breached.
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the first mentioned Person
within the meaning of the Securities Exchange Act.
"Applicable Rate" means the corporate base rate of interest announced
from time to time by Chemical Bank (or its successors).
"Business" means the Free Trade Zone operations of Inversiones Calle
Ocho, S.A.
"Buyer" has the meaning set forth in the preface above.
"Buyer Notes" has the meaning set forth in Section 2(b) below.
"Closing" has the meaning set forth in Section 2(c) below.
"Closing Date" has the meaning set forth in Section 2(c) below.
1
<PAGE>
"Code" where applicable in this Agreement means the Internal Revenue
Code of 1986, as amended.
"Company" has the meaning set forth in the preface above.
"Company Shares" means the shares of common stock, par value $.01 per
share, of the Company.
"Disclosure Schedule" has the meaning set forth in Section 4 below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan, or (d)
Employee Welfare Benefit Plan.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Income Tax" means any federal, state, local, or foreign income tax,
including any interest, penalty, or addition thereto, whether disputed or not.
"Income Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto.
"Indemnified Party" has the meaning set forth in Section 8(d) below.
"Indemnifying Party" has the meaning set forth in Section 8(d) below.
"Intellectual Property" has the meaning set forth in Section 4(i)
below.
"Knowledge" means actual knowledge without independent investigation.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice.
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof), or any other entity.
"Securities Act" means the Securities Act of 1933, as amended.
"SEC" means the Securities and Exchange Commission.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens on personal properties and liens securing rental payments
under capital lease arrangements for real or personal properties, and (d) other
2
<PAGE>
liens arising in the Ordinary Course of Business and not incurred in connection
with the borrowing of money.
"Sellers" has the meaning set forth in the preface above.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) directly or indirectly owns a majority of the
common stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors (or any partnership as to which
such Person has a similar ownership or voting interest).
"Third Party Claim" has the meaning set forth in Section 8(d) below.
Section 2. Purchase and Sale of Company Shares.
(a) Basic Transaction. On and subject to the terms and conditions of
this Agreement, Buyer agrees to purchase from Sellers, and Sellers agrees to
sell to Buyer, all of the outstanding Company Shares for the consideration
specified in Section 2(b).
(b) Purchase Price. At the Closing, Buyer shall pay to Sellers the
following as the purchase price for the Company Shares: (i) 49,500 shares of
common stock of the Buyer and (ii) a negotiable promissory note in the principal
amount of $125,000 payable by Buyer to Sellers in the form of Exhibit A hereto
(the "Buyer Notes"). The number of shares representing all the outstanding
shares of the Company being purchased and the allocation is as follows:
<TABLE>
<CAPTION>
Payment of Purchase Price
-------------------------
Note
Name # of Shares Being Sold Stock Amount
---- ---------------------- ----- ------
<S> <C> <C> <C>
Shady Dale
Investments, LLC 300 9,900 25,000
J. D. Jenkins 600 19,800 50,000
Ron Jenkins 600 19,800 50,000
---------- ------------- -------------
1,500 49,500 $ 125,000
========== ============= =============
</TABLE>
(c) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of the Company at
10:00 a.m. local time on September 30, 1999 (or, if later, the second business
day following the satisfaction or waiver of all conditions to the obligations of
the Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties will take at the
Closing itself)) (the "Closing Date").
(d) Deliveries at the Closing. At the Closing, (i) Sellers will deliver
to Buyer the various instruments and documents referred to in Section 7(a)
below, (ii) Buyer will deliver to Sellers the various instruments and documents
referred to in Section 7(b) below (including the Buyer Notes), (iii) Sellers
will deliver to Buyer stock certificates representing all of the outstanding
Company Shares, endorsed in blank or accompanied by duly executed assignment
documents and (iv) Buyer will deliver to Sellers the consideration specified in
Section 2(b) above for the outstanding Company Shares.
Section 3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of Sellers. Sellers as defined in
Section 1. Definitions, or individually as identified herein, as the case may
be, represent and warrant to Buyer that the statements contained in this Section
3
<PAGE>
3(a) are true and correct as of the date of this Agreement.
(i) Organization. Shady Dale Investments, LLC is a limited
liability company, duly organized and validly existing under the laws of
Georgia.
ii) Authorization of Transaction. Shady Dale Investments, LLC
has full power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of Sellers, enforceable against them in accordance
with its terms. Sellers do not need to give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by this
Agreement.
(iii) Brokers' Fees. Neither the Sellers nor the Company have
any liability or obligation to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated by this Agreement
for which Buyer could become liable or obligated.
(iv) Company Shares. Sellers hold of record and own
beneficially all of the issued and outstanding Company Shares free and clear of
any restrictions on transfer (other than restrictions under the Securities Act
and state securities laws), taxes, security interests, options, warrants,
purchase rights, contracts, commitments, equities, claims, demands, liens,
claims, charges and encumbrances. Sellers are not party to any option, warrant,
purchase right, or other contract or commitment that could require them to sell,
transfer, or otherwise dispose of any capital stock of the Company. Sellers are
not party to any voting trust, proxy, or other agreement or understanding with
respect to the voting of any capital stock of the Company.
(v) Investment. Sellers are not acquiring their i-Commerce
Group Notes with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities Act.
(b) Representations and Warranties of Buyer. Buyer represents and
warrants to Sellers that the statements contained in this Section 3(b) are true
and correct as of the date of this Agreement.
(i) Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the Cayman Islands.
(ii) Authorization of Transaction. Buyer has the corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of Buyer, enforceable against it in accordance with its terms. Buyer
need not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(iii) Buyer Notes, etc. Buyer has the corporate power and
authority to execute, issue and deliver the Buyer Notes and to perform its
obligations thereunder. The Buyer Notes have been duly authorized and, when
executed, issued and delivered to Sellers, will constitute the valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms.
(iv) Noncontravention. The execution, delivery and performance
of this Agreement, the Buyer Notes, and the issuance of capital stock of Parent
will not (i) violate any statute, regulation, rule, injunction, judgment, order,
4
<PAGE>
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which Buyer is subject or any provision of the charter or
bylaws of Buyer or (ii) result in a breach of, constitute a default under,
result in the acceleration or termination of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice or consent
(other than notices previously given or consents previously obtained) under any
agreement, contract, lease, license, instrument, or other arrangement to which
Buyer is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets). The issuance of capital stock of Parent will not breach or conflict
with any preemptive, first refusal or similar rights of any holder of Buyer's
securities.
(v) No Material Adverse Change. Since January 1, 1999, there
has not been any material adverse change in the business or financial condition
of the Buyer.
(vi) Brokers' Fees. Neither Buyer nor any of its Affiliates
have any liability or obligation to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated by this Agreement
for which Sellers or any of its Affiliates could become liable or obligated.
(vii) Investment. Buyer is not acquiring the Company Shares
with a view to or for sale in connection with any distribution thereof within
the meaning of the Securities Act.
Section 4. Representations and Warranties Concerning the Company.
Sellers represent and warrant to Buyer that the statements contained in this
Section 4 are true and correct as of the date of this Agreement.
(a) Organization, Qualification, and Corporate Power. The Company is
duly organized, validly existing, and in good standing under the laws of the
jurisdiction of its organization. The Company is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction where such
qualification is required, except where the lack of such qualification or good
standing would not materially interfere with the ability of the Company and its
Subsidiaries to conduct business or have a material adverse effect on the
Company. The Company has full corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it.
(b) Capitalization. The entire authorized capital stock of the Company
consists of 50,000 shares of common stock, par value $.01 per share, of which
1,500 shares are issued and outstanding. All of the issued and outstanding
Company Shares have been duly authorized, are validly issued, fully paid, and
nonassessable, and are held of record by Sellers. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
the Company to issue, sell, or otherwise cause to become outstanding any
additional shares of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights
issued by the Company (or with respect to which the Company could be required to
make payments or issue any capital stock).
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Company is subject or any provision of the charter or bylaws
5
<PAGE>
of the Company or (ii) result in a breach of, constitute a default under, result
in the acceleration or termination in accordance with its terms of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Company is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets), except where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation, failure to give
notice, or Security Interest would not have a material adverse effect on the
Company or on the ability of the Parties to consummate the transactions
contemplated by this Agreement. The Company does not need to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(d) Brokers' Fees. The Company has no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(e) Title to Personal Properties. The Company has good and marketable
title to, or a valid and effective right to use, all of their respective
personal properties, including all personal properties reflected on the Latest
Balance Sheet or acquired since the date of the Latest Balance Sheet (except
property disposed of subsequent to that date in the Ordinary Course of Business
and except other immaterial items). Such assets and properties are not subject
to any mortgage, pledge, lien, claim, encumbrance, charge, security interest or
title retention or other security arrangement except for liens for the payment
of federal, state and other taxes, the payment of which is neither delinquent
nor subject to penalties, and except for other liens and encumbrances incidental
to the conduct of the business of the Company and its Subsidiaries or the
ownership of their assets or properties which were not incurred in connection
with the borrowing of money or the obtaining of advances and which do not in the
aggregate materially detract from the value of the assets or properties of the
Company or materially impair the use thereof in the operation of the Business.
All leases pursuant to which the Company leases any substantial amount of
personal property are valid and effective in accordance with their respective
terms.
(f) Events Subsequent to June 30, 1999.
(i) Since June 30, 1999, the Company has not (A) taken any
material action outside the Ordinary Course of Business; (B) borrowed any money;
(C) become contingently liable for any borrowings of another Person (or
guaranteed or become contingently liable for the performance of contractual
obligations of another Person); (D) failed to use its reasonable efforts to
preserve its business organization intact, to keep available the services of its
employees and independent contractors, or to preserve its relationships with its
customers, suppliers and other Persons with which it deals; or (E) increased or
committed to increase the salary or compensation of any officer.
(ii) Since June 30, 1999, the Company has not engaged in any
material practice, taken any material action or entered into any material
transaction outside the Ordinary Course of Business (other than the transactions
contemplated by this Agreement). Without limiting the generality of the
foregoing, since that date:
(A) there has been no change made or authorized in
the charter or bylaws of the Company;
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(B) the Company has not issued, sold or otherwise
disposed of any of its capital stock, or granted any options, warrants or other
rights to purchase or obtain (including upon conversion, exchange or exercise)
any of its capital stock;
(C) the Company has not declared, set aside or paid
any dividend or made any distribution with respect to its capital stock (whether
in cash or in kind), or redeemed, purchased or otherwise acquired any of its
capital stock;
(D) the Company has not created, incurred, assumed or
guaranteed more than $100,000 in aggregate indebtedness for borrowed money and
capitalized lease obligations;
(E) the Company has not sold, leased, transferred or
assigned any material assets, tangible or intangible, outside the Ordinary
Course of Business;
(F) there has not been any material adverse change in
the financial condition, business, properties, assets or results of operations
of the Company (provided that no representation or warranty is made as to the
decline in the performance of the business experienced to date, the
circumstances or factors giving rise to such decline or any continuation of such
decline, circumstances or factors in the future, all of which risks are being
assumed by Buyer);
(G) there has not been any destruction, damage or
loss (whether or not covered by insurance) to the assets or properties of the
Company which materially affects or impairs the ability of the Company to
conduct its business;
(H) there has not been any mortgage or pledge of any
material amount of the assets or properties of the Company; and
(I) the Company has not committed to any of the
foregoing.
(g) Compliance with Law and Other Related Regulations. Except in the
case of environmental, franchise and labor matters (which are exclusively
covered by the representations and warranties contained in Sections 4(q), (x)
and (y), respectively):
(i) The Company is in compliance with applicable laws within
the jurisdiction of its incorporation and all other jurisdictions in which the
Company is doing business, except where failure to comply would not have a
material adverse effect on the Company.
(ii) Without limiting the foregoing, the Company has properly
filed all material reports, paid all fees and obtained all material licenses,
permits, certificates and authorizations needed or required for the conduct of
its business and the use of its assets and properties and the premises occupied
by it in connection therewith and is in compliance in all material respects with
all conditions, restrictions and provisions of all such material licenses,
permits, certificates and authorizations.
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(h) Intellectual Property.
(i) Section 4(i) of the Disclosure Schedule identifies the
following owned or used by any of the Company: (A) patents and pending patent
applications; (B) trademark, service mark and trade name registrations and
applications therefor; (C) copyright registrations and applications therefor;
and (D) licenses and similar agreements for the use of any intellectual property
(including, without limitation, patents, unpatented inventions and technology,
trademarks, service marks and trade names, copyrights and copyrightable works,
know-how and trade secrets, hereinafter collectively referred to as
"Intellectual Property") to which the Company is a party, either as licensee or
licensor (other than licenses for the use of commercially available computer
software and related documentation).
(ii) The Company owns and possess all right, title and
interest in and to, or have a valid and enforceable license to use, the
Intellectual Property necessary for the operation of the Business and no written
claim by any third party contesting the validity, enforceability, use or
ownership of any of the Intellectual Property has been made or, to the Knowledge
of Sellers, threatened in the last three years or is currently outstanding.
(i) Employee Benefits. The Company does not maintain any Employee
Benefit Plan for the benefit of its employees.
