SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO ______
Commission File Number 0-7349
eNote.com, Inc.
(formerly Webcor Electronics, Inc.)
(Name of small business issuer in its charter)
Delaware 59-345315
(state or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
185 Allen Brook Lane, Williston, Vermont 05495
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (802) 288-9000
Securities Registered under Section 12(b) of the Exchange Act:
Title of Classes Name of Each Exchange on Which Registered
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Common Stock, par value $.01 per share. Not applicable.
Securities Registered under Section
12(g) of the Exchange Act: None.
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the Issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ ]No [X]
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
[ ]
The issuer's revenues for its most recent fiscal year were $0.
As of June 30, 1999, the Issuer had 10,049,481 shares of Common Stock, $.01
par value, outstanding. On that date, the aggregate market value of the Common
Stock held by non-affiliates of the Issuer was $9,680,958 (based on the average
of the reported high and low sales prices on Nasdaq's over-the counter market on
such date). For purposes of determining this market value, 8,205,489 shares of
Common Stock held by affiliates are excluded.
Transitional Small Business Disclosure Format (check one):
Yes [ ]No [X]
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PART I
Item 1. Description of Business
Corporate Background Information
eNote.com, Inc., formerly Webcor Electronics, Inc. (the "Registrant"), was
incorporated on December 3, 1971, under the laws of the State of Delaware.
Except where the context indicates otherwise, as used herein, "Company" means
the Registrant together with any wholly-owned subsidiaries of the Registrant. On
February 1, 1989, the Company filed a voluntary petition under Chapter 11 of the
Bankruptcy Act (Case No. 89-10328) in the U.S. Bankruptcy Court for the Eastern
District of New York (the "Court"). On October 16, 1990, the Company's case
under Chapter 11 was voluntarily converted into a case under Chapter 7 of the
Bankruptcy Act. As a result of the voluntary conversion of the Company's
bankruptcy case (the "Bankruptcy"), all assets of the Company were transferred
to the Trustee in Bankruptcy on the conversion date and the Company ceased all
operations. Subsequently, the Trustee in Bankruptcy effected an orderly
liquidation of corporate assets and used the proceeds to repay the Company's
creditors. On November 13, 1996, the Company's case under Chapter 7 was closed
by an order of the Court and the Trustee in Bankruptcy was discharged. As a
result of the Bankruptcy, as of March 31, 1999, the Company had no assets,
liabilities or ongoing operations and had not engaged in any business activities
since February, 1990.
During the pendency of the Bankruptcy, the management of the Company did not
file franchise tax returns with, or pay the required franchise taxes to, the
State of Delaware. As a result, the Company's corporate charter was revoked by
order of the Secretary of State of the State of Delaware on March 1, 1991.
Similarly, the Company did not file with the SEC either (a) the regular reports
that are required of all companies that have securities registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or (b) a
certification on Form 15 terminating its registration under the Exchange Act. As
a result, the Company remained a registrant under the Exchange Act but was
delinquent in its SEC reporting obligations.
Acting in its capacity as a stockholder of the Company, and without first
receiving any consent, approval or authorization of any officer, director or
other stockholder of the Company, Capston Network Company ("Capston") filed a
Certificate for Renewal and Revival of Charter with the Secretary of State of
the State of Delaware on December 26, 1996 (such filing, the "Revival").
Thereafter, Capston filed a Form 10-K for the fiscal years ending March 31,
1989-1996. In each of 1997 and 1998, Capston caused the Company to send to its
stockholders a Notice of Special Meeting and Proxy Statement describing a number
of proposals relating to a plan of reorganization proposed by Capston. The 1997
Special Meeting failed to achieve a quorum of stockholders, but a revised plan
of reorganization was approved on March 23, 1999, after several adjournments of
the 1998 Special Meeting. Detailed disclosures respecting such plans of
reorganization are set forth in the Company's Proxy Statements filed January 30,
1997 and April 27, 1998 which are incorporated herein by reference.
The revised plan of reorganization contemplated the Company seeking a
suitable business combination. As of April 5, 1999, a business combination was
consummated when the Company acquired Navis Technologies, Ltd. ("Navis").
Details regarding such business combination can be found in the Company's
Current Reports on Forms 8-K filed April 5, and April 20, 1999, any amendments
to such Current Reports and the Company's Information Statement to be filed in
accordance with Rule 14f-1 of the Exchange Act, which are incorporated herein by
reference.
Following the combination with Navis, in the course of preparing the
Company's securities reports, management was advised by counsel of a number of
potential irregularities in the corporate procedures by which the Revival and
certain associated matters were implemented. These matters and the manner in
which they were addressed included the following: (i) the procedure by which the
Revival was effected was corrected by filing a Certificate of Correction with
the Secretary of State of Delaware rendering the earlier filing by the Company
null and void and filing a new Certificate of Restoration, Renewal and Revival;
(ii) the procedure by which the Company's name was changed from Webcor
Electronics, Inc. was corrected by filing a Corrected Certificate of Amendment
to the Company's Certificate of Incorporation to render null and void an earlier
amendment relating to such name change and effecting such name change by merging
a newly formed wholly-owned subsidiary of the Company with and into the Company
with the Company as the surviving corporation in such merger and adopting the
name "eNote.com, Inc."; and (iii) the procedure by which the Company effected
its 1 for 6.75 reverse stock split was corrected by filing a Corrected
Certificate of Amendment clarifying that the Company effected a 1 for 12 reverse
stock split followed immediately by a stock distribution of ((12/6.75)-1) shares
of Common Stock for each 1 share of Common Stock theretofore outstanding,
effectively producing a 1 for 6.75 reverse split. As described in the Company's
Proxy Statement filed April 27, 1998, no fractional shares were issued in
connection with the reverse split or the stock distribution and the Company did
not pay cash in lieu of such shares. Instead, the number of shares issued to
shareholders entitled to fractional shares were "rounded up" to the next whole
number. In addition, shareholders of record who held at least 100 shares prior
to the 1 for 12 reverse stock split were issued no fewer than 100 shares after
the 1 for 12 reverse stock split. These procedures resulted in the issuance of
approximately 41,978 additional shares of Common Stock by the Company for which
the Company received payment of $419.79 from Capston, which the Board of
Directors has determined is adequate consideration for the issuance of such
shares. The Company believes that the actions described above are an effective
and practical way of addressing these matters. Ms. Fonner temporarily assumed
the role of Chief Executive Officer of the Company, in order to enable her to
take certain actions described above.
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Operations
The Company, as of March 31, 1999, had not been engaged in any operations
since its bankruptcy. As of April 5, 1999, the Company acquired Navis. For a
description of certain risks, readers are urged to carefully review the
information set forth below under the caption "Management's Discussion and
Analysis or Plan of Operation--Certain Trends and Uncertainties."
History of Navis and the TVEmail Technology.
Navis was founded in 1996 for the purpose of developing and commercializing
communication appliances, electronic point of sale devices and infrared ("IR")
subsystems for network computer ("NC") and other "thin client" data retrieval
and storage systems. In an NC environment, memory and processing intensive
computer tasks are performed on a remote computer and the user relies on a small
and relatively unsophisticated data entry and retrieval device (a so-called
"thin client") that is connected to the main computer. Navis has sold its remote
controls to three NC manufacturers, and such sales accounted for approximately
$32,000 of Navis' revenue for its fiscal year ended December 31, 1998. Navis
receives royalty revenues from third party sales of certain chips, advanced
remote control units, and wireless keyboards, and such royalties totalled
approximately $26,000 in 1998. Navis has also derived revenue from contract
engineering and consulting work in the field of NC input devices and wireless
communications, with such revenue amounting to approximately $176,000 in 1998.
Navis' management concluded that a market exists for simple, low cost
information appliances that would give users easy access to e-mail and a limited
variety of online services. Early in 1998, Navis discontinued its remote
control, contract engineering and consulting operations in order to focus
exclusively on developing the concept and technology of the TVEmail hardware,
software and related server systems. The Company is currently seeking to launch
commercial sales of the TVEmail system.
The TVEmail System
The TVEmail system is comprised of two principal elements: an in-home
terminal, including an IR receiver, IR keyboard and accessories (the "Client
Hardware"), and the Company's proprietary back-end server systems (the
"ServerSystems").
The TVEmail system is intended to give users easy access to e-mail,
information gathering, and online shopping services in a format that may be less
expensive and complex than internet access technologies which operate on
personal computer ("PC") or NC platforms. The TVEmail system is designed to link
the ServerSystems with inexpensive Client Hardware that is connected directly to
customers' existing televisions.
While the Company has completed the initial design phase, the technology and
infrastructure of the TVEmail system has not yet been completed, and there can
be no assurance that it will ever be distributed commercially. The Company
currently plans to commence initial pilot production of TVEmail in October 1999,
and, depending on the success of the Company's field trials and financing
efforts, the Company may commence full scale commercial deployment of the
TVEmail system as early as the third quarter of fiscal 2000. In addition to
other risks and uncertainties, including those set forth below under the caption
"Management's Discussion and Analysis or Plan of Operation--Certain Trends and
Uncertainties," before the Company can begin to sell its TVEmail system, the
Company must first complete its design of the graphical user interface ("GUI"),
complete the engineering of the Client Hardware and the ServerSystems and secure
financing and arrangements for the manufacture and distribution of commercial
quantities of the Client Hardware.
The Company intends to provide the Client Hardware and its online service to
customers at aggressively competitive prices. Such services may include
unlimited e-mail access, daily news, weather, sports, catalog shopping, fast
food delivery, as well as other consumer services, however, there can be no
assurances regarding what services will be offered, if any.
Business Strategy.
The Company's business strategy is focused on developing the TVEmail system
and related services. The following may constitute key elements of the Company's
business strategy, however, the Company's strategy may change at any time. Each
of the following will depend upon the successful completion of the TVEmail
system and setting up appropriate manufacturing, marketing and distribution
mechanisms, of each of which there can be no assurance.
Provide easy to use and cost-effective e-mail and online service access. To
use the TVEmail system, a consumer will need only his or her existing
television, a phone line and the TVEmail Client Hardware.
Penetrate global markets. The Company believes that the market for the
TVEmail system is global in scope, and the Company may seek to deploy its
ServerSystems in the United States and various foreign markets. The Company
believes that, due to the simplicity and low cost of the TVEmail system, it may
become popular in less
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developed countries, and the Company may develop local content directories and
user interfaces in multiple languages for the TVEmail system should the demand
arise.
Create brand identity. The Company intends to create an identity for its
TVEmail system under the brand name "TVEmail."
Provide value for advertisers and e-commerce merchants. Due to the nature of
the TVEmail system and the Company's ability to sort its customers on the basis
of location or other demographic information, the Company believes it can offer
advertisers, online merchants and other providers of online services the ability
to specifically target their promotions and surveys.
Acquisition of Assets
Pursuant to a Stock Purchase Agreement (the "SolutioNet Agreement") entered
into on August 6, 1999 by and among James D. Richards, III, Martine Richards,
the Company and SolutioNet, Ltd. ("SolutioNet"), the Company purchased 55% of
the outstanding common stock of SolutioNet (the "Purchased SolutioNet Stock")
for $250,000. Certain employees of SolutioNet are entitled to receive options to
purchase non-voting common stock equivalent to an aggregate of up to
approximately 10% of SolutioNet's common stock at an exercise price of $.01 per
share. Such series of non-voting common stock is not currently authorized by
SolutioNet's Certificate of Incorporation. Mr. Richards is an employee of the
Company. SolutioNet's assets include certain proprietary technology related to
IR devices that the Company may use in its TVEmail system. The SolutioNet
Agreement provides that the Company may require the Richardses to re-purchase
the Purchased SolutioNet Stock for $250,000, upon the occurrence of certain
events. The SolutioNet Agreement further provides that, for a period of two
years, the Richardses shall have the right and option to re-purchase the
Purchased SolutioNet Stock from the Company for $250,000 if exercised during the
first year or for an amount determined by independent appraisal of the value of
the Purchased SolutioNet Stock if exercised during the second year, if: (i) Mr.
Richards' employment by the Company is terminated for any reason; (ii) any of
the terms of Mr. Richards' employment by the Company are changed in any way
detrimental to the Richardses; (iii) the Company becomes insolvent, is dissolved
or liquidated, takes any action related to its dissolution or winding up or
enters proceedings under any law relating to bankruptcy, insolvency,
reorganization or relief from debts; (iv) the Company's market value declines to
less than $15 million; or (v) Mr. Richards' level of equity ownership in the
Company is diluted by more than thirty percent (30%).
In connection with the SolutioNet Agreement, SolutioNet entered into a
Consulting Agreement with Mr. Richards (the "SolutioNet Consulting Agreement"),
whereby Mr. Richards is to provide Consulting Services (as defined in the
SolutioNet Consulting Agreement) to SolutioNet for a period of two years
commencing on August 6, 1999, in exchange for $2,083 per month payable only to
the extent that SolutioNet has Available Funds (as defined in the SolutioNet
Consulting Agreement). Furthermore, in connection with the SolutioNet Agreement,
the Richardses, the Company and SolutioNet entered into a Shareholders'
Agreement (the "SolutioNet Shareholders' Agreement"), pursuant to which the
Richardses and the Company agreed to take certain actions (i) to fix the number
of directors that constitute the entire Board of Directors of SolutioNet at
three, and (ii) to elect as members of the Board of Directors of SolutioNet one
designee of Mr. Richards, one designee of the Company and one director mutually
acceptable to the Richardses and the Company. The SolutioNet Shareholders'
Agreement also contains certain negative covenants with respect to changing
SolutioNet's business, Certificate of Incorporation or Bylaws, entering into
certain types of transactions and terminating the SolutioNet Consulting
Agreement, among other things.
Pursuant to an Asset Purchase Agreement (the "WebATM Agreement"), dated as
of August 13, 1999, between WebATM.com, Inc., a newly-formed wholly-owned
subsidiary of the Company ("WebATM.com"), and Gary Cronin, an employee of the
Company, WebATM.com agreed to purchase certain assets consisting of a website
with programmed web pages, text and graphics, the "WEBATM.COM" domain name and
common law rights in the tradename "WebATM" (collectively, the "WebATM Assets"),
for $100,000. The WebATM Assets represent incomplete technology relating to a
publicly accessible user interface for certain on-line financial services. In
connection with the WebATM Agreement, Mr. Cronin agreed not to engage in certain
activities deemed competitive with those of WebATM.com.
Service Marks, Patents and Proprietary Technology
The Company has registered its intent to use the "TVEmail" and "eNote"
service marks in the United States. The Company has also registered a series of
domain names with Internic, Inc. and Network Solutions, Inc. The Company
currently owns the trademark "Airmouse" and nine (9) patents relating to IR
technology and protocols. The Company is also developing proprietary
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software. The Company relies primarily on common law to protect its technology,
however there can be no assurance that this protection will be sufficient. The
Company also licenses certain software to be incorporated into the Company's
products and certain development tools for internal use in product design. The
Company believes that an inability to effectively protect its intellectual
property could have a material adverse effect on the Company's financial
condition and results of operations. See "Management's Discussion and Analysis
or Plan of Operation-Certain Trends and Uncertainties-Uncertainty Regarding
Patents and Proprietary Technology" and "Management's Discussion and Analysis or
Plan of Operation-Certain Trends and Uncertainties-Technology Licensed From
Third Parties."
Competition
The competitive market for e-mail and online service access may limit demand
or pricing for the TVEmail system. The Company expects to experience intense
competition from established online service providers such as America Online,
Inc., Prodigy Communications Corporation and Microsoft Corporation's WebTV(TM).
Many companies provide e-mail and online service access and other services,
which provide functionality superior to those included in the TVEmail system. As
a result of this competition, demand for the TVEmail system may suffer, the
Company may be restricted in the service rates it can charge for the TVEmail
system and the Company's business, financial condition and results of operations
may be adversely affected. Many of the Company's competitors have significantly
greater financial, technical, marketing, distribution, customer support and
other resources than the Company does. Furthermore, many of the Company's
competitors have significantly greater experience, better name recognition, more
compelling content and easier access to consumers, advertisers and online
service providers than the Company does.
Research and Development
The Company had not engaged in any research and development activities in
its last two fiscal years. Since acquiring Navis after the close of the last
fiscal year, the Company has been incurring, and expects to continue to incur,
significant research and development expenses. See "Management's Discussion and
Analysis or Plan of Operation -- Plan of Operation." Navis had research and
development expenses of $185,000 and $0 for the years ending December 31, 1998
and 1997 respectively. None of Navis' research and development was sponsored by
Navis' customers.
Employees
As of June 30, 1999, the Company had 13 full-time employees (including its
executive officers) and two part-time employees. The Company also engages
several consultants who are employed on a full-time basis by others. The Company
is not subject to any collective bargaining agreements and the Company considers
its relations with employees to be good.
Item 2. Description of Property
As a result of the Bankruptcy, the Company had no assets, liabilities or
ongoing operations and had no plants or other property as of March 31, 1999.
The Company leases 14,548 square feet of office and light manufacturing
space in Williston Vermont from AirMouse House Ltd. Partnership, a Vermont
limited partnership of which John R. Varsames is the General Partner. See Item
12, "Certain Relationships and Related Transactions." The Williston lease
expires on May 31, 2004 and provides for annual payments of $100,000, with
annual adjustments for certain changes in the consumer price index. The
Williston lease provides the Company with the option to extend the lease for
another five year term. The Company has sublet approximately 2,500 square feet
of office space in the first floor of the Williston premises to a subtenant
until May 31, 2001 at an annual rent of $26,125. The Company also leases
approximately 750 square feet of office space in New York City. The New York
lease expires on September 30, 2000 and provides for monthly rent payments of
$1,780.71 until September 30, 1999, and $2,155.92 thereafter. The Company
believes that its current properties are adequate for the Company's immediate
needs. However, if the Company were to manufacture the Client Hardware in
commercial quantities, it would need to obtain substantial additional
properties. Also, if the Company were to develop significant in-house marketing
or customer service departments, additional space may be required. While the
Company believes that it could acquire or lease additional properties as any
need may arise, there can be no assurance that any such additional space could
be obtained by the Company on acceptable terms, or at all.
Item 3. Legal Proceedings
Not Applicable.
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Item 4. Submission of matters to a vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 1999.
The stockholders approved the plan of reorganization set forth in the Proxy
Statement filed April 27, 1998 at a meeting held June 19, 1998 that was
adjourned and continued every 30 days or less through March 23, 1999 at which
time a quorum was reached. Detailed disclosure respecting such plan of
reorganization is set forth in the Proxy Statement filed April 27, 1998 which is
incorporated herein by reference.
PART II
Item 5. Market for Company's Common Equity
As of March 31, 1999, the Common Stock had been thinly and sporadically
traded for years. The Company's trading symbol was WBET during fiscal 1999 and
it traded on the NASD Over the Counter Bulletin Board (the "OTCBB"). The
following table sets forth the high ask and low bid quotations for the Company's
Common Stock during each quarter within the last two fiscal years and the first
quarter of fiscal 2000. The amounts represent inter-dealer quotations without
adjustment for retail markups, markdowns or commissions and do not necessarily
represent the prices of actual transactions. All prices have been adjusted for
the 1 for 12 reverse stock split followed immediately by the stock distribution
of ((12/6.75)-1) shares of Common Stock for each 1 share of Common Stock
theretofore outstanding, both effected by the Company as of April 2, 1999
(collectively, the "Reverse Stock Split").
High Ask Low Bid
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Fiscal year ended March 31, 1998
First quarter $3 3/8 $0 81/256
Second quarter $1 11/16 $0 27/256
Third quarter $1 11/16 $0 81/256
Fourth quarter $1 17/64 $0 27/256
Fiscal year ended March 31, 1999
First quarter $1 61/128 $0 27/256
Second quarter $1 7/128 $0 27/256
Third quarter $0 27/32 $0 27/256
Fourth quarter $1 149/256 $0 27/256
Fiscal year ended March 31, 2000
First quarter $15 $0 81/256
At June 30, 1999, the Common Stock was held by 1,004 holders of record
(including 831 holders who had not yet exchanged their certificates pursuant to
the Reverse Stock Split). At June 30, 1999, the high ask and low bid prices for
the Common Stock on the OTCBB were $5 1/2 and $5, respectively. As of April 5,
1999 the Company has been trading under the symbol, ENOT, on the OTCBB.
The Company has not paid, and currently has no intention to pay, any cash
dividends on its Common Stock. Any decision to declare dividends in the future
will be made by the Company's Board of Directors and will depend upon the
Company's future earnings, capital requirements, financial condition and other
factors deemed relevant by the Company's Board of Directors.
On July 14, 1998 and September 9, 1998, Navis sold $200,000 and $250,000
principal amount of 1 Year 18% Convertible Debentures ("18% Debentures") to Dr.
Peter Stern and Dr. Peter Swift, respectively, for face value. On January 8,
1999 Navis sold a $50,000 convertible promissory note (the "Note") due and
payable (together with a $10,000 financing fee) immediately upon the receipt by
Navis of any funds from certain enumerated financing transactions, but in any
event no later than July 8, 1999, for face value to Robert Jones. On March 23,
1999, Navis sold a $100,000 principal amount 1 Year 12% Convertible Debenture
(the "Old 12% Debenture") to Friedlander Capital Management, Inc. for face
value. Each of the 18% Debentures, Note and 12% Debentures was sold in a
transaction exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933, as amended. The 18% Debentures, Note and Old 12% Debentures were
each convertible, upon an equity offering prior to such instrument's maturity,
into equity securities of Navis or any corporation ultimately formed by Navis or
any of Navis' owners for the purpose of manufacturing and distributing the
TVEmail technology, at a conversion price equal to the offering price of such
equity securities. As of
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April 6, 1999, the Company repaid Dr. Stern's 18% Debenture and the other 18%
Debenture, Note and Old 12% Debentures were converted into shares of Common
Stock at $1.00 per share.
Between April 7, 1998 and March 23, 1999, Navis issued 15 separate 12%
Promissory Notes (the "Varsames Notes") to John R. Varsames in an aggregate
principal amount of approximately $223,647. The Varsames Notes were issued in
transactions exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933, as amended. The Varsames Notes are payable on demand, and on March
29, 1999, April 9, 1999 and June 9, 1999, Navis repaid an aggregate of
approximately $250,147 principal amount of Varsames Notes and approximately
$17,081 accrued interest thereon.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Forward-Looking Statements
When used in this report, press releases and elsewhere by the Company and
its management from time to time, the words "believes," "anticipates," "intends"
and "expects" and similar expressions are intended to identify forward-looking
statements that involve a number of risks and uncertainties. Additionally,
statements contained in this discussion that are not historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Exchange Act, including
statements regarding expectations, beliefs, intentions or strategies regarding
the future. The Company intends that all forward-looking statements be subject
to the safe-harbor provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements reflect the Company's views as of the
date they are made with respect to future events and financial performance, but
are subject to many risks and uncertainties, which could cause the actual
results of the Company to differ materially from any future results expressed or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially or adversely include, without limitation, any
inability or delay in the development of the Client Hardware, GUI or
ServerSystems or the manufacture of Client Hardware as well as the other risks
described below under the caption "Certain Trends and Uncertainties." The
Company does not undertake to update forward-looking statements.
Plan of Operation
As a result of the Bankruptcy, as of March 31, 1999, the Company had no
assets, liabilities, or ongoing operations and had not engaged in any business
activities since February 1990. The Company had no operations during the year
ended March 31, 1999 and no material assets or liabilities as of March 31, 1999.
In a transaction consummated as of April 5, 1999, the Company acquired all
of the capital stock of Navis in exchange for 8 million shares of Common Stock.
In a transaction consummated as of April 6, 1999, the Company raised $5 million
in gross proceeds through the sale of Preferred Stock and Warrants to
Friedlander. Further details regarding such transactions can be found in the
Company's Current Reports on Forms 8-K filed April 5, and April 20, 1999, any
amendments to such Current Reports and the Company's Information Statement to be
filed in accordance with Rule 14f-1 of the Exchange Act, which are incorporated
herein by reference.
The Company raised $5 million as of April 6, 1999, and otherwise has no
capital resources. The Company intends to use this capital to continue its
development of the Client Hardware, to install ServerSystems to run the TVEmail
network, to complete the GUI, to perform marketing studies and to produce the
pilot production runs for TVEmail. The Company expects to complete such
endeavors in the third quarter of fiscal 2000 and believes that the $5 million
will satisfy its cash requirements to do so. However, in order for the Company
to begin mass production of the Client Hardware or to initiate sales and
marketing efforts relating to the TVEmail service, the Company anticipates it
will have to raise substantial additional funding through public or private debt
or equity financing in the third quarter of fiscal 2000. There can be no
assurance that the Company will be able to raise such funds, and, if it cannot,
its business may be materially and adversely affected.
The TVEmail system is comprised of two principal elements: the Client
Hardware; and the ServerSystems. The Company has completed the initial design
phase on both the Client Hardware and the ServerSystems and is now performing
value engineering on the Client Hardware. The Company expects that beta versions
of the Client Hardware may become available for pilot deployment early in the
third quarter of fiscal 2000. The Company currently plans to commence initial
pilot production in October 1999, and, depending on the success of the Company's
field trials and financing efforts, the Company may commence full scale
commercial deployment of the TVEmail system as early as the third quarter of
fiscal 2000. However, such schedule is subject to many risks and uncertainties,
including those set forth below under the caption "Certain Trends and
Uncertainties," and the Company's progress towards commercial deployment of the
TVEmail system may be made at a significantly slower rate, through different
avenues, or not at all.
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During the fiscal year ending March 31, 2000 the Company expects its
research and development efforts to be focused on the final development and
production of version 1 of the TVEmail device and further research and
development for version 2 of the TVEmail device. The Company expects to spend
approximately $1.3 million on research and development in fiscal 2000, however,
there can be no assurance that unanticipated technical obstacles, lack of funds,
changes in strategy or other factors will not cause actual research and
development expenses to differ materially from the Company's expectations.
The Company plans to purchase approximately $400,000 to $500,000 in computer
equipment, lab equipment and development tools over the next twelve months.
These capital outlays could be substantially greater, if the Company decides to
handle certain functions, such as manufacturing, marketing or customer service
in-house as opposed to contracting them out.
As of June 30, 1999, the Company had 13 full-time employees (including its
executive officers) and two part-time employees. Within the next twelve months,
the Company expects to hire approximately 10 additional employees in each of its
technology and marketing departments. The number of hires may increase
substantially if the Company decides to handle certain functions, such as
manufacturing, marketing or customer service in-house. The Company has not yet
decided whether it will seek to establish the internal resources necessary for
any of such functions, and the necessity for such functions can only be assessed
once the TVEmail system is ready for mass production, if ever.
While the Company currently plans to begin its sales of its TVEmail device
and its internet service in the third quarter of fiscal 2000, there can be no
assurance that difficulties in research and development, network development,
manufacturing or financing, or other factors will not delay the launch date or
prevent such launch altogether.