(j) Certain Business Relationships With the Company and its
Subsidiaries. Neither the Sellers or its Affiliates (excluding for this purpose
the Company) own any material asset, tangible or intangible, which is used in
the business of, or provides any material service to, the Company.
(k) Minute Books. The minute book of the Company accurately records all
material actions taken its shareholders and directors.
(l) Accuracy of Statements. Neither this Agreement nor the Disclosure
Schedule contains an untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading.
Section 5. Pre-Closing Covenants. The Parties agree as follows with
respect to the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use its reasonable efforts to
take all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 7 below).
(b) Notice of Developments.
(i) Sellers may elect at any time to notify Buyer in writing
of any development causing a breach of any of its representations and warranties
in Section 4 above. Unless Buyer has the right to terminate this Agreement
pursuant to Section 9(a)(ii) below by reason of the development and exercises
that right within the period of 10 business days referred to in Section 9(a)(ii)
below, the written notice pursuant to this Section 5(b)(i) will be deemed to
have amended the Disclosure Schedule, to have qualified the representations and
warranties contained in Section 4 above, and to have cured any misrepresentation
or breach of warranty that otherwise might have existed hereunder by reason of
the development, in each case to the extent of the disclosure contained in such
written notice.
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(ii) Each Party will give prompt written notice to the other
of any development causing a breach of any of its own representations and
warranties in Section 3 above. No disclosure by any Party pursuant to this
Section 5(b)(ii), however, shall be deemed to amend or supplement the Disclosure
Schedule or to prevent or cure any misrepresentation or breach of warranty.
(c) Exclusivity. The Sellers will not solicit, initiate, or encourage
the submission of any proposal or offer from any Person or enter into any
discussions, negotiations or agreements relating to the acquisition of all or
substantially all of the capital stock or assets of any of the Company and its
Subsidiaries (including any acquisition structured as a merger, consolidation,
or share exchange).
(d) Covenants of Sellers. Sellers agree that, unless Buyer otherwise
agrees in writing and except as set forth in the Disclosure Schedule, prior to
the Closing Date:
(i) Truth of Representations and Warranties. Sellers shall use
reasonable efforts to assure that the Company does not take any action which
would render untrue in any material respect any of the representations or
warranties of Sellers herein contained, and Sellers shall use reasonable efforts
to assure that the Company does not omit to take any action, the omission of
which would render untrue in any material respect any such representation or
warranty. If the Closing occurs, Buyer shall not have any right of action or
remedy against Sellers for breach of this Section 5(d)(i).
(ii) Preservation of Business. Sellers shall cause the Company
to use its reasonable efforts to (i) preserve intact the present business
organization of the Company, (ii) preserve the present goodwill and
relationships of the Company with all Persons having business dealings with the
Company, and (iii) preserve and maintain in force all material licenses,
registrations, franchises, patents, trademarks, copyrights, bonds and other
similar rights of the Company. Sellers shall cause the Company to refrain from
entering into any employment agreements with any of their officers or management
personnel which may not be cancelled without penalty upon notice not exceeding
90 days.
(iii) Ordinary Course. Sellers shall use reasonable efforts to
not cause or permit the Company to engage in any material practice, take any
material action, or enter into any material transaction outside the Ordinary
Course of Business. Sellers shall use reasonable efforts to cause the Company to
operate their businesses only in the usual, regular and Ordinary Course of
Business and to maintain all supplies and inventory at levels commensurate with
those customarily maintained by the Company in the Ordinary Course of Business.
Sellers shall use reasonable efforts to cause the Company to operate their
businesses in material compliance with their contractual obligations. Without
limiting the foregoing, Sellers shall use reasonable efforts to assure that the
Company does not (i) place a Security Interest on any property or assets, (ii)
except in the Ordinary Course of Business, incur any material obligation
(contingent or otherwise), or purchases or acquires, or transfers or conveys,
any material assets or properties or enters into any material transaction, or
(iii) acquire any stock or other equity interest in any corporation, trust or
other entity.
(iv) Books and Records. Sellers shall cause the Company to
maintain its books, accounts and records in the usual, regular and ordinary
manner, and on a basis consistent with prior years.
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(v) No Organizational Changes. Except as contemplated by this
Agreement, Sellers shall assure that the Company does not (i) amend its charter
or by-laws, (ii) make any change in its capital stock by reclassification,
subdivision, reorganization or otherwise, or (iii) merge or consolidate with any
other corporation, trust or entity or change the character of its business.
(vi) No Issuance of Shares, Options or Other Securities.
Sellers shall assure that the Company does not (i) issue any shares of capital
stock or (ii) grant any option, warrant or other right to purchase or to convert
any obligation into shares of capital stock.
(vii) Compensation. Sellers shall assure that the Company does
not (i) increase the compensation payable to any officer or to other management
personnel from the amount payable as of the date of this Agreement, except in
accordance with normal and customary practice, or (ii) introduce or change any
pension or profit sharing plan, or any other employee benefit arrangement,
except for insubstantial changes necessary to comply with the minimum
requirements of the Code or ERISA, or except as disclosed in the Disclosure
Schedule or as contemplated by this Agreement.
(viii) Dividends. Sellers shall assure that the Company does
not (i) declare, make or pay any dividend or other distribution with respect to
its capital stock or otherwise, (ii) purchase, redeem or otherwise acquire any
shares of its capital stock, or (iii) transfer, distribute or pay, directly or
indirectly, any assets or properties (other than money) to any shareholders of
the Company, except in each case as otherwise permitted in this Agreement.
(ix) Right of Inspection. Sellers shall cause the Company to
make available to Buyer and its representatives for inspection at all reasonable
times all of the assets, properties, facilities, records, agreements (including
all documents of any description evidencing any right or obligation of the
Company) and the consolidated financial statements of the Company and allow
Buyer and its representatives the right to make whatever copies of such
materials it requires, and Sellers shall cause the Company to permit Buyer and
its independent accountants to audit or make such audit tests respecting the
accounts of the Company as Buyer or its accountants consider appropriate.
(x) Entry Into Obligations. Sellers shall assure that the
Company does not (i) enter into any lease, contract, agreement or other
obligation with any Person other than contracts for the sale of products or
services and contracts for the purchase of supplies or services in the Ordinary
Course of Business (or, whether or not in the Ordinary Course of Business, which
involve obligations in excess of $10,000) or (ii) enter into any service
agreements, maintenance agreements, contracts or other arrangements relating to
the operation or maintenance of the Business other than in the Ordinary Course
of Business.
(xi) Confidentiality. Sellers shall assure that the Company
does not reveal, orally or in writing, to any Person, other than Buyer and its
representatives, any of the confidential business procedures or practices
followed by it in the conduct of its business or any other information of a
confidential nature.
(xii) Maintenance of Assets and Properties. Sellers shall use
reasonable efforts to cause the Company to keep the premises occupied by it and
all of the equipment and other tangible assets and personal property of the
Company and its Subsidiaries in substantially the same condition as on the date
of this Agreement. Sellers shall assure that the Company does not remove any
personal property from the Business unless same are replaced with similar items
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<PAGE>
of at least equal quality prior to the Closing Date. Sellers shall assure that
the Company does not sell or permit to be sold or otherwise transferred or
disposed of any material item or group of items constituting personal property,
except items sold in the Ordinary Course of Business. Sellers shall assure that
the Company does not convey any ownership or leasehold interest in the Business.
(xiii) Satisfaction of Obligations and Liabilities. Sellers
shall use reasonable efforts to cause the Company to (i) pay or cause to be paid
all of the obligations and liabilities arising out of its business as they
mature, other than immaterial items disputed in good faith by Sellers or other
items disputed with the written approval of Buyer, (ii) maintain in all material
respects and perform in all material respects its obligations under all
agreements and contracts to which it is bound in a manner consistent with past
practice, and (iii) comply in all material respects with all requirements of
applicable laws within the jurisdiction of its incorporation and all other
jurisdictions in which the Company is doing business in a manner consistent with
past practice. Sellers shall cause the Company to pay or cause to be paid in
full when due all bills and invoices for labor, goods, materials, services and
utilities of any kind relating to the Business which were contracted for by the
Company or which were delivered to or performed on the Business other than
immaterial items disputed by Sellers or other items disputed with the written
approval of Buyer.
Section 6. Post-Closing Covenants. The Parties agree as follows with
respect to the period following the Closing.
(a) General. In case at any time after the Closing any further
reasonable action is necessary to carry out the purposes of this Agreement, each
of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party may
reasonably request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
Section 8 below).
(b) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving each of the other Parties shall cooperate with
such Party or its counsel in the defense or contest, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the defense or contest, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Section 8 below).
(c) Transition. The Sellers will not take any action that is designed
or intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Company from maintaining the same
business relationships after the Closing as it maintained with the Company prior
to the Closing.
(d) Prepayment of Buyer Notes. Buyer will use its reasonable efforts to
pay the outstanding Principal amount of the Buyer Notes plus all accrued and
unpaid interest thereon prior to maturity.
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Section 7. Conditions to Obligation to Close.
(a) Conditions to Obligation of Buyer. The obligation of Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties of Sellers herein
contained shall have been true and correct in all material respects when made
and, in addition, shall be true and correct in all material respects on and as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date, except as affected by transactions contemplated hereby;
(ii) Sellers shall have in all material respects performed all
obligations and agreements and complied in all material respects with all their
covenants and conditions contained in this Agreement to be performed and
complied with by them or on or prior to the Closing Date;
(iii) there shall be no material adverse change in the
business, properties or financial condition of the Company (other than any
material adverse change resulting from or relating to (A) the decline in the
performance of the business experienced to date, the circumstances or factors
giving rise to such decline or any continuation of such decline, circumstances
or factors in the future or (B) any actions taken or announced by Buyer in
connection with the transactions contemplated by this Agreement or any reaction
of employees or business relations of the Company to the transactions
contemplated by this Agreement, all of which risks are being assumed by the
Buyer);
(iv) (A) no action or proceeding before any court or
governmental agency shall have been instituted or threatened which would enjoin,
restrain or prohibit (or which seeks substantial damages as a result of or in
connection with) the transactions contemplated by this Agreement and which would
in the reasonable judgment of Buyer make it inadvisable to consummate such
transactions and (B) no court order shall have been entered in any action or
proceeding instituted by any other Person which enjoins, restrains or prohibits
the consummation of the transactions contemplated by this Agreement;
(v) Buyer shall have received from counsel to Sellers an
opinion in form and substance as set forth in Exhibit B attached hereto,
addressed to Buyer, and dated as of the Closing Date;
(vi) Buyer shall have received from LLC a certificate signed
by the Chief Manager and Secretary and from the individual Sellers, dated the
date of the Closing Date, certifying that the closing conditions set forth in
Sections 7(a)(i), (ii) and (vii) are satisfied; and
(vii) all other documents required to be delivered by Sellers,
the Company or its Subsidiaries under this Agreement at or prior to the Closing
Date shall be delivered or shall be tendered by the Closing Date.
Buyer may waive any condition specified in this Section 7(a).
(b) Conditions to Obligation of Sellers. The obligation of Sellers to
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties of Buyer herein
contained shall have been true and correct in all material respects when made
and, in addition, shall be true and correct in all material respects on and as
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of the Closing Date with the same force and effect as though made on and as of
the Closing Date, except as affected by transactions contemplated hereby;
(ii) Buyer shall have in all material respects performed all
obligations and agreements and complied in all material respects with all their
covenants and conditions contained in this Agreement to be performed and
complied with by them on or prior to the Closing Date;
(iii) no action or proceeding before any court or governmental
agency shall have been instituted or threatened which would enjoin, restrain or
prohibit (or seeks substantial damages as a result of or in connection with) the
transactions contemplated by this Agreement and which would in the reasonable
judgment of Sellers make it inadvisable to consummate such transactions, and no
court order shall have been entered in any action or proceeding instituted by
any other Person which enjoins, restrains or prohibits the consummation of the
transactions contemplated by this Agreement;
(iv) Buyer shall have executed and delivered the Buyer Notes;
(v) Sellers shall have received from counsel to Buyer an
opinion in form and substance as set forth in Exhibit C attached hereto,
addressed to Sellers, and dated as of the Closing Date;
(vi) Sellers shall have received from Buyer a certificate of
the president and secretary of Buyer, dated as of the Closing Date, certifying
that the closing conditions set forth in Sections 7(b)(i), (ii), (iv), (v) and
(vii) are satisfied; and
(vii) all other documents required to be delivered by Buyer
under this Agreement at or prior to the Closing Date shall be delivered or shall
be tendered by the Closing Date.
Sellers may waive any condition specified in this Section 7(b).
Section 8. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. All of the
representations and warranties of the Parties contained in Sections 3 and 4
above shall survive the Closing hereunder and shall continue in full force and
effect for a period of one year thereafter.
(b) Indemnification Provisions for Benefit of Buyer.