Certain Trends and Uncertainties
In addition to the other information contained in this Annual Report on Form
10-KSB, the following factors should be considered carefully.
RISKS RELATING TO THE COMPANY'S CORPORATE STRUCTURE AND
FINANCIAL RESOURCES
Need for Additional Funds
The Company raised $5 million as of April 6, 1999, and otherwise has no
capital resources. The Company intends to use this capital to finalize its
development of the Client Hardware, to install ServerSystems to run the TVEmail
network, to complete the GUI, to perform marketing studies and to produce the
pilot production runs for TVEmail. The Company expects to complete such
endeavors in the third quarter of fiscal 2000 and believes that the $5 million
will satisfy its cash requirements to do so. However, in order for the Company
to begin mass production of the Client Hardware or to initiate sales and
marketing efforts relating to the TVEmail service, the Company anticipates it
will have to raise substantial additional funds. The Company intends to seek
additional funding through public or private financings, which may include debt
or equity financings. Adequate funds for these purposes, whether obtained
through financial markets or collaborative or other arrangements with corporate
partners or from other sources, may not be available when needed or on terms
acceptable to the Company. Insufficient funds may require the Company: to delay,
scale back or eliminate some or all of its research and product development
programs; to license third parties to commercialize products or technologies
that the Company would otherwise seek to develop itself; to sell itself to a
third party; to cease operations; or to declare bankruptcy.
If the Company raises additional funds through the issuance of debt
securities, the holders of the debt securities will have a claim to the
Company's assets that will be prior to any claim of the stockholders. Interest
on any debt securities could increase the Company's costs and negatively impact
its operating results. If the Company raises additional funds through the
issuance of preferred stock, the terms of such preferred stock may provide that
the holders of such preferred stock are entitled to receive dividends and/or
distributions upon liquidation prior to the holders of Common Stock.
Furthermore, any such preferred stock may have class voting rights, conversion
features and/or antidilution protections of which the Common Stock does not have
the benefit. If the Company raises additional funds through the issuance of
Common Stock or securities convertible into or exchangeable for Common Stock,
the percentage ownership of the Company's then-existing stockholders will
decrease. In addition, any such convertible or exchangeable securities may have
rights, preferences and privileges more favorable to the holders than those of
the Common Stock.
- 8 -
<PAGE>
Lack of Operational Continuity
Because of the Company's Bankruptcy, the nature of the Revival and the plan
of reorganization approved by the Company's shareholders, there has not been
continuity in the Company's operations. As a result, relevant records may be
unavailable to management and this may adversely affect the Company's ability to
document its prior operations and corporate proceedings.
Subordination of Common Stock to Preferred Stock; Risk of Dilution;
Anti-Dilution Adjustments.
In the event of the liquidation, dissolution or winding up of the Company,
the Common Stock is expressly subordinate to the $5 million preference of the 5
million outstanding shares of Preferred Stock. The conversion rate of the
Preferred Stock is subject to adjustment, among other things, upon issuances of
Common Stock or securities convertible into Common Stock or rights to purchase
Common Stock that have not been expressly approved in writing by a majority in
interest of the holders of Preferred Stock or their elected representatives. As
of June 30, 1999, each share of Preferred Stock is convertible into 1 share of
Common Stock.
Concentration of Ownership and Control.
Under the terms of the Reorganization Agreement, dated April 5, 1999,
between and among the Company, Navis and the stockholders of Navis, promptly
after compliance with Section 14(f) of the Exchange Act, the Board shall have a
meeting at which all of the then-directors shall resign and shall elect as
members of the Company's Board such individuals as the former stockholders of
Navis shall designate to the Company in writing. The right of the Navis
stockholders to so designate Board members is expressly subject to the
provisions of a Purchase and Sale Agreement between the Company and Friedlander,
dated April 6, 1999 (the "Friedlander Agreement"), which provides that: (A)
until the sooner of (i) the fifth anniversary of the date of the Friedlander
Agreement and (ii) such time as Friedlander is the beneficial owner of less than
10% of the issued and outstanding voting securities of the Company, Friedlander
shall be entitled to appoint two members of the Board; and (B) the Company shall
promptly take such action as may be required to amend its By-laws to provide
that, for so long as Friedlander has a right to appoint two members of the
Board, the total number of members constituting the entire Board shall not
exceed seven. Furthermore, Mr. Varsames and Friedlander each hold a substantial
portion of the Company's voting securities. Accordingly, Mr. Varsames and
Friedlander each have the ability to exert significant influence over the
election of the Company's Board of Directors and other matters submitted to the
Company's stockholders for approval. These arrangements may discourage or
prevent any proposed takeover of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over the then
current market prices. See also "Certain Trends and Uncertainties--Anti-Takeover
Provisions and Delaware Law May Have Adverse Effects on the Company's Stock
Price" below.
The Company's Anti-Takeover Provisions and Delaware Law May Have Adverse Effects
on the Market Price of the Common Stock.
There are provisions in the Company's certificate of incorporation, its
bylaws and Delaware law that make it more difficult for a third party to obtain
control of the Company, even if doing so would be beneficial to the holders of
Common Stock. These anti-takeover provisions, which could depress the market
price of the Common Stock, include: (a) the division of the Board of Directors
into three classes so that only one-third of our directors are elected each year
and are elected for terms of three years; and (b) the authority of the Board of
Directors to amend or repeal bylaws without the consent or vote of the holders
of Common Stock.
Volatility of Stock Price; Market Overhang from Outstanding Convertible
Securities and Warrants.
The market price of the Company's Common Stock, like that of the common
stock of many other technology companies, has been highly volatile and may be so
in the future. In the past, companies that have experienced volatility in the
market price of their stock have been subject to securities class action
litigation. If the Company were subject to a securities class action lawsuit, it
could result in substantial costs and a significant diversion of resources,
including management time and attention.
- 9 -
<PAGE>
No predictions can be made of the effect that future market sales of the
shares of Common Stock underlying the Preferred Stock and Warrants, or the
availability of such securities for sale, will have on the market price of the
Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock, or the perception that such sales might occur, could adversely
affect prevailing market prices.
The Market For the Common Stock May Be Illiquid.
The Common Stock is currently trading on the NASD Over the Counter Bulletin
Board. The trading market for the Common Stock may be "thin" and "illiquid",
which can result in increased volatility in the trading prices for the Common
Stock. See "Certain Trends and Uncertainties--The Company's Stock Price May Be
Extremely Volatile." There can be no assurance that an active trading market for
the Common Stock will develop or be sustained. If there is no active trading
market for the Common Stock, holders may not be able to resell their shares at a
satisfactory price, if at all. The prices at which the Common Stock may trade in
the future cannot be predicted and will be determined by the market.
Dividends.
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. The Company currently intends to retain its
earnings, if any, for the development of its business.
Need for and Dependence on Qualified Personnel.
The Company's success is highly dependent on the hiring and retention of key
personnel and technical staff. The loss of key personnel or the failure to
recruit necessary additional personnel or both could impede the achievement of
development objectives. There is intense competition for qualified personnel in
the areas of the Company's activities, and there can be no assurance that the
Company will be able to attract and retain the qualified personnel necessary for
the development of its business. Many of the Company's competitors have
significantly greater financial and other resources than it does and may be able
to offer more lucrative compensation packages which include stock options and
other stock-based compensation and higher-profile employment opportunities than
the Company can.
The Company's Certificate of Incorporation Provides Officer and Director
Indemnification and Limits Their Liability.
The Company may have to spend significant resources indemnifying its
officers and directors or paying for damages caused by their conduct. The
Delaware General Corporation Law provides for broad indemnification by
corporations of their officers and directors and permits a corporation to
exculpate its directors from liability for their actions. The Company's
certificate of incorporation implements this indemnification and exculpation to
the fullest extent permitted under this law as it currently exists or as it may
be amended in the future. Consequently, except as otherwise provided by law,
none of the Company's officers or directors will be liable to the Company or to
its stockholders for monetary damages resulting from conduct in such capacities.
RISKS RELATING TO THE COMPANY'S OPERATIONS AND TECHNOLOGIES
Limited Operating History; Recent Shift in Business Strategy.
Immediately prior to the Company's acquisition of Navis on April 5, 1999,
the Company had no business operations. Navis itself was founded in June 1996
and, since then, has supplied infrared protocol and advanced input devices to NC
manufacturers, and has provided contract engineering and consulting services.
However, Navis' revenues from operations never exceeded $703,000 in any given
year. In 1998, Navis shifted its business emphasis to focus entirely on the
development of the TVEmail service but has yet to launch such service
commercially or to receive any revenue from such service. As a result, the
Company has only a limited operating history and there is little historical
information on which to evaluate its business and prospects. The Company's
revenue, if any, for the foreseeable future is almost entirely dependent on
successfully bringing its TVEmail service to market and on the number of
customers, if any, who subscribe to the TVEmail service. There can be no
assurance that the Company will be successful in implementing any of its
business strategies.
Once the basic TVEmail service is marketed, if ever, the Company intends to
attempt to expand its operations by developing and marketing new or
complementary services or systems. However, there can be no assurance that the
Company will be able to do so effectively. Although the Company believes that,
in the future, it will be able to use the TVEmail service as a platform to
provide e-mail and certain additional services, there can be no assurance
thereof.
- 10 -
<PAGE>
The Company Depends on its Intellectual Property, Which May Be Difficult and
Costly to Protect.
The Company's intellectual property consists of proprietary or confidential
information that is not currently subject to patent, trademark or similar
protection. Although the Company has applied for trademark protection for the
eNote and TVEmail names, the Company may not be able to secure significant
protection for these trademarks. If the Company's competitors or others adopt
product or service names similar to eNote or TVEmail, it may impede the
Company's ability to build brand identity and customer loyalty. The Company
relies primarily on secrecy to protect technology, especially where patent
protection is not believed to be appropriate or obtainable. No assurance can be
given that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
trade secrets, or that the Company can effectively protect its rights to its
unpatented trade secrets.
The validity, enforceability and scope of protection of certain proprietary
rights in internet-related businesses are uncertain and still evolving. If
unauthorized third parties are able to copy the Company's service or its
business model or to use its confidential information to develop competing
services, the Company may lose customers and its business could suffer. The
Company may not be able to effectively police unauthorized use of its technology
because such policing is difficult and expensive. In particular, the global
nature of the internet makes it difficult to control the ultimate destination or
security of software or other data transmitted. Furthermore, the laws of other
countries may not adequately protect the Company's intellectual property.
The Company's business activities and the TVEmail service may infringe upon
the proprietary rights of others. In addition, other parties may assert
infringement claims against the Company. Any such claims and any resulting
litigation could subject the Company to significant liability for damages and
could also result in invalidation of its proprietary rights. The Company could
be required to enter into costly and burdensome royalty and licensing
agreements. These agreements may not be available on terms acceptable to the
Company, or may not be available at all. The Company may also need to file
lawsuits to defend the validity of its intellectual property rights and trade
secrets, or to determine the validity and scope of the proprietary rights of
others. Litigation is expensive and time-consuming and could divert management's
attention away from the Company's business.
Technology Licensed From Third Parties.
The Company has entered into agreements with, and has licensed certain
technology from, third parties. The Company has relied on scientific, technical,
commercial and other data supplied and disclosed by others in entering into
these agreements and will rely on such data in support of development of certain
products. Furthermore, the Company believes that it will license additional
technologies from third parties in the future. Although the Company has no
reason to believe that this information contains errors of omission or fact,
there can be no assurance that there are no errors of omission or fact that
would materially affect the commercial viability of these products.
Rapid Technological Change, Customer Demands and Intense Competition.
The e-mail service market is characterized by rapidly changing technology,
customer demands and intense competition. If the Company cannot keep pace with
these changes, its TVEmail service could become uncompetitive and its business
could suffer. If the Company is not successful in developing and marketing
enhancements to the TVemail service or new services that respond to
technological change or customer demands, the Company's business may be
materially and adversely effected.
The competitive market for e-mail and online service access may limit demand
or pricing for the TVEmail system. The Company expects to experience intense
competition from established online service providers such as America Online,
Inc., Prodigy Communications Corporation and Microsoft Corporation's WebTV(TM).
Many companies provide e-mail and online service access and other services,
which provide functionality superior to those included in the TVEmail system. As
a result of this competition, demand for the TVEmail system may suffer, the
Company may be restricted in the service rates it can charge for the TVEmail
system and the Company's business, financial condition and results of operations
may be adversely affected. Many of the Company's competitors have significantly
greater financial, technical, marketing, distribution, customer support and
other resources than the Company does. Furthermore, many of the Company's
competitors have significantly greater experience, better name recognition, more
compelling content and easier access to consumers, advertisers and online
service providers than the Company does.
- 11 -
<PAGE>
Management of Growth.
The Company's ability to implement its business plan successfully in a new
and rapidly-evolving market will require effective planning and growth
management. If the Company cannot manage its anticipated growth effectively, its
business and financial results may suffer. The Company plans to extend its
existing operations substantially, particularly those relating to manufacturing,
sales and marketing and technical support. The Company expects that it will need
to manage and broaden multiple relationships with customers, internet service
providers and other third parties. The Company also expects that it will need to
expand its financial systems, procedures and controls and will need to augment,
train and manage its workforce, particularly its information technology staff.
As a result, the Company's management and operating systems may be strained by
any growth and the Company may be unable to timely complete necessary
improvements to its operating systems, procedures and controls to support any
future operations.
Capacity Constraints May Impede Revenue Growth and Profitability.
The Company believes that satisfactory performance, reliability and
availability of its TVEmail appliances and ServerSystem infrastructure will be
critical to the Company's reputation and ability to attract customers and
maintain adequate customer service levels. Any significant or prolonged capacity
constraints could delay or prevent customers from sending or gaining access to
their documents or other data or services. Such constraints could decrease the
Company's ability to acquire and retain customers and prevent the Company from
achieving the necessary growth in revenue to achieve profitability. If the
amount of traffic increases substantially and the Company experiences capacity
constraints, the Company may need to spend significant amounts to expand and
upgrade its technology and network infrastructure. Furthermore, the Company may
be unable to predict the rate or timing of any increases in the use of its
services in order to respond in a timely manner.
The Company May Suffer Systems Failures and Business Interruptions Which Would
Harm its Business.
The Company's success will depend in part on the efficient and reliable
operation of TVEmail service sufficient to accommodate a large number of
subscribers. The Company intends to locate its ServerSystems at multiple sites
with redundant functions in order to reduce the risks of system failure,
however, the ServerSystems are vulnerable to damage from fire, power loss,
telecommunications failures, break-ins and other events, which could lead to:
interruptions or delays in the Company's service; loss of data; or the inability
to accept, transmit and confirm customer documents and data. The Company's
business may be materially adversely effected if its service is interrupted.
Although the Company intends to implement network security measures, its systems
may be vulnerable to computer viruses, electronic break-ins, attempts by third
parties deliberately to exceed the capacity of the systems and similar
disruptions, any of which could have a material adverse effect on the Company's
business.
Year 2000 Issues Could Impact the Company's Performance.
Many currently installed computer systems and software products have been
coded to accept or recognize only two digit entries to define the applicable
year. These systems may erroneously recognize the year 2000 as the year 1900.
This could result in major failures of malfunctions.
The Company believes that its ServerSystems and Client Hardware are year
2000 compliant, and, since the Client Hardware does not interact with any other
systems controlled by the customer, the year 2000 readiness of the Company's
clients should not impact the operation of TVEmail. However, telephony providers
and electronic bill paying services with which the TVEmail system may interact
may not become year 2000 compliant in a timely fashion, or at all. The failure
of a such entities to become year 2000 compliant could result in customers
ceasing use of the TVEmail service, the Company receiving bad publicity, or
other factors that may cause material harm to the Company's business.
RISKS RELATING TO THE INTERNET AND ONLINE COMMERCE
Privacy Concerns May Discourage Customers From Using The Company's Services.
Concerns over the security of online transactions and the privacy of users
may inhibit the growth of the internet as a means of delivering documents and
data. The Company may need to incur significant expenses and use significant
resources to protect against the threat of security breaches or to alleviate
problems caused by such breaches. The Company plans to rely on encryption and
authentication technology to provide secure transmission of confidential
information. If the Company's security measures do not prevent security
breaches, the Company could suffer operating losses, damage to its reputation,
litigation and possible liability. Advances in computer capabilities, new
discoveries in the field of cryptography or other developments may result in a
compromise or breach of the Company's encryption
- 12 -
<PAGE>
and authentication technology and could enable an outside party to steal
proprietary information or interrupt its operations.
Government Regulation and Legal Uncertainties Relating to the Internet Could
Harm the Company's Business.
Changes in the regulatory environment could decrease the Company's revenues
and increase its costs. The internet is largely unregulated and the laws
governing the internet remain unsettled, even in areas where there has been some
legislative action. It may take years to determine whether and how existing laws
such as those governing intellectual property, privacy and taxation apply to the
internet. In addition, because of increasing popularity and use of the internet,
any number of laws and regulations may be adopted with respect to the internet
or other online services covering issues such as: user privacy; security;
pricing; content; copyrights; distribution; taxation; and characteristics and
quality of services. Such regulations could impose additional costs or
interdicts on activities of the Company, which could have a material adverse
effect.
If the Internet Infrastructure Fails, the Company's Business May Suffer.
The Company cannot be certain that the infrastructure or complementary
services necessary to maintain the internet as a useful, convenient or secure
means of transferring documents and data will continue to develop. The internet
infrastructure may not support the demands that growth may place on it, and the
performance and reliability of the internet may decline, which could have a
material adverse effect on the Company's business.
The Company Depends on Third-Party Providers of Internet and Telecommunications
Service.
The Company's operations depend on third parties for internet access and
telecommunications. Frequent or prolonged interruptions of these services could
result in significant losses of revenues. These types of occurrences could also
cause users to perceive the Company's products as not functioning properly and
therefore encourage them to use other methods to deliver and receive
information. The Company has limited control over these third parties and there
can be no assurance that the Company will be able to maintain relationships with
any of them on acceptable commercial terms. Nor can there be any assurance that
the quality of services that they provide will remain at the levels needed to
enable the Company to conduct its business effectively. Each of these third
parties has experienced outages in the past, and could experience outages,
delays and other difficulties due to system failures unrelated to the Company's
systems.
Costs of Transmitting Documents and Data Could Increase.
The cost of transmitting documents and data over the internet could
increase, and the Company may not be able to increase its prices to cover such
rising costs. Several telecommunications companies have petitioned the Federal
Communications Commission to regulate internet and on-line service providers in
a manner similar to long distance telephone carriers and to impose access fees
on such providers. Also, foreign laws and state tax laws and regulations
relating to the provision of services over the internet are still developing. If
individual states impose taxes on services provided over the internet, the
Company's cost of providing our TVEmail services may increase.
Item 7. Financial Statements.
See the financial statements and notes related thereto included in this
report on pages F-1 through F-9.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not Applicable.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Sally A. Fonner...................... 50 Director
John R. Varsames..................... 48 President and Chief Executive Officer
Michael T. Grennan................... 45 Chief Financial Officer, Treasurer and Secretary
</TABLE>
There are no family relationships among any of the directors or
executive officers of the Company.
The following information is furnished for each of the directors and
executive officers of the Company:
Sally A. Fonner has served as the sole director of the Company since
March 23, 1999. Ms. Fonner also served as the sole officer of the Company from
March 23, 1999 to April 5, 1999. Ms. Fonner presently serves as the sole
director of Fab Global, Inc. and serves as the sole director and sole officer of
Bio-Response, Inc. Fab Global was, and Bio-Response is, a publicly-held shell
that has been reactivated by Capston and Ms. Fonner in a manner similar to that
in which Ms. Fonner and Capston reactivated the Company. Ms. Fonner assumed the
office of Chief Executive Officer for a brief period in September 1999 in order
to take certain remedial actions described in Item 1, above.
John R. Varsames was appointed President and Chief Executive Officer of
the Company on April 5, 1999. Mr. Varsames founded Navis in June 1996 and served
as the President and Chief Executive Officer of Navis until the Company acquired
Navis. From December 1995 to June 1996, Mr. Varsames served as a consultant and
then as Vice President for AirMouse Remote Controls and its affiliate, AirMarket
Interactive System, a company specializing in interactive television technology
and peripherals. From August 1984 to December 1995, Mr. Varsames co-founded and
served as the President and Chief Executive Officer of Northshore Companies, a
real estate investment firm. Mr. Varsames is a graduate of St. Michael's College
(Business Administration/Political Science), and was a past Chairman of the St.
Michael's College Associate Board of Trustees. He has served his community as a
director of several charitable organizations and also served as a national
director for the National Association of Home Builders.
Michael T. Grennan was appointed Chief Financial Officer, Treasurer and
Secretary of the Company on April 5, 1999. Before joining the Company, Mr.
Grennan worked for seven years as a self-employed business and financial
consultant. Previously, Mr. Grennan worked for 14 years in public accounting,
first on the audit staff of Coopers and Lybrand, and then as a staff member,
manager and partner of the accounting firm of Urbach, Kahn, and Werlin, PC. Mr.
Grennan is a 1977 graduate of the University of Florida (BSBA in Accounting with
High Honors), a Certified Public Accountant and a former member of the AICPA's
Ethics Technical Subcommittee. In addition to his experience in public
accounting Mr. Grennan has extensive consulting experience for a variety of
public and private corporations including banks, manufacturing and operating
companies.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
<PAGE>
For the fiscal year ended March 31, 1999, the following persons, who
were directors, officers, or beneficial owners of more than 10% of the Common
Stock during such fiscal year, failed to file on a timely basis reports required
by Section 16(a) of the Exchange Act during such fiscal year or any prior fiscal
year: Ms. Fonner did not timely file a Form 3 when she was elected a Director on
March 23, 1999, but filed a Form 3 on May 7, 1999 reporting her status as a
Director as well as the securities that she beneficially owned as of the filing
date.
Item 10. Executive Compensation.
Ms. Fonner served as the sole officer of the Company during the fiscal
year ended March 31, 1999. For the fiscal year ended March 31, 1999, she
received no compensation other than the following: (i) in connection with the
plan of reorganization approved by the Company's stockholders, certain persons
designated by Capston received an aggregate of 540,000 shares of Common Stock
for administrative and management services; and (ii) the Cash Compensation (as
defined below). Ms. Fonner was so designated by Capston to receive 180,600 of
such 540,000 shares of Common Stock.
The Company's current Chief Executive Officer was the Chief Executive
Officer of Navis prior to the Navis Transaction on April 5, 1999. The following
table sets forth compensation for services in all capacities to Navis, for
Navis' fiscal years ended December 31, 1996, 1997 and 1998, of: (i) those
persons who were, respectively, Navis' Chief Executive Officer for any time
period during fiscal 1998 and up to four of the other most highly compensated
executive officers of Navis who were serving as executive officers at December
31, 1998 whose total annual salary and bonus for the fiscal year ending December
31, 1998 exceeded $100,000; and (ii) up to two additional individuals who would
have been two of such other four most highly compensated executive officers if
such individuals had served as executive officers for the entire fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------------------------- -----------------
Securities
Name and Salary Other Annual Underlying
Principal Position Year ($) Bonus ($) Compensation Options (#)
- ------------------ ---- --- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
John R. Varsames, 1998 $127,076 $0 $6,500 n/a
President and Chief 1997 $77,209 $0 $6,400 n/a
Executive Officer 1996 $0 $0 $1,736 n/a
</TABLE>
The Company's Chief Executive Officer and Chief Financial Officer, Mr.
Varsames and Mr. Grennan, respectively, are currently being paid annual salaries
of $150,000 and $125,000, respectively.
COMPENSATION OF DIRECTORS
It is anticipated that non-employee Directors will receive initial and
annual grants of stock options, but no such options have been granted to date.
PENSION AND LONG-TERM INCENTIVE PLANS
The Company has no pension or long-term incentive plans.
STOCK OPTIONS
No stock options were issued to any executive officer or director by the
Company in fiscal 1999.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information furnished by current
management concerning the beneficial ownership of Common Stock and Preferred
Stock of the Company as of June 30, 1999, of (i) each person who is known to the
Company to be the beneficial owner of more than 5 percent of either class of
stock; (ii) all directors and executive officers; and (iii) directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
Common Stock Preferred Stock
------------ ---------------
Amount and Amount and
Nature Nature of
Name and Address of Beneficial Percent Beneficial Percent
of Beneficial Owner Ownership(1) of Class Ownership(1) of Class
- ------------------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C>
John R. Varsames (2) 7,350,000(3)(4) 73.1% -- --
Michael T. Grennan (2) 250,000(5) 2.5% -- --
Sally A. Fonner 181,389(6) 1.8% -- --
c/o Capston Network Co.
1621 N. Osceola Avenue
Clearwater, FL 33755
Burton G. Friedlander 7,424,100(7)(8)(9) 42.5% 5,000,000 100%
c/o Friedlander Capital
Management Corp.
104 Field Point Road
Greenwich, Connecticut 06830
Executive Officers and Directors 7,781,389 77.4% -- --
as a Group (3 persons)
</TABLE>
- -------------------------
(1) Unless otherwise indicated, this column reflects amounts as to which the
beneficial owner has sole voting power and sole investment power.
(2) c/o eNote.com Inc., 185 Allen Brook Lane, P.O. Box 1138, Williston,
Vermont 05495-1138.
(3) Mr. Varsames shares beneficial ownership of 7,080,000 shares of Common
Stock with his wife, Heidi A. Varsames. Mr. Varsames holds sole voting
power of these 7,080,000 shares pursuant to a proxy from his wife.
(4) Includes 250,000 shares of Common Stock held of record by James D.
Richards III and 20,000 shares of Common Stock held of record by the
adult children of Mr. and Mrs. Varsames, Kristen Varsames and Lori A.
Varsames. Mr. Varsames holds sole voting power for these 270,000 shares
of Common Stock pursuant to the proxies from James D. Richards III,
Kristen Varsames, and Lori A. Varsames. Mr. Richards' proxy expires upon
the occurrence of certain events defined therein, and, in any event,
upon the expiration of one year from April 13, 1999.
(5) Mr. Grennan's reported holdings do not include 500 shares that are held
by his father, as to which he disclaims beneficial ownership.
(6) In connection with the plan of reorganization approved by the Company's
stockholders, certain persons designated by Capston received an
aggregate of 540,000 shares of Common Stock for administrative and
management services. Ms. Fonner was so designated by Capston to receive
180,600 of such 540,000 shares of Common Stock. Ms. Fonner's reported
holdings include 50,000 shares that are subject to a letter agreement,
dated as of August 26, 1999 among Capston and the Company (the
<PAGE>
"Capston Pledge Letter"), which provides that such shares will be given
to a third party, as escrow agent, pending the resolution of certain
obligations of Ms. Fonner and Capston to the Company.
(7) Includes 5,000,000 shares of Common Stock issuable upon conversion of
5,000,000 shares of Preferred Stock and 2,000,000 shares of Common Stock
issuable upon exercise of immediately exercisable Warrants.
(8) Mr. Friedlander exercises voting and investment control over shares of
Common Stock held by Friedlander International Limited ("FIL") and
Friedlander Limited Partnership ("FLP") through their investment
manager, Friedlander Capital Management Corp. ("FCMC"), of which Mr.
Friedlander is the sole shareholder.
(9) Information as to Mr. Friedlander, FIL, FLP and FCMC is based on a
Statement on Schedule 13D filed by Mr. Friedlander and FCMC with the
Commission on July 15, 1999 and a Form 4 for June 1999 provided by Mr.
Friedlander and FCMC, and the Company assumes no responsibility for such
information.
Item 12. Certain Relationships and Related Transactions
On April 5, 1999, the Company acquired Navis in a transaction whereby
the stockholders of Navis exchanged all of their Navis stock for 8,000,000
shares of newly issued Common Stock (or approximately 80% of the Company's then
outstanding Common Stock), and Navis became a wholly-owned subsidiary of the
Company. Pursuant to the Navis transaction, Mr. Varsames became the beneficial
owner of approximately 71% of the Company's then outstanding Common Stock, was
appointed President and Chief Executive Officer of the Company, and acquired the
contractual right to designate individuals for appointment to the Board. Mr.
Varsames shares beneficial ownership of 7,080,000 shares of Common Stock with
his wife, Heidi A. Varsames. Prior to the Navis Transaction, Mr. Varsames was
not a director, officer or shareholder of, or otherwise related to, the Company.
On April 6, 1999, the Company entered into the Friedlander Transaction,
pursuant to which Friedlander purchased Preferred Stock and Warrants convertible
into and exercisable for, respectively, approximately 41% of the then
outstanding Common Stock and was granted the contractual right (as yet
unexercised) to designate two individuals for appointment to the Board. Prior to
the Friedlander Transaction, neither Friedlander nor Mr. Friedlander was a
director, officer or shareholder of, or otherwise related to, the Company.
In connection with the Navis Transaction and Friedlander Transaction,
the Company agreed to issue 1,460,000 shares of Common Stock to certain
consultants and advisors, including 540,000 shares of Common Stock that were
issued to persons designated by Capston, 270,000 shares of Common Stock that
were issued to legal counsel for the parties and 650,000 shares of Common Stock
that were issued to certain financial consultants as finders' fees. Ms. Fonner
was so designated by Capston to receive 180,600 of such 540,000 shares of Common
Stock. George W. Schiele received 600,000 of the 650,000 shares of Common Stock
issued as finders' fees. Mr. Schiele transferred 250,000 of the 600,000 shares
to Mr. Friedlander. Mr. Friedlander was recruited by Mr. Schiele to perform
services for the Company and thereby became entitled to 250,000 shares based on
a Statement on Schedule 13G filed on July 1, 1999 by Mr. Schiele. In addition to
the above mentioned stock compensation, upon the closing of the Navis
Transaction, Navis paid $250,000 (the "Cash Compensation") in cash to Capston,
$100,000 of which Capston, in turn, paid to Mr. Schiele and another individual
($50,000 each) who acted as finders in connection with the Navis Transaction,
and the remaining $150,000 was retained by Capston. An oral agreement (the "Cash
Condition Agreement") between Capston and Navis provided that Capston's $150,000
portion of the Cash Compensation is subject to repayment in the event that the
Common Stock fails to trade at or above $5.00 per share on a national securities
exchange or in the National Association of Securities Dealers' SmallCap Market
for at least 45 consecutive trading days within the six months immediately
following the closing of the Navis Transaction. The Cash Condition Agreement was
later modified to provide that the relevant time period for such trading would
be the four months immediately following the filing of this Report on Form
10-KSB, rather than the six months immediately following the Navis Transaction.
Between April 7, 1998 and March 23, 1999, Navis issued 15 separate 12%
Promissory Notes (the "Varsames Notes") to Mr. Varsames in an aggregate
principal amount of approximately $223,647. The Varsames
<PAGE>
Notes are payable on demand, and on March 29, 1999, April 9, 1999 and June 9,
1999, Navis repaid an aggregate of approximately $250,147 principal amount of
Varsames Notes and approximately $17,081 accrued interest thereon.
Navis is a wholly-owned subsidiary of the Company.
Ms. Fonner and Capston have agreed to reimburse the Company $150,000
(the "Reimbursement") for legal fees incurred by the Company (including funds
advanced by the Company as provided in the next sentence) in connection with the
potential irregularities in corporate procedure described in the fifth paragraph
of the "Corporate Background Information" section under "Item 1. Description of
Business." Prior to the Reimbursement, the Company may fund certain legal
expenses of Capston in connection with these matters. The Capston Pledge Letter
provides that 50,000 shares of Common Stock previously issued to Capston will be
given to a third party, as escrow agent, to be held pending satisfaction of the
Reimbursement.
The Company leases approximately 14,500 square feet of office and light
manufacturing space in Williston, Vermont from Airmouse House Ltd. Partnership.
This lease expires in 2004 and calls for rent of approximately $8,333 per month
in 1999, with amounts generally increasing annually thereafter to reflect cost
of living related increases. Mr. Varsames is a general partner of Airmouse House
Ltd. Partnership. The terms of the lease were determined by arms-length
negotiation between the parties.
<PAGE>
Item 13. Exhibits and Reports on form 8-K.
(a) Exhibits:
EXHIBIT TABLE
Exhibit No Description
---------- -----------
3(a) Amended and Restated Certificate of Incorporation.
3(b) Amended By-laws.
4.1 Certificate of Powers, Designations, Preferences and Rights of the
Convertible Preferred Stock, par value $.01 per share, of the
Company.*
4.2 Common Stock Purchase Warrant dated April 6, 1999 between the Company
and Friedlander International Limited.*
4.3 1-Year 18 Percent Convertible Debenture due July 14, 1999 of Navis in
principal amount of $200,000.
4.4 1-Year 18 Percent Convertible Debenture due September 9, 1999 of
Navis in principal amount of $250,000.
4.5 $50,000 Convertible promissory note of Navis, issued January 8, 1999.
4.6 1-Year 12 Percent Convertible Debenture due March 31, 2000 of Navis
in principal amount of $100,000.
4.7 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames,
dated April 7, 1998 in principal amount of $50,000, payable on
demand.
4.8 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames,
dated April 28, 1998 in principal amount of $18,000, payable on
demand.
4.9 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames,
dated May 4, 1998 in principal amount of $7,500, payable on demand.
4.10 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames,
dated May 14, 1998 in principal amount of $28,000, payable on demand.
4.11 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames,
dated May 28, 1998 in principal amount of $5,199.40, payable on
demand.
4.12 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames,
dated June 11, 1998 in principal amount of $10,000, payable on
demand.
- 15 -
<PAGE>
4.13 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames,
dated June 25, 1998 in principal amount of $500, payable on demand.
4.14 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames,
dated January 27, 1999 in principal amount of $6,000, payable on
demand.
4.15 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames,
dated January 31, 1999 in principal amount of $56,948, payable on
demand.
4.16 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames,
dated February 2, 1999 in principal amount of $5,000, payable on
demand.
4.17 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames,
dated February 5, 1999 in principal amount of $5,000, payable on
demand.
4.18 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames,
dated February 23, 1999 in principal amount of $5,000, payable on
demand.
4.19 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames,
dated March 4, 1999 in principal amount of $20,000, payable on
demand.
4.20 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames,
dated March 5, 1999 in principal amount of $1,000, payable on demand.
4.21 12% Promissory Note of Navis Technologies, Ltd. to John R. Varsames,
March 23, 1999 in principal amount of $5,500, payable on demand.
10.1 Reorganization Agreement, dated April 5, 1999, between and among the
Company, Navis Technologies Limited, and the stockholders of Navis
Technologies Limited.*
10.2 Purchase and Sale Agreement, dated April 6, 1999, between the Company
and Friedlander International Limited.*
10.3 Plan of Reorganization and Proposed Operations.**
10.4 Lease Agreement by and between Airmouse House, Ltd. Partnership, and
the Company with respect to certain premises in Williston, Vermont.
10.5 Sublease Agreement, dated June 15, 1999, between the Company and
NYBOR Corporation with respect to a portion of the Company's leased
premises in Williston Vermont.
10.6 Agreement of Lease between 866 U.N. Plaza Associates LLC and the
Company with respect to a portion of the 3rd Floor at 866 U.N. Plaza,
New York, New York.
10.7 Stock Purchase Agreement by and among James D. Richards, III and
Martine Richards, the Company and SolutioNet, Ltd., dated August 6,
1999
10.8 Consulting Agreement dated as of August 6, 1999 between SolutioNet,
Ltd. and James D. Richards, III.
10.9 Shareholders' Agreement, dated as of August 6, 1999, by and among
James D. Richards, III and Martine Richards, the Company and
SolutioNet, Ltd.
10.10 Asset Purchase Agreement, dated as of August 13, 1999, by and between
WebATM.com, Inc. and Gary Cronin.
- 16 -
<PAGE>
10.11 Letter Agreement, dated as of August 26, 1999, among Capston Network
Company and the Company
20.1 The Company's Current Report on Form 8-K filed April 5, 1999.
20.2 The Company's Current Report on Form 8-K filed April 20, 1999.
20.3 The Company's Proxy Statement filed January 30, 1997.
20.4 The Company's Proxy Statement filed April 27, 1998.
23.1 Consent of Want & Ender, CPA, P.C., Independent Auditors
27 Financial Data Schedule
- ----------------
* Previously filed with, and incorporated by reference to, the Company's Current
Report on Form 8-K filed April 20, 1999.
** Incorporated by reference to the Company's Proxy Statement filed April 27,
1998, which is attached hereto as Exhibit 20.4.
(b) Reports on Form 8-K.
The Company filed no Current Reports on Form 8-K during the fourth
quarter of the fiscal year ended March 31, 1999.
- 17 -
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
eNOTE.COM, INC.
Date: 9/17/99 By: /s/ John R. Varsames
----------------- ------------------------------
John R. Varsames
President and Chief Executive
Officer
In accordance with the requirements of the Securities Exchange Act of 1934
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date : 9/17/99 /s/ Michael T. Grennan
----------------- ------------------------------
Michael T. Grennan
Treasurer and Chief Financial Officer
Date : 9/17/99 /s/ Sally A. Fonner
----------------- ------------------------------
Sally A. Fonner
Sole Director
<PAGE>
Index to financial statements filed with this report: Page
Report of Want & Ender, Independent Auditors............................F-2
Balance Sheets at March 31, 1999 and 1998...............................F-3
Statements of Operations for the years ended
March 31, 1999 and 1998...............................................F-4
Statement of Changes in Shareholders' Equity/(Deficit)
for the years ended March 31, 1999 and 1998......................F-5
Statement of Cash Flows for the year ended March 31, 1999...............F-6
Notes to Financial Statements ..........................................F-7
F-1
<PAGE>
WANT & ENDER, CPA, P.C.
CERTIFIED PUBLIC ACCOUNTANTS 386 Park Avenue South
Suite 1618
New York, NY 10016
MARTIN ENDER, CPA Telephone (212) 684-2414
STANLEY Z. WANT, CPA, CFP Fax (212) 684-5433
Independent Auditor's Report
To the Shareholders and Board of Directors
WEBCOR ELECTRONICS, INC.
We have audited the accompanying balance sheet of WEBCOR ELECTRONICS, INC. (A
Dormant State Company) at March 31, 1999 and March 31, 1998 and the related
statements of operations, shareholders' equity/(deficit), and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We have conducted our audit in accordance with generally accepted auditing
standards. These 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 also 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 our audit provides a reasonable basis for our opinion. In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of WEBCOR ELECTRONICS, INC. (A Dormant
State Company) at March 31, 1999 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/
Martin Ender
Want & Ender CPA, P.C.
Certified Public Accountants
New York, NY
September 3, 1999
F-2
<PAGE>
WEBCOR ELECTRONICS, INC.
(A Dormant State Company)
Balance Sheets
March 31, 1999 and 1998
1999 1998
---- ----
ASSETS
Organization Cost 0 0
------- -------
Total Assets 0 0
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY
Common Stock, par value $.01 per share;
20,000,000 shares authorized;
3,476,670 shares issued and outstanding 0 0
Additional Paid in Capital 71,149 32,882
Retained Earnings (32,882) 17,815
Net Profit/(Loss) (38,267) (15,067)
Total Stockholders' Equity 0 0
Total Liabilities and
Stockholders' Equity 0 0
See accompanying notes to financial statements
F-3
<PAGE>
WEBCOR ELECTRONICS, INC.
(A Dormant State Company)
Statements of Operations
For the Year Ended March 31, 1999 and 1998
1999 1998
---- ----
Revenues $ 0 $ 0
Expenses
Administrative Expenses 38,267 15,067
Net Income/Loss for the year $(38,267) $(15,067)
See accompanying notes to financial statements
F-4
<PAGE>
WEBCOR ELECTRONICS, INC.(A Dormant State Company)
Statement of Changes in Shareholders'
Equity/(Deficit)
For the years ended March 31, 1999 and 1998
1999 1998
---- ----
Common Stock
(3,476,670 SHARES ISSUED & OUTSTANDING) $ 0 $ 0
Additional Paid in Capital 71,149 32,882
Retained Earnings (32,882) (17,815)
Balance March, 31 0 0
Net Income/(Loss) for the year (38,267) (15,067)
Balance April 1 0 0
See accompanying notes to financial statements
F-5
<PAGE>
WEBCOR ELECTRONICS, INC.
Statement of Cash Flows
For the Period Ended March 31, 1999
Current Year Prior Year
03-31-99 03-31-98
Cash Flows from Operating Activities
Net Income $(38,267) $(15,067)
Net Cash Provided (Used)
By Operating Activities (38,267) (15,067)
Cash Flows from Financing Activities
Proceeds from Capston-Paid in
Capital 38,267 15,067
Net Cash Provided (Used)
By Financing Activities 38,267 15,067
Net Increase (Decrease) in Cash 0 0
Cash at Beginning of Period 0 0
Cash at End of Period $ 0 $ 0
F-6
<PAGE>
WEBCOR ELECTRONICS, INC.
(A Dormant State Company)
March 31, 1999
Note 1. History of the Company
WEBCOR ELECTRONICS INC., (A Dormant State Company), was incorporated on
December 3, 1971, under the laws of the State of Delaware. The Company conducted
an initial public offering of its common stock, par value $.01 per share (the
"Common Stock") in May 1982 and in connection with an application to list the
Common Stock on the AMEX system, the Company also registered the Common Stock
pursuant to Section 12(g) of the Securities Exchange Act of 1934. The Common
Stock remained listed on the AMEX system until April 9, 1987.
On February 1, 1989, the Company filed a voluntary petition under Chapter 11
of the Bankruptcy Act (Case No. 89-10328) in the U.S. Bankruptcy Court for the
Eastern District of New York. On October 16, 1990, the Company's case under
Chapter 11 was voluntarily converted into a case under Chapter 7 of the
Bankruptcy Act. As a result of the voluntary conversion of the Company's
bankruptcy case , all assets of the Company were transferred to the Trustee in
Bankruptcy on the conversion date and the Company ceased all operations.
Subsequently, the Trustee in Bankruptcy effected an orderly liquidation of
corporate assets and used the proceeds to repay the Company's creditors. On
November 13, 1996 the Company's case under Chapter 7 was closed by an order of
the Court and the Trustee in Bankruptcy was discharged. As a result of the
Bankruptcy, the Company has no assets, liabilities, management or ongoing
operations and has not engaged in any business activities since February, 1990.
Note 2. Restoration of Corporate Status
On December 26, 1996, Acting in its capacity as a stockholder of the
Company, and without first receiving any consent, approval or authorization of
any officer, director or other stockholder of the Company, Capston Network
Company ("Capston") filed a Certificate for Renewal and Revival of Charter with
the Secretary of State of the State of Delaware (such filing, the "Revival").
Thereafter, Capston filed a Form 10-K for the fiscal years ending March 31,
1989-1996. In each of 1997 and 1998, Capston caused the Company to send to its
stockholders a Notice of Special Meeting and Proxy Statement describing a number
of proposals relating to a plan of reorganization (the "Plan") proposed by
Capston. The 1997 Special Meeting failed to achieve a quorum of stockholders,
but a revised plan of reorganization (the "Revised Plan"), set forth in a Proxy
Statement filed April 27, 1998 (the "1998 Proxy Statement"), was approved on
March 23, 1999, after several adjournments of the 1998 Special Meeting.
The 1998 Proxy Statement contemplated Capston pursuing a business
combination on behalf of the Company and provided that Sally Fonner and other
individuals designated by Capston were to be issued shares of Common Stock as
compensation for services rendered in connection with the development of the
Plan and the Revised Plan and the management of the Company pending completion
of a business combination. The 1998 Proxy Statement further provided that the
Company would not be obligated to reimburse Capston for the out-of-pocket
expenses incurred by Capston in connection with the filing in Delaware of the
Company's Certificate for Renewal and Revival of Charter, the preparation and
filing of the Company's reports under the Exchange Act and the investigation of
business opportunities on behalf of the Company. However, the 1998 Proxy
Statement anticipated that the terms of a business combination transaction might
provide for the reimbursement of such expenses. Because Sally Fonner is both the
President of WEBCOR ELECTRONICS, INC. and Capston, prior Staff Accounting
Bulletins require under generally accepted accounting principles the treatment
of debiting Capston's unreimbursed expenses incurred on behalf of the Company
with corresponding credit to paid-in capital. Future expenses of Capston or
others will be treated this way. These expenses are actual cash expenditures and
do not reflect any costs associated with the operation of Capston nor any
personnel time or cost.
Note 3. Name Change, Reverse Split and Increase in Authorized Capital
On March 31, 1999, the Company filed an amendment to its Certificate of
Incorporation that (a) changed the name of the Company from "Webcor Electronics,
Inc." to "eNote.Com, Inc." (b) effected a reverse stock split in the ratio of
one (1) share of post-consolidation Common Stock for every six and
three-quarters (6 3/4) shares of pre-consolidation
F-7
<PAGE>
Common Stock then issued and outstanding; and (c) increased its authorized
capital stock to 25 million shares of Common Stock and 5 million shares of
preferred stock.
The 1998 Proxy Statement provided that no fractional shares of New Common
will be issued in connection with the reverse split and all calculations that
would result in the issuance of a fractional share will be rounded up to the
nearest whole number. In addition, the 1998 Proxy Statement provided that no
stockholder who was the beneficial owner of at least 100 shares of Old Common on
the date of the Amendment, will receive fewer than 100 shares of the New Common
in connection with the implementation of the reverse split and all calculations
that would result in the issuance of fewer than 100 shares of New Common to such
a stockholder will be rounded up to 100 shares. As a result of the amendment,
the 3,476,370 issued and outstanding shares of Old Common will be consolidated
into 589,481 shares of New Common.
The New Common will be listed on the OTC Bulletin Board under the symbol
"ENOT" and open for trading on Monday, April 5, 1999. All registered holders of
certificates for shares of Old Common will be requested to forward their
certificates to the corporation's transfer agent, together with a completed and
executed letter of transmittal, in order to receive the shares of New Common to
which they are entitled.
Note 4. Subsequent Events
Acquisition of Subsidiary and Financing
On April 5, 1999, the Company acquired Navis Technologies, Ltd. ("Navis") in
a transaction whereby the stockholders of Navis exchanged all of their Navis
stock for 8 million shares of newly issued Common Stock, and Navis became a
wholly-owned subsidiary of the Company (the "Navis Transaction"). The number of
shares issued by the Company in the Navis Transaction was determined by
arms-length negotiation between the parties. Before the Navis Transaction, the
Company had no material assets, liabilities or business operations. No
relationship existed between the Company and Navis prior to the Navis
Transaction. In connection with the Navis Transaction, the Company agreed to
issue approximately 540,000 shares of Common Stock to persons designated by
Capston, 270,000 shares of Common Stock to legal counsel for the parties and
650,000 shares of Common Stock to certain financial consultants as finders'
fees.
At approximately the same time as the Navis Transaction, the Company entered
into a Purchase and Sale Agreement with Friedlander International Limited
("Friedlander") dated April 6, 1999 (the "Friedlander Agreement"), whereby the
Company sold 5 million shares of convertible preferred stock, par value $0.01
per share (the "Preferred Stock"), of the Company, and warrants ("Warrants") to
purchase 2 million shares of Common Stock to Friedlander for $5 million in cash
(the "Friedlander Transaction"). The Preferred Stock has a liquidation
preference of $1 per share, or $5 million in the aggregate, and is convertible
into Common Stock on a share-for-share basis. The Warrants are exercisable for
five years from the date of issuance at a price of $1 per share, and are subject
to voluntary redemption by the Company at a redemption premium of $1 per Warrant
over the spread between the exercise price of the Warrant and the market price
of the Common Stock on the redemption date.
Taking all of the foregoing into account, there were 10,049,481 shares of
Common Stock, 5 million shares of Preferred Stock and 2 million warrants issued
and outstanding immediately following the Navis Transaction and the Friedlander
Transaction.
After completion of the Navis Transaction and the Friedlander Transaction,
the Company set about to finalize the development and eventually to commence
commercialization of a proprietary "TVEmail" technology developed by Navis. The
TVEmail system is designed to serve as a low cost internet alternative for
customers who desire access to e-mail but wish to avoid the cost and complexity
of a personal computer or network computer based system. The TVEmail system is
designed to link client servers owned by the Company with inexpensive remote
communications interfaces that are connected directly to customers' existing
televisions. The in-home equipment includes a communications interface and
wireless keyboard which are designed, in tandem with the Company's server
system, to give an end-user easy access to e-mail, news and a limited array of
online services. The Company expects the TVEmail system to be a low cost
alternative to e-mail access via personal computers, network computers or Web
TV(TM).
F-8
<PAGE>
Certain Corrective Actions
Following the combination with Navis, in the course of preparing the
Company's securities reports, management was advised by counsel of a number of
potential irregularities in the corporate procedures by which the Revival and
certain associated matters were implemented. These matters and the manner in
which they were addressed included the following: (i) the procedure by which the
Revival was effected was corrected by filing a Certificate of Correction with
the Secretary of State of Delaware rendering the earlier filing by the Company
null and void and filing a new Certificate of Restoration, Renewal and Revival;
(ii) the procedure by which the Company's name was changed from Webcor
Electronics, Inc. was corrected by filing a Corrected Certificate of Amendment
to the Company's Certificate of Incorporation to render null and void an earlier
amendment relating to such name change and effecting such name change by merging
a newly formed wholly-owned subsidiary of the Company with and into the Company
with the Company as the surviving corporation in such merger and adopting the
name "eNote.com Inc."; and (iii) the procedure by which the Company effected its
1 for 6.75 reverse stock split was corrected by filing a Corrected Certificate
of Amendment clarifying that the Company effected a 1 for 12 reverse stock split
followed immediately by a stock distribution of ((12/6.75)-1) shares of Common
Stock for each 1 share of Common Stock theretofore outstanding, effectively
producing a 1 for 6.75 reverse split. As described in the 1998 Proxy Statement,
no fractional shares were issued in connection with the reverse split or the
stock distribution and the Company did not pay cash in lieu of such shares.
Instead, the number of shares issued to shareholders entitled to fractional
shares were "rounded up" to the next whole number. In addition, shareholders of
record who held at least 100 shares prior to the 1 for 12 reverse stock split
were issued no fewer than 100 shares after the 1 for 12 reverse stock split.
These procedures resulted in the issuance of approximately 41,978 additional
shares of Common Stock by the Company for which the Company received payment of
$419.79 from Capston, which the Board of Directors has determined is adequate
consideration for the issuance of such shares. The Company believes that the
actions described above are an effective and practical way of addressing these
matters. Ms. Fonner temporarily assumed the role of Chief Executive Officer of
the Company, in order to enable her to take certain actions described above.
F-9
CERTIFICATE OF INCORPORATION
OF
LEISURECRAFT PRODUCTS, LTD.
The undersigned, a natural person, for the purpose of organizing
a corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the
"corporation") is
LEISURECRAFT PRODUCTS, LTD.
SECOND: The address, including street, number, city, and county,
of the registered office of the corporation in the State of Delaware is 229
South State Street, City of Dover, County of Kent; and the name of the
registered agent of the corporation in the State of Delaware at such address is
The Prentice-Hall Corporation System, Inc.
THIRD: The nature of the business and of the purposes to be
conducted and promoted by the corporation, which shall be in addition to the
authority of the corporation to conduct any lawful business, to promote any
lawful purpose, and to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware, is as follows:
To design, devise, manufacture, fabricate, prepare for market,
buy, sell, import, export, license as licensor or licensee, lease as
lessor or lessee, distribute, job, enter into, negotiate, execute,
acquire, receive, grant, and assign licensing arrangements, options,
franchises and other rights in respect of, and generally deal in and
with, at wholesale and retail, as principal and as sales, business,
special or general agent, representative, broker, factor, merchant,
distributor, advisor, or in any other lawful capacity, leisure products,
toys, playthings, entertainment and diversionary devices, games,
novelties and related and unrelated articles, and goods, wares,
merchandise, commodities and unimproved, improved, finished, processed
and other real, personal and mixed property of any and all kinds,
whether fabricated in whole or in part from metals, plastics, wood,
glass, chemicals, minerals, biologicals and natural, vegetable, animal,
synthetic or artificial elements and matters, and the components,
resultants and by-products thereof, and machines, devices, supplies and
equipment for fabricating the same; to acquire by purchase or otherwise
own, hold, lease, mortgage, sell or otherwise dispose of, erect,
construct, make, alter, enlarge, improve and to aid or subscribe toward
the construction, acquisition or improvement
<PAGE>
of any factories, shops, storehouses, buildings and commercial and
retail establishments of every character, including all equipment,
fixtures, machinery, implements and supplies necessary, or incidental
to, or connected with, any of the purposes or business of the
corporation; and generally to perform any and all acts connected
therewith or arising therefrom or incidental thereto, and all acts
proper or necessary for the purpose of the business.
To design, buy, sell, import, export, manufacture, license the
use of as licensor and licensee, lease or lessor and lessee, acquire,
receive, grant, and assign options, franchises, and rights in respect
of, and generally deal in and with, at wholesale and retail, and as
principal, agent, broker, commission merchant, distributor, factor,
sales and special representative, or in any other lawful capacity,
goods, wares, and merchandise of all kinds, and, without limiting the
generality thereof, hunting, fishing, yachting, boating, auto racing,
sporting, athletic, recreation, diversionary, hobby and other equipment,
supplies and wearing apparel, and accessories of all kinds, and, in
connection therewith and independent thereof, to acquire, own, manage,
maintain, and operate manufacturing establishments and facilities and
wholesale and retail establishments, stores, leased departments, and
mail-order facilities.