(i) In the event that (A) the Sellers breach any
representation or warranty contained herein and (B) Buyer makes a written claim
for indemnification against Sellers with respect thereto within one year after
the Closing (which written claim shall specify in reasonable particulars the
basis of the breach being asserted and, to the extent then determinable, a
calculation of any Adverse Consequences which Buyer claims to suffer as a result
thereof), then the Sellers agree to indemnify Buyer from and against any Adverse
Consequences Buyer suffers which are proximately caused by the breach; provided,
however, that Sellers shall not have any obligation to indemnify Buyer from and
against any Adverse Consequences caused by the breach of any representation or
warranty of Sellers contained in Section 4 above unless and until Buyer has
suffered Adverse Consequences in excess of a $25,000 deductible per occurrence
(after which point Sellers will be obligated only to indemnify Buyer from and
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against further Adverse Consequences associated with the occurrence in
question).
(ii) Sellers shall indemnify Buyer and its Affiliates from and
against any Adverse Consequences which it suffers in connection with any action,
suit or proceeding brought by any franchisee of the Company or its Subsidiaries
if and to the extent that such action, suit or proceeding seeks relief in
respect of actions or omissions which occur prior to the Closing; provided that
(A) a $25,000 per occurrence deductible shall apply to indemnification claims
under this Section 8(b)(ii); (B) Sellers shall not be obligated to indemnify
Buyer or its Affiliates in respect of any actions or omissions of Buyer or its
Affiliates at any time before or after the Closing or any actions or omissions
of the Company or its Subsidiaries after the Closing; and (C) Sellers shall not
be obligated to indemnify Buyer or its Affiliates in respect of any actions,
suits or proceedings if and to the extent they relate to the identity, finances
or business strategy of Buyer or its Affiliates.
(iii) Any indemnification for Adverse Consequences suffered by
Buyer or its Affiliates shall first be paid by reducing pro rata the outstanding
principal amount of the Buyer Note; provided, however, that no such reduction
shall occur unless (A) Buyer has made its claim for indemnification in
accordance with this Section 8(b) and (B) Sellers has agreed to such claim or,
if Sellers does not so agree, Buyer has obtained a judgement in favor of Buyer
from a court of competent jurisdiction. Buyer and its Affiliates shall not be
entitled to payment in cash for any claim for indemnification unless and until
(C) the principal amount of the Buyer Note has been repaid and/or canceled in
full (or reduced to zero pursuant to this Section 8(b)(iii)) or (D) Sellers has
transferred the Buyer Notes to any Person.
(c) Indemnification Provisions for Benefit of Sellers.
(i) In the event (A) Buyer breaches any representation or
warranty contained in Section 3 above and (B) Sellers make a written claim for
indemnification against Buyer with respect thereto within one year after the
Closing (which written claim shall specify in reasonable particulars the basis
of the breach being asserted and, to the extent then determinable, a calculation
of any Adverse Consequences which Sellers claims to suffer as a result thereof),
then Buyer agrees to indemnify Sellers from and against any Adverse Consequences
Sellers suffers through and after the date of the claim for indemnification
proximately caused by the breach.
(ii) Except in the case of matters for which Buyer is entitled
to indemnification from Sellers under Section 8(b) above, in the event that
Sellers or any of LLC's Affiliates are named as a party to any action, suit or
proceeding arising from, relating to or in connection with any actions or
omissions of the Company (whether before or after the Closing Date), then Buyer
shall fully indemnify and hold harmless Sellers and any of LLC's Affiliates from
all Adverse Consequences in connection therewith.
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 8, then the Indemnified Party shall
promptly (and in any event within 5 business days after receiving notice of the
Third Party Claim) notify each Indemnifying Party thereof in writing; provided,
however, that failure to provide such notice on a timely basis shall not release
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the Indemnifying Party from any of its obligations under this Section 8 except
to the extent the Indemnifying Party is materially prejudiced by such failure.
(ii) The Indemnifying Party will have the right at any time to
assume and thereafter conduct the defense of the Third Party Claim with counsel
of its choice; provided, however, that the Indemnifying Party will not consent
to the entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified Party
(not to be unreasonably withheld or delayed) unless the judgment or proposed
settlement involves only the payment of money damages by the Indemnifying Party
and does not impose an injunction or other equitable relief upon the Indemnified
Party.
(iii) Unless and until the Indemnifying Party assumes the
defense of the Third Party Claim as provided in Section 8(d)(ii) above, the
Indemnified Party may defend against the Third Party Claim in any manner it
reasonably may deem appropriate.
(iv) In no event will the Indemnified Party consent to the
entry of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of each of the Indemnifying
Parties (not to be unreasonably withheld or delayed).
(v) In the event that any Party suffers damage or loss in
respect of which it has or makes a valid claim against another Party for
indemnification, it must take reasonable steps to mitigate its loss or damage.
Section 9. Termination.
(a) Termination of Agreement. This Agreement may be terminated as
provided below:
(i) Buyer and Sellers may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) Buyer may terminate this Agreement by giving written
notice to Sellers at any time prior to the Closing in the event that (A) Sellers
have within the previous 10 business days given the Buyer any notice pursuant to
Section 5(b)(i) above and (B) the development that is the subject of the notice
(taken together with developments which were the subject of any previous notices
pursuant to Section 5(b)(i)) has had a material adverse effect upon the Company
and its Subsidiaries taken as a whole (other than any material adverse effect
resulting from or relating to (1) the decline in the performance of the business
(including but not limited to the decline in comparable store sales) experienced
to date, the circumstances or factors giving rise to such decline or any
continuation of such decline, circumstances or factors in the future, (2) any
pending or threatened litigation by or on behalf of franchisees or (3) any
actions taken or announced by Buyer in connection with the transactions
contemplated by this Agreement or any reaction of employees or business
relations of the Company or its Subsidiaries to the transactions contemplated by
this Agreement, all of which risks are being assumed by the Buyer);
(iii) Buyer may terminate this Agreement by giving written
notice to Sellers at any time prior to the Closing (A) in the event that (1)
Sellers have breached any representation, warranty or covenant contained in this
Agreement, (2) such breach would have a material adverse effect on the Company
and its Subsidiaries taken as a whole, (3) Buyer has notified Sellers in writing
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of such breach and (4) such breach has continued without cure for a period of 30
days after the notice of breach or (B) if the Closing shall not have occurred on
or before October 31, 1999 by reason of the failure of any condition precedent
under Section 7(a) hereof (unless the failure results primarily from Buyer
breaching any representation, warranty or covenant contained in this Agreement);
and
(iv) Sellers may terminate this Agreement by giving written
notice to Buyer at any time prior to the Closing (A) in the event that (1) Buyer
has breached any representation, warranty or covenant contained in this
Agreement, (2) such breach would have a material adverse effect on Buyer, (3)
Sellers has notified Buyer in writing of such breach, and (4) such breach has
continued without cure for a period of 30 days after the notice of breach or (B)
if the Closing shall not have occurred on or before October 31, 1999 by reason
of the failure of any condition precedent under Section 7(b) hereof (unless the
failure results primarily from Sellers breaching any representation, warranty or
covenant contained in this Agreement).
(b) Effect of Termination. If either Party terminates this Agreement
pursuant to Section 9(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party which has committed a willful breach
hereof or any Party which fails to consummate the Closing notwithstanding the
fact that (1) all of the conditions running in its favor under Section 7 hereof
have been satisfied and (2) all of the conditions running in the favor of the
other Party under Section 7 have been satisfied or waived); provided, however,
that the Confidentiality Agreement shall survive termination.
Section 10. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
other Party; provided, however, that either Party may make any public disclosure
it believes in good faith is required by applicable law, the regulations of the
SEC, or any listing or trading agreement concerning its publicly-traded
securities (in which case the disclosing Party will use its reasonable efforts
to consult the other Party prior to making the disclosure).
(b) No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the exhibits and
schedules hereto referred to herein) constitutes the entire agreement between
the Parties and supersedes any prior understandings, agreements, or
representations by or between the Parties, written or oral, to the extent they
related in any way to the subject matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns and heirs. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Party; provided, however, that any Party may (i) assign
any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the assigning Party
nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
16
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(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The Section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then five
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
<TABLE>
<CAPTION>
<S> <C> <C>
If to Sellers: Copy to:
J. D. Jenkins
913 Glensprings Drive
Knoxville, TN 37922
Ron Jenkins
5000 Cloverhill Lane
Knoxville, TN 37922
Shady Dale Investments, LLC. Morris, Manning & Martin
2239 Goode Rd. 3343 Peachtree Rd., N.E.
Conyers, GA 30094 1600 Atlanta Financial Center
Attn: President Atlanta, GA 30326
Attn: Oby T. Brewer, Esq.
If to Buyer: Copy to:
iCommerce Group, Inc. Stone & Hinds, PC
6312 Baum Drive 700 First American Center
Knoxville, TN 37919 507 Gay Street, S.W.
Knoxville, TN 37902
Attn: Maurice W. Gerard
</TABLE>
Either Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Tennessee without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Tennessee or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Tennessee.
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<PAGE>
(i) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by duly
authorized representatives of Buyer and Sellers. No waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any such prior or subsequent
occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation or in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(k) Expenses. Each of Buyer and Sellers will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
(m) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(n) Confidentiality. Following the Closing, Sellers and its Affiliates
shall maintain the confidentiality of all nonpublic information concerning the
Company and its Subsidiaries; provided that Sellers and its Affiliates shall be
entitled to use and/or disclose relevant portions of such information for tax,
accounting and financial reporting purposes and in connection with the
enforcement of their rights under this Agreement.
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<PAGE>
* * * * * *
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
iCOMMERCE GROUP, INC.
By: _______________________________
Title:
J. D. JENKINS
By: _______________________________
An Individual
RON JENKINS
By: _______________________________
An Individual
SHADY DALE INVESTMENTS, LLC
By: _______________________________
Title:
19
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of August 7,
1998 (the "Execution Date"), by and among SJI GROUP, INC., a Florida corporation
("SJI") and ISLEUTH. COM, INC., a Florida corporation (the "Company or
"Isleuth").
PRELIMINARY STATEMENTS
----------------------
1. SJI owns one hundred percent (100%) of MAVERICK COMMUNICATIONS
CORP., a Florida corporation ("MAVERICK") and accordingly, the contemplated
transaction will inure to their direct benefit.
2. MAVERICK owns the rights to acquire the Internet Sleuth, which is a
search engine on the Internet.
3. SJI is desirous of selling its stock of MAVERICK in exchange for the
Company's payment to SJI of the Purchase Price (as defined below).
AGREEMENT
---------
In consideration of the respective representations, warranties,
agreements and covenants in this Agreement and subject to the conditions
contained in this Agreement, the parties, intending to be legally bound, agree
as follows:
ARTICLE I
Transfer and Assignment of MAVERICK's Stock
-------------------------------------------
Section 1.1 Sale and Purchase of Stock. On the terms and subject to the
conditions set forth in this Agreement, SJI hereby agrees to sell, assign and
transfer to the Company and the Company agrees to purchase from SJI, on the
Closing Date (as hereinafter defined), all of the issued and outstanding shares
of common stock of MAVERICK, all of which are owned by SJI ("Shares"). At
Closing, SJI shall deliver the Shares to Isleuth, which certificates shall be
duly endorsed in blank by SJI, or, in lieu thereof, shall have affixed thereto
a stock power executed in blank and in proper form for transfer. The Shares
shall be free and clear of any encumbrances.
<PAGE>
ARTICLE II
Purchase Price for the Shares.
------------------------------
Upon the terms and subject to the conditions of this Agreement, the
parties agree that the purchase price for SJI's Shares, which shall be payable
as follows: The Company shall issue 1,500,000 shares of its Common Stock to SJI.
Said Common Stock shall be Rule 144 Stock. All provisions of Rule 144 shall be
applicable. Said 1,500,000 shares of Common Stock shall not be affected by the
Company's Reverse Stock Split. The Company shall also issue 1,000,000 shares of
Preferred Stock to SJI. The transaction shall be considered a tax free exchange
of shares and the parties hereto agree to use their best efforts to accomplish a
tax free exchange.
ARTICLE III
Closing
-------
Section 3.1 Time and Place of the Closing. The closing of the
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Glassberg & Glassberg, P.A., 1570 Madruga Avenue, Suite 211,
Coral Gables, Florida 33146, commencing at 5:00 p.m. on August 7, 1998 herein or
such other date as the parties may mutually determine (the "Closing Date"). The
parties mutually agree that the Closing may occur by telefax.
Section 3.2 Procedures at the Closing. At the Closing, the parties are
taking the following steps in the order listed below (provided, however, that
upon their completion all of these steps shall be deemed to have occurred
simultaneously) which item shall be required as a condition to Closing:
(a) SJI shall duly execute and deliver the Shares and endorsed to
the Company;
(b) SJI shall execute and deliver resolutions adopted by the
Board of Directors and the Shareholders of SJI approving the transactions
contemplated by this Agreement, certified by the corporate secretary of SJI;
(c) The Company shall deliver resolutions adopted by the Board of
Directors of the Company approving the transactions contemplated by this
Agreement, certified by the corporate secretary of the Company;
2
<PAGE>
ARTICLE IV
Representations and Warranties of SJI
-------------------------------------
In order to induce the Company to enter into this Agreement and
to consummate the transactions contemplated under this Agreement, SJI makes the
following representations and warranties to the Company:
Section 4.l Organization. Power and Authority of the Company. SJI
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Florida.