To purchase, receive, take by grant, gift, devise, bequest or
otherwise, lease, or otherwise acquire, own, hold, improve, employ, use
and otherwise deal in and with real or personal property, or any
interest therein, wherever situated, and to sell, convey, lease,
exchange, transfer or otherwise dispose of, or mortgage or pledge, all
or any of its property and assets, or any interest therein, wherever
situated.
To engage generally in the real estate business as principal,
agent, broker, and in any lawful capacity, and generally to take, lease,
purchase, or otherwise acquire, and to own, use, hold, sell, convey,
exchange, lease, mortgage, work, clear, improve, develop, divide, and
otherwise handle, manage, operate, deal in and dispose of real estate,
real property, lands, multiple-dwelling structures, houses, buildings
and other works and any interest or right therein; to take, lease,
purchase or otherwise acquire, and to own, use, hold, sell, convey,
exchange, hire, lease, pledge, mortgage, and otherwise handle, and deal
in and dispose of, as principal, agent, broker, and in any lawful
capacity, such personal property, chattels, chattels real, rights,
easements, privileges, choses in action, notes, bonds, mortgages, and
securities as may lawfully be acquired, held, or disposed of; and to
acquire, purchase, sell, assign, transfer, dispose of, and generally
deal in and with, as principal, agent, broker, and in any lawful
capacity, mortgages and other interests in real, personal, and mixed
properties; to carry on a general construction, contracting, building,
and realty management business as principal, agent, representative,
contractor, subcontractor, and in any other lawful capacity.
To carry on a general mercantile, industrial, investing, and
trading business in all its branches; to devise, invent, manufacture,
fabricate, assemble, install, service, maintain, alter, buy, sell,
import, export, license as licensor or licensee, lease as
- 2 -
<PAGE>
lessor or lessee, distribute, job, enter into, negotiate, execute,
acquire, and assign contracts in respect of, acquire, receive, grant,
and assign licensing arrangements, options, franchises, and other rights
in respect of, and generally deal in and with, at wholesale and retail,
as principal, and as sales, business, special, or general agent,
representative, broker, factor, merchant, distributor, jobber, advisor,
and in any other lawful capacity, goods, wares, merchandise,
commodities, and unimproved, improved, finished, processed, and other
real, personal, and mixed property of any and all kinds, together with
the components, resultants, and by-products thereof.
To apply for, register, obtain, purchase, lease, take licenses in
respect of or otherwise acquire, and to hold, own, use, operate,
develop, enjoy, turn to account, grant licenses and immunities in
respect of, manufacture under and to introduce, sell, assign, mortgage,
pledge or otherwise dispose of, and, in any manner deal with and
contract with reference to:
(a) inventions, devices, formulae, processes and any
improvements and modifications thereof;
(b) letters patent, patent rights, patented processes,
copyrights, designs, and similar rights, trademarks, tradenames,
trade symbols and other indications of origin and ownership
granted by or recognized under the laws of the United States of
America, the District of Columbia, any state or subdivision
thereof, and any commonwealth, territory, possession, dependency,
colony, possession, agency or instrumentality of the United
States of America and of any foreign country, and all rights
connected therewith or appertaining thereunto;
(c) franchises, licenses, grants and concessions.
To guarantee, purchase, take, receive, subscribe for, and
otherwise acquire, own, hold, use and otherwise employ, sell, lease,
exchange, transfer, and otherwise dispose of, mortgage, lend, pledge,
and otherwise deal in and with, securities (which term, for the purpose
of this Article THIRD, includes, without limitation of the generality
thereof, any shares of stock, bonds, debentures, notes, mortgages, other
obligations, and any certificates, receipts or other instruments
representing rights to receive, purchase or subscribe for the same, or
representing any other rights or interests therein or in any property or
assets) of any persons, domestic and foreign firms, associations, and
corporations, and by any government or agency or instrumentality
thereof; to make payment therefor in any lawful manner; and, while owner
of any such securities, to exercise any and all rights, powers and
privileges in respect thereof, including the right to vote.
To make, enter into, perform and carry out contracts of every
kind and description with any person, firm, association, corporation or
government or agency or instrumentality thereof.
- 3 -
<PAGE>
To acquire by purchase, exchange or otherwise, all, or any part
of, or any interest in, the properties, assets, business and good will
of any one or more persons, firms, associations or corporations
heretofore or hereafter engaged in any business for which a corporation
may now or hereafter be organized under the laws of the State of
Delaware; to pay for the same in cash, property or its own or other
securities; to hold, operate, reorganize, liquidate, sell or in any
manner dispose of the whole or any part thereof; and in connection
therewith, to assume or guarantee performance of any liabilities,
obligations or contracts of such persons, firms, associations or
corporations, and to conduct the whole or any part of any business thus
acquired.
To lend money in furtherance of its corporate purposes and to
invest and reinvest its funds from time to time to such extent, to such
persons, firms, associations, corporations, governments or agencies or
instrumentalities thereof, and on such terms and on such security, if
any, as the Board of Directors of the corporation may determine.
To make contracts of guaranty and suretyship of all kinds and
endorse or guarantee the payment of principal, interest or dividends
upon, and to guarantee the performance of a sinking fund or other
obligations of, any securities, and to guarantee in any way permitted by
law the performance of any of the contracts or other undertakings in
which the corporation may otherwise be or become interested, of any
persons, firm, association, corporation, government or agency or
instrumentality thereof, or of any other combination, organization or
entity whatsoever.
To borrow money without limit as to amount and at such rates of
interest as it may determine; from time to time to issue and sell its
own securities, including its shares of stock, notes, bonds, debentures,
and other obligations, in such amounts, on such terms and conditions,
for such purposes and for such prices, now or hereafter permitted by the
laws of the State of Delaware and by this certificate of incorporation,
as the Board of Directors of the corporation may determine; and to
secure any of its obligations by mortgage, pledge or other encumbrance
of all or any of its property, franchises and income.
To be a promoter or manager of other corporations of any type or
kind; and to participate with others in any corporation, partnership,
limited partnership, joint venture, or other association of any kind, or
in any transaction, undertaking or arrangement which the corporation
would have power to conduct by itself, whether or not such participation
involves sharing or delegation of control with or to others.
To draw, make, accept, endorse, discount, execute, and issue
promissory notes, drafts, bills of exchange, warrants, bonds, debentures
and other negotiable or transferable instruments and evidences of
indebtedness whether secured by mortgage or otherwise, as well as to
secure the same by mortgage or otherwise, so far as may be permitted by
the laws of the State of Delaware.
- 4 -
<PAGE>
To purchase, receive, take, reacquire or otherwise acquire, own
and hold, sell, lend, exchange, reissue, transfer or otherwise dispose
of, pledge, use, cancel, and otherwise deal in and with its own shares
and its other securities from time to time to such an extent and in such
manner and upon such terms as the Board of Directors of the corporation
shall determine; provided that the corporation shall not use its funds
or property for the purchase of its own shares of capital stock when its
capital is impaired or when such use would cause any impairment of its
capital, except to the extent permitted by law.
To organize, as an incorporator, or cause to be organized under
the laws of the State of Delaware, or of any other State of the United
States of America, or of the District of Columbia, or of any
commonwealth, territory, dependency, colony, possession, agency, or
instrumentality of the United States of America, or of any foreign
country, a corporation or corporations for the purpose of conducting and
promoting any business or purpose for which corporations may be
organized, and to dissolve, wind up, liquidate, merge or consolidate any
such corporation or corporations or to cause the same to be dissolved,
wound up, liquidated, merged or consolidated.
To conduct its business, promote its purposes, and carry on its
operations in any and all of its branches in any and all of its branches
and maintain offices both within and without the State of Delaware, in
any and all States of the United States of America, in the District of
Columbia, and in any or all commonwealths, territories, dependencies,
colonies, possessions, agencies, or instrumentalities of the United
States of America and of foreign governments.
To promote and exercise all or any part of the foregoing purposes
and powers in any and all parts of the world, and to conduct its
business in all or any of its branches as principal, agent, broker,
factor, contractor, and in any other lawful capacity either alone or
through or in conjunction with any corporations, associations,
partnerships, firms, trustees, syndicates, individuals, organizations,
and other entities in any part of the world, and, in conducting its
business and promoting any of its purposes, to maintain offices,
branches and agencies in any part of the world, to make and perform any
contracts and to do any acts and things, and to carry on any business,
and to exercise any powers and privileges suitable, convenient, or
proper for the conduct, promotion, and attainment of any of the business
and purposes herein specified or which at any time may be incidental
thereto or may appear conducive to or expedient for the accomplishment
of any of such business and purposes and which might be engaged in or
carried on by a corporation incorporated or organized under the General
Corporation Law of the State of Delaware, and to have and exercise all
of the powers conferred by the laws of the State of Delaware upon
corporations incorporated or organized under the General Corporation Law
of the State of Delaware.
The foregoing provisions of this Article THIRD shall be construed
both as purposes and powers and each as an independent purpose and power. The
foregoing
- 5 -
<PAGE>
enumeration of specific purposes and powers shall not be held to limit or
restrict in any manner the purposes and powers of the corporation, and the
purposes and powers herein specified shall, except when otherwise provided in
this Article THIRD, be in no wise limited or restricted by reference to, or
inference from, the terms of any provision of this or any other Article of this
certificate of incorporation; provided, that the corporation shall not conduct
any business, promote any purpose, or exercise any power or privilege within or
without the State of Delaware which, under the laws thereof, the corporation may
not lawfully conduct, promote, or exercise.
FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is One Million (1,000,000). The par value of each
of such shares is One Cent ($.01). All such shares are of one class and are
shares of Common Stock.
No holder of any of the shares of the stock of the corporation,
whether now or hereafter authorized and issued, shall be entitled as of right to
purchase or subscribe for (1) any unissued stock of any class, or (2) any
additional shares of any class to be issued by reason of any increase of the
authorized capital stock of the corporation of any class, or (3) bonds,
certificates of indebtedness, debentures or other securities convertible into
stock of the corporation, or carrying any right to purchase stock of any class,
but any such unissued stock or such additional authorized issue of any stock or
of any other securities convertible into stock, or carrying any right to
purchase stock, may be issued and disposed of pursuant to resolution of the
Board of Directors to such persons, firms, corporations or associations and upon
such terms as may be deemed advisable by the Board of Directors in the exercise
of its discretion.
FIFTH: The name and the mailing address of the incorporator are
as follows:
NAME MAILING ADDRESS
--- ---------------
R.G. Dickerson 229 South State Street
Dover, Delaware
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between
this corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
may of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provision of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors
- 6 -
<PAGE>
or class of creditors, and/or of the stockholders or class of stockholders of
this corporation, as the case may be, agree to any compromise or arrangement and
to any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH: For the management of the business and for the conduct
of the affairs of the corporation, and in further definition, limitation and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs
of the corporation shall be vested in its Board of Directors. The number
of directors which shall constitute the whole Board of Directors shall
be fixed by, or in the manner provided in, the By-Laws. The phrase
"whole Board" and the phrase "total number of directors" shall be deemed
to have the same meaning, to wit, the total number of directors which
the corporation would have if there were no vacancies. No election of
directors need be by written ballot.
2. The original By-Laws of the corporation shall be adopted by
the incorporator unless the certificate of incorporation shall name the
initial Board of Directors therein. Thereafter, the power to make,
alter, or repeal the ByLaws, and to adopt any new By-Law, except a
By-Law classifying directors for election for staggered terms, shall be
vested in the Board of Directors.
3. Whenever the corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof
to notice of, and the right to vote at, any meeting of stockholders.
Whenever the corporation shall be authorized to issue more than one
class of stock, no outstanding share of any class of stock which is
denied voting power under the provisions of the certificate of
incorporation shall entitle the holder thereof to the right to vote, at
any meeting of stockholders except as the provisions of paragraph (c)(2)
of section 242 of the General Corporation Law shall otherwise require;
provided, that no share of any such class which is otherwise denied
voting power shall entitle the holder thereof to vote upon the increase
or decrease in the number of authorized shares of said class.
NINTH: The corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any
- 7 -
<PAGE>
By-Law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
TENTH: From time to time any of the provisions of this
certificate of incorporation may be amended, altered or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the corporation by
this certificate of incorporation are granted subject to the provisions of this
Article TENTH.
Signed on December 3, 1971.
/s/
----------------------------
N.G. Dickerson
Incorporator
- 8 -
<PAGE>
Certificate of Amendment
of
Certificate of Incorporation
of
LEISURECRAFT PRODUCTS, LTD.
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is LEISURECRAFT PRODUCTS, LTD.
2. The certificate of incorporation of the corporation is hereby
amended by striking out Article FIRST thereof and by substituting in lieu of
said Article the following new Article:
"FIRST: The name of the corporation (hereinafter called the
"corporation") is WEBCOR ELECTRONICS, INC."
3. The amendment of the certificate of incorporation herein
certified has been duly adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware.
Signed and attested on:
May 26, 1981
/s/
------------------------------
Victor Reichenstein, President
Attest:
/s/
- -----------------------------
Monroe A. Schulder, Secretary
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NASSAU )
BE IT REMEMBERED that, on May 26, 1981, before me, a Notary
Public duly authorized by law to take acknowledgement of deeds, personally came
Victor Reichenstein, President of Leisurecraft Products, Ltd. who duly signed
the foregoing instrument before me and acknowledged that such signing is his act
and deed, that such instrument as executed is the act and deed of said
corporation, and that the facts stated therein are true.
GIVEN under my hand on May 26, 1981
/s/
----------------------------------
Notary Public
Carl J. Morelli
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
WEBCOR ELECTRONICS, INC.
The undersigned, the President and the Secretary of WEBCOR
ELECTRONICS, INC., a Delaware corporation (the "Corporation"), hereby certify as
follows:
1. The name of the Corporation is WEBCOR ELECTRONICS, INC.
2. The Certificate of Incorporation of the Corporation is amended
to increase the number of shares which the Corporation shall have authority to
issue to Five Million (5,000,000), by striking out the first sentence of Article
FOURTH thereof and by substituting in place of such sentence the following new
sentence:
"The total number of shares of stock which the corporation shall
have authority to issue is Five Million (5,000,000)."
3. (a) This amendment of the Certificate of Incorporation was
duly adopted by the written consent of holders of outstanding stock of the
Corporation having not less than the minimum number of votes that would be
necessary to authorize such action at a meeting at which all shares entitled to
vote thereon were present and voted, as provided in SectionS 228 & 242 of the
General Corporation Law of the State of Delaware.
<PAGE>
(b) Written notice of the approval of this amendment has been
given to those stockholders who have not consented in writing to this amendment.
IN WITNESS WHEREOF, we have hereunto set our hands this 26th day
of January, 1982.
/s/
-------------------------------
VICTOR REICHENSTEIN,
President
ATTEST: /s/
-------------------------------
MONROE A. SCHULDER,
Secretary
- 2 -
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
WEBCOR ELECTRONICS, INC.
The undersigned, the President and Secretary of WEBCOR
ELECTRONICS, INC., a Delaware corporation (the "Corporation"), hereby certify as
follows:
1. The name of the Corporation is WEBCOR ELECTRONICS, INC.
2. The Certificate of Incorporation of the Corporation is
amended to increase the number of shares which the Corporation shall have the
authority to issue by striking out the first sentence of Article FOURTH thereof
and by substituting in place of such sentence the following new sentence:
"The total number of shares of stock which the corporation shall
have authority to issue is Twenty Million (20,000,000)."
3. This amendment of the Certificate of Incorporation was
duly adopted by the affirmative vote of a majority of the outstanding shares of
Common Stock entitled to vote thereon at the 1983 Annual Meeting of Stockholders
of the Corporation, called and held upon notice on August 1, 1983, in accordance
with sections 228 & 242 of the General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands this first day
of August, 1983.
/s/
---------------------------
Victor Reichenstein,
President
ATTEST: /s/
---------------------------
Lawrence Reichenstein,
Secretary
- 2 -
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
WEBCOR ELECTRONICS, INC.
The undersigned, the Chairman of the Board and Secretary of
WEBCOR ELECTRONICS, INC., a Delaware corporation (the "Corporation"), hereby
certify as follows:
1. The name of the Corporation is WEBCOR ELECTRONICS, INC.
2. The Certificate of Incorporation of the Corporation is
amended to create a new class of preferred stock and to authorize the
Corporation's Board of Directors to determine the voting powers, designations,
preferences, and rights, and the qualifications, limitations, or restrictions
thereof, of each such series, by amending Article FOURTH of the Certificate of
Incorporation so that such Article shall read in its entirety as follows:
"FOURTH. The aggregate number of shares which the Corporation
shall have authority to issue is 21,000,000 of which 20,000,000
shares of the par value of $.01 per share shall be designated
Common Stock and 1,000,000 shares of the par value of $.01 per
share shall be designated Preferred Stock. Preferred Stock may be
issued in one or more series, and shall have such voting powers,
full or limited, or no voting powers, and such designations,
preferences and relative participating, optional or other special
rights, and qualifications, limitations, or restrictions thereof,
as shall be stated and expressed in the resolution or resolutions
providing for the issuance of such stock adopted from time to
time by the Board of Directors. The Board of Directors is hereby
expressly vested with the authority to determine and fix in the
resolution or resolutions providing for
<PAGE>
the issuance of the Preferred Stock the voting powers,
designations, preferences and rights, and the qualifications,
limitations, or restrictions, thereof, of each such series to the
full extent now or hereafter permitted by the laws of the State
of Delaware. The number of authorized shares of any class or
classes of stock of the Corporation may be increased or decreased
by the Affirmative vote of the holders of a majority of the stock
of the Corporation entitled to vote."
3. This Amendment of the Certificate of Incorporation was
duly adopted by the affirmative vote of a majority of the outstanding shares of
Common Stock entitled to vote thereon at the 1985 Annual Meeting of the
Stockholders, in accordance with Section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, we have hereunto set our hands this 29th day
of January, 1986.
/s/
---------------------------
Victor Reichenstein
Chairman of the Board
ATTEST: /s/
---------------------------
Kenneth Reichenstein
Secretary
- 2 -
<PAGE>
CERTIFICATE
FOR
RENEWAL AND REVIVAL OF CHARTER
OF
WEBCOR ELECTRONICS, INC.
Webcor Electronics, Inc., a corporation organized under the laws
of Delaware, the certificate of incorporation of which was filed in the office
of the Secretary of State on December 3, 1971, the charter of which was voided
for failure to pay taxes and penalty, now desires to procure a restoration,
renewal and revival of its charter, and hereby certifies as follows:
FIRST: The name of this corporation is:
Webcor Electronics, Inc.
SECOND: Its registered office in the State of Delaware is
located at 25 Greystone Manor, Lewes, DE 19958, County of Sussex. The name of
its registered agent is Harvard Business Services, Inc.
THIRD: The date when the restoration, renewal, and revival of
the charter of this company is to commence is the Twenty-eighth day of February,
1991 same being prior to the date of the expiration of the charter. This renewal
and revival of the charter of this corporation is to be perpetual.
FOURTH: This corporation was duly organized and carried on the
business authorized by its charter until the First day of March A.D. 1991, at
which time its charter became inoperative and void for failure to pay taxes and
penalty, and this certificate for renewal and revival is filed by authority of
the duly elected directors of the corporation in accordance with the laws of the
State of Delaware.
<PAGE>
IN TESTIMONY WHEREOF, and in compliance with the provisions of
Section 312 of the General Corporation Law of the State of Delaware, as amended,
providing for the renewal, extension and restoration of charter of Webcor
Electronics, Inc., have hereunto signed by the last and acting President, to
this certificate this 24th day of December 1996.
By:/s/ Sally Fonner
---------------------------
Name: Sally Fonner
Title: Acting President
<PAGE>
AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
OF
WEBCOR ELECTRONICS, INC.
Webcor Electronics, Inc. (the "Corporation"), pursuant to the requirements of
the General Corporation Law of the State of Delaware, as amended ("GCLD"),
hereby certifies:
1. The Amendment to the Certificate of Incorporation set forth herein was
duly adopted in a resolution of the Corporation's Board of Directors,
submitted to the Corporation's stockholders for their approval, and
approved by a majority vote of the Corporation's stockholders at a
meeting called, noticed and held on the 19th day of June, 1998 and
finalized on March 23, 1999 after several adjournments of less than 30
days each.
2. The number of shares of the Corporation outstanding at the time of such
adoption and the number of shares entitled to vote thereon was THREE
MILLION, FOUR HUNDRED SEVENTY-SIX THOUSAND THREE HUNDRED SEVENTY
(3,476,370) shares of common stock (the "Common Stock"). The holders of
ONE MILLION, SEVEN HUNDRED EIGHTY-FIVE THOUSAND, SIX HUNDRED THIRTY-ONE
(1,785,631 shares) of Common Stock were present at the meeting in person
or by proxy and each of the amendments set forth herein was approved by
the holders of a majority of the Corporations' issued and outstanding
shares of Common Stock.
3. The effective date and time of the Certificate of Amendment shall be 5
p.m. EST on April 2, 1999.
4. The provisions of the original Certificate of Incorporation and all
subsequent amendments thereto are hereby superseded by the following
amendments:
ARTICLE I
NAME
The name of the Corporation shall be eNOTE.COM Inc.
ARTICLE IV
AUTHORIZED CAPITAL
The Corporation shall be authorized to issue a total of Thirty Million
(30,000,000) shares of capital stock which shall be subdivided into classes as
follows:
(a) Twenty-five Million (25,000,000) shares of the Corporation's capital
stock shall be denominated as Common Stock, have a par value of $.01 per
share, and have the
<PAGE>
rights, powers and preferences set forth in this paragraph. The Holders
of Common Stock shall share ratably, with all other classes of common
equity, in any dividends that may, from time to time, be declared by the
Board of Directors. No dividends may be paid with respect to
Corporation's Common Stock, however, until dividend distributions to the
holders of Preferred Stock, if any, have been paid in accordance with
the certificate or certificates of designation relating to such
Preferred Stock. The holders of Common Stock shall share ratably, with
all other classes of common equity, in any assets of the Corporation
that are available for distribution to the holders of common equity
securities of the Corporation upon the dissolution or liquidation of the
Corporation. The holders of Common Stock shall be entitled to cast one
vote per share on all matters that are submitted for a vote of the
stockholders. Effective at 5:00 p.m. EST on April 2, 1999, and without
any further action by the holders of the Common Stock of the
Corporation, the THREE MILLION, FOUR HUNDRED SEVENTY-SIX THOUSAND THREE
HUNDRED SEVENTY (3,476,370) issued and outstanding shares of the
Corporation's Common Stock shall be consolidated or "reverse split" in
the ratio of one (1) new share for every six and three-quarters (6 3/4)
shares currently held by a stockholder so that the total issued and
outstanding capital stock of the Corporation shall consist of FIVE
HUNDRED FORTY THOUSAND (540,000) shares, more or less. No fractional
shares shall be issued in connection with the reverse split and all
calculations that would result in the issuance of a fractional share
shall be rounded up to the nearest whole number. In addition, no
stockholder who was the beneficial owner of at least 100 shares on the
effective date of this Amendment shall receive fewer than 100 shares of
$.01 par value Common Stock of the Corporation in connection with the
implementation of the reverse split and all calculations that would
result in the issuance of fewer than 100 shares of Common Stock to such
a stockholder shall be rounded up to 100 shares.
(b) Five Million (5,000,000) shares of the Corporation's authorized capital
stock shall be denominated as Preferred Stock, par value of $.01 per
share. Shares of Preferred Stock may be issued from time to time in one
or more series as the Board of Directors, by resolution or resolutions,
may from time to time determine, each of said series to be distinctively
designated. The voting powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations
or restrictions thereof, if any, of each such series of Preferred Stock
may differ from those of any and all other series of Preferred Stock at
any time outstanding, and the Board of Directors is hereby expressly
granted authority to fix or alter, by resolution or resolutions, the
designation, number, voting powers, preferences and relative,
participating, optional and other special rights, and the
qualifications, limitations and restrictions thereof, of each such
series of Preferred Stock.
Dated March 24, 1999.
By:/s/ Sally A. Fonner
------------------------------
Sally A. Former,
President and Sole Director
- 2 -
<PAGE>
CERTIFICATE OF POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE
CONVERTIBLE PREFERRED STOCK
PAR VALUE $0.01 PER SHARE
OF
eNote.Com, Inc.
eNote.Com, Inc., a corporation organized and existing under the laws and
State of Delaware (the "Corporation"), hereby certifies that the Sole Director
of the Corporation by written consent dated March 24, 1999 duly adopted the
following resolutions:
WHEREAS, the Sole Director of the Corporation is authorized, within the
limitations and restrictions set forth in the Certificate of Incorporation of
the Corporation ("Certificate of Incorporation"), to fix by resolution or
resolutions the designation of each series of preferred stock, $0.01 par value
per share ("Preferred Stock"), the number of shares constituting such series and
the relative rights, preferences and limitations thereof, including, without
limiting the generality of the foregoing, such provisions as may be desired
concerning voting, redemption, dividends, dissolution or the distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolution or resolutions of the Board of Directors under the General
Corporation Law of the State of Delaware;
WHEREAS, it is the desire of the Sole Director of the Corporation to
authorize a series of Preferred Stock to be designated "Convertible Preferred
Stock" and the number of shares constituting such series.
NOW, THEREFORE, BE IT RESOLVED that pursuant to the authority vested in
the Board of Directors by the Certificate of Incorporation there is created a
series of Preferred Stock consisting of Five Million (5,000,000) shares of
Convertible Preferred Stock, par value $0.01 per share.
1. Designation and Number of Shares. The designation of such series of
Preferred Stock, par value $0.01 per share, authorized by this resolution shall
<PAGE>
be Convertible Preferred Stock (the "Preferred Stock"). The maximum number of
shares of the Preferred Stock shall be Five Million (5,000,000), which number
may be decreased (but not increased) by the Board of Directors without a vote of
the stockholders; provided, however, that such number may not be decreased below
the number of then currently outstanding shares of Preferred Stock and shares of
Preferred Stock issuable on exercise of existing options or other rights to
purchase Preferred Stock or otherwise acquire shares of Preferred Stock from the
Corporation. The Preferred Stock shall have a stated value of $1 per share (the
"Issue Price") and shall rank senior to the $0.01 par value common stock
("Common Stock") of the Corporation with respect to the distribution of assets
upon liquidation, dissolution or winding up.
2. Dividends. The holders of Preferred Stock shall not be entitled to any
dividend preference but shall instead share ratably with the holders of the
Corporation's Common Stock in all dividends that are or may be declared by the
Board of Directors at a time when shares of Preferred Stock remain outstanding.
For purposes of calculating the dividends, if any, payable to the holders of
Preferred Stock, the Corporation shall, as of the record date for the
determination of the shareholders entitled to receive such dividend, determine
the number of shares of Common Stock that would be issuable if the Preferred
Stock had been converted into Common Stock immediately prior to the record date,
and then determine the per share dividend payable to holders of Preferred Stock.
<PAGE>
3. Liquidation Preference. In the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders of shares
of the Preferred Stock are entitled to receive out of the assets of the
Corporation available for distribution to stockholders, before any distribution
of assets is made to holders of Common Stock or any other stock ranking junior
to shares of the Preferred Stock as to liquidation, a liquidating distribution
as to each share in an amount equal to the Issue Price. If upon voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
amounts payable with respect to shares of the Preferred Stock are not paid in
full, the holders of shares of the Preferred Stock will share ratably in such
distribution of assets of the Corporation in proportion to the full respective
preferential rights to which they are entitled. After payment of the full amount
of the liquidating distribution to which they are entitled, the holders of
shares of the Preferred Stock will share proportionally with the holders of
shares of Common Stock in any additional distribution of Corporation assets.
4. Voting Rights. The holders of Preferred Stock shall (a) be entitled to
the number of votes equal to the number of shares of Common Stock into which
such shares of Preferred Stock could be converted pursuant to the provisions
hereof as of the record date for the determination of stockholders entitled to
vote on such matters or, if no such record date is established, at the date such
vote is taken or any written consent of the stockholders is solicited, (b) have
voting rights and powers equal to the voting rights and powers of the Common
Stock, and (c) be entitled to notice of any stockholders' meeting in accordance
with the by-laws of the Corporation. Fractional votes shall not be permitted and
any fractional voting rights resulting from the above formula (after aggregating
all shares into which shares of Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half being
rounded upward). Except as otherwise provided herein or required by law, the
<PAGE>
holders of Preferred Stock and the holders of Common Stock shall vote together
as a single class and not as separate classes.
5. Conversion of Preferred Stock. Subject to the following provisions,
each share of Preferred Stock shall be convertible at any time after the initial
issuance of the Preferred Stock into one share of Common Stock:
(a) No fractional shares of Common Stock shall be issued upon conversion
of shares of Preferred Stock and in lieu thereof, the holder shall be paid
cash for the value of the fractional Share, based upon the last reported
sale price of one share of Common Stock on the business day immediately
preceding the date of conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into full shares of Common Stock, he
shall surrender the certificate or certificates therefor, duly endorsed
for each Share to be converted, at the office of the Corporation or of any
transfer agent for the Corporation and he shall give at least three (3)
business days prior written notice to the Corporation at such office that
he elects to convert the same, and shall state therein his name or the
name or names of his nominees in which he wishes the certificate or
certificates for shares of Common Stock, to be issued. The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office
to such holder of Shares, or to his nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid. Except as set forth in this Section 5, such
conversion shall be deemed to have been made immediately prior to the
close of business on the day of the delivery of the certificate for the
Preferred Stock and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on
such date. Upon conversion of only a portion of the number of shares of
Preferred Stock represented by a
<PAGE>
certificate so surrendered for conversion, the Corporation shall issue and
deliver to the holder a new certificate representing the number of
unconverted Shares.
In the case of any share of Preferred Stock which is converted at a
time when any dividend on the Preferred Stock has been declared but not
paid, such dividend shall be payable on the date of conversion and shall
not be convertible as otherwise provided herein.
If more than one certificate representing shares of Preferred Stock
shall be surrendered for conversion at one time by the same holder, the
number of full shares issuable upon conversion thereof shall be computed
on the basis of the aggregate number of shares of Preferred Stock
represented by such certificates, or the specified portions thereof to be
converted, so surrendered.
(b) Adjustments to Conversion Ratio.
(i) Stock Splits and Subdivisions. If, after the date of the
first issuance of shares of Preferred Stock, the Corporation issues
additional shares of Common Stock, by reason of a split in the number
of outstanding shares of Common Stock into a greater number of shares
of Common Stock or by reason of a subdivision of the outstanding
shares of Common Stock into a greater number of shares of Common
Stock, the Conversion Ratio in effect immediately prior to such split
or subdivision shall, currently with the effectiveness of such split
or subdivision, be proportionately increased.
(ii) Adjustments for Combinations or Consolidation of Common
Stock. In the event that the outstanding shares of Common Stock are
combined or consolidated, by reclassification, reverse stock split or
otherwise, into a lesser number of shares of Common Stock, the
Conversion Ratio in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately decreased.
<PAGE>
(iii) Adjustments for Merger or Reorganization, etc. In the case of
any merger of the Corporation with or into another corporation or the
conveyance of all or substantially all of the assets of the
Corporation into another corporation in which the shareholders of the
Corporation are to receive cash, securities or other consideration for
their shares, each share of Preferred Stock shall thereafter be
convertible into the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock
into which such share of Preferred Stock might have been converted
immediately prior to such merger or conveyance would have been
entitled upon such merger or conveyance.
(iv) Adjustments for Unauthorized Stock Issuances. In the event
that the Corporation shall, subsequent to the date hereof and at any
time prior to the completion of an underwritten secondary offering of
Common Stock which has been registered under the Securities Act of
1933, as amended, effect a sale of Common Stock, securities
convertible into common stock, or rights to purchase Common Stock
which has not been expressly approved in writing by a majority in
interest of the holders of Preferred Stock or their elected
representatives, then the number of shares of Common Stock issuable
upon conversion of the Preferred Stock after the date of such
unauthorized issuance shall be determined by (a) dividing the number
of shares of Common Stock outstanding after such issuance (assuming
full exercise of any and all conversion rights associated therewith)
by the number of shares of Common Stock
<PAGE>
outstanding immediately before such issuance, and (b) multiplying the
product so calculated by the Conversion Ratio in effect immediately
before such issuance.
(v) Conversion Price Adjustment Cap. Notwithstanding the
foregoing provisions, no adjustment in the Conversion Price will be
made until all accumulated adjustments to the Conversion Price are
equal to 1% or more of the Conversion Price immediately preceding the
date of the most recent prior adjustment. Any adjustments to the
Conversion Price not made effective shall be carried forward and added
to the next adjustment to the Conversion Price.
(vi) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this
Section 5, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of shares of Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder
of Shares, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii)
the Conversion Price in effect, and (iii) the number of shares of
Common Stock and Warrants, if any, which would be received by the
holder upon conversion of shares of Preferred stock.
(c) The Corporation shall pay any and all documentary stamp and other
transactional taxes attributable to the issuance or delivery of shares of
Common Stock upon conversion of any shares of Preferred Stock.
(d) The Corporation shall reserve and keep available out of its authorized
but unissued Common Stock such number of shares of Common Stock as shall
<PAGE>
from time to time be sufficient to effect conversion of the shares of
Preferred Stock.
(e) All shares of Common Stock which may be issued upon conversion of the
shares of Preferred Stock will upon issuance by the Corporation be validly
issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof.
(f) Upon conversion of any shares of Preferred Stock into Common Stock,
said converted shares shall not thereafter be reissued by the Corporation
as shares of Preferred Stock but shall instead be restored to the status
of authorized but unissued shares of preferred stock of the Corporation
undesignated as to series.
6. Automatic Conversion Preferred Stock. If, at any time after the first
issuance of the Preferred Stock, the Corporation successfully completes and
closes on an underwritten secondary offering of Common Stock which has been (a)
approved in writing by a majority in interest of the holders of Preferred Stock
or their elected representatives, and (b) registered under the Securities Act of
1933, as amended, all shares of Preferred Stock then outstanding shall
immediately and automatically without further notice be converted into shares of
Common Stock with the same effect and the same result as if an optional
conversion occurred as described in Section 5.
7. Registration Rights.
(a) If at any time or times after the date hereof, the Corporation
determines to file a registration statement under the Securities Act
<PAGE>
relating to a proposed sale to the public by the Corporation of shares of
Common Stock (but excluding registrations on Form S-4 or Form S-8 or
similar forms hereafter in effect), the Corporation shall:
(i) promptly give to each holder of Preferred Stock a written
notice thereof (which will include a list of the jurisdictions in
which the Corporation intends to attempt to qualify such securities
under the applicable blue sky or other state securities laws, the
proposed offering price, and the plan of distribution);
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting
involved therein, all the Common Stock specified in a written notice
to the Corporation by any holder of Preferred Stock; and
(iii) use its best efforts to cause the managing underwriter or
underwriters of such proposed underwritten offering to permit the
Common Stock requested to be included in the Registration Statement
for such offering to be included on the same terms and conditions as
any similar securities of the Corporation included therein.
Notwithstanding the foregoing, if the managing underwriter or
underwriters of such offering deliver a written opinion to the holders
of Preferred Stock that marketing considerations require a limitation
in the number of shares of Common Stock offered pursuant to any
Registration Statement filed under this Section, then, subject to the
advice of said managing underwriter or underwriters as to the size and
composition of the offering, such limitation shall be imposed ratably
among the holders of Preferred Stock requesting registration.
(b) The Corporation hereby agrees that upon the written request of a
holder or holders of 50% or more of the aggregate number of Shares, which
have
<PAGE>
been or could be issued or are issuable upon conversion of the Preferred
Stock, it will use its best efforts to effect the registration under the
Act of any such shares; provided, however, that such request shall not be
made until 180 days after the effective date of any registration statement
for a public offering of securities by the Corporation where the holder
was afforded an opportunity to sell shares of Preferred Stock pursuant to
the Piggy-back Registration rights set forth in sub-paragraph (a) of this
Section 7. Such registration is herein sometimes referred to as the
"Demand Registration." In connection with such Demand Registration, the
Corporation will give written notice (a "Notice of Registration") to all
of the holders, of its intent to effect the Demand Registration under the
Act of the Shares. The holders shall then provide the Corporation, within
15 days after the giving of the Notice of Registration, a written response
which shall specify the number of Shares to be registered and the intended
method of disposition thereof. The Corporation shall not be required to
effect more than two Demand Registrations under this Section 8. It is
understood and agreed that the Corporation's obligation to register the
Shares hereunder may be fulfilled by either a Corporation-sponsored
"shelf" registration or through an underwritten public offering and that
if participation in either one of such types of registration is offered to
the holders, and that if a holder shall be offered the ability to, and
shall decline to participate in such Registration, such offer and
declination shall be deemed to constitute a waiver of one of the two
registration rights granted hereunder.
(c) All references to Preferred Stock in this Section 7 shall include the
shares of Common Stock and other securities issued or issuable upon
conversion thereof or with respect thereto.
<PAGE>
8. Status of Reacquired Shares of Preferred Stock. Shares of Preferred
Stock issued and reacquired by the Corporation (including shares of Preferred
Stock which have been converted into shares of Common Stock) shall have the
status of authorized and unissued shares of Preferred Stock, undesignated as to
series, subject to later issuance.
9. Fractional Shares. In the event the holder of Preferred Stock shall be
entitled to receive a fractional interest in a share of Preferred Stock or a
fractional interest in a share of Common Stock, except as otherwise provided
herein, the Corporation shall deliver cash in the amount of the fair market
value of such fractional interest.
10. Preemptive Rights. The holders of Preferred Stock are not entitled to
any preemptive or subscription rights in respect of any securities of the
Corporation unless such rights are granted to holders of Common Stock.
11. Notices. Any notice required by the provisions of the foregoing
paragraphs to be given to the holders of Preferred Stock shall be deemed given
if deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of the Corporation.
12. Amendments. Upon receiving the consent of the holders of at least
two-thirds of the Preferred Stock then outstanding, the Corporation may amend or
modify any of the foregoing rights, privileges and preferences with respect to
the shares of Preferred Stock.
THE UNDERSIGNED President and Secretary of eNote.Com, Inc., hereby make
this certificate, declaring and certifying that this is the duly authorized act
and deed of the Corporation and the facts herein stated are true, and
accordingly have hereunto set their hand this 5th day of April, 1999.
eNote.Com, Inc.
a Delaware corporation
By: /s/ Sally A. Fonner /s/ Sally A. Fonner
- -------------------------- --------------------------
Sally A. Fonner, President Secretary
<PAGE>
CERTIFICATE OF CORRECTION OF
CERTIFICATE OF RENEWAL OF
WEBCOR ELECTRONICS, INC.
WEBCOR ELECTRONICS, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is WEBCOR ELECTRONICS, INC.
2. A Certificate of Renewal (the "Certificate of Renewal")
was filed with the Secretary of State of the State of Delaware on December 26,
1996, which contains an inaccurate record of the corporate action taken therein,
and said Certificate of Renewal requires correction as permitted by subsection
(f) of Section 103 of the General Corporation Law of the State of Delaware.
3. The Certificate of Renewal incorrectly states that the
Certificate of Renewal was filed by authority of the duly elected directors of
the Corporation in accordance with the laws of the State of Delaware, when in
fact the filing had not been so authorized because there were no officers or
directors available.
4. The Certificate of Renewal is therefore null and void and
of no effect.
WEBCOR ELECTRONICS, INC. has caused this Certificate of
Correction to be signed by its sole director (there being no authorized officers
of the corporation available) as of the 30th day of March, 1999.
WEBCOR ELECTRONICS, INC.
By: /s/ Sally A. Fonner
-----------------------
Name: Sally A. Fonner
Title: Sole Director
<PAGE>
CERTIFICATE FOR RESTORATION
RENEWAL AND REVIVAL OF CERTIFICATE OF INCORPORATION
Pursuant to Section 312
of the General Corporation Law
of the State of Delaware
WEBCOR ELECTRONICS, INC., a Delaware corporation (the
"Corporation"), the certificate of incorporation of which was filed in the
office of the Secretary of State on the 3rd day of December, 1971 and thereafter
voided for non-payment of taxes, now desires to procure a restoration, renewal
and revival of its certificate of incorporation, and hereby certifies as
follows:
1. The existing name of the Corporation is WEBCOR
ELECTRONICS, INC. which is the name the Corporation bore when its certificate of
incorporation expired.
2. The registered office of the Corporation in the State of
Delaware is located in Sussex County at 25 Greystone Manor, Lewes, Delaware
19958. The name of the registered agent of the Corporation is Harvard Business
Services, Inc.
3. The renewal and revival of the certificate of
incorporation of the Corporation is to be perpetual.
4. The Corporation was duly organized under the laws of the
State of Delaware and carried on the business authorized by its certificate of
incorporation until the 1st day of March A.D. 1991, at which time its
certificate of incorporation became inoperative and void for non-payment of
taxes. This certificate for renewal and revival is filed by authority of the
duly elected directors of the Corporation in accordance with the laws of the
State of Delaware, which directors were elected in the manner provided in
Section 312(b) of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate
for Restoration, Renewal and Revival of the Certificate of Incorporation to be
executed by its sole director (there being no authorized officers of the
Corporation available) as of the 30th day of March, 1999.
By: /s/ Sally A. Fonner
-----------------------
Name: Sally A. Fonner
Title: Sole Director
<PAGE>
CORRECTED
CERTIFICATE OF AMENDMENT OF
ENOTE.COM INC.
eNOTE.COM Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is eNOTE.COM Inc.
2. A Certificate of Amendment (the "Certificate of
Amendment") was filed with the Secretary of State of the State of Delaware on
March 31, 1999 under the previous name of the corporation, WEBCOR ELECTRONICS,
INC. which contains an inaccurate record of the corporate action taken therein,
and said Certificate of Amendment requires correction as permitted by subsection
(f) of Section 103 of the General Corporation Law of the State of Delaware.
3. The Certificate of Amendment incorrectly states that the
amendments set forth therein were approved by the stockholders of the
corporation, when in fact the amendment to the name of the corporation had not
been so approved by the stockholders and the reverse stock split referenced
therein had been approved by the stockholders at a 12 to 1 ratio rather than at
a 6.75 to 1 ratio.
4. The Certificate of Amendment is therefore amended to read
in its corrected form as follows:
AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
WEBCOR ELECTRONICS, INC
Webcor Electronics, Inc. (The "Corporation"),
pursuant to the requirements of the General Corporation
Law of the State of Delaware, as amended ("GCLD"),
hereby certifies:
1. The amendment to the Certificate of
Incorporation set forth herein was duly adopted in
accordance with Section 242 of the GCLD by resolution
of the Corporation's Board of Directors, submitted to
the Corporation's stockholders for their approval, and
approved by a majority vote of the Corporation's
stockholders at a meeting called, noticed and held on
the 19th day of June, 1998 and finalized on March 23,
1999 after several adjournments of less than 30 days
each.
<PAGE>
2. The number of shares of the Corporation
outstanding at the time of such adoption and the number
of shares entitled to vote thereon was THREE MILLION,
FOUR HUNDRED , SEVENTY-SIX THOUSAND THREE HUNDRED
SEVENTY (3,476,370) shares of common stock (the "Common
Stock"). The holders of ONE MILLION, SEVEN HUNDRED
EIGHTY-FIVE THOUSAND, SIX HUNDRED THIRTY-ONE
(1,785,631) shares of Common Stock were present at the
meeting in person or by proxy and each of the
amendments set forth herein was approved the holders of
a majority of the Corporation's issued and outstanding
shares of Common Stock.
3. The effective date and time of the
Certification of Amendment shall be 5 p.m. EST on April
2, 1999.
4. Article Fourth of the Certificate of
Incorporation is hereby amended to read in this
entirety as follows:
ARTICLE FOURTH
AUTHORIZED CAPITAL
The Corporation shall be authorized to
issue a total of Thirty Million (30,000,000)
shares of capital stock which shall be
subdivided into classes as follows:
(a) Twenty-five Million (25,000,000)
shares of the Corporation's capital stock
shall be denominated as Common Stock, have a
par value of $.01 per share, and have the
rights, power and preferences set forth in
this paragraph. The Holders of Common Stock
shall share ratably, with all other classes
of common equity, in any dividend that may,
from time to time, be declared by the Board
of Directors. No dividends may be paid with
respect to Corporation's Common Stock,
however, until dividend distribution to the
holders of Preferred Stock, if any, have been
paid in accordance with the certificate or
certificates of designation relating to such
Preferred Stock. The holders of Common Stock
shall share ratably, with all other classes
of common equity, in any assets of the
Corporation that are available for
distribution to the holders of common equity
securities of the Corporation upon
dissolution or liquidation of the
Corporation. The holders of Common Stock
shall be entitled to cast one vote per share
on all matters that are submitted for a vote
of the stockholders. Effective at 5:00 p.m.
EST on April 2, 1999, and without any further
action by the holders of Common Stock of the
Corporation, the THREE MILLION, FOUR HUNDRED
SEVENTY-SIX THOUSAND THREE HUNDRED SEVENTY
(3,476,370) issued and outstanding shares of
the Corporation's Common Stock shall
consolidated or "reverse split" in the ratio
of one (1) new share for every twelve (12)
shares currently
<PAGE>
held by a stockholder. No fractional shares
shall be issued in connection with the
reverse split and all calculations that would
result in the issuance of a fractional share
shall be rounded up to the nearest whole
number. In addition, no stockholder who was
the owner of at least 100 shares on the
effective date of this Amendment shall
receive fewer than 100 shares of the $.01 par
value Common Stock of the Corporation in
connection with the implementation of the
reverse split and all calculation that would
result in the issuance of fewer than 100
shares of Common Stock to such a stockholder
shall be rounded up to 100 shares.
(b) Five Million (5,000,000) shares of
the Corporation's authorized capital stock
shall be determined ad Preferred Stock, par
value of $.01 per share. Shares of Preferred
Stock may be issued from time to time in one
or more series as the Board of Directors, by
resolution or resolutions, may from time to
time determine, each of said series to be
distinctively designated. The voting powers,
preferences and relative, participating,
optional and other special rights, and the
qualifications, limitations or restrictions
thereof, if any, of each such series of
Preferred Stock may differ from those of any
and all other series of Preferred Stock at
any time outstanding, and the Board of
Directors is hereby expressly granted
authority to fix or alter, by resolution or
resolutions, the designation, number, voting
powers, preferences and relative,
participating, optional and other special
rights, and the qualifications, limitations
and restrictions thereof, of each such series
of Preferred Stock.
* * * * *
eNOTE.COM Inc. has caused this Corrected Certificate of Amendment
to be signed by its authorized officer this 3rd day of September, 1999.
ENOTE.COM INC.
By: /s/ Sally fonner
------------------------------
Name: Sally Fomer
Title: Chief Executive Officer
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING ENOTE MERGER INC.
INTO WEBCOR ELECTRONICS, INC.
(Pursuant to Section 253 of the General
Corporation Law of the State of Delaware)
WEBCOR ELECTRONICS, INC., a Delaware corporation (the
"Corporation"), does hereby certify:
FIRST: That the Corporation is incorporated pursuant to
the General Corporation Law of the State of Delaware,
SECOND: That the Corporation owns all the outstanding
shares of the capital stock of ENOTE MERGER INC., a Delaware
corporation.
THIRD: That the Corporation, by the following resolutions
of its Board of Directors, duly adopted on September 1, 1999, determined
to merge ENOTE MERGER INC. into itself on the terms and conditions set
forth in such resolutions:
RESOLVED, that effective upon the filing of an
appropriate Certificate of Ownership and Merger
containing these resolutions with the Secretary of
State of the State of Delaware, ENOTE MERGER INC., a
wholly-owned subsidiary of the Corporation, shall be
merged with and into the Corporation , with the
Corporation to be the surviving corporation of the
merger;
FURTHER RESOLVED, that at the effective time of
the merger the issued and outstanding shares of the
capital stock of ENOTE MERGER INC. shall be canceled,
and no consideration shall be issued in exchange
therefor.
FURTHER RESOLVED, that pursuant to and at the
effective time of the aforesaid merger, the name of the
Corporation shall be changed to "eNote.com Inc." by
deleting Article First of the Certificate of
Incorporation of the Corporation and inserting in lieu
thereof a new Article First to read as follows:
FIRST: The name of the corporation
(hereinafter called the "corporation ") is
eNote.com Inc.
<PAGE>
FURTHER RESOLVED, that the Chief Executive Officer
and the Secretary of this Corporation be and they
hereby are directed to make, execute and acknowledge a
Certificate of Ownership and Merger setting forth a
copy of these resolutions and the date of adoption
thereof and to file the same in the office of the
Secretary of State of Delaware.
IN WITNESS WHEREOF, said Webcor Electronics, Inc. has cause this
Certificate to be signed by Sally Fonner, its Chief Executive Officer, this 3rd
day of September 1999.
WEBCOR ELECTRONICS, INC.
By: /s/ Sally Fonner
--------------------------
Sally Fonner
Chief Executive Officer
<PAGE>
CORRECTED CERTIFICATE OF OWNERSHIP AND MERGER
MERGING ENOTE MERGER INC.
INTO WEBCOR ELECTRONIC, INC.
eNOTE.COM Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware
DOES HEREBY CERTIFY:
1. The name of the corporation is eNOTE.COM INC.
2. A Certificate of Ownership and Merger ( the "Merger") was filed with
the Secretary of State of the State of Delaware on September 3, 1999 which
contains an inaccurate record of the corporation action taken therein, and said
Merger requires correction as permitted by subsection (f) of Section 103 of the
General Corporation Law of the State of Delaware.
3. The Merger incorrectly states that the adoption date of the
resolution of the Board of Directors was September 1, 1999 and reference is
incorrectly made in the resolution to a Secretary.
4. The Merger is therefore amended to read in its corrected form as
follows:
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING ENOTE MERGER INC.
INTO WEBCOR ELECTRONICS, INC.
(Pursuant to Section 253 of the General
Corporation law of the State of Delaware)
WEBCOR ELECTRONICS, INC., a Delaware corporation (the
"Corporation"), does hereby certify:
FIRST: That the Corporation is incorporated pursuant to the
General Corporation Law of the State of Delaware.
SECOND: That the Corporation owns all of the outstanding shares
of the capital stock of ENOTE MERGER INC., a Delaware corporation.
THIRD: That the Corporation, by the following resolutions of its
Board of Directors, duly adopted on September 3, 1999, determined to merge ENOTE
MERGER INC. into itself on the terms and condition set forth in such
resolutions:
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RESOLVED, that effective upon the filing of an
appropriate Certificate of Ownership and Merger
containing these resolutions with the Secretary of
State of the State of Delaware, ENOTE MERGER INC., a
wholly-owned subsidiary of the Corporation, shall be
merged with and into the Corporation, with the
Corporation to be the surviving corporation of the
merger;
FURTHER RESOLVED, that at the effective time of
the merger the issued and outstanding shares of the
capital stock of ENOTE MERGER INC. shall be canceled,
and no consideration shall be issued in exchange
therefor.
FURTHER RESOLVED, that pursuant to and at the
effective time of the aforesaid merger, the name of the
Corporation shall be changed to "eNote.com Inc." by
deleting Article First of the Certificate of
Incorporation of the Corporation and inserting in lieu
thereof a new Article First to read as follows:
FIRST: The name of the corporation
(hereinafter called the "corporation ") is
eNote.com Inc.
FURTHER RESOLVED, that the Chief Executive Officer
of this Corporation be and is hereby directed to make,
execute and acknowledge a Certificate of Ownership and
Merger setting forth a copy of these resolutions and
the date of adoption thereof and to file the same in
the office of the Secretary of State of Delaware.
IN WITNESS WHEREOF, said Webcor Electronics, Inc. has cause this
Certificate to be signed by Sally Fonner, its Chief Executive Officer, this 3rd
day of September, 1999.
WEBCOR ELECTRONICS, INC.
By: /s/ Sally Fonner
------------------------
Sally Fonner
Chief Executive Officer
BY-LAWS
OF
ENOTE.COM, INC.
(A Delaware Corporation)
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Every holder of stock in the
corporation shall be entitled to have a certificate signed by, or in the name
of, the corporation by the Chairman or Vice-Chairman of the Board of Directors,
if any, or 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 certifying the number of shares owned by him in the corporation. Any
and all signatures on any such certificate may be facsimiles. 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 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 any 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.
2. 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 (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to
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receive such fractions are determined, or (3) issue scrip or warrants in
registered or bearer form which shall entitle the holder to receive a
certificate for a full share upon the surrender of such scrip or warrants
aggregating a full share. A certificate for a 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 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.
3. STOCK TRANSFERS. Upon compliance with provisions restricting
the transfer or registration of transfer of shares of stock, if any, transfers
or registration 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 the a transfer agent or a registrar, if
any, and on surrender of the certificate or certificates for such shares of
stock properly endorsed and the payment of all taxes due thereon.
4. RECORD DATE FOR STOCKHOLDERS. For the purpose of
determining the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or the allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion, or exchange of stock
or for the purpose of any other lawful action, the directors may fix, in
advance, a record date, which shall not be more than sixty days nor less than
ten days before the date of such meeting, nor more than sixty days prior to any
other action. If no record date is fixed, 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; the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is expressed; and the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at any 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.