Section 4.2 Due Authorization: Binding Obligation. SJI has the
requisite corporate power and authority to enter into this Agreement and all
documents described within this Agreement to be executed in connection with this
Agreement (collectively, the "Related Documents") to which it is or is to be a
party, and to consummate the contemplated transactions.
Section 4.3 Ownership of MAVERICK. SJI is the sole record and
beneficial owner of all outstanding shares of MAVERICK's stock, and SJI has good
and marketable title to all of the Shares, free and clear of all Liens, claims
of others, charges, security interests, proxies, voting trusts or other
agreements or other encumbrances whatsoever.
Section 4.4 No Undisclosed Liabilities. SJI and MAVERICK have no
material liabilities nor obligations (whether secured, unsecured, absolute,
accrued, asserted or unasserted, contingent or otherwise) of any nature, whether
as principal, agent, partner, coventurer, guarantor or in any other capacity as
they relate to SJI's shares in Maverick.
Section 4.5 Licenses: Compliance. MAVERICK possesses all licenses
and other required governmental or official approvals, permits, consents and
authorizations with respect to its business, the failure of which to possess
would, individually or in the aggregate, have an adverse effect on the business,
financial condition, operations, prospects or results of operations of MAVERICK.
Section 4.6 Litigation, Investigations, Orders and Decrees. There
are no actions, suits, claims, governmental investigations or arbitration
proceedings pending or, to the best of MAVERICK's knowledge, threatened against
or affecting MAVERICK's business, assets, prospects or financial condition that
may have an adverse effect on the Shares, and to the best of SJI's knowledge,
there are
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<PAGE>
no facts or circumstances which are reasonably likely to create a basis for any
of the foregoing. There are no outstanding orders, decrees or stipulations
issued by any local, state or federal judicial authority in any proceeding to
which MAVERICK is or was a party which may have an adverse effect on MAVERICK.
Section 4.7 Prorietary Rights. Excluding the option to purchase the
Internet Sleuth, all trademark, trademark application, trade name, assumed name,
service mark, logo, patent, patent application, copyright, copyright
registration, know-how, trade secret or other intellectual property rights
("Proprietary Rights") used in or necessary for the conduct of MAVERICK's
business and operations do not conflict with or infringe any similar rights or
services of any other person. No claims have been asserted by any person or
entity with respect to the ownership, validity, license or use of the
Proprietary Rights or the provision of any services by MAVERICK and there is no
basis for any such claim. All Proprietary Rights, to the extent applicable, of
MAVERICK are subsisting and have not been abandoned. None of the Proprietary
Rights is the subject of any outstanding assignments, grants, Liens, licenses,
obligations or agreements, whether written, oral or implied. All required
annuities, renewal fees, maintenance fees, royalty payments, amendments and/or
other filings or payments which are necessary to preserve and maintain the
Proprietary Rights have been filed and/or made.
Section 4.8 Tax Matters. MAVERICK has filed all federal, state, local
and foreign tax returns required to be filed as of the Closing Date and has paid
or caused to be paid all federal, state, local, foreign and other taxes,
including without limitation income taxes, estimated taxes, excise taxes, sales
taxes, use taxes, gross receipts taxes, franchise taxes, employment and
payroll-related taxes, withholding taxes, transfer taxes and property taxes,
whether or not measured in whole or in part by net income (collectively,
"Taxes"), required to be paid by it as of the Closing Date whether disputed or
not, except Taxes which have not yet accrued or otherwise become due, for which
adequate provision has been made. All taxes and other assessments and levies
which MAVERICK is required to withhold or collect have been withheld and
collected and have been paid over to the proper governmental authorities.
Neither the Internal Revenue Service ("IRS") nor any other governmental
authority is now asserting or, to the best knowledge of MAVERICK, threatening to
assert against SJI any deficiency or claim for additional Taxes.
4
<PAGE>
ARTICLE V
Representations and Warranties of the Company
---------------------------------------------
In order to induce SJI to enter into this Agreement and to consummate
the transactions contemplated under this Agreement, the Company make the
following representations and warranties to SJI:
Section 5.1 Organization. Power and Authority. The Company is a
corporation duly organized and validly existing under the laws of the State of
Florida, with full corporate power and authority to enter into this Agreement
and perform its obligations under this Agreement.
Section 5.2 Due Authorization; Binding Obligation. The execution,
delivery and performance of this Agreement, the Related Documents and all other
agreements contemplated by this Agreement and the consummation of the
contemplated transactions have been duly authorized by all necessary corporate
action of the Company. This Agreement has been duly executed and delivered by
the Company and is a valid and binding obligation of The Company, enforceable in
accordance with its terms.
Section 5.3 No Undisclosed Liabilities. The Company has no material
liabilities nor obligations (whether secured, unsecured, absolute, accrued,
asserted or unasserted, contingent or otherwise) of any nature, whether as
principal, agent, partner, co-venturer, guarantor or in any other capacity
except as disclosed to SJI.
Section 5.4 Licenses: Compliance. The Company possesses all licenses
and other required governmental or official approvals, permits, consents and
authorizations with respect to its business, the failure of which to possess
would, individually or in the aggregate, have an adverse effect on the business,
financial condition, operations, prospects or results of operations of the
Company.
Section 5.5 Litigation. Investigation Orders and Decrees. There are no
actions, suits, claims, governmental investigations or arbitration proceedings
pending or, to the best of the Company's knowledge, threatened against or
affecting the Company's business, assets, prospects or financial condition that
may have an adverse effect on the Shares, and to the best of the Company's
knowledge, there are no facts or circumstances which are reasonably likely to
create a basis for any of the foregoing. There are no outstanding orders,
decrees or stipulations issued by any local, state or federal judicial authority
in any proceeding to which the Company is or was a party which may have an
adverse effect on the Company.
5
<PAGE>
Section 5.6 Proprietary Rights. The Company does not any Proprietary
Rights.
Section 5.7 Tax Matters. The Company has filed all federal, state,
local and foreign tax returns required to be filed as of the Closing Date and
has paid or caused to be paid all federal, state, local, foreign and other
taxes, including without limitation income taxes, estimated taxes, excise taxes,
sales taxes, use taxes, gross receipts taxes, franchise taxes, employment and
payroll-related taxes, withholding taxes, transfer taxes and property taxes,
whether or not measured in whole or in part by net income (collectively,
"Taxes"), required to be paid by it as of the Closing Date whether disputed or
not, except Taxes which have not yet accrued or otherwise become due, for which
adequate provision has been made. All taxes and other assessments and levies
which the Company is required to withhold or collect have been withheld and
collected and have been paid over to the proper governmental authorities.
Neither the Internal Revenue Service ("IRS") nor any other governmental
authority is now asserting or, to the best knowledge of the Company, threatening
to assert against Sun any deficiency or claim for additional Taxes.
ARTICLE VI
Indemnification
---------------
Section 6.1 Indemnification by SJI and MAVERICK. SJI and MAVERICK
jointly and severally agree to indemnify and hold harmless the Company, any
successor or Affiliate of the Company and the directors, officers, agents and
employees of the Company or any of its Affiliates or successors from and against
any and all claims, actual and contingent, liabilities, losses, damages, costs
and expenses, including reasonable counsel fees and disbursements, proceedings,
investigations, causes of action, whether suit is instituted or not and, if
instituted, at any trial or appellate level, and whether raised by the parties
to this Agreement or any third party (singularly, a "Loss" and collectively, the
"Losses"), arising out of or relating to: (a) any material failure or breach by
SJI of any representation or warranty made by SJI in this Agreement, the Related
Documents, including any certificate, schedule or other agreement delivered by
SJI pursuant to this Agreement or (b) any material failure to perform or breach
by SJI of any covenant, agreement, obligation or undertaking made by SJI in this
Agreement, the Related Documents, including any certificate, schedule or other
agreement delivered by SJI pursuant to this Agreement. Notwithstanding any other
provision of this Agreement to the contrary, (i) SJI shall not be liable to the
Company with respect to the Company Losses unless and until the
6
<PAGE>
aggregate amount of all SJI Losses shall exceed the sum of Ten Thousand Dollars
($10,000.00) ("SJI Basket") and (ii) SJI shall thereafter be liable for all the
Company Losses in excess of SJI Basket, provided that SJI's maximum aggregate
liability in respect of all the Company Losses shall not, in the absence of
proven fraud by the Company in respect of any particular Company Losses, in any
event exceed the limitations set forth herein.
Section 6.2 Indemnification by the Company. The Company will indemnify
and hold harmless and SJI or any Affiliates thereof from and against any and all
Losses, arising out of or related to: (a) any material failure or breach by the
Company of any representation or warranty made by the Company in this Agreement,
including any certificate, schedule or other agreement delivered by the Company
pursuant to this Agreement; (b) any material failure to perform or breach by the
Company of any covenant, agreement, obligation or undertaking made by the
Company in this Agreement, including any certificate, schedule or other
agreement delivered pursuant to this Agreement or (c) Notwithstanding any other
provision of this agreement to the contrary, (i) the Company shall not be liable
to SJI with respect to SJI Losses unless and until the aggregate amount of all
SJI Losses shall exceed the sum of Ten Thousand Dollars ($10,000.00) ("the
Company Basket") and (ii) The Company shall thereafter be liable for all SJI
Losses in excess of the Company Basket, provided that the Company' s maximum
aggregate liability in respect of all SJI Losses shall not, in the absence of
proven fraud by the Company in respect of any particular SJI Losses, in any
event exceed the limitations set forth herein.
Section 6.3 Procedure for Claims. The following procedures shall be
applicable with respect to indemnification for claims arising in connection with
any provision of this Agreement:
(a) Each indemnified party (the "Indemnified Party") agrees that
upon its obtaining knowledge of facts indicating that there may be a basis for a
claim for indemnity under the provisions of this Agreement, including receipt by
it of notice of any demand, assertion, claim, action or proceeding, judicial or
otherwise (these actions are collectively, the "Claim"), with respect to any
matter as to which it may be entitled to indemnity under the provisions of this
Agreement, it will give prompt notice thereof in writing to the other party (the
"Indemnifying Party") together with a statement of all information respecting
any of the foregoing as it shall then have. The Indemnifying Party shall not be
obligated to indemnify the Indemnified Party for the increased amount of any
7
<PAGE>
Claim which would otherwise have been payable to the extent that the increase in
the amount of the Claim resulted from the lack of notice required by this
provision.
(b) The Indemnifying Party shall in good faith at its sole cost
and expense contest and defend by all appropriate legal proceedings, with
counsel satisfactory to the Indemnified Party, any Claim with respect to which
it is called upon to indemnify the Indemnified Party under the provisions of
this Agreement; provided, however, that notice of the intention so to contest
shall be delivered by the Indemnifying Party to the Indemnified Party within a
reasonable time in light of the circumstances then and there existing. Any
contest may be conducted in the name and on behalf of the Indemnifying Party or
the Indemnified Party as may be appropriate. The contest shall be conducted by
attorneys engaged by the Indemnifying Party, but the Indemnified Party shall
have the right to participate in those proceedings and to be represented by
attorneys of its own choosing at its cost and expense; provided, however, that,
if the named parties to any such proceeding (including any impeaded parties)
include both the Indemnifying Party and the Indemnified Party or if the
Indemnifying Party proposes that the same counsel. represent both the
Indemnified Party and the Indemnifying Party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them, then the Indemnified Party shall have the fight to
retain its own counsel at the cost and expense of the Indemnifying Party. If the
Indemnified Party joins in any contest, the Indemnifying Party shall have full
authority to determine all action to be taken; provided, however, that the
Indemnified Party shall have the right to approve any settlement, which approval
shall not be unreasonably withheld (it being understood that it shall not be
unreasonable to withhold consent to any settlement involving injunctive or other
equitable relief).
(c) The Indemnified Party agrees to afford the Indemnifying Party
and its counsel the opportunity to be present at, and to participate in,
conferences with all persons, including governmental authorities asserting any
Claim against the Indemnified Party or conferences with representatives of or
counsel for those persons. So long as the Indemnifying Party is defending in
good faith that Claim, the Indemnified Party shall cooperate with and assist the
Indemnifying Party to the extent reasonably possible, but the Indemnifying Party
shall bear and pay any and all expenses incurred by the Indemnified Party in
providing such cooperation and assistance, either directly or upon request of
the Indemnified Party. The Indemnified Party shall be kept fully informed of the
defense of any Claim at all stages thereof. In the event that the Indemnifying
Party fails to timely and in good faith defend against that Claim, the
Indemnified Party shall have the
8
<PAGE>
right, but not the obligation, to defend the same and may make any compromise or
settlement thereof and recover and be indemnified for the entire cost thereof
from the Indemnifying Party, including, but not limited to, legal expenses,
disbursements and all amounts paid as a result of that Claim or any compromise
or settlement thereof. If, in good faith, the Indemnified Party concludes that
there are specific defenses available to the Indemnified Party which are
different from or in addition to those available to the Indemnifying Party, or
that those Claims may have a material adverse effect on the Indemnified Party
with respect to the scope of the foregoing indemnities, then the Indemnified
Party shall have the right to direct the defense of that Claim and the
Indemnifying Party shall bear the expenses thereof. In the event that the
Indemnified Party is, directly or indirectly, conducting a defense against any
such Claim, the Indemnifying Party shall cooperate with the Indemnified Party in
that defense and make available to it all those witnesses, records, materials
and information in its possession or under its control relating thereto.