5. 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
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
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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 or any class or series which is
otherwise denied voting rights under the provisions of the certificate of
incorporation.
6. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the
time fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization of
the corporation, and each successive annual meeting shall be held on a date
within thirteen 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 directors.
- PLACE. Annual meetings and special meetings shall be held at
such place, within or without the State of Delaware, as the 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.
- CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
- 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 ten days nor more than sixty 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 thirty days hence,
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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
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.
- STOCKHOLDER LIST. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting 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 ten 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.
- 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.
- 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.
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- 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 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 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 inspector 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, hear 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.
- 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.
- VOTING. Each share of stock shall entitle the holder thereof to
one vote. In the election of directors, a plurality of the votes cast shall
elect. 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. In the election of directors,
and for any other action, voting need not be by ballot.
7. 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.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by the Board of Directors of the corporation. The
Board of Directors shall have authority to fix the compensation of the members
thereof. The use of
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the phrase "whole board" herein refers to the total number of directors which
the corporation would have if there were no vacancies.
2. QUALIFICATION AND NUMBER. The total number of directors
constituting the entire Board of Directors shall be not less than one (1) nor
more than nine (9), with the then authorized number of directors being fixed
from time to time solely by or pursuant to a resolution passed by the Board of
Directors, provided, however, that the total number of directors shall be not
less than three (3) during any period when the total stockholders' equity in the
corporation exceeds $100,000. Notwithstanding the above, for so long as
Friedlander International Limited has a right to appoint two members of the
Board of Directors, the total number of members constituting the entire Board of
Directors shall not exceed seven (7). At any time when the Board of Directors
consists of three (3) or more members, the Board of Directors shall be divided
into three classes, designated Class I, Class II, and Class III. Each class
shall consist, as nearly as may be possible, of one-third of the total number of
directors. Initially, Class I directors shall be elected for a one-year term,
Class II directors for a two-year term and Class III directors for a three-year
term. Thereafter, Directors shall be elected to serve for a term of three years
and until their successors are elected and qualified. A majority of the
Directors shall constitute a quorum for the transaction of business. All
resolutions adopted and all business transacted by the Board of Directors shall
require the affirmative vote of a majority of the Directors present at the
meeting.
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. 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
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.
- TIME. Meetings shall be held at such time as the Board shall
fix, except that the first meeting of a newly elected Board shall be held as
soon after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without
the State of Delaware as shall be fixed by the Board.
- 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
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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.
- NOTICE OF 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.
- QUORUM AND ACTION. A majority of the Directors shall constitute
a quorum for the transaction of business. All resolutions adopted and all
business transacted by the Board of Directors shall require the affirmative vote
of a majority of the Directors present at the meeting. 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. The quorum and voting provisions herein stated shall not be
construed as conflicting with any provisions of the General Corporation Law and
these ByLaws which govern a meeting of directors held to fill vacancies and
newly created directorships in the Board or action of disinterested directors.
- 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, shall preside.
5. REMOVAL OF DIRECTORS. Any director or the entire Board of
Directors may be removed, but only for cause, by the holders of a majority of
the shares then entitled to vote at an election of directors, unless otherwise
specified by law or the certificate of incorporation.
6. COMMITTEES. Whenever its number consists of three or more, the
Board of Directors may, by resolution passed by a majority of the whole Board,
designate one or more committees, each committee to consist of two or more of
the directors of the corporation. The Board 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
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Board, 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. INFORMAL ACTION. Any member or members of the Board of
Directors or of any committee designated by the Board, may participate in a
meeting of the Board, 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. 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 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 or committee.
ARTICLE III
OFFICERS
1. DESIGNATION. 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 or instrument choosing them shall
designate.
2. QUALIFICATIONS. Except as may otherwise be provided in the
resolution or instrument choosing him, no officer other than the Chairman of the
Board, if any, and the Vice-Chairman of the Board, if any, need be a director.
Any number of offices may be held by the same person, as the
directors may determine, except that no person may hold the offices of President
and Secretary simultaneously.
3. TERM OF OFFICE. Unless otherwise provided in the resolution or
instrument 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.
Any officer may be removed, with or without cause, by the Board
of Directors; and any subordinate or junior officer not chosen by the Board of
Directors, but chosen under duly constituted authority conferred by the Board of
Directors, may be removed, with or without cause, by the officer or officers who
chose him.
Any vacancy in any office may be filled by the Board of
Directors. A vacancy in any junior or subordinate office not filled by the Board
of Directors may be filled by the officer or officers duly vested with the
authority to choose the person to fill such office.
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4. CHOOSING OFFICERS. The Board of Directors shall choose the
President, the Secretary, the Treasurer, the Chairman of the Board, if any, the
Vice-Chair-man of the Board, if any, an Executive Vice-President, if any, one or
more additional Vice-Presidents, if any, and such other officers as may be
designated by them, and may confer upon any executive officer or officers
authority to choose junior or subordinate officers.
5. DUTIES AND AUTHORITY. 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 or the instruments 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 or instruments may be inconsistent therewith.
The chief executive officer of the corporation shall preside at
all meetings of stockholders and shall, when requested, sign all certificates
and instruments permitted or required to be signed by him under the General
Corporation Law of Delaware. Except as the resolution choosing him and
prescribing the authority and duties of the chief executive officer shall
otherwise provide, and except as otherwise provided by any provision of law, the
chief executive officer, by whatever title designated, shall negotiate, enter
into, and sign or countersign and otherwise execute in the name, or on behalf,
of the corporation all contracts, deeds, mortgages, pledges, bonds, evidences of
indebtedness, leases, certificates, instruments, and other transactions; shall
generally supervise, manage, and control the affairs of the corporation; and
shall make reports to the Board of Directors, any committee thereof, and the
stockholders. He shall also exercise such additional authority and perform such
additional duties as the Board shall assign to him. Unless the Board otherwise
determines, the President shall be the chief executive officer of the
corporation.
The 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.
The Treasurer shall be the principal financial officer of the
corporation and shall exercise such authority and perform such duties as the
Board of Directors shall assign to him.
All other officers of the corporation shall exercise such
authority and perform such duties as may be provided for in the resolutions or
instruments choosing them and prescribing their authority and duties.
6. RESOLUTIONS AND INSTRUMENTS - EFFECT. The Secretary of the
corporation shall keep, or cause to be kept, with the By-laws of the corporation
a copy of every resolution or instrument designating and choosing officers and
prescribing their qualifications, tenure, authority, duties, compensation, and
other appropriate incidents and attributes of office; and each such resolution
or instrument shall be deemed to be a component part of these By-Laws.
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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
CONTROL OVER BY-LAWS
The power to amend, alter, and repeal these By-Laws and to adopt
new ByLaws shall be vested in the Board of Directors; provided, that the Board
of Directors may delegate such power, in whole or in part, to the stockholders;
and provided, further, that any By-Law, other than an initial By-Law, which
provides for the election of directors by classes for staggered terms shall be
adopted by the stockholders.
ARTICLE VII
1. COMPLIANCE WITH APPLICABLE LAW. If any action required or
permitted to be taken by the Company or the Board of Directors pursuant to the
terms of these By-laws is subject to any law, regulation or administrative
interpretation that requires the Company or the Board of Directors to file any
report, registration or other document with any federal, state or local
governmental or regulatory authority, or requires the Company or the Board of
Directors to distribute copies of such report, registration or other document to
the stockholders or other persons prior to the taking of such action, than such
action may be delayed for such period of time as may be reasonably necessary to
permit the Company and the Board of Directors to fully comply with their
obligations under such any law, regulation or administrative interpretation and
such delay shall not be deemed to constitute a violation of these By-laws or
otherwise affect the validity of any action taken by the Company or the Board of
Directors during the period when the taking of such action is delayed.
2. ILLEGALITY OR INVALIDITY OF BY-LAWS. If any provision of these
By-laws is held to be illegal, invalid or unenforceable under any present or
future law and if the rights or obligations of the stockholders will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) these By-laws will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (iii) the
remaining provisions of these By-laws will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance here from and (iv) in lieu of such illegal, invalid or
unenforceable provision, there will be added automatically as a part of these
By-laws a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
3. APPLICATION OF ARTICLE II, SECTION 2. At any time when a
business combination or other transaction would cause the total stockholders'
equity of the Corporation to exceed $100,000 and such business combination would
trigger a requirement to file certain notices with the SEC pursuant to Rule
14(f) under the Exchange Act, the requirement in Section 2 of Article II of
these by-laws that the Board of Directors consist of three or more members shall
not take effect until such filing with the SEC has been made, and until such
time the number of directors constituting the whole Board of Directors shall not
be deemed to be increased solely by virtue of the provisions of Section 2 of
Article II.
I HEREBY CERTIFY that the foregoing is a full, true and correct
copy of the By-Laws of eNOTE.COM, INC., a Delaware corporation, as in effect on
the date hereof.
WITNESS my hand and the seal of the corporation.
Dated:
--------------------------------
Secretary of
eNOTE.COM, INC.
(SEAL)
- 10 -
No. 01 $200,000
--------
Navis Technologies, Ltd.
One Lawson Lane
Burlington, VT 05401
14 July, 1998
1-Year 18 Percent Convertible Debenture
Due 14 July, 1999
Navis Technologies, Ltd., a Delaware corporation, (the "Corporation"),
for value received, promises to pay to Peter Stern or assigns, the sum of
$200,000 on July 14, 1999 (the "due date"), together with interest accrued
thereon a the rate of 18 percent per annum, computed from July 14, 1998 (the
"issue date"). Payment of principal and interest shall be made in lawful money
of the United States of America and shall be mailed to the owner or owners
hereof at the address appearing below, unless the conversion option is exercised
as set forth below in Paragraph 2.
This Debenture is one of a duly authorized issue of the Corporation's
debentures issued in varying denominations, all of like tenor and maturity,
except variations necessary to express the number, principal amount and payee of
each debenture.
1. Equal rank. All debentures of this issue rank equally and ratably
without priority over one another.
2. Conversion. The holder or holders of this Debenture may at any equity
offering prior to the maturity hereof (except that, if the Corporation has
called this Debenture for redemption, the right to convert shall terminate at
the close of business on the second business day prior to the day fixed as the
date for such redemption), convert the principal amount hereof into equity of
the entity ultimately formed by the Corporation or any of the Corporation's
owners for the purpose of manufacturing and distributing the TV email technology
(hereafter the "Technology Owner"). The Conversion ratio shall be $1 of
debenture principal for $1 of equity at the then current offering price. To
convert this Debenture, the holder or holders hereof must surrender the same at
the office of the Corporation, together with a written instrument of transfer in
a form satisfactory to the Corporation and the Technology Owner, properly
completed and executed and with a written notice of conversion.
3. Fractional shares. In lieu of issuing any fraction of a share upon
the conversion of this Debenture, the Corporation or the Technology Owner shall
pay to the holder hereof for any fraction of a share otherwise issuable upon the
conversion, cash equal to the same fraction of the then current per unit market
price of the equity.
<PAGE>
4. Redemption. The Corporation may at any time prepay in whole or in
part, the principal amount, plus accrued interest to the date of prepayment, of
all outstanding debentures of this issue.
5. Default. If any of the following events occur ("Event of Default"),
the entire unpaid principal amount of, and accrued and unpaid interest on, this
Debenture shall immediately be due and payable, and the Corporation shall pay
all costs of collection including, but not limited to, reasonable attorneys'
fees and expenses incurred by the owner(s) or its assigns on account of such
collection, whether or not suit is brought:
a. The Corporation fails to pay the principal of this Debenture
at its maturity;
b. The Corporation commence any voluntary proceeding under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
receivership, dissolution, or liquidation law or statute, of any jurisdiction,
whether now or subsequently in effect; or the Corporation is adjudicated a
bankrupt by a court of competent jurisdiction; or the Corporation petitions or
applies for, acquiesces in, or consents to, the appointment of any receiver or
trustee of the Corporation or for all or substantially all of its property or
assets; or the Corporation makes an assignment for the benefit of its creditors;
or the Corporation admits in writing its inability to pay its debts as they
mature; or
c. There is commenced against the Corporation any proceeding
relating to the Corporation under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, receivership, dissolution, or liquidation law
or statute, of any jurisdiction, whether now or subsequently in effect, and the
proceeding remains undismissed for a period of 60 days or the Corporation by any
act indicates its consent to, approval of, or acquiescence in, the proceeding;
or a receiver or trustee is appointed for the Corporation or for all or
substantially all of its property or assets, and the receivership or trusteeship
remains undischarged for a period of 60 days; or a warrant of attachment,
execution or similar process is issued against any substantial part of the
property or assets of the Corporation, and the warrant or similar process is not
dismissed or bonded within 60 days after the levy.
5. Registered owner. The Corporation shall treat the person or persons
whose name or names appear on this Debenture as the absolute owner or owners
hereof for the purpose of receiving payment of, or on account of, the principal
and interest due on this Debenture and for all other purposes, unless and until
written notice satisfactory to the Corporation is provided by the registered
owner of assignment hereof.
6. Assignment. The Corporation may assign its obligations hereunder to
the Technology Owner. The owner(s) hereof may assign its rights hereunder to any
person or entity. No assignment of rights or obligations shall be effective
until delivery of written notice of such assignment is made by the assigning
party to the other part hereto.
7. Release of shareholders, officers and directors. This Debenture is
the obligation of the Corporation only, and no recourse shall be had for the
payment of any
- 2 -
<PAGE>
principal or interest hereon against any shareholder, officer or director of
tile Corporation, either directly or through the Corporation, by virtue of any
statute for the enforcement of any assessment or otherwise. The holder or
holders of this Debenture, by the acceptance hereof, and as part of the
consideration for this Debenture, release all claims and waive all liabilities
against the foregoing persons in connection with this Debenture.
IN WITNESS WHEREOF, the Corporation has signed this Debenture this 13th
day of July, 1998.
Navis Technologies, Ltd.
/s/ John R. Varsames
-------------------------------
John R. Varsames, President
REGISTERED OWNER:
/s/Peter Stern
- ----------------------------
- ----------------------------
- ----------------------------
- ----------------------------
- 3 -
No. 02 $250,000.00
Navis Technologies, Ltd.
One Lawson Lane
Burlington, VT 05401
September 9, 1998
1-Year 18 Percent Convertible Debenture
Due September 9, 1999
Navis Technologies, Ltd., a Delaware corporation, (the "Corporation"),
for value received, promises to pay to Peter D. Swift or assigns, the sum of
$250,000.00 on September 9, 1999 (the "due date"), together with interest
accrued thereon a the rate of 18 percent per annum, computed from September 9,
1998 (the "issue date"). Payment of principal and interest shall be made in
lawful money of the United States of America and shall be mailed to the owner or
owners hereof at the address appearing below, unless the conversion option is
exercised as set forth below in Paragraph 2.
This Debenture is one of a duly authorized issue of the Corporation's
debentures issued in varying denominations, all of like tenor and maturity,
except variations necessary to express the number, principal amount and payee of
each debenture.
1. Equal rank. All debentures of this issue rank equally and ratably
without priority over one another.
2. Conversion. The holder or holders of this Debenture may at any equity
offering prior to the maturity hereof (except that, if the Corporation has
called this Debenture for redemption, the right to convert shall terminate at
the close of business on the second business day prior to the day fixed as the
date for such redemption), convert the principal amount hereof into equity of
the entity ultimately formed by the Corporation or any of the Corporation's
owners for the purpose of manufacturing and distributing the TV email technology
(hereafter the "Technology Owner"). The Conversion ratio shall be $1 of
debenture principal for $1 of equity at the then current offering price. To
convert this Debenture, the holder or holders hereof must surrender the same at
the office of the Corporation, together with a written instrument of transfer in
a form satisfactory to the Corporation and the Technology Owner, properly
completed and executed and with a written notice of conversion.
3. Fractional shares. In lieu of issuing any fraction of a share upon
the conversion of this Debenture, the Corporation or the Technology Owner shall
pay to the holder hereof for any fraction of a share otherwise issuable upon the
conversion, cash equal to the same fraction of the then current per unit market
price of the equity.
<PAGE>
4. Redemption. The Corporation may at any time prepay in whole or in
part, the principal amount, plus accrued interest to the date of prepayment, of
all outstanding debentures of this issue.
5. Default. If any of the following events occur ("Event of Default"),
the entire unpaid principal amount of, and accrued and unpaid interest on, this
Debenture shall immediately be due an payable, and the Corporation shall pay all
costs of collection including, but not limited to, reasonable attorneys' fees
and expenses incurred by the owner(s) or its assigns on account of such
collection, whether or not suit is brought:
a. The Corporation fails to pay the principal of this Debenture
at its maturity;
b. The Corporation commence any voluntary proceeding under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
receivership, dissolution, or liquidation law or statute, of any jurisdiction,
whether now or subsequently in effect; or the Corporation is adjudicated a
bankrupt by a court of competent jurisdiction; or the Corporation petitions or
applies for, acquiesces in, or consents to, the appointment of any receiver or
trustee of the Corporation or for all or substantially all of its property or
assets; or the Corporation makes an assignment for the benefit of its creditors;
or the Corporation admits in writing its inability to pay its debts as they
mature; or
c. There is commenced against the Corporation any proceeding
relating to the Corporation under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, receivership, dissolution, or liquidation law
or statute, of any jurisdiction, whether now or subsequently in effect, and the
proceeding remains undismissed for a period of 60 days or the Corporation by any
act indicates its consent to, approval of, or acquiescence in, the proceeding;
or a receiver or trustee is appointed for the Corporation or for all or
substantially all of its property or assets, and the receivership or trusteeship
remains undischarged for a period of 60 days; or a warrant of attachment,
execution or similar process is issued against any substantial part of the
property or assets of the Corporation, and the warrant or similar process is not
dismissed or bonded within 60 days after the levy.
5. Registered owner. The Corporation shall treat the person or persons
whose name or names appear on this Debenture as the absolute owner or owners
hereof for the purpose of receiving payment of, or on account of, the principal
and interest due on this Debenture and for all other purposes, unless and until
written notice satisfactory to the Corporation is provided by the registered
owner of assignment hereof.
6. Assignment. The Corporation may assign its obligations hereunder to
the Technology Owner. The owner(s) hereof may assign its rights hereunder to any
person or entity. No assignment of rights or obligations shall be effective
until delivery of written notice of such assignment is made by the assigning
party to the other party hereto.
7. Release of shareholders, officers and directors. This Debenture is
the obligation of the Corporation only, and no recourse shall be had for the
payment of any
2
<PAGE>
principal or interest hereon against any shareholder, officer or director of the
Corporation, either directly or through the Corporation, by virtue of any
statute for the enforcement of any assessment or otherwise. The holder or
holders of this Debenture, by the acceptance hereof, and as part of the
consideration for this Debenture, release all claims and waive all liabilities
against the foregoing persons in connection with this Debenture.
IN WITNESS WHEREOF, the Corporation has signed this Debenture this 9th
day of September, 1998.
Navis Technologies, Ltd.
/s/ John R. Varsames
------------------------------
John R. Varsames, President
REGISTERED OWNER:
Peter D. Swift
22 Silver Fox Cove
Shelbume, VT 05482
/s/Peter D. Swift
- ------------------
3
PROMISSORY NOTE
AND PERSONAL GUARANTY
$50,000.00 January 8, 1999
FOR VALUE RECEIVED, the undersigned ("Borrower) promises to pay to
Robert L. Jones ("Payee"), or order, the principal sum of Fifty Thousand Dollars
($50,000.00), with no interest accruing. The entire principal together with a
financing fee of Ten Thousand Dollars ($10,000.00) shall be due and payable
immediately upon the receipt by Borrower of any funds from any additional
financing or contribution of capital for ownership in Borrower or from any
equity offering in connection with the technology being developed by Borrower,
but in any event no later than July 8, 1999.
If any payment under this Note is not paid when due and remains unpaid
after the due date, this Note shall be in default. If suit is brought to collect
this Note, the Noteholder shall be entitled to collect all reasonable costs and
expenses of suit, including, but not limited to, reasonable attorney's fees.
Full or partial prepayment may be made but such shall not reduce the
financing fee which should remain due and payable.
Borrower agrees that Payee shall be entitled at any equity offering by
Borrower prior to the final maturity hereof to convert the amount owed hereunder
(including the financing fee) into equity of the entity ultimately formed by the
Borrower or any of Borrower's owners for the purpose of manufacturing and
distributing the TV e-mail technology. The conversion ratio shall be $1.00 of
the outstanding balance hereof for $1.00 of the equity as the then current
offering price. Payee shall exercise this right within ten (10) days of written
notice from Borrower of the pendency of such equity offering provided that such
notice shall include the same information provided to any other investors in the
equity offering.
Presentment, notice of dishonor, and protest are hereby waived by all
makers, sureties, guarantors and endorsers hereof.
Any notice to Borrower provided for in this Note shall be given by
mailing such notice by certified mail addressed to Borrower at such address as
Borrower may designate to Noteholder. Any notice to the Noteholder at the
address above referred, or at such other address as may have been designated by
notice to Borrower.
IN PRESENCE OF: NAVIS TECHNOLOGIES, LTD.
/s/ By: /s/ John R. Varsames
- -------------------- ---------------------------
John R. Varsames, President
<PAGE>
The undersigned, John R. Varsames, hereby guarantees the payment and
performance by Navis Technologies, Ltd. of its obligations under this Promissory
Note.
/s/ John R. Varsames
-----------------------------
John R. Varsames
STATE OF VERMONT
COUNTY OF CHITTENDEN, SS.
At Burlington, in said County and State this 8th day of January, 1999,
personally appeared John R. Varsames, and he acknowledged this instrument, by
him sealed and subscribed to be his free act and deed and the free act and deed
of Navis Technologies, Ltd.
Before me, /s/
----------------------
Notary Public
My Commission Expires: February 10, 1999
STATE OF VERMONT
COUNTY OF CHITTENDEN, SS.
At Burlington, in said County and State this 8th day of January, 1999,
personally appeared John R. Varsames, and he acknowledged this instrument, by
him sealed and subscribed to be his free act and deed.
Before me, /s/
----------------------
Notary Public
My Commission Expires: February 10, 1999
2
No.04 $100,000.00
Navis Technologies, Ltd.
One Lawson Lane
Burlington, VT 05401
March 23, 1999
1-Year 12 Percent Convertible Debenture
Due March 31, 2000
Navis Technologies, Ltd., a Delaware corporation, (the "Corporation"),
for value received, promises to pay to Freidlander Capital Management or
assigns, the sum of $100,000.00 on March 31, 2000 (the "due date"), together
with interest accrued thereon at the rate of 12 percent per annum, computed from
March 25, 1999 (the "issue date"). Payment of principal and interest shall be
made in lawful money of the United States of America and shall be mailed to the
owner or owners hereof at the address appearing below, unless the conversion
option is exercised as set forth below in Paragraph 2.
This Debenture is one of a duly authorized issue of the Corporation's
debentures issued in varying denominations, all of like tenor and maturity,
except variations necessary to express the number, principal amount and payee of
each debenture.
1. Equal rank. All debentures of this issue rank equally and ratably
without priority over one another.
2. Conversion. The holder or holders of this Debenture may at any equity
offering prior to the maturity hereof, convert the principal amount hereof into
equity of the entity ultimately formed by the Corporation or any of the
Corporation's owners for the purpose of manufacturing and distributing the TV
email technology (hereafter the "Technology Owner"). The Conversion ratio shall
be $1 of debenture principal for $1 of equity at the then current offering
price. To convert this Debenture, the holder or holders hereof must surrender
the same at the office of the Corporation, together with a written instrument of
transfer in a form satisfactory to the Corporation and the Technology Owner,
properly completed and executed and with a written notice of conversion.
3. Fractional shares. In lieu of issuing any fraction of a share upon
the conversion of this Debenture, the Corporation or the Technology Owner shall
pay to the holder hereof for any fraction of a share otherwise issuable upon the
conversion, cash equal to the same fraction of the then current per unit market
price of the equity.
4. Default. If any of the following events occur ("Event of Default"),
the entire unpaid principal amount of, and accrued and unpaid interest on, this
Debenture shall immediately be due and payable, and the Corporation shall pay
all costs of collection including, but not limited to, reasonable attorneys'
fees and expenses incurred by the owner(s) or its assigns on account of such
collection, whether or not suit is brought:
<PAGE>
a. The Corporation fails to pay the principal of this Debenture
at its maturity;
b. The Corporation commences any voluntary proceeding under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
receivership, dissolution, or liquidation law or statute, of any jurisdiction,
whether now or subsequently in effect; or the Corporation is adjudicated as
bankrupt by a court of competent jurisdiction; or the Corporation petitions or
applies for, acquiesces in, or consents to, the appointment of any receiver or
trustee of the Corporation or for all or substantially all of its property or
assets; or the Corporation makes an assignment for the benefit of its creditors;
or the Corporation admits in writing its inability to pay its debts as they
mature; or
c. There is commenced against the Corporation any proceeding
relating to the Corporation under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, receivership, dissolution, or liquidation law
or statute, of any jurisdiction, whether now or subsequently in effect, and the
proceeding remains undismissed for a period of 60 days or the Corporation by any
act indicates its consent to, approval of, or acquiescence in the proceeding; or
a receiver or trustee is appointed for the Corporation or for all or
substantially all of its property or assets, and the receivership or trusteeship
remains undischarged for a period of 60 days; or a warrant of attachment,
execution or similar process is issued against any substantial part of the
property or assets of the Corporation, and the warrant or similar process is not
dismissed or bonded within 60 days after the levy.
5. Registered owner. The Corporation shall treat the person or persons
whose name or names appear on this Debenture as the absolute owner or owners
hereof for the purpose of receiving payment of, or on account of, the principal
and interest due on this Debenture and for all other purposes, unless and until
written notice satisfactory to the Corporation is provided by the registered
owner of assignment hereof.
6. Assignment. The Corporation may assign its obligations hereunder to
the Technology Owner. The owner(s) hereof may assign its rights hereunder to any
person or entity. No assignment of rights or obligations shall be effective
until delivery of written notice of such assignment is made by the assigning
party to the other party hereto.
7. Release of shareholders, officers and directors. This Debenture is
the obligation of the Corporation only, and no recourse shall be had for the
payment of any principal or interest hereon against any shareholder, officer or
director of the Corporation, either directly or through the Corporation, by
virtue of any statute for the enforcement of any assessment or otherwise. The
holder or holders of this Debenture, by the acceptance hereof, and as part of
the consideration for this Debenture, release all claims and waive all
liabilities against the foregoing persons in connection with this Debenture.
2
<PAGE>
IN WITNESS WHEREOF, the Corporation has signed this Debenture this 25th
day of March, 1999.
Navis Technologies, Ltd.
/s/ John R. Varsames
--------------------------------
John R. Varsames, President
______________________________
REGISTERED OWNER:
Freidlander Capital Management
104 Field Point Road,
Greenwich, CT.