(d) The Indemnifying Party shall pay to the Indemnified Party the
amount to which the Indemnified Party may become entitled by reason of the
provisions of Article VI of this Agreement within fifteen (15) business days
after any the amount owed is finally determined either by mutual agreement of
the parties to this Agreement or pursuant to the final unappealable judgment of
a court of competent jurisdiction and the Indemnifying Party agrees to pay all
costs and expenses in connection with obtaining any bond required to appeal any
judgment.
ARTICLE VII
Miscellaneous
-------------
Section 7.1 Survival of Representations and Warranties. All of
the respective representations and warranties of the parties to this Agreement
or in any certificate delivered by any party incident to the contemplated
transactions are material and may be relied upon by the party receiving the same
and shall survive the consummation of the contemplated transactions for the time
period equal to the applicable statutes of limitations. All covenants of the
parties to this Agreement shall survive the consummation of the transactions
contemplated by this Agreement. All statements in this Agreement, the Related
Documents shall be deemed representations and warranties. The due diligence
investigations conducted by the parties to this Agreement and the results
thereof shall not diminish or otherwise affect any of the representations and
warranties set forth in this Agreement.
9
<PAGE>
Section 7.2 Brokers' Commission. The Company will indemnify and
hold harmless SJI from any commission, fee or claim of any person, firm or
corporation employed or retained or claiming to be employed or retained by the
Company to bring about, or to represent it in, the transactions contemplated by
this Agreement. SJI will jointly or severally indemnify and hold harmless The
Company from any commission, fee or claim of any person, firm or corporation
employed or retained or claiming to be employed or retained by SJI to bring
about, or to represent them in, the transactions contemplated by this Agreement.
Section 7.3 Amendment and Modification. This Agreement and the
Related Documents may not be modified or terminated orally, and no modification
or termination shall be binding unless in writing and signed by the parties to
this Agreement.
Section 7.4 Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors,
assigns, heirs, estates, beneficiaries, executors and legal and personal
representatives.
Section 7.5 No Waiver; Remedies Cumu1ative. This Agreement and
the Exhibits and Schedules attached to this Agreement and the Related Documents
contain the entire agreement of the parties with respect to the acquisition and
the other transactions contemplated in this Agreement, and merges and supersedes
all prior understandings and agreements among the parties with respect to the
subject matter of this Agreement. Failure of any party to enforce one or more of
the provisions of this Agreement or to require at any time performance of any of
the obligations under this Agreement shall not be construed to be a waiver of
any provisions by any party nor to in any way affect the validity of this
Agreement or any party's right to enforce any provision of this Agreement nor to
preclude any party from taking all other action at any time which it would
legally be entitled to take. All waivers to be effective shall be in writing
signed by the waiving party.
Section 7.6 Headings. The descriptive headings in this Agreement
are inserted for convenience of reference only and shall in no way restrict or
otherwise affect the construction of the terms or provisions of this Agreement.
Any references in this Agreement to Sections, Exhibits and Schedules are the
Sections, Exhibits and Schedules of this Agreement or the Related Documents.
Section 7.7 Execution in Counterparts. This Agreement may be
executed in any number of multiple counterparts, each of which shall be deemed
an original and all of which together shall be deemed to be one and the same
instrument. Each party agrees to be bound by any telecopied signature to this
agreement or any
10
<PAGE>
agreement executed in connection herewith as if a manually executed signature
page had been executed and delivered.
Section 7.6 Notices. Whenever any notice, request, information or
other document is required or permitted to be given under this Agreement, that
notice, demand or request shall be in writing and shall be either hand
delivered, sent by United States certified mail, postage prepaid, delivered via
overnight courier to the addresses below or to any other address that any party
may specify by notice to the other parties. No party shall be obligated to send
more than one notice to each of the other parties and no notice of a change of
address shall be effective until received by the other parties. A notice shall
be deemed received upon hand delivery, two days after posting in the United
States mail or one day after dispatch by overnight courier.
If to the Company: ISLEUTH. COM, Inc.
c/o Thomas Taule
21311 N.E. 2nd Avenue
North Miami, Florida
With a copy to: David M. Glassberg, Esq.
1570 Madruga Avenue
Suite 211
Coral Gables, Florida 33146
If to SJI
or MAVERICK: J. D. Jenkens, President
321 Troy Circle
Knoxville, TN 37919
Section 7.9 Severability. The invalidity or unenforceability of
any one or more of the words, phrases, sentences, clauses, or sections contained
in this Agreement shall not affect the validity or enforceability of the
remaining provisions of this Agreement or any part of any provision, all of
which are inserted conditionally on their being valid in law, and in the event
that any one or more of the words, phrases, sentences, clauses or sections
contained in this Agreement shall be declared invalid or unenforceable, this
Agreement shall be construed as if such invalid or unenforceable word or words,
phrase or phrases, sentence or sentences, clause or clauses, or section or
sections had not been inserted or shall be enforced as nearly as possible
according to their original terms and intent to eliminate any invalidity or
unenforceability. If any invalidity or unenforceability is caused by the length
of any period of time or the size of any area set forth in any part of this
Agreement, the period of time or area, or both, shall be considered to be
reduced to a period or area which would cure the invalidity or unenforceability.
11
<PAGE>
Section 7.10 Litigation: Prevailing Paxty. Except as otherwise
required by applicable law or as expressly provided in this Agreement, in the
event of any litigation, including appeals, with regard to this Agreement, the
prevailing party shall be entitled to recover from the non-prevailing party all
reasonable fees, costs, and expenses of counsel (at pre-trial, trial and
appellate levels).
Section 7.11 Construction. This Agreement shall be construed
without regard to any presumption or other rule requiring construction against
the party causing this Agreement to be drafted, including any presumption of
superior knowledge or responsibility based upon a party's business or profession
or any professional training, experience, education or degrees of any member,
agent, officer of employee of any party. If any words in this Agreement have
been stricken out or otherwise eliminated (whether or not any other words or
phrases have been. added) and the stricken words initialed by the party against
whom the words are construed, then this Agreement shall be construed as if the
words so stricken out or otherwise eliminated were never included in this
Agreement and no implication or inference shall be drawn from the fact that
those words were stricken out or otherwise eliminated.
Section 7.12 Preliminary Statements. Each of the preliminary
statements is true and correct and incorporated into this Agreement by
reference.
Section 7.13 Jurisdiction; Venue: Inconvenient Forum: Jury Trial.
ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, OR ANY JUDGMENT
ENTERED BY ANY COURT IN RESPECT TO THIS AGREEMENT SHALL BE BROUGHT EXCLUSIVELY
IN THE COURTS OF THE STATE OF FLORIDA OR IN THE U.S. DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF FLORIDA IN DADE COUNTY, AND THE PARTIES ACCEPT THE
EXCLUSIVE PERSONAL JURISDICTION OF THOSE COURTS FOR TIlE PURPOSE OF ANY SUIT,
ACTION OR PROCEEDING. IN ADDITION, THE PARTIES KNOWINGLY, INTENTIONALLY AND
IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
THEY MAY NOW OR LATER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED
BY ANY COURT BROUGHT IN THE STATE OF FLORIDA, AND FURTHER, KNOWINGLY,
INTENTIONALLY AND IRREVOCABLY WAIVE ANY CLAIM THAT ANY SUIT, ACTION OR
PROCEEDING BROUGHT IN THE STATE OF FLORIDA HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. EACH PARTY WAIVES ALL RIGHTS TO ANY TRIAL BY JURY IN ALL LITIGATION
RELATING TO OR ARISING OUT OF THIS AGREEMENT.
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IN WITNESS WHEREOF, the parties to this Agreement have caused
this Agreement to be duly executed as of the date first written above. SJI: SJI
GROUP, INC., a Florida Corporation
By: /s/ J. D. Jenkens
----------------------------------
J. D. Jenkens, President
COMPANY:
ISLEUTH. COM, Inc, a Florida corporation
By: /s/ THOMAS J. TAULE
-----------------------------------
THOMAS J. TAULE, President
13
S.J.I. GROUP, INC.
AMENDED
1998 STOCK OPTION PLAN
1. Grant of Options; Generally. In accordance with the provisions
hereinafter set forth in this stock option plan, the name of which is the S.J.I.
GROUP, INC. 1998 STOCK OPTION PLAN (the "Plan"), the Board of Directors (the
"Board") or, the Compensation Committee (the "Stock Option Committee") of S.J.I.
GROUP, Inc. (the "Corporation") is hereby authorized to issue from time to time
on the Corporation's behalf to any one or more Eligible Persons, as hereinafter
defined, options to acquire shares of the Corporation's no par value common
stock (the "Stock").
2. Type of Options. The Board or the Stock Option Committee is
authorized to issue Incentive Stock Options ("ISOs") which meet the requirements
of Section ss.422 of the Internal Revenue Code of 1986, as amended (the "Code"),
which options are hereinafter referred to collectively as ISOs, or singularly as
an ISO. The Board or the Stock Option Committee is also, in its discretion,
authorized to issue options which are not ISOs, which options are hereinafter
referred to collectively as Non Statutory Options ("NSOs"), or singularly as an
NSO. The Board or the Stock Option Committee is also authorized to issue "Reload
Options" in accordance with Paragraph 8 herein, which options are hereinafter
referred to collectively as Reload Options, or singularly as a Reload Option.
Except where the context indicates to the contrary, the term "Option" or
"Options" means ISOs, NSOs and Reload Options.
3. Amount of Stock. The aggregate number of shares of Stock which may
be purchased pursuant to the exercise of Options shall be 1,000,000 shares. Of
this amount, the Board or the Stock Option Committee shall have the power and
authority to designate whether any Options so issued shall be ISOs or NSOs,
subject to the restrictions on ISOs contained elsewhere herein. If an Option
ceases to be exercisable, in whole or in part, the shares of Stock underlying
such Option shall continue to be available under this Plan. Further, if shares
of Stock are delivered to the Corporation as payment for shares of Stock
purchased by the exercise of an Option granted under this Plan, such shares of
Stock shall also be available under this Plan. If there is any change in the
number of shares of Stock due to of the declaration of stock dividends,
recapitalization resulting in stock split-ups, or combinations or exchanges of
shares of Stock, or otherwise, the number of shares of Stock available for
purchase upon the exercise of Options, the shares of Stock subject to any Option
and the exercise price of any outstanding Option shall be appropriately adjusted
by the Board or the Stock Option Committee. The Board or the Stock Option
Committee shall give notice of any adjustments to each Eligible Person granted
an Option under this Plan, and such adjustments shall be effective and binding
on all Eligible Persons. If because of one or more recapitalizations,
reorganizations or other corporate events, the holders of outstanding Stock
receive something other than shares of Stock then, upon exercise of an Option,
the Eligible Person will receive what the holder would have owned if the holder
had exercised the Option immediately before the first such corporate event and
not disposed of anything the holder received as a result of the corporate event.
<PAGE>
4. Eligible Persons.
(a) With respect to ISOs, an Eligible Person means any individual who
has been employed by the Corporation or by any subsidiary of the Corporation,
for a continuous period of at least sixty (60) days.
(b) With respect to NSOs, an Eligible Person means (i) any individual
who has been employed by the Corporation or by any subsidiary of the
Corporation, for a continuous period of at least sixty (60) days, (ii) any
director of the Corporation or any subsidiary of the Corporation or (iii) any
consultant of the Corporation or any subsidiary of the Corporation.
5. Grant of Options. The Board or the Stock Option Committee has the
right to issue the Options established by this Plan to Eligible Persons. The
Board or the Stock Option Committee shall follow the procedures prescribed for
it elsewhere in this Plan. A grant of Options shall be set forth in a writing
signed on behalf of the Corporation or by a majority of the members of the Stock
Option Committee. The writing shall identify whether the Option being granted is
an ISO or an NSO and shall set forth the terms which govern the Option. The
terms shall be determined by the Board or the Stock Option Committee, and may
include, among other terms, the number of shares of Stock that may be acquired
pursuant to the exercise of the Options, when the Options may be exercised, the
period for which the Option is granted and including the expiration date, the
effect on the Options if the Eligible Person terminates employment and whether
the Eligible Person may deliver shares of Stock to pay for the shares of Stock
to be purchased by the exercise of the Option. However, no term shall be set
forth in the writing which is inconsistent with any of the terms of this Plan.
The terms of an Option granted to an Eligible Person may differ from the terms
of an Option granted to another Eligible Person, and may differ from the terms
of an earlier Option granted to the same Eligible Person.
6. Option Price. The option price per share shall be determined by the
Board or the Stock Option Committee at the time any Option is granted, and shall
be not less than (i) in the case of an ISO, the fair market value, (ii) in the
case of an ISO granted to a ten percent or greater stockholder, 110 % of the
fair market value, or (iii) in the case of an NSO, not less than 55% of the fair
market value (but in no event less than the par value) of one share of Stock on
the date the Option is granted, as determined by the Board or the Stock Option
Committee. Fair market value as used herein shall be:
7. (a) If shares of Stock shall be traded on an exchange or
over-the-counter market, the mean between the high and low sales prices of Stock
on such exchange or over-the- counter market on which such shares shall be
traded on that date, or if such exchange or over- the-counter market is closed
or if no shares shall have traded on such date, on the last preceding date on
which such shares shall have traded.