3
PROMISSORY NOTE
$50,000.00 April 7, 1998
The undersigned, Navis Technologies, LTD ("Payor"), promises to pay to
John R. Varsames ("Payee") or order the principal sum of fifty thousand and
00/100 DOLLARS ($50,000.00) with interest accruing on the unpaid principal
balance at the rate of twelve percent (12%) per annum, the entire principal
balance plus accrued interest being due and payable on demand.
Such payment(s) shall be made at Payee's residence located at
Burlington, Vermont, or at such other place as the Payee hereof may designate in
writing, and such payments and any other sum due hereunder shall be made in
lawful money of the United States of America.
This Note may be prepaid without penalty.
In the case of default, the Payor agrees to pay the reasonable cost of
collection, including reasonable attorneys' fees.
Every maker, guarantor and endorser waives presentment, demand, protest,
and notice and agrees that the time of payment may be extended without notice or
previous consent.
Navis Technologies, LTD
ATTEST: /S/ By: /S/
----------------------------- -----------------------------
Peter M. Doremus, Secretary John R. Varsames, President
Paid in Full
Date: 4/9/99
--------------------------
Signature: /S/
----------------------
PROMISSORY NOTE
$18,000.00 April 28, 1998
The undersigned, Navis Technologies, LTD ("Payor"), promises to pay to
John R. Varsames ("Payee") or order the principal sum of eighteen thousand and
00/100 DOLLARS ($18,000.00) with interest accruing on the unpaid principal
balance at the rate of twelve percent (12%) per annum, the entire principal
balance plus accrued interest being due and payable on demand.
Such payment(s) shall be made at Payee's residence located at
Burlington, Vermont, or at such other place as the Payee hereof may designate in
writing, and such payments and any other sum due hereunder shall be made in
lawful money of the United States of America.
This Note may be prepaid without penalty.
In the case of default, the Payor agrees to pay the reasonable cost of
collection, including reasonable attorneys' fees.
Every maker, guarantor and endorser waives presentment, demand, protest,
and notice and agrees that the time of payment may be extended without notice or
previous consent.
Navis Technologies, LTD
ATTEST: /S/ By: /S/
--------------------------- ---------------------------
Peter M. Doremus, Secretary John R. Varsames, President
Paid in Full
Date: 4/9/99
-------------------------
Signature: /S/
--------------------
PROMISSORY NOTE
$7,500.00 May 4, 1998
The undersigned, Navis Technologies, LTD ("Payor"), promises to pay to
John R. Varsames ("Payee") or order the principal sum of seven thousand five
hundred and 00/100 DOLLARS ($7,500.00) with interest accruing on the unpaid
principal balance at the rate of twelve percent (12%) per annum, the entire
principal balance plus accrued interest being due and payable on demand.
Such payment(s) shall be made at Payee's residence located at
Burlington, Vermont, or at such other place as the Payee hereof may designate in
writing, and such payments and any other sum due hereunder shall be made in
lawful money of the United States of America.
This Note may be prepaid without penalty.
In the case of default, the Payor agrees to pay the reasonable cost of
collection, including reasonable attorneys' fees.
Every maker, guarantor and endorser waives presentment, demand, protest,
and notice and agrees that the time of payment may be extended without notice or
previous consent.
Navis Technologies, LTD
ATTEST: /S/ By: /S/
--------------------------- ---------------------------
Peter M. Doremus, Secretary John R. Varsames, President
Paid in Full
Date: 4/9/99
------------------------
Signature: /S/
-------------------
PROMISSORY NOTE
$28,000.00 May 14, 1998
The undersigned, Navis Technologies, LTD ("Payor"), promises to pay to
John R. Varsames ("Payee") or order the principal sum of twenty-eight thousand
and 00/100 DOLLARS ($28,000.00) with interest accruing on the unpaid principal
balance at the rate of twelve percent (12%) per annum, the entire principal
balance plus accrued interest being due and payable on demand.
Such payment(s) shall be made at Payee's residence located at
Burlington, Vermont, or at such other place as the Payee hereof may designate in
writing, and such payments and any other sum due hereunder shall be made in
lawful money of the United States of America.
This Note may be prepaid without penalty.
In the case of default, the Payor agrees to pay the reasonable cost of
collection, including reasonable attorneys' fees.
Every maker, guarantor and endorser waives presentment, demand, protest,
and notice and agrees that the time of payment may be extended without notice or
previous consent.
Navis Technologies, LTD
ATTEST: /S/ By: /S/
--------------------------- ---------------------------
Peter M. Doremus, Secretary John R. Varsames, President
Paid in Full
Date: 4/9/99
----------------------
Signature: /S/
-----------------
PROMISSORY NOTE
$5,199.40 May 28, 1998
The undersigned, Navis Technologies, LTD ("Payor"), promises to pay to
John R. Varsames ("Payee") or order the principal sum of five thousand one
hundred and ninety-nine and 40/100 DOLLARS ($5,199.40) with interest accruing on
the unpaid principal balance at the rate of twelve percent (12%) per annum, the
entire principal balance plus accrued interest being due and payable on demand.
Such payment(s) shall be made at Payee's residence located at
Burlington, Vermont, or at such other place as the Payee hereof may designate in
writing, and such payments and any other sum due hereunder shall be made in
lawful money of the United States of America.
This Note may be prepaid without penalty.
In the case of default, the Payor agrees to pay the reasonable cost of
collection, including reasonable attorneys' fees.
Every maker, guarantor and endorser waives presentment, demand, protest,
and notice and agrees that the time of payment may be extended without notice or
previous consent.
Navis Technologies, LTD
ATTEST: /S/ By: /S/
--------------------------- ---------------------------
Peter M. Doremus, Secretary John R. Varsames, President
Paid in Full
Date: 4/9/99
----------------------
Signature: /S/
-----------------
PROMISSORY NOTE
$10,000.00 June 11, 1998
The undersigned, Navis Technologies, LTD ("Payor"), promises to pay to
John R. Varsames ("Payee") or order the principal sum of ten thousand and 00/100
DOLLARS ($10,000.00) with interest accruing on the unpaid principal balance at
the rate of twelve percent (12%) per annum, the entire principal balance plus
accrued interest being due and payable on demand.
Such payment(s) shall be made at Payee's residence located at
Burlington, Vermont, or at such other place as the Payee hereof may designate in
writing, and such payments and any other sum due hereunder shall be made in
lawful money of the United States of America.
This Note may be prepaid without penalty.
In the case of default, the Payor agrees to pay the reasonable cost of
collection, including reasonable attorneys' fees.
Every maker, guarantor and endorser waives presentment, demand, protest,
and notice and agrees that the time of payment may be extended without notice or
previous consent.
Navis Technologies, LTD
ATTEST: /S/ By: /S/
--------------------------- ---------------------------
Peter M. Doremus, Secretary John R. Varsames, President
Paid in Full
Date: 4/9/99
---------------------
Signature: /S/
-----------------
PROMISSORY NOTE
$500.00 June 25, 1998
The undersigned, Navis Technologies, LTD ("Payor"), promises to pay to
John R. Varsames ("Payee") or order the principal sum of five hundred and 00/100
DOLLARS ($500.00) with interest accruing on the unpaid principal balance at the
rate of twelve percent (12%) per annum, the entire principal balance plus
accrued interest being due and payable on demand.
Such payment(s) shall be made at Payee's residence located at
Burlington, Vermont, or at such other place as the Payee hereof may designate in
writing, and such payments and any other sum due hereunder shall be made in
lawful money of the United States of America.
This Note may be prepaid without penalty.
In the case of default, the Payor agrees to pay the reasonable cost of
collection, including reasonable attorneys' fees.
Every maker, guarantor and endorser waives presentment, demand, protest,
and notice and agrees that the time of payment may be extended without notice or
previous consent.
Navis Technologies, LTD
ATTEST: /S/ By: /S/
--------------------------- ---------------------------
Peter M. Doremus, Secretary John R. Varsames, President
Paid in Full
Date: 6/9/99
----------------------
Signature: /S/
-----------------
PROMISSORY NOTE
$6,000.00 January 27, 1999
The undersigned, Navis Technologies, LTD ("Payor"), promises to pay to
John R. Varsames ("Payee") or order the principal sum of six thousand and 00/100
DOLLARS ($6,000.00) with interest accruing on the unpaid principal balance at
the rate of twelve percent (12%) per annum, the entire principal balance plus
accrued interest being due and payable on demand.
Such payment(s) shall be made at Payee's residence located at
Burlington, Vermont, or at such other place as the Payee hereof may designate in
writing, and such payments and any other sum due hereunder shall be made in
lawful money of the United States of America.
This Note may be prepaid without penalty.
In the case of default, the Payor agrees to pay the reasonable cost of
collection, including reasonable attorneys' fees.
Every maker, guarantor and endorser waives presentment, demand, protest,
and notice and agrees that the time of payment may be extended without notice or
previous consent.
Navis Technologies, LTD
ATTEST: /S/ By: /S/
--------------------------- ---------------------------
Peter M. Doremus, Secretary John R. Varsames, President
Paid in Full
Date: 6/9/99
----------------------
Signature: /S/
-----------------
PROMISSORY NOTE
$56,948.00 January 31, 1999
The undersigned, Navis Technologies, LTD ("Payor"), promises to pay to
John R. Varsames ("Payee") or order the principal sum of fifty-six thousand nine
hundred and forty- eight and 00/100 DOLLARS ($56,948.00) with interest accruing
on the unpaid principal balance at the rate of twelve percent (12%) per annum,
the entire principal balance plus accrued interest being due and payable on
demand.
Such payment(s) shall be made at Payee's residence located at
Burlington, Vermont, or at such other place as the Payee hereof may designate in
writing, and such payments and any other sum due hereunder shall be made in
lawful money of the United States of America.
This Note may be prepaid without penalty.
In the case of default, the Payor agrees to pay the reasonable cost of
collection, including reasonable attorneys' fees.
Every maker, guarantor and endorser waives presentment, demand, protest,
and notice and agrees that the time of payment may be extended without notice or
previous consent.
Navis Technologies, LTD
ATTEST: /S/ By: /S/
--------------------------- ---------------------------
Peter M. Doremus, Secretary John R. Varsames, President
Paid in Full
Date: 6/9/99
-----------------------
Signature: /S/
------------------
PROMISSORY NOTE
$5,000.00 February 2, 1999
The undersigned, Navis Technologies, LTD ("Payor"), promises to pay to
John R. Varsames ("Payee") or order the principal sum of five thousand and
00/100 DOLLARS ($5,000.00) with interest accruing on the unpaid principal
balance at the rate of twelve percent (12%) per annum, the entire principal
balance plus accrued interest being due and payable on demand.
Such payment(s) shall be made at Payee's residence located at
Burlington, Vermont, or at such other place as the Payee hereof may designate in
writing, and such payments and any other sum due hereunder shall be made in
lawful money of the United States of America.
This Note may be prepaid without penalty.
In the case of default, the Payor agrees to pay the reasonable cost of
collection, including reasonable attorneys' fees.
Every maker, guarantor and endorser waives presentment, demand, protest,
and notice and agrees that the time of payment may be extended without notice or
previous consent.
Navis Technologies, LTD
ATTEST: /S/ By: /S/
--------------------------- ---------------------------
Peter M. Doremus, Secretary John R. Varsames, President
Paid in Full
Date: 3/29/99
---------------------
Signature: /S/
----------------
PROMISSORY NOTE
$5,000.00 February 5, 1999
The undersigned, Navis Technologies, LTD ("Payor"), promises to pay to
John R. Varsames ("Payee") or order the principal sum of five thousand and
00/100 DOLLARS ($5,000.00) with interest accruing on the unpaid principal
balance at the rate of twelve percent (12%) per annum, the entire principal
balance plus accrued interest being due and payable on demand.
Such payment(s) shall be made at Payee's residence located at
Burlington, Vermont, or at such other place as the Payee hereof may designate in
writing, and such payments and any other sum due hereunder shall be made in
lawful money of the United States of America.
This Note may be prepaid without penalty.
In the case of default, the Payor agrees to pay the reasonable cost of
collection, including reasonable attorneys' fees.
Every maker, guarantor and endorser waives presentment, demand, protest,
and notice and agrees that the time of payment may be extended without notice or
previous consent.
Navis Technologies, LTD
ATTEST: /S/ By: /S/
--------------------------- ---------------------------
Peter M. Doremus, Secretary John R. Varsames, President
Paid in Full
Date: 3/29/99
----------------------
Signature: /S/
-----------------
PROMISSORY NOTE
$5,000.00 February 23, 1999
The undersigned, Navis Technologies, LTD ("Payor"), promises to pay to
John R. Varsames ("Payee") or order the principal sum of five thousand and
00/100 DOLLARS ($5,000.00) with interest accruing on the unpaid principal
balance at the rate of twelve percent (12%) per annum, the entire principal
balance plus accrued interest being due and payable on demand.
Such payment(s) shall be made at Payee's residence located at
Burlington, Vermont, or at such other place as the Payee hereof may designate in
writing, and such payments and any other sum due hereunder shall be made in
lawful money of the United States of America.
This Note may be prepaid without penalty.
In the case of default, the Payor agrees to pay the reasonable cost of
collection, including reasonable attorneys' fees.
Every maker, guarantor and endorser waives presentment, demand, protest,
and notice and agrees that the time of payment may be extended without notice or
previous consent.
Navis Technologies, LTD
ATTEST: /S/ By: /S/
--------------------------- ---------------------------
Peter M. Doremus, Secretary John R. Varsames, President
Paid in Full
Date: 3/29/99
-----------------------
Signature: /S/
------------------
PROMISSORY NOTE
$20,000.00 March 4, 1999
The undersigned, Navis Technologies, LTD ("Payor"), promises to pay to
John R. Varsames ("Payee") or order the principal sum of twenty thousand and
00/100 DOLLARS ($20,000.00) with interest accruing on the unpaid principal
balance at the rate of twelve percent (12%) per annum, the entire principal
balance plus accrued interest being due and payable on demand.
Such payment(s) shall be made at Payee's residence located at
Burlington, Vermont, or at such other place as the Payee hereof may designate in
writing, and such payments and any other sum due hereunder shall be made in
lawful money of the United States of America.
This Note may be prepaid without penalty.
In the case of default, the Payor agrees to pay the reasonable cost of
collection, including reasonable attorneys' fees.
Every maker, guarantor and endorser waives presentment, demand, protest,
and notice and agrees that the time of payment may be extended without notice or
previous consent.
Navis Technologies, LTD
ATTEST: /S/ By: /S/
--------------------------- ---------------------------
Peter M. Doremus, Secretary John R. Varsames, President
Paid in Full
Date:______________________
Signature:_________________
PROMISSORY NOTE
$1,000.00 March 5, 1999
The undersigned, Navis Technologies, LTD ("Payor"), promises to pay to
John R. Varsames ("Payee") or order the principal sum of one thousand and 00/100
DOLLARS ($1,000.00) with interest accruing on the unpaid principal balance at
the rate of twelve percent (12%) per annum, the entire principal balance plus
accrued interest being due and payable on demand.
Such payment(s) shall be made at Payee's residence located at
Burlington, Vermont, or at such other place as the Payee hereof may designate in
writing, and such payments and any other sum due hereunder shall be made in
lawful money of the United States of America.
This Note may be prepaid without penalty.
In the case of default, the Payor agrees to pay the reasonable cost of
collection, including reasonable attorneys' fees.
Every maker, guarantor and endorser waives presentment, demand, protest,
and notice and agrees that the time of payment may be extended without notice or
previous consent.
Navis Technologies, LTD
ATTEST: /S/ By: /S/
--------------------------- ---------------------------
Peter M. Doremus, Secretary John R. Varsames, President
Paid in Full
Date:_____________________
Signature:________________
PROMISSORY NOTE
$5,500.00 March 23, 1999
The undersigned, Navis Technologies, LTD ("Payor"), promises to pay to
John R. Varsames ("Payee") or order the principal sum of five thousand five
hundred and 00/100 DOLLARS ($5,500.00) with interest accruing on the unpaid
principal balance at the rate of twelve percent (12%) per annum, the entire
principal balance plus accrued interest being due and payable on demand.
Such payment(s) shall be made at Payee's residence located at
Burlington, Vermont, or at such other place as the Payee hereof may designate in
writing, and such payments and any other sum due hereunder shall be made in
lawful money of the United States of America.
This Note may be prepaid without penalty.
In the case of default, the Payor agrees to pay the reasonable cost of
collection, including reasonable attorneys' fees.
Every maker, guarantor and endorser waives presentment, demand, protest,
and notice and agrees that the time of payment may be extended without notice or
previous consent.
Navis Technologies, LTD
ATTEST: /S/ By: /S/
--------------------------- ---------------------------
Peter M. Doremus, Secretary John R. Varsames, President
Paid in Full
Date:___________________
Signature:______________
Exhibit 10.4
LEASE AGREEMENT
THIS LEASE AGREEMENT, made this 31st day of May, 1999, by and between
AIRMOUSE HOUSE LTD. PARTNERSHIP, a Vermont limited partnership with a principal
place of business in Williston, County of Chittenden and State of Vermont
(hereinafter called "Landlord"), and eNOTE.COM,INC., a Delaware corporation with
a place of business in Burlington, County of Chittenden and State of Vermont,
(hereinafter called "Tenant").
W I T N E S S E T H :
SECTION 1. Demise, Description of Premises.
Landlord does hereby demise, let, rent and lease unto Tenant, and the
Tenant hereby hires and rents from the Landlord, premises described as
Condominium A and all appurtenances thereto as described in the Declaration of
Condominium for Taft's Farms Commercial Center (the "Declaration") and are
hereafter referred to as "Leased Premises" or "Premises" or "Unit." The Leased
Premises include a building containing a total of 14,548 square feet of floor
space. The footprint of the building is depicted on a plat entitled "Taft's
Farms Commercial Center, Allen Brook Lane, Williston, VT, Condominium Plan,"
prepared by Trudell Consulting Engineers, Inc., dated November 8, 1993. This
Lease and the obligations of the parties are subject to the terms and conditions
of the Declaration, including, but not limited to, Exhibit E, Bylaws, Article V,
Section I, Paragraph 2, Lease, thereof (the "Demised Premises or Premises").
A portion of the premise (containing 10,168 square feet) is two stories
in height. The second floor (5,000 square feet) will be unfinished. A portion of
the Premises (containing 4,380 square feet) is a single-story structure. The
demise herein includes the right of Tenant to finish and to fit up the second
floor of the building, at its own expense and subject to Landlord's approval of
the plans, which shall not be unreasonably withheld.
The Leased Premises include the exclusive use of the Unit's Limited
Common Elements as defined and described in the Declaration and the right in
common with other members of the Condominium to the Common Elements as defined
and described in the Declaration, including the parking areas.
The Leased Premises and the rights and obligations of the parties
hereto are subject to and benefitted by all covenants, restrictions, and
conditions set forth in the Declaration, Land Use permit No. 4C0720-R-10, the
terms and conditions of the May 25, 1993, approval of the Williston Planning
Commission, Waste Water Permit No. WW-4-0297, and as each may be amended from
time to time, and to all easements and restrictions depicted on the
above-referenced plat and of record.
<PAGE>
SECTION 2. Initial Term of Lease.
Said Premises are hereby leased to Tenant, subject to all of the terms
and conditions contained herein, for an initial term of five (5) years
commencing on June 1, 1999, the "Commencement Date", unless said term be sooner
terminated as hereinafter provided (the "Initial Term").
SECTION 3. Base Rent.
(a) Tenant agrees to pay to Landlord on the 1st day of each month, in
advance, commencing on the Commencement Date and continuing each and every month
thereafter during the Initial Term, rent in the amount of $8,333.34 per month
(the "Base Rent").
(b) Interest shall accrue on any Base Rent, Additional charges, or other
charges not paid within ten (10) days from the date due at the rate of the Wall
Street Journal Price plus (2%) but not more than (12%) per annum, unless
Landlord's financing for the Facility exceeds 12% per annum in which case the
interest assessed to Tenant hereunder shall equal Landlord's financing interest
rate.
SECTION 4. Base Rent Adjustments.
Base Rent Escalation. The initial Base Rent of $8,333.34 per month as
set forth in Section 3(a) above shall be adjusted as of June 1, 2000 and the
Base Rent shall be adjusted annually on every June 1 thereafter during the term
hereof by a percentage equal to one-half the percentage increase, if any, in the
CPI-U, as defined herein for the preceding 12 month period. Notwithstanding the
foregoing, no annual adjustment pursuant to the increase in the CPI-U shall
exceed __% for any 12 month period. For these purposes, the Consumer Price Index
is defined to be the "Consumer Price Index - All Urban Consumers -Northeast
Region - Population Size Class C (50,000 - 500,000), All Items, (1982 - 1984
equal 100 hereinafter called the 'Index')", published by the Bureau of Labor
Statistics, United States Department of Labor. In the event that the Department
of Labor ceases to publish the CPI-U Index during the lease term or during any
renewal thereof, the Landlord shall select an alternative index and shall so
notify Tenant. Said alternative index shall use comparable statistics on the
purchasing power of the consumer dollar, including the same or comparable region
and population.
SECTION 5. Taxes and Utilities.
It is the intent of the Landlord and Tenant that the Base Rent set forth
in Section 3, be net to the Landlord (except for Landlord's debt service) and
that beginning on the Commencement Date and continuing during the Lease term,
all costs associated with taxes, utilities, operation and maintenance of the
premises be the sole responsibility of the Tenant except for Landlord's
obligations as set forth in Section 10(a) hereof as follows:
(a) Tenant shall pay all real estate and personal property taxes and
other municipal charges and assessments levied against the Demised Premises.
Landlord shall make a good
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<PAGE>
faith estimate of real estate taxes to be assessed against and equitably
allocated to the Demised Premises and shall bill the same to Tenant on a monthly
basis and Tenant shall pay said taxes in the same manner that the Base Rent is
paid as set forth in Section 3 hereof. Upon receipt of the actual tax bill from
the Town of Williston, the Landlord will adjust the Tenant's monthly tax payment
to conform to the actual tax assessed against and equitably allocated to the
Demised Premises for each tax year during the initial term and any extension
thereof. It is agreed that all such amounts shall be paid by Tenant to Landlord,
who shall be responsible for and shall pay the tax bills to the Town of
Williston on the real estate of which the Demised Premises are a part, when and
as such bills are due.
Tenant or its designee shall have the right to contest and review all
such taxes by legal proceedings, or in such other manner as it may deem suitable
(which, if instituted, Tenant or its designee shall conduct promptly at its own
cost and expense, and free of any expense to Landlord and, if necessary, in the
name of and with the cooperation of Landlord and Landlord shall execute all
documents necessary to accomplish the foregoing). Landlord agrees that if there
shall be any refunds or rebates on account of the taxes paid by Tenant under the
provisions of this section, such refund or rebate shall belong to Tenant.
(b) Tenant shall pay the cost of all insurance to be furnished by Tenant
or Landlord pursuant to Sections (a), (b) and (c) of Section 7 hereof;
(c) Tenant shall pay all costs of utility services including without
limitation charges for electricity, gas, telephone, cable television and water
and sewer service metered to the Demised Premises;
(d) Tenant shall pay for proper lawn care and snow removal.
SECTION 6. Use of the Property.
Tenant may use the Demised Premises for any lawful purpose. If the
Tenant's use of the Premises necessitates application for zoning or planning
approval or compliance with other municipal or state regulations, or
installation of additional or new fixtures, systems or improvements at any time
during the term of this Lease or any renewals thereof, Tenant will prosecute and
bear the cost of such applications, installation and/or changes necessary to
obtain compliance and approval and Landlord will cooperate and join in such
proceedings as owner thereof.
The Premises shall not be used for any illegal purpose, nor in violation
of any valid regulation of any governmental body, nor in any manner to create
nuisance or trespass, nor in any manner to invalidate the insurance.
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<PAGE>
SECTION 7. Insurance.
The Tenant shall provide on or before the Commencement Date and keep in
force during the Lease Term the insurance described herein or at Landlord's
option, Landlord may provide such insurance and bill Tenant therefore but not at
a cost to Tenant that would exceed Tenant's cost if Tenant acquired the
following insurance:
(a) Comprehensive general liability insurance with respect to the
Demised Premises insuring the Tenant and the Landlord (as an additional insured)
against any liability covered by a standard liability insurance policy that may
accrue against them or either of them on account of any occurrences in or about
the Demised Premises in consequence of Tenant's occupancy thereof, and shall
provide Landlord with copies of all such applicable policies. Such insurance
shall be maintained in the amount of at least $3,000,000.00 for bodily injury
and $100,000.00 with respect to loss or damage to property;
(b) Fire and casualty insurance, with extended coverage, in amount equal
to the replacement value of the Building; and
(c) Adequate insurance for loss of fixtures and leasehold improvements
of Tenant.
Each party shall provide the other with certificates of insurance and/or
policies upon request. All insurance policies shall be issued by insurance
companies licensed to do business in the State of Vermont with assets sufficient
to cover the potential losses, and shall otherwise be reasonably acceptable to
both parties. The Tenant's fire and casualty policy shall name Landlord and
Landlord's permitted mortgagees as additional insureds, as their interest may
appear under this Agreement and to the extent permitted by such policies of each
and without voiding the insurance provided thereby, the Landlord and Tenant
hereby waive their rights of subrogation. This paragraph shall not, however, in
any manner limit the liability of the Tenant or the Landlord for damage to
property or persons as a result of the willful or wanton negligence on the part
of either party.
SECTION 8. Option to Extend.
So long as Tenant is not in default hereunder Tenant shall have the
option to extend the Initial Term for one (1) additional five (5) year term
under all the same conditions as set forth herein with the exception of the
amount of the Base Rent as described in Section 3 hereof. In the event that the
Tenant intends to exercise the option granted hereunder, the Tenant shall give
the Landlord written notice of Tenant's intent to exercise said option to extend
the term of the Lease as provided in Section 29 hereof at least six (6) months
but no more than twelve (12) months prior to the expiration of the then current
term. The Base Rent at the commencement of each extension term shall be the Base
Rent as adjusted for the previous year and shall be adjusted annually as set
forth in Section 4 hereof.
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<PAGE>
SECTION 9. Repairs, Maintenance and Alteration.
(a) Landlord's Obligations.
Landlord covenants and agrees, during the Initial Term and any extension
if this lease is extended, to repair and replace, at its cost and expense, all
structural components of the building, including the roof. Landlord shall be
responsible for necessary replacement of HVAC, and shall bear any expenses in
excess of $2,000.00 in a rental year required for repair of HVAC. Upon the
default of Landlord in making such repairs and replacements, the Tenant may, but
shall not be required to, make such repairs and replacements for the Landlord's
account. Landlord shall not be required to make any such repairs, replacements,
or bear any expenses where same were caused or occasioned by an act or omission
or negligence of Tenant, any sub-Tenant or their employers, agents, invitees,
licensees, visitors or contractors. Except for Landlord's negligence or that of
its agents or employees in the performance of Landlord's obligations as set
forth in this Section, Landlord shall not be liable for interruption in or
cessation of any service rendered to the Premises due to any cause beyond the
Landlord's control including, but not limited to: any accident; the making of
repairs, alterations, or improvements; labor difficulties; fuel and electric
supplies or shortages.