(b) If shares of Stock shall not be traded on an exchange or
over-the-counter market, the value as determined by a recognized appraiser as
selected by the Board or the Stock Option Committee.
2
<PAGE>
8. Purchase of Shares. An Option shall be exercised by the tender to
the Corporation of the full purchase price of the Stock with respect to which
the Option is exercised and written notice of the exercise. The purchase price
of the Stock shall be in United States dollars, payable in cash, check,
Promissory Note secured by the Shares issued through exercise of the related
Options, or in property or Corporation stock, if so permitted by the Board or
the Stock Option Committee in accordance with the discretion granted in
Paragraph 5 hereof, having a value equal to such purchase price. The Corporation
shall not be required to issue or deliver any certificates for shares of Stock
purchased upon the exercise of an Option prior to (i) if requested by the
Corporation, the filing with the Corporation by the Eligible Person of a
representation in writing that it is the Eligible Person's then present
intention to acquire the Stock being purchased for investment and not for
resale, and/or (ii) the completion of any registration or other qualification of
such shares under any government regulatory body, which the Corporation shall
determine to be necessary or advisable.
9. Grant of Reload Options. In granting an Option under this Plan, the
Board or the Stock Option Committee may include a Reload Option provision
therein, subject to the provisions set forth in Paragraphs 20 and 21 herein. A
Reload Option provision provides that if the Eligible Person pays the exercise
price of shares of Stock to be purchased by the exercise of an ISO, NSO or
another Reload Option (the "Original Option") by delivering to the Corporation
shares of Stock already owned by the Eligible Person (the "Tendered Shares"),
the Eligible Person shall receive a Reload Option which shall be a new Option to
purchase shares of Stock equal in number to the tendered shares. The terms of
any Reload Option shall be determined by the Board or the Stock Option Committee
consistent with the provisions of this Plan.
10. Stock Option Committee. The Stock Option Committee may be appointed
from time to time by the Corporation's Board of Directors. The Board may from
time to time remove members from or add members to the Stock Option Committee.
The Stock Option Committee shall be constituted so as to permit the Plan to
comply in all respects with the provisions set forth in Paragraph 20 herein. The
members of the Stock Option Committee may elect one of its members as its
chairman. The Stock Option Committee shall hold its meetings at such times and
places as its chairman shall determine. A majority of the Stock Option
Committee's members present in person shall constitute a quorum for the
transaction of business. All determinations of the Stock Option Committee will
be made by the majority vote of the members constituting the quorum. The members
may participate in a meeting of the Stock Option Committee by conference
telephone or similar communications equipment by means of which all members
participating in the meeting can hear each other. Participation in a meeting in
that manner will constitute presence in person at the meeting. Any decision or
determination reduced to writing and signed by all members of the Stock Option
Committee will be effective as if it had been made by a majority vote of all
members of the Stock Option Committee at a meeting which is duly called and
held.
11. Administration of Plan. In addition to granting Options and to
exercising the authority granted to it elsewhere in this Plan, the Board or the
Stock Option Committee is
3
<PAGE>
granted the full right and authority to interpret and construe the provisions of
this Plan, promulgate, amend and rescind rules and procedures relating to the
implementation of the Plan and to make all other determinations necessary or
advisable for the administration of the Plan, consistent, however, with the
intent of the Corporation that Options granted or awarded pursuant to the Plan
comply with the provisions of Paragraph 20 and 21 herein. All determinations
made by the Board or the Stock Option Committee shall be final, binding and
conclusive on all persons including the Eligible Person, the Corporation and its
stockholders, employees, officers and directors and consultants. No member of
the Board or the Stock Option Committee will be liable for any act or omission
in connection with the administration of this Plan unless it is attributable to
that member's willful misconduct.
12. Provisions Applicable to ISOs. The following provisions shall apply
to all ISOs granted by the Board or the Stock Option Committee and are
incorporated by reference into any writing granting an ISO:
(a) An ISO may only be granted within ten (10) years from September 5,
1998, the date that this Plan was originally adopted by the Corporation's Board
of Directors.
(b) An ISO may not be exercised after the expiration of ten (10) years
from the date the ISO is granted.
(c) The option price may not be less than the fair market value of the
Stock at the time the ISO is granted.
(d) An ISO is not transferrable by the Eligible Person to whom it is
granted except by will, or the laws of descent and distribution, and is
exercisable during his or her lifetime only by the Eligible Person.
(e) If the Eligible Person receiving the ISO owns at the time of the
grant stock possessing more than ten (10%) percent of the total combined voting
power of all classes of stock of the employer corporation or of its parent or
subsidiary corporation (as those terms are defined in the Code), then the option
price shall be at least 110% of the fair market value of the Stock, and the ISO
shall not be exercisable after the expiration of five (5) years from the date
the ISO is granted.
(f) The aggregate fair market value (determined at the time the ISO is
granted) of the Stock with respect to which the ISO is first exercisable by the
Eligible Person during any calendar year (under this Plan and any other
incentive stock option plan of the Corporation) shall not exceed $100,000.
(g) Even if the shares of Stock which are issued upon exercise of an
ISO are sold within one year following the exercise of such ISO so that the sale
constitutes a disqualifying disposition for ISO treatment under the Code, no
provision of this Plan shall be construed as prohibiting such a sale.
4
<PAGE>
(h) This Plan was adopted by the Corporation on September 5, 1998, by
virtue of its approval by the Corporation's Board of Directors and a majority of
the vote of the shareholders of the Company holding 50% or more of the
outstanding capital stock of the Company.
13. Determination of Fair Market Value. In granting ISOs under this
Plan, the Board or the Stock Option Committee shall make a good faith
determination as to the fair market value of the Stock at the time of granting
the ISO.
14. Restrictions on Issuance of Stock. The Corporation shall not be
obligated to sell or issue any shares of Stock pursuant to the exercise of an
Option unless the Stock with respect to which the Option is being exercised is
at that time effectively registered or exempt from registration under the
Securities Act of 1933, as amended, and any other applicable laws, rules and
regulations. The Corporation may condition the exercise of an Option granted in
accordance herewith upon receipt from the Eligible Person, or any other
purchaser thereof, of a written representation that at the time of such exercise
it is his or her then present intention to acquire the shares of Stock for
investment and not with a view to, or for sale in connection with, any
distribution thereof; except that, in the case of a legal representative of an
Eligible Person, "distribution" shall be defined to exclude distribution by will
or under the laws of descent and distribution. Prior to issuing any shares of
Stock pursuant to the exercise of an Option, the Corporation shall take such
steps as it deems necessary to satisfy any withholding tax obligations imposed
upon it by any level of government.
15. Exercise in the Event of Death of Termination or Employment.
(a) If an optionee shall die (i) while an employee of the Corporation
or a Subsidiary or (ii) within three months after termination of his employment
with the Corporation or a Subsidiary because of his disability, or retirement or
otherwise, his Options may be exercised, to the extent that the optionee shall
have been entitled to do so on the date of his death or such termination of
employment, by the person or persons to whom the optionee's right under the
Option pass by will or applicable law, or if no such person has such right, by
his executors or administrators, at any time, or from time to time. In the event
of termination of employment because of his death while an employee or because
of disability, his Options may be exercised not later than the expiration date
specified in Paragraph 5 or one year after the optionee's death, whichever date
is earlier, or in the event of termination of employment because of retirement
or otherwise, not later than the expiration date specified in Paragraph 5 hereof
or one year after the optionee's death, whichever date is earlier.
(b) If an optionee's employment by the Corporation or a Subsidiary
shall terminate because of his disability and such optionee has not died within
the following three months, he may exercise his Options, to the extent that he
shall have been entitled to do so at the date of the termination of his
employment, at any time, or from time to time, but not later than the expiration
date specified in Paragraph 5 hereof or one year after termination of
employment, whichever date is earlier.
5
<PAGE>
(c) If an optionee's employment shall terminate by reason of his
retirement in accordance with the terms of the Corporation's tax-qualified
retirement plans if any, or with the consent of the Board or the Stock Option
Committee or involuntarily other than by termination for cause, and such
optionee has not died within the following three months, he may exercise his
Option to the extent he shall have been entitled to do so at the date of the
termination of his employment, at any time and from to time, but not later than
the expiration date specified in Paragraph 5 hereof or thirty (30) days after
termination of employment, whichever date is earlier. For purposes of this
Paragraph 14, termination for cause shall mean; (i) termination of employment
for cause as defined in the optionee's Employment Agreement or (ii) in the
absence of an Employment Agreement for the optionee, termination of employment
by reason of the optionee's commission of a felony, fraud or willful misconduct
which has resulted, or is likely to result, in substantial and material damage
to the Corporation or a Subsidiary, all as the Board or the Stock Option
Committee in its sole discretion may determine.
(d) If an optionee's employment shall terminate for any reason other
than death, disability, retirement or otherwise, all right to exercise his
Option shall terminate at the date of such termination of employment absent
specific provisions in the optionee's Option Agreement.
16. Corporate Events. In the event of the proposed dissolution or
liquidation of the Corporation, a proposed sale of all or substantially all of
the assets of the Corporation, a merger or tender for the Corporation's shares
of Common Stock the Board of Directors may declare that each Option granted
under this Plan shall terminate as of a date to be fixed by the Board of
Directors; provided that not less than thirty (30) days written notice of the
date so fixed shall be given to each Eligible Person holding an Option, and each
such Eligible Person shall have the right, during the period of thirty (30) days
preceding such termination, to exercise his Option as to all or any part of the
shares of Stock covered thereby, including shares of Stock as to which such
Option would not otherwise be exercisable. Nothing set forth herein shall extend
the term set for purchasing the shares of Stock set forth in the Option.
17. No Guarantee of Employment. Nothing in this Plan or in any writing
granting an Option will confer upon any Eligible Person the right to continue in
the employ of the Eligible Person's employer, or will interfere with or restrict
in any way the right of the Eligible Person's employer to discharge such
Eligible Person at any time for any reason whatsoever, with or without cause.
18. Nontransferability. No Option granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution.
During the lifetime of the optionee, an Option shall be exercisable only by him.
19. No Rights as Stockholder. No optionee shall have any rights as a
stockholder with respect to any shares subject to his Option prior to the date
of issuance to him of a certificate or certificates for such shares.
6
<PAGE>
20. Amendment and Discontinuance of Plan. The Corporation's Board of
Directors may amend, suspend or discontinue this Plan at any time. However, no
such action may prejudice the rights of any Eligible Person who has prior
thereto been granted Options under this Plan. Further, no amendment to this Plan
which has the effect of (a) increasing the aggregate number of shares of Stock
subject to this Plan (except for adjustments pursuant to Paragraph 3 herein), or
(b) changing the definition of Eligible Person under this Plan, may be effective
unless and until approval of the stockholders of the Corporation is obtained in
the same manner as approval of this Plan is required. The Corporation's Board of
Directors is authorized to seek the approval of the Corporation's stockholders
for any other changes it proposes to make to this Plan which require such
approval, however, the Board of Directors may modify the Plan, as necessary, to
effectuate the intent of the Plan as a result of any changes in the tax,
accounting or securities laws treatment of Eligible Persons and the Plan,
subject to the provisions set forth in this Paragraph 19, and Paragraphs 20 and
21.
21. Compliance with Rule 16b-3. This Plan is intended to comply in all
respects with Rule 16b-3 ("Rule 16b-3") promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to participants who are subject to Section 16 of
the Exchange Act, and any provision(s) herein that is/are contrary to Rule 16b-3
shall be deemed null and void to the extent appropriate by either the Stock
Option Committee or the Corporation's Board of Directors.
22. Compliance with Code. The aspects of this Plan on ISOs is intended
to comply in every respect with Section 422 of the Code and the regulations
promulgated thereunder. In the event any future statute or regulation shall
modify the existing statute, the aspects of this Plan on ISOs shall be deemed to
incorporate by reference such modification. Any stock option agreement relating
to any Option granted pursuant to this Plan outstanding and unexercised at the
time any modifying statute or regulation becomes effective shall also be deemed
to incorporate by reference such modification and no notice of such modification
need be given to optionee.
If any provision of the aspects of this Plan on ISOs is determined to
disqualify the shares purchasable pursuant to the Options granted under this
Plan from the special tax treatment provided by Code Section 422, such provision
shall be deemed null and void and to incorporate by reference the modification
required to qualify the shares for said tax treatment.
23. Compliance With Other Laws and Regulations. The Plan, the grant and
exercise of Options thereunder, and the obligation of the Corporation to sell
and deliver Stock under such options, shall be subject to all applicable federal
and state laws, rules, and regulations and to such approvals by any government
or regulatory agency as may be required. The Corporation shall not be required
to issue or deliver any certificates for shares of Stock prior to (a) the
listing of such shares on any stock exchange or over-the-counter market on which
the Stock may then be listed and (b) the completion of any registration or
qualification of such shares under any federal or state law, or any ruling or
regulation of any government body which the Corporation shall, in its sole
discretion, determine to be necessary or advisable. Moreover, no Option may
7
<PAGE>
be exercised if its exercise or the receipt of Stock pursuant thereto would be
contrary to applicable laws.
24. Disposition of Shares. In the event any share of Stock acquired by
an exercise of an Option granted under the Plan shall be transferable other than
by will or by the laws of descent and distribution within two years of the date
such Option was granted or within one year after the transfer of such Stock
pursuant to such exercise, the optionee shall give prompt written notice thereof
to the Corporation or the Stock Option Committee.
25. Name. The Plan shall be known as the "S.J.I. Group, Inc. 1998 Stock
Option Plan."
26. Notices. Any notice hereunder shall be in writing and sent by
certified mail, return receipt requested or by facsimile transmission (with
electronic or written confirmation of receipt) and when addressed to the
Corporation shall be sent to it at its office, 6312 Baum Drive, Knoxville, TN
37919 and when addressed to the Committee shall be sent to it at 6312 Baum
Drive, Knoxville, TN 37919, subject to the right of either party to designate at
any time hereafter in writing some other address, facsimile number or person to
whose attention such notice shall be sent.
27. Headings. The headings preceding the text of Sections and
subparagraphs hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Plan nor shall they affect its meaning,
construction or effect.
28. Effective Date. This Plan, the S.J.I. Group, Inc. 1998 Stock Option
Plan, was adopted by the Board of Directors of the Corporation on September 5,
1998. The effective date of the Plan shall be the same date.
Dated as of September 5, 1998.
S.J.I. GROUP, INC.
By:___________________________
Name: ________________________
Its: President
8
<PAGE>
[NSO GRANT FORM]
S.J.I. GROUP, INC.
6312 BAUM DRIVE
KNOXVILLE, TN 37919
Date: ________________
- ----------------------
- ----------------------
- ----------------------
Dear ______________:
The Board of Directors of S.J.I. GROUP, Inc. (the "Corporation") is
pleased to award you an Option pursuant to the provisions of the 1998 Stock
Option Plan (the "Plan"). This letter will describe the Option granted to you.
Attached to this letter is a copy of the Plan. The terms of the Plan also set
forth provisions governing the Option granted to you. Therefore, in addition to
reading this letter you should also read the Plan. Your signature on this letter
is an acknowledgement to us that you have read and under-stand the Plan and that
you agree to abide by its terms. All terms not defined in this letter shall have
the same meaning as in the Plan.
1. Type of Option. You are granted an NSO. Please see in particular
Section 11 of the Plan.
2. Rights and Privileges. Subject to the conditions hereinafter set
forth, we grant you the right to purchase __________ shares of Stock at
$__________ per share, the current fair market value of a share of Stock. The
right to purchase the shares of Stock accrues in __________ installments over
the time periods described below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
3. Time of Exercise. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
4. Method of Exercise. The Options shall be exercised by written
notice to the Chairman of the Board of Directors at the Corporation's principal
place of business. The notice shall set forth the number of shares of Stock to
be acquired and shall contain a check payable to the Corporation in full payment
for the Stock or that number of already owned shares of Stock equal in value to
the total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
<PAGE>
5. Termination of Option. To the extent not exercised, the Option shall
terminate upon the first to occur of the following dates:
(a) __________, 199___, being __________ years from the date
of grant pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of three months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months; or
(c) The expiration of 12 months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan, if such employment termination occurs by reason of your death or by
reason of your permanent disability (as defined above).
6. Securities Laws.
The Option and the shares of Stock underlying the Option have
not been registered under the Securities Act of 1933, as amended (the "Act").
The Corporation has no obligations to ever register the Option or the shares of
Stock underlying the Option. All shares of Stock acquired upon the exercise of
the Option shall be "restricted securities" as that term is defined in Rule 144
promulgated under the Act. The certificate representing the shares shall bear an
appropriate legend restricting their transfer. Such shares cannot be sold,
transferred, assigned or otherwise hypothecated without registration under the
Act or unless a valid exemption from registration is then available under
applicable federal and state securities laws and the Corporation has been
furnished with an opinion of counsel satisfactory in form and substance to the
Corporation that such registration is not required.
7. Binding Effect. The rights and obligations described in this letter
shall inure to the benefit of and be binding upon both of us, and our respective
heirs, personal representatives, successors and assigns.
8. Date of Grant. The Option shall be treated as having been granted to
you on the date of this letter even though you may sign it at a later date.
Very truly yours,
By:________________________
Name: _____________________
Its: President
AGREED AND ACCEPTED:
- -------------------------
2
<PAGE>
Date: ________________
S.J.I. GROUP, INC.
6312 BAUM DRIVE
KNOXVILLE, TN 37919
- -------------------------
- -------------------------
- -------------------------
Dear _______________:
The Board of Directors of S.J.I. GROUP, Inc. (the "Corporation") is
pleased to award you an Option pursuant to the provisions of the 1998 Stock
Option Plan (the "Plan"). This letter will describe the Option granted to you.
Attached to this letter is a copy of the Plan. The terms of the Plan also set
forth provisions governing the Option granted to you. Therefore, in addition to
reading this letter you should also read the Plan. Your signature on this letter
is an acknowledgement to us that you have read and under-stand the Plan and that
you agree to abide by its terms. All terms not defined in this letter shall have
the same meaning as in the Plan.
1. Type of Option. You are granted an ISO. Please see in particular
Section 11 of the Plan.
2. Rights and Privileges. Subject to the conditions hereinafter set
forth, we grant you the right to purchase __________ shares of Stock at
$__________ per share, the current fair market value of a share of Stock. The
right to purchase the shares of Stock accrues in __________ installments over
the time periods described below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
3. Time of Exercise. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
<PAGE>
4. Method of Exercise. The Options shall be exercised by written
notice to the Chairman of the Board of Directors at the Corporation's principal
place of business. The notice shall set forth the number of shares of Stock to
be acquired and shall contain a check payable to the Corporation in full payment
for the Stock or that number of already owned shares of Stock equal in value to
the total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
5. Termination of Option. To the extent not exercised, the Option shall
terminate upon the first to occur of the following dates:
(a) _____________, 199___, being __________ years from the
date of grant pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of thirty (30) days following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months; or
(c) The expiration of 12 months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan, if such employment termination occurs by reason of your death or by
reason of your permanent disability (as defined above).
6. Securities Laws.
The Option and the shares of Stock underlying the Option have
not been registered under the Securities Act of 1933, as amended (the "Act").
The Corporation has no obligations to ever register the Option or the shares of
Stock underlying the Option. All shares of Stock acquired upon the exercise of
the Option shall be "restricted securities" as that term is defined in Rule 144
promulgated under the Act. The certificate representing the shares shall bear an
appropriate legend restricting their transfer. Such shares cannot be sold,
transferred, assigned or otherwise hypothecated without registration under the
Act or unless a valid exemption from registration is then available under
applicable federal and state securities laws and the Corporation has been
furnished with an opinion of counsel satisfactory in form and substance to the
Corporation that such registration is not required.
7. Binding Effect. The rights and obligations described in this letter
shall inure to the benefit of and be binding upon both of us, and our respective
heirs, personal representatives, successors and assigns.
8. Date of Grant. The Option shall be treated as having been granted to
you on the date of this letter even though you may sign it at a later date.
2
<PAGE>
Very truly yours,
By:________________________
Name: _____________________
Its: President
AGREED AND ACCEPTED:
- -------------------------
3
<PAGE>
[NSO GRANT FORM
WITH RELOAD OPTIONS]
S.J.I. GROUP, INC.
6312 BAUM DRIVE
KNOXVILLE, TN 37919
Date: __________
- ---------------------
- ---------------------
- ---------------------
Dear __________:
The Board of Directors of S.J.I. GROUP, Inc. (the "Corporation") is
pleased to award you an Option pursuant to the provisions of the 1998 Stock
Option Plan (the "Plan"). This letter will describe the Option granted to you.
Attached to this letter is a copy of the Plan. The terms of the Plan also set
forth provisions governing the Option granted to you. Therefore, in addition to
reading this letter you should also read the Plan. Your signature on this letter
is an acknowledgement to us that you have read and understand the Plan and that
you agree to abide by its terms. All terms not defined in this letter shall have
the same meaning as in the Plan.
1. Type of Option. You are granted an NSO. Please see in particular
Section 11 of the Plan.
2. Rights and Privileges.
(a) Subject to the conditions hereinafter set forth, we grant
you the right to purchase __________ shares of Stock at $__________ per share,
the current fair market value of a share of Stock. The right to purchase the
shares of Stock accrues in __________ installments over the time periods
described below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
(b) In addition to the Option granted hereby (the "Underlying
Option"), the Corporation will grant you a reload option (the "Reload Option")
as hereinafter provided. A Reload Option is hereby granted to you if you acquire
shares of Stock pursuant to the exercise of the Underlying Option and pay for
such shares of Stock with shares of Common Stock already owned by you (the
"Tendered Shares"). The Reload Option grants you the right to purchase shares of
Stock equal in number to the number of Tendered Shares. The date on which
<PAGE>
the Tendered Shares are tendered to the Corporation in full or partial payment
of the purchase price for the shares of Stock acquired pursuant to the exercise
of the Underlying Option is the Reload Grant Date. The exercise price of the
Reload Option is the fair market value of the Tendered Shares on the Reload
Grant Date. The fair market value of the Tendered Shares shall be the low bid
price per share of the Corporation's Common Stock on the Reload Grant Date. The
Reload Option shall vest equally over a period of __________ (___) years,
commencing on the first anniversary of the Reload Grant Date, and on each
anniversary of the Reload Grant Date thereafter; however, no Reload Option shall
vest in any calendar year if it would allow you to purchase for the first time
in that calendar year shares of Stock with a fair market value in excess of
$100,000, taking into account ISOs previously granted to you. The Reload Option
shall expire on the earlier of (i) __________ (___) years from the Reload Grant
Date, or (ii) in accordance with Paragraph 5(b), or (iii) in accordance with
Paragraph 5(c) as set forth herein. If vesting of the Reload Option is deferred,
then the Reload Option shall vest in the next calendar year, subject, however,
to the deferral of vesting previously provided. Except as provided herein the
Reload Option is subject to all of the other terms and provisions of this
Agreement governing Options.
3. Time of Exercise. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
4. Method of Exercise. The Options shall be exercised by written
notice to the Chairman of the Board of Directors at the Corporation's principal
place of business. The notice shall set forth the number of shares of Stock to
be acquired and shall contain a check payable to the Corporation in full payment
for the Stock or that number of already owned shares of Stock equal in value to
the total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
5. Termination of Option. To the extent not exercised, the Option shall
terminate upon the first to occur of the following dates:
(a) __________, 199_, being __________ years from the date of
grant pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of three months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months; or
(c) The expiration of 12 months following the date your employment
terminates with the Corporation and any of its subsidiaries included in the
Plan, if such
2
<PAGE>
employment termination occurs by reason of your death or by reason of your
permanent disability (as defined above).
6. Securities Laws.
The Option and the shares of Stock underlying the Option have
not been registered under the Securities Act of 1933, as amended (the "Act").
The Corporation has no obligations to ever register the Option or the shares of
Stock underlying the Option. All shares of Stock acquired upon the exercise of
the Option shall be "restricted securities" as that term is defined in Rule 144
promulgated under the Act. The certificate representing the shares shall bear an
appropriate legend restricting their transfer. Such shares cannot be sold,
transferred, assigned or otherwise hypothecated without registration under the
Act or unless a valid exemption from registration is then available under
applicable federal and state securities laws and the Corporation has been
furnished with an opinion of counsel satisfactory in form and substance to the
Corporation that such registration is not required.
7. Binding Effect. The rights and obligations described in this letter
shall inure to the benefit of and be binding upon both of us, and our respective
heirs, personal representatives, successors and assigns.
8. Date of Grant. The Option shall be treated as having been granted to
you on the date of this letter even though you may sign it at a later date.
Very truly yours,
By:________________________
Name: _____________________
Its: President
AGREED AND ACCEPTED:
- -------------------------
3
TRADEMARK PURCHASE AGREEMENT
----------------------------
This Trademark Purchase Agreement, made this 17th day of February,
2000, by and between Finova Capital Corporation, a corporation incorporated
under the State of Delaware ("Finova"), with its principal place of business at
111 West 40th Street, City of New York, State of New York, Ann Mostoller,
Esquire, Chapter 7 ("Trustee"), Trustee for Caribbean Cigar Company in Chapter 7
Bankruptcy in the Eastern District of Tennessee; Trustee and Finova will at
times be referred to as ("Seller"), SJI Wholesale, Inc., a corporation organized
under the laws of the State of Tennessee, ("Buyer") with its principal place of
business at 6312 Baum Drive, Knoxville, Tennessee 37950, and RONALD JENKINS,
presently residing in Knoxville, Tennessee ("Guarantor").
WHEREAS, Caribbean Cigar Company (a Florida Corporation) by and
through its Chapter 7 Estate ("Caribbean") is the owner of certain trademarks as
set forth in the Trademark Assignment and Release of Security Interests of
Exhibit "A";
WHEREAS, Finova has Security Interests in certain ones of the
trademarks of Caribbean as set forth in the Trademark Assignment and Release of
Security Interests of Exhibit "A".
WHEREAS, pursuant to court order in Case No. 99-30466 in the United
States Bankruptcy Court for the Eastern District of Knoxville, the Trustee has
been ordered to cause Caribbean to deliver to Finova such documents or
instruments as may be necessary to transfer to Finova certain of its trademarks
and all goodwill associated with such trademarks;
WHEREAS, Buyer desires to obtain ownership of all trademarks of
Caribbean and all goodwill of the business symbolized by such trademarks;
<PAGE>
WHEREAS, the parties desire that Finova fully release all of its
Security Interests in the trademarks of Caribbean and that ownership of all
trademarks of Caribbean including, but not limited to, the Marks, Registrations
and Applications, and all goodwill of the business symbolized by such trademarks
be transferred to Buyer;
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations, and warranties herein contained, the parties agree as follows,
with closing contingent upon the performance of all of the below agreed
obligations: a-d;
1. Agreed obligations.
a. Trustee and Finova execute the Trademark Assignment
and Release of Security Interests as set forth on
Exhibit "A".
b. Buyer and Guarantor execute the Promissory Note as
set forth on Exhibit "B" and Guarantor executing the
Guaranty as set forth on Exhibit "C".
c. Buyer and Finova execute the Security Agreement on
Exhibit "D".
d. Buyer and Finova execute the Escrow Agreement of
Exhibit "E" and Buyer delivers to escrow agent one
hundred thousand (100,000) shares of the Big Hub,
Inc. stock.
2. Sale. Buyer purchases and Seller sells for the sum of Three Hundred
Twenty-five Thousand Dollars ($325,000), to be paid to Finova in accordance with
the Promissory Note, all of Seller's right, title and interest in the
Trademarks, including but not limited to, the marks, registrations and
applications, and all goodwill of the business symbolized by such Trademarks as
more fully described on Exhibit "A".
3. Security Interest. Buyer grants to Finova a security interest in
the Trademarks as more fully set forth on Exhibit "C" attached.
(a) Buyer shall, at its expense, take all reasonable actions
requested by Finova at any time, pertaining to any events that occur from the
effective date of this Agreement forward, to perfect, maintain, protect, and
enforce Finova's first priority security interest and other rights in the
Trademarks and the priority thereof, from time to time, including, without
limitation, executing and filing financing statements or continuation statements
and amendments thereof and executing and delivering such documents. In
furtherance thereof, Buyer will deliver to Finova a UCC-l Financing Statement
describing the Trademarks. The parties specifically recognize that any
occurrences that may have an effect on Finova's first
2
<PAGE>
priority security interest that arose from events occurring prior to Buyer
acquiring the Trademarks, shall be subject solely to the discretion of Buyer;
the intent being that Finova specifically recognizes that since Buyer is
purchasing from Finova the Trademarks "AS IS" "WHERE IS", "WITH ALL FAULTS",
that Finova has no right to direct Buyer to take any action to perfect,
maintain, protect and enforce Finova's "first priority security interest"
resulting from events that have occurred prior to Buyer acquiring said
Trademarks;
(b) Buyer represents, warrants and covenants that, to
the best of its ability,
(i) it will not, after closing, cause any liens,
claims or encumbrances on the Trademarks whatsoever; and
(ii) Buyer shall not, without Finova's prior written
approval, sell, encumber or dispose of or permit the sale, encumbrances or
disposal of any Trademarks or all or any substantial part of any of its other
operating assets (or any interest of Buyer therein).
(c) As further consideration, Buyer will deliver to escrow
agent one hundred thousand (100,000) shares of the Big Hub, Inc. stock ("HUB")
to be held and disbursed by escrow agent as more fully set forth in the Escrow
Agreement, a copy of which is attached here as Exhibit "D".
4. Representations and Warranties of Seller. Seller has the authority
and right to enter into this Agreement and perform its terms.
5. Representations and Warranties of Buyer. The Buyer represents and
warrants to Seller as follows:
(a) Buyer's Good Standing and Authority. Buyer is validly
existing and in good standing under the laws of the State of Tennessee, and has
all requisite power and authority to execute and deliver this Agreement, and to
consummate the transactions contemplated hereby, and has obtained all consents
and approvals, and made all registrations, required to be made or obtained by it
in connection herewith.
(b) No Contravention. The execution, delivery and performance
of this Agreement, delivered by it in connection herewith does not violate (i)
any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to it, (ii) any
contract, indenture, mortgage, loan agreement, note, lease or other instrument
to which it may be bound or to which any of its assets is subject, or (iii) any
provision of its charter or by-laws.
(c) Validity. This Agreement is binding upon and is
enforceable against the Buyer in accordance with its terms.
3
<PAGE>
(d) Registration. No registration with or consent or approval
of, or any other action by, any governmental authority or any other person is
required in connection with its execution, delivery and performance of, or is
necessary for the validity or enforceability of this Agreement.
(e) No Investment Advice. It acknowledges that Seller has not
given any investment advice, credit information or rendered any opinion as to
whether the purchase of the Trademarks is prudent.
(f) Sophisticated Buyer. Buyer is a sophisticated purchaser
with respect to the Trademarks and has adequate information to make informed
decisions regarding the purchase of the Trademarks and has, independently and
based upon such information as it has deemed appropriate, made its own
independent decision to enter into this Agreement. Buyer acknowledges and
understands that no employee, agent, representative or attorney of Seller has
been authorized to make, and that the Buyer has not relied upon and shall not be
entitled to rely upon, any statements or representations other than those
specifically contained in this Agreement.
(g) Due Diligence. Prior to executing this Agreement, Buyer
has made or has been given the opportunity to make such examinations, reviews
and investigations as it deems necessary or appropriate in making its decision
to purchase the Trademarks. Buyer has been and will continue to be solely
responsible for the making of its own independent investigation as to all
aspects of the Trademarks.
(h) No Representations. Except as expressly provided herein,
Seller does not and will not make any oral or written representations,
warranties, promises or guarantees whatsoever, whether expressed or implied,
concerning or with regard to, and expressly disclaims any liability or
obligation with respect to, concerning or relating to, any of the Trademarks.
(i) No Broker. Seller shall not be liable for any broker,
finder or other person or entity acting pursuant to the authority of Buyer in
connection with the transactions contemplated hereby.
(j) No Recourse. Buyer acknowledges that the assignment and
transfer of the Trademarks to Buyer is irrevocable and Buyer has no recourse to
Seller, except for any breach of this Agreement by Seller.
(k) Schedules. Buyer acknowledges that it reviewed Exhibit
"A" and that it is true and correct regarding stating the Trademarks that the
Buyer is purchasing.
4
<PAGE>
(l) Buyer will from the date of possession of the Trademarks,
be the exclusive owner of whatever right, title and interest Buyer has in and to
each of the Trademarks, as were in existence at the time of acquisition of the
Trademarks. Buyer is accepting these Trademarks "AS IS" "WHERE IS", "WITH NO
FAULTS", Buyer expressly does not represent and warrant that Buyer will correct
any or all defects in title that were preexisting on the date of the purchase of
the Trademarks.
6. Miscellaneous.
A. Amendments. This Agreement may only be amended by
the written consent of all parties.
B. Notices. Trustee fully completes its obligations
under this agreement by its execution of the
Assignment document of Exhibit "A" and thus no
further notices or communications between Trustee
and the other parties, Buyer and Finova, are
contemplated. All notices between the remaining
parties, Finova and Buyer, shall be in writing.
Notices delivered personally or by telecopier shall
be deemed received on the same business day if
delivered personally or by telecopier before 5:00
p.m. on such day, and otherwise on the next day.
Notices deposited with an overnight courier service
prior to this deadline on any business day shall be
deemed received on the next business day. Notices
deposited in the mail, postage prepaid, on any
business day shall be deemed received on the third
business day following such deposit. All notices to
Finova shall be given to:
FINOVA CAPITAL CORPORATION
111 West 40th Street
New York, New York 10018
Attention: Ray Eichler
Telephone: (212) 403-0732
Telecopier: (212) 403-0913
With a copy to:
Ruskin, Moscou, Evans & Faltischek
170 Old Country Road
Mineola, New York 11510
Attention: Jeffrey Wurst, Esquire
Telephone: (516) 663-6517
Telecopier: (516) 663-6678
5
<PAGE>
All notices to Buyer shall be given to:
SJI Wholesale, Inc.
6312 Baum Drive
Knoxville, Tennessee 37950
Attention: Ron Jenkins
Telephone: (865) 584-3398
Telecopier: (865) 584-6008
With a copy to:
Stone & Hinds, P.C.
700 First American Center
507 Gay Street, S.W.
Knoxville, Tennessee 37902
Attention: Maurice W. Gerard, Esquire
Telephone: (865) 546-6321
Telecopier: (865) 546-0422
C. Headings. The headings, titles, and subtitles
herein are inserted for convenience of reference
only and shall not control or effect the meaning or
construction of any of the provisions hereof
D. Gender. As used herein, all pronouns shall
include the masculine, feminine, neuter, singular,
and plural thereof, where ever the context and the
facts require such construction.
E. Governing Law. This Agreement shall be governed
and construed in accordance with the laws of the
State of New York.
F. Severability. In the event any provisions of this
Agreement shall be held invalid or unenforceable
according to the law, such holding or actions shall
not invalidate or render unenforceable any other
provision hereof
6
<PAGE>
G. Entire Agreement. All exhibits and schedules
referred to in this Agreement are incorporated
herein and made a part hereof This Agreement and the
exhibits and schedules hereto, and the Agreement of
even date herewith between Finova and Ron Jenkins
("Guarantor"), shall serve as a final integration
and expression of all agreements between Finova,
Buyer and Guarantor with respect to the subject
matter hereof, and any previous agreement,
representation or warranty, whether oral or written,
shall have no force and effect.
H. Binding Effect. This Agreement shall be binding
upon and insure to the benefit of the parties hereto
and their respective assigns, and legal
representatives.
I. Survival of Representations. All representations,
warranties, covenants, disclaimers, acknowledgments
and agreement made by the parties hereto shall be
considered to have been relied upon by the parties
and shall survive the execution, delivery and
performance of this Agreement and all other
documents contemplated herein.
J. The parties recognize Guarantor has signed this
Agreement solely to acknowledge that he will sign as
a Guarantor of the monies obligated to be paid by
Buyer to Finova under this Agreement.
K. The parties recognize that the Trustee has signed
this Agreement for the limited purpose of selling
all right, title and interest that Caribbean has in
the Trademarks (Exhibit "A") to sign Exhibit "A",
and to expressly put Buyer on notice that Caribbean
is selling the Trademarks "WHERE IS" and "AS IS",
and with all faults.
IN WITNESS WHEREOF, the parties have caused this Trademark Purchase
Agreement to be duly executed on the date first below written.
CARIBBEAN CIGAR COMPANY
Date: 2/15/00
By: /s/ Ann Mostoller
---------------------
Ann Mostoller, Esq, Chapter 7 Trustee
7
<PAGE>
FINOVA CAPITAL CORPORATION
Date: 2/17/00 By: /s/ Raymond J. Eichler
--------------------------
Its: AVP
---------
RAYMOND J. EICHLER
SJI WHOLESALE, INC.
Date: 2/14/00 By: /s/ Ron Jenkins
-------------------
RON JENKINS, President
GUARANTOR:
Date: 2/14/00 By: /s/ Ron Jenkins
-------------------
RON JENKINS
8
SUBSIDIARIES
Subsidiaries Percentage
Name Owned
- --------------------------- ----------------------
SJI Wholesale, Inc., 100 %
(a Florida corporation)
SJI Sales and Marketing, Inc. 100 %
(a Florida corporation)
Internet Laboratories, Inc. 100 %
(a Florida corporation)
The Caribbean Company (Cayman), Ltd. 100 %
(a Cayman Island corporation)
Zona Franca De Jaibon Industrial Parque
(Cayman), Ltd. 100 %
(a Cayman Island corporation)
CutThePrice.com, Inc. 50 %
(a Florida corporation)
Condor International Air, Inc. 50 %
(a Florida corporation)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 37,197
<SECURITIES> 3,368,065
<RECEIVABLES> 236,244
<ALLOWANCES> (10,000)
<INVENTORY> 1,807,949
<CURRENT-ASSETS> 5,439,455
<PP&E> 1,526,057
<DEPRECIATION> (341,174)
<TOTAL-ASSETS> 6,669,623
<CURRENT-LIABILITIES> 1,720,363
<BONDS> 567,669
0
545
<COMMON> 813
<OTHER-SE> 4,380,233
<TOTAL-LIABILITY-AND-EQUITY> 6,669,623
<SALES> 1,497,675
<TOTAL-REVENUES> 1,497,675
<CGS> 978,529
<TOTAL-COSTS> 2,637,578
<OTHER-EXPENSES> (947,564)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 130,702
<INCOME-PRETAX> (1,301,528)
<INCOME-TAX> (175,000)
<INCOME-CONTINUING> (1,126,568)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,126,528)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