(b) Tenant's Obligations.
Except for maintenance and repair pursuant to Sections 15 and 9(a)
hereof, Tenant covenants and agrees, during the Lease Term and any extensions
thereof, to maintain the Demised Premises in a good condition, normal wear and
tear excepted, including but not limited to, interior and exterior wall
surfaces, floor surfaces, ceiling surfaces, windows, doors, electrical,
plumbing, mechanical and HVAC systems, furniture, fixtures and hardware. All
repairs and replacements shall be in quality and class at least equal to the
original work properly executed. Upon the default of Tenant in making such
repairs and replacements, the Landlord may, but shall not be required to, make
such repairs and replacements for the Tenant's account and the expenses thereof
shall be collectable against Tenant as additional rent.
During the Lease Term, Tenant shall not install, operate or maintain
any electrical equipment which will overload the electrical system, or any, part
thereof, beyond its reasonable capacity for safe and proper operation as
determined by the Landlord, or which does not bear underwriter's approval;
Tenant shall not perform, or permit to be performed, any act or carry on any
practice which may damage, mar or deface the Premises; Tenant shall not store
materials or equipment outside the buildings on the Premises; and Tenant shall
place all trash in receptacles in areas designated by Landlord and provide for
removal of same.
- 5 -
<PAGE>
SECTION 10. Force Majeure.
During the Lease Term, Landlord or Tenant shall not be required to
perform any term, condition, or covenant in this Lease so long as such
performance is delayed or prevented by force majeure, which shall mean acts of
God, epidemics, cyclones, floods, drought, or by reason of war, declared or
undeclared revolution, civil commotion or strife, acts of public enemies,
blockade or embargo, or by reason of any new law, proclamation, regulation,
ordinance or demand by any government authority, and any other cause not
reasonably within the control of Landlord or Tenant and which, by the exercise
of due diligence, Landlord or Tenant is unable, wholly or in part, to prevent or
overcome.
SECTION 11. Reserved Access Rights of Landlord.
Landlord reserves the right to enter the Demised Premises at reasonable
hours to make reasonable inspections, to make such repairs, alterations or
additions as may be required or permitted under the provisions of this
Agreement; to exhibit reasonably the same to prospective purchasers or to
perform any act related to the safety, protection or preservation of the demised
Premises; and during the three month period prior to the end of the leased term,
for the purposes of exhibiting reasonably the demised Premises to prospective
Tenants.
SECTION 12. Quiet Enjoyment.
Landlord covenants that the Tenant upon paying the rent and complying
with the provisions of this Lease, shall peaceably and quietly have, hold and
enjoy the Demised Premises for the term of this Lease.
SECTION 13. Alterations, Improvements, and Additions.
No alterations, improvements or additions to the Demised Premises shall
be made by Tenant without the prior written consent of Landlord which shall not
be unreasonably withheld or delayed. At the option of Landlord, any fixtures
installed by the Tenant shall remain the property of the Tenant.
SECTION 14. Hazardous Materials.
(a) Tenant shall not use, transport, store, dispose of or in any manner
deal with hazardous materials on the Demised Premises or any adjacent lands and
premises of Landlord (collectively the "Property"), except in compliance with
all applicable federal, state and local laws, ordinances, rules and regulations.
The term "hazardous materials" as used in this Lease shall include, without
limitation, gasoline, petroleum products, explosives, radioactive materials, or
any other substances or materials defined as a hazardous or toxic substance or
material by any federal, state or local law, ordinance, rule or regulation.
(b) Except as provided in Section 14(c), Tenant unconditionally and
irrevocably indemnifies and agrees to defend and hold harmless Landlord and its
officers, employees,
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<PAGE>
agents, contractors and those claiming by, through or under Landlord, from and
against all loss, cost and expense (including attorneys' fees) of whatever
nature suffered or incurred by Landlord on account of the existence at or on the
Property, or the release or discharge at, on, from or to the Property, during
the Lease Term, of any hazardous material, including any claims, costs, losses,
liabilities and expenses arising from the violation (or claimed violation) of
any law, rule, regulation or ordinance or the institution of any action by any
party against Tenant, Landlord or the Property based upon nuisance, negligence
or other tort theory alleging liability due to the improper generation, storage,
disposal, removal, transportation or treatment of any hazardous material or the
imposition of a lien on any part of the Property under any law pursuant to which
a lien or liability may be imposed on Landlord due to the existence of any
hazardous material. Tenant unconditionally and irrevocably guarantees the
payment of any fees and expenses incurred by Landlord in enforcing the liability
of Tenant and this indemnification should Landlord prevail in such action. If
any Remedial Work is required because of, or in connection with, any occurrence
event covered by the indemnity set forth in this Paragraph 14(b), Tenant shall
either perform or cause to be performed the Remedial work in compliance with the
applicable law, regulation, order or agreement, or shall promptly reimburse
Landlord for the cost of such Remedial Work. If Tenant elects to perform the
Remedial Work, all Remedial Work shall be performed by one or more contractors
selected by Tenant and approved in advance in writing by Landlord and under the
supervision of a consulting engineer, selected by Tenant and approved in advance
in writing by Landlord. Otherwise, Landlord shall select the contractor(s) and
the consulting engineer. All costs and expenses of such Remedial Work shall be
paid either directly, or in the form of reimbursement to Landlord, by Tenant
including without limitation, the charges of such contractor(s) and the
consulting engineer, and Landlord's reasonable attorneys' fees and costs
incurred in connection with monitoring or review of such Remedial Work. If
Tenant shall fail to timely commence, or cause to be commenced, or fail to
diligently prosecute to completion, such Remedial Work, Landlord may cause such
Remedial Work to be performed, and all costs and expenses thereof, or incurred
in connection therewith, shall be covered by the indemnity set forth in this
Paragraph 14(b). All such costs and expenses shall be due and payable upon
demand therefor by Landlord.
(c) Landlord unconditionally and irrevocably indemnifies and agrees to
defend and hold harmless Tenant and its officers, employees, agents, contractors
and those claiming by, through or under Tenant, from and against all loss, cost
and expense (including attorneys' fees) of whatever nature suffered or incurred
by Tenant on account of the existence at or on the Property, or the release or
discharge at, on, from or to the Property, prior to the Commencement Date or
thereafter if such release or discharge is caused by the Landlord, its officers,
employees, agents or contractors, of any hazardous material, including any
claims, costs, losses, liabilities and expenses arising from the violation (or
claimed violation) of any law, rule, regulation or ordinance or the institution
of any action by any party against Tenant, Landlord or the Property based upon
nuisance, negligence or other tort theory alleging liability due to the improper
generation, storage, disposal, removal, transportation or treatment of any
hazardous material or the imposition of a lien on any part of the Property under
any law pursuant to which a lien or liability may be imposed on Tenant due to
the existence of any hazardous material. Landlord unconditionally and
irrevocably guarantees the
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<PAGE>
payment of any fees and expenses incurred by Tenant in enforcing the liability
of Landlord and this indemnification should Tenant prevail in such action. If
any Remedial Work is required because of, or in connection with, any occurrence
event covered by the indemnity set forth in this Paragraph 14(c), Landlord shall
either perform or cause to be performed the Remedial Work in compliance with the
applicable law, regulation, order or agreement, or shall promptly reimburse
Tenant for the cost of such Remedial Work. If Landlord elects to perform the
Remedial Work, all Remedial Work shall be performed by one or more contractors
selected by Landlord and approved in advance in writing by Tenant and under the
supervision of a consulting engineer, selected by Landlord and approved in
advance in writing by Tenant. Otherwise, Tenant shall select the contractor(s)
and the consulting engineer. All costs and expenses of such Remedial Work shall
be paid either directly, or in the form of reimbursement to Tenant, by Landlord
including without limitation, the charges of such contractor(s) and the
consulting engineer, and Tenant's reasonable attorneys' fees and costs incurred
in connection with monitoring or review of such Remedial Work. If Landlord shall
fail to timely commence, or cause to be commenced, or fail to diligently
prosecute to completion, such Remedial Work, Tenant may cause such Remedial Work
to be performed, and all costs and expenses thereof, or incurred in connection
therewith, shall be covered by the indemnity set forth in this Paragraph 14(c).
All such costs and expenses shall be due and payable upon demand therefor by
Tenant.
(d) The obligations of Landlord and Tenant under this Section 14 shall
survive the termination of this Agreement.
SECTION 15. Fire and Other Casualty.
(a) If the Premises are destroyed or damaged by fire or other casualty
covered by the insurance required in Paragraph 7(b), then the Landlord shall
promptly repair and restore same to substantially the condition in which they
were immediately prior to the occurrence of such casualty, using the proceeds of
such insurance. If the Landlord does not complete said repair and restoration
within one hundred and twenty (120) days from the date of said casualty, then
the Tenant may terminate this Agreement retroactive to the date of casualty by
notice to the Landlord.
(b) If the Premises are damaged or destroyed by casualty not covered by
the insurance required in Paragraph 7(b), the Landlord may, if it so elects,
repair and restore same to substantially the condition in which they were
immediately prior to the occurrence of such casualty. The Landlord shall notify
the Tenant of its decision to restore the Premises within fourteen (14) days
from the date of the casualty, and upon failure of the Landlord to provide such
notice, it is conclusively presumed that it elected not to restore the Premises.
If the Landlord does not elect to restore the Premises, or if Landlord elects to
restore the Premises and it does not restore same within one hundred twenty
(120) days from the date of the casualty, then the Tenant may terminate this
Agreement retroactive to the date of casualty by notice to Landlord.
(c) During the period from the date of casualty until the premises are
repaired and restored, Tenant's obligation to pay any rent due hereunder shall
abate in proportion to the
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amount of space of the Demised Premises rendered unusable for Tenant's purposes
as a result of the damage or destruction.
(d) Termination of this Lease in accordance with the foregoing
provisions shall not prejudice the rights and remedies of Landlord and Tenant
under this agreement prior to such termination, and any rent owing shall be paid
up to such date and any payments of rent made by Tenant which were on account of
any period subsequent to such date shall be returned to Tenant.
(e) In the event that during the last two (2) years of the Initial Term
or last two (2) years of any renewal term, the Premises are more than fifty
percent (50%) destroyed, nothing contained in this section shall be construed to
require Landlord to restore the Premises to a condition that existed immediately
prior to such destruction, unless the Tenant agrees to extend this lease
agreement for an additional five (5) year term.
SECTION 16. Eminent Domain.
During the term of this Lease, if the whole of the premises or such
portion of which materially adversely effect the Tenant's use and enjoyment of
the premises is taken in a condemnation proceeding or by any right of eminent
domain, this agreement shall terminate on the date of such taking, and the rent
and any additional rent reserved herein shall be apportioned and paid to the
date of such taking. The Tenant shall have no interest in any damages awarded
the Landlord in compensation for any taking in condemnation or eminent domain
with respect to the value of the Property and the Facility. The Tenant may
maintain a separate action for any damages sustained by Tenant by reason of said
condemnation or proceeding for the taking of Tenant's leasehold estate.
SECTION 17. Default after Occupancy.
If any one or more of the following events ("Events of Default") shall
occur:
(a) If the Tenant shall fail to pay any Basic Rent; or other sum payable
hereunder as the same becomes due and payable; or
(b) If the Tenant shall fail to perform or comply with any terms of this
Lease other than those referred to in paragraph (a) above or with any term of
any other agreement between the parties, and such failure shall continue for
more than 15 days after the Tenant receives notice or knowledge of such failure;
or
(c) If the Tenant shall make a general assignment for the benefit of
creditors or shall admit in writing its inability to pay its debts as they
become due, or shall file a petition in bankruptcy, or shall be adjudicated a
bankrupt or insolvent, or shall file a petition seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, or shall file an
answer admitting or not contesting the material allegations of a petition filed
against it in any such
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proceeding, or shall seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of the Tenant or any material part of its
properties; or
(d) if, within 60 days after the commencement of any proceeding against
the Tenant seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, such proceeding shall not have been dismissed or stayed (or
within 60 days after the expiration of any such stay such proceeding shall not
have been dismissed), or if, within 60 days after the appointment without the
consent or acquiescence of the Tenant of any trustee, receiver or liquidator of
the Tenant or of any material part of its properties, such appointment shall not
have been vacated or stayed (or within 60 days after the expiration of any such
stay such appointment shall not have been vacated); or
(e) If the Tenant shall default in the payment of any indebtedness for
borrowed money, or shall fail to perform or comply with any of the terms of any
such indebtedness, or of any instruments relation thereto, and such default or
failure shall continue beyond any grace period provided with respect thereof,
and such default or failure shall not have been waived, bonded or cured; or
(f) If the Tenant or its shareholder or directors shall take any action
looking to the dissolution or liquidation of the Tenant; or
(g) If a final judgment which, with other than outstanding final
judgments against the Tenant, exceeds an aggregate of $100,000 shall be rendered
against the Tenant, and if, within 30 days after the expiration of such stay,
such judgment shall not have been discharged.
Then and in such event, regardless of the pendency of any proceeding which has
or might have the effect of preventing the Tenant from complying with the terms
of this Lease, the Landlord may at any time thereafter, during the continuance
of any such default, give a written termination notice to the Tenant specifying
a date (not less than ten days from the date of giving such notice) on which
this Lease shall terminate, and on such date, subject to the provisions of this
Lease relating to the survival of Tenant's obligations, the term of this Lease
shall terminate by limitation and all rights of the Tenant under this Lease
shall cease unless before such date (1) all arrears of Basic Rent, Additional
Rent and all other sums payable by the Tenant under this Lease, together with
interest thereon at the rate of 12% per annum, and all costs and expenses
(including, without limitation, attorneys' fees and expenses) incurred by or on
behalf of the Landlord shall have been paid by the Tenant, and (2) all other
defaults at the time existing under the Lease shall have been fully, remedied to
the satisfaction of the Landlord. All costs and expenses incurred by or on
behalf of the Landlord (including, without limitation, attorneys' fees and
expenses) occasioned by the default by the Tenant under this Lease shall
constitute Additional Rent hereunder.
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SECTION 18. Liability and Indemnification.
(a) Tenant shall indemnify Landlord and save Landlord harmless from
suits, actions, damages, liability and expense in connection with loss of life,
bodily or personal injury or property damage arising from or out of the use or
occupancy of the Premises or any part thereof, or occasioned wholly or in part
by any act or omission of Tenant, its agents, contractors, employees, servants,
invitees, licensees, or concessionaires, and Tenant shall indemnify Landlord and
save Landlord harmless from such suits, actions, damages, liability and expense
arising out of or caused by such breach, act or omission.
(b) Tenant shall give prompt notice to Landlord in case of fire or
accidents on the Premises or of defects therein or in any fixtures or equipment.
(c) Landlord shall indemnify Tenant and save Tenant harmless from suits,
actions, damages, liability and expense in connection with loss of life, bodily
or personal injury or property damage arising from any act or omission of
Landlord, its agents, contractors, employees, servants, invitees, licensees, or
concessionaires, and Landlord shall indemnify Tenant and save Tenant harmless
from such suits, actions, damages, liability and expense arising out of or
caused by such breach, act or omission.
SECTION 19. Accord and Satisfaction.
No payment by Tenant or receipt by Landlord of a less amount than the
monthly rent herein stipulated shall be deemed to be other than on account of
the earliest stipulated rent, nor shall an endorsement or statement on any check
or any letter accompanying any check or payment as rent be deemed an accord and
satisfaction and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent or pursue any other remedy
in the Lease provided. Partial payment shall only be construed as an accord and
satisfaction if specifically set forth in a separate instrument signed by
Landlord.
SECTION 20. Subordination, Attornment and Collateral Assignment.
(a) At the option of Landlord or any mortgagee, this Agreement and the
Tenant's interest hereunder, shall be subject and subordinate, upon terms and
conditions consistent with this Agreement, to any mortgage, deed of trust, or
any method of financing or refinancing now or hereafter placed against the
Premises and to all renewals, modifications, replacements, consolidations and
extensions thereof, provided that no subordination or subjecting of this
Agreement and Tenant's interest shall be effective until Landlord has obtained
and delivered to Tenant a fully executed non-disturbance agreement as described
in paragraph 20(d) below.
(b) If the holder of record of a first mortgage of Landlord's interest
in the Premises shall have given prior written notice to Tenant that it is the
holder of said mortgage and that such notice includes the address at which
notices to such mortgagee are to be sent, then Tenant agrees to give notice to
the holder of record of such first mortgage,
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<PAGE>
simultaneously with any notice given to Landlord to correct any default of
Landlord as hereinabove provided, and shall permit the holder of record and such
first mortgage to, within thirty (30) days after receipt of said notice, correct
or remedy such default before Tenant may take any action under this Lease by
reason of such default.
(c) Tenant shall, in the event of the sale or assignment of Landlord's
interest in the Premises, or in the event of the issuance of a certificate of
non-redemption in any proceedings brought for the foreclosure of a mortgage of
Landlord's interest in the Premises, or in the event of exercise of the power of
sale under any mortgage made by Landlord covering the Premises, attorn to the
purchaser or foreclosing mortgagee and recognize such purchaser or foreclosing
mortgagee as Landlord under this Lease, provided that any defaults are cured as
provided in Paragraph 20(b) above.
(d) Landlord shall use its best efforts to obtain from any mortgagee or
other Lender holding an interest in the Premises superior to Tenant's interest
under this Agreement: (i) a nondisturbance agreement in form and substance
reasonably satisfactory to Tenant, providing that so long as the Tenant performs
all of its obligations hereunder and agrees to attorn to such mortgagee or
beneficiary of deed of trust, then Tenant's right to possession under this
Agreement shall remain in full force and effect for the full term hereof, as
extended; (ii) further assurances from said mortgagee that it will claim no
interest in Tenant's personal property of any kind or nature.
(e) Notwithstanding any provision elsewhere in this Lease Agreement, the
Tenant shall have the right to mortgage, grant a security interest in, or assign
its interest in this Lease Agreement as collateral for loans (including
renewals, modifications, replacements, consolidations and extensions thereof)
from time to time without Landlord's prior consent or the prior consent of any
mortgagee holding a mortgage on the Demised Premises, provided that no such
mortgage, security interest or assignment shall extend to or affect the fee, the
reversionary interest, or the estate of the Landlord or any mortgagee in and to
the fee to the Demised Premises.
SECTION 21. Estoppel Certificates.
Either party, upon written request of the other, shall furnish to the
other party, a statement duty executed and acknowledged, to any mortgagee or
purchaser, or any other person or entity specified in such request:
(a) as to whether this Lease has been amended and the
substance of such amendment;
(b) as to the validity and force and effect of this Lease;
(c) as to the existence of any default hereunder;
(d) as to the existence of any offsets, counterclaims or
defenses hereto on the part of the party executing the certification; and
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<PAGE>
(e) as to any other matters as may reasonably be so requested.
This statement must be furnished within ten (10) days after receipt of
the request and the contents thereof shall be binding upon the party executing
the certification.
SECTION 22. Surrender of Premises; Holding Over.
(a) At the expiration of the Initial Term or any Extension Term, Tenant
shall surrender the Premises in the same condition in which they were upon the
Commencement Date, reasonable wear and tear excepted, and shall deliver all keys
and combinations to locks to Landlord. Before surrendering said Premises, Tenant
shall remove all personal property including all trade fixtures, and shall
repair any damage caused thereby as provided in Section 9(b). Tenant's
obligation to perform this provision shall survive the Lease Term. If Tenant
fails to remove its property upon the expiration of the Lease Term, Landlord
may, among other remedies, cause such properties to be removed and disposed of
with the costs of such removal and disposal to be borne by the Tenant.
(b) Any holding over after the expiration of the Lease Term or any
renewal term shall be construed to be a tenancy at will, and shall be on the
terms herein so far as is applicable, except that Landlord reserves the right to
increase the Base rent upon thirty (30) days' advance written notice to Tenant.
SECTION 23. Successors and Assigns.
All rights and liabilities herein given to, or imposed upon, the
respective parties hereto shall extend to and bind the several respective heirs,
executors, administrators, successors and assigns of the said parties; and if
there shall be more than one Tenant, they shall all be bound jointly and
severally by the terms, covenants and agreements herein. No rights, however,
shall inure to the benefit of any assignee of the Tenant unless the assignment
to such assignee has been approved by Landlord in writing, as provided in
Section 24 hereof.
SECTION 24. Assignment, Subletting.
(a) Except as provided in Section 20(e) hereof, the Tenant shall not
assign or sublet this Lease, without the written consent of the Landlord;
provided, however, that such consent shall not be unreasonably withheld or
delayed upon the Landlord, in the case of assignment, having been provided
adequate information to make an informed judgment that any assignee has the
financial ability to carry out the terms and obligations of this Lease; and, in
the case of sublet, upon being provided the terms of a proposed sublease and
securing written confirmation from Tenant that it shall remain fully liable for
the performance by any sublessee of this Lease.
The term "assign", as used herein, shall include:
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(i) an assignment of all of Tenant's interest hereunder in a
part of the Demised Premises, an assignment of an undivided percentage interest
hereunder in all of the Demised Premises, as well as any assignment from one
co-Tenant to another;
(ii) an assignment to any prior owner of the Tenant's interest
herein or part hereof; and
(iii) any merger, consolidation, transfer (singly or in
combination) of shares constituting more than one-third of the total shares
outstanding or any other transaction the effect of which is directly or
indirectly to transfer to any third party the benefits of this Lease.
(b) Notwithstanding the foregoing, Landlord hereby consents to the
proposed sublease of approximately 2,500 square feet of the Demised Premises to
NYBOR Corporation, and Tenant shall remain fully liable for the performance of
such sublessee.
SECTION 25. Non-Waiver.
(a) No agreement to accept a surrender of the Demised Premises prior to
the expiration of the Lease Term shall be valid unless in writing and signed by
an authorized representative of Landlord. The delivery of keys by or on behalf
of Tenant for any part of the Demised Premises to any employee or partner of
Landlord or to Landlord's agent or any employee of such agent shall not operate
as a termination of this Lease or as a surrender of the Premises.
(b) The failure of Landlord or Tenant to seek redress for violation or
breach of, or to insist on the strict performance of, any covenant of this Lease
whether by express waiver or otherwise, shall not be construed as a waiver of
any subsequent violation or breach or the same covenants.
(c) The receipt by Landlord of rent with knowledge of the breach of any
covenant of this Lease shall not be deemed a waiver of such breach.
(d) The failure of Landlord to enforce any of the rules and regulations
against Tenant or any other tenant in the Property shall not be deemed a waiver
of any such rule or regulation.
(e) Landlord's consent to, or approval of, any act by Tenant requiring
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent similar act by
Tenant.
SECTION 26. Severability.
It is the intention of the parties hereto that if any provision of this
Agreement is capable of two constructions, one of which would render the
provision valid, then the provision shall have the meaning which renders it
valid. If any term or provision or any
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<PAGE>
portion thereof of this Lease, or the application thereof to any person or
circumstances, shall, to any extent, be invalid or unenforceable, the remainder
of this Lease, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term and provision of this Lease shall be
valid and be enforced to the fullest extent permitted by law.
SECTION 27. Entire Agreement, Applicable Law.
This Lease with any exhibits and riders attached hereto contains the
entire agreement of the parties and no representations, inducements, promises or
agreements not embodied herein shall be of any force or affect, unless the same
are in writing and signed by or on behalf of the party to be charged. The
captions of particular sections are inserted as a matter of convenience and in
no way affect or define the scope or intent of this Lease or any provision
thereof. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Vermont.
SECTION 28. Captions.
The captions and numbers appearing herein are inserted only as a matter
of convenience and are not intended to define, limit, construe, or describe the
scope or intent of any section or paragraph, nor in any way affect this Lease.
SECTION 29. Notices.
Any notice required to be given by the terms of this Lease shall be
deemed received three (3) days after deposit in the United States mails, sent by
Certified Mail, Return Receipt Requested,
If to Landlord: Airmouse House Ltd. Partnership
P.O. Box 100
Williston, VT 05495
With a Copy to: _______________________________
_______________________________
_______________________________
_______________________________
If to Tenant: eNote.com, Inc.
_______________________________
_______________________________
With a Copy to: Peter M. Doremus, Esq.
Doremus Associates
112 Lake Street, Suite 3
Burlington, VT 05401
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<PAGE>
SECTION 30. Recording.
Landlord and Tenant agree that this Agreement shall not be recorded. At
Tenant's option and expense, a memorandum of lease may be recorded in accordance
with 27 V.S.A. ss. 341(c).
SECTION 31. Waiver of Jury Trial.
In the event the Landlord shall commence any summary proceedings or
action for nonpayment of rent or additional rent hereunder, the parties hereto
waive a trial by jury on any and all issues arising in connection therewith, or
the Tenant's use or occupancy of the Premises. In the event Tenant shall
commence any action against Landlord for failure to perform any of the covenants
or agreements herein contained to be kept and fulfilled on the part of the
Landlord, the parties hereto waive a jury trial on any and all issues arising in
connection therewith.
SECTION 32. Landlord Not Personally Liable.
Except as to the indemnification provided in Sections 15 and 19 hereof,
if Landlord or any successor in interest of Landlord shall be a mortgagee, or an
individual, joint venture, tenancy in common, firm or partnership, general or
limited, it is specifically understood and agreed that there shall be absolutely
no personal liability on the part of such mortgagee or such individual or on the
part of the members of such firm, partnership or joint venture with respect to
any of the terms, covenants and conditions of this Lease and that Tenant shall
look solely to the equity of Landlord or such successor in interest in the
Premises for the satisfaction of each and every remedy of Tenant in the event of
any breach by Landlord or by his successor of any of the terms, covenants and
conditions of this Lease to be performed by Landlord, such exculpation of
personal liability to be absolute and without any exception whatsoever.
IN WITNESS WHEREOF, the parties hereto have executed this Lease
Agreement, as of the date first above-written.
IN PRESENCE OF:
AIRMOUSE HOUSE LTD. PARTNERSHIP,
Landlord
By: /s/
--------------------------------------
Its Duly Authorized Agent
eNOTE.COM, INC., Tenant
By: /s/
--------------------------------------
Its Duly Authorized Agent
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STATE OF VERMONT
CHITTENDEN COUNTY, SS.
At Williston said County and State, this 2nd day of August 1999,
personally appeared ____, Duly Authorized Agent of AIRMOUSE HOUSE LTD.
PARTNERSHIP, and he/she acknowledged the foregoing instrument, by him/her
subscribed, to be his free act and deed and the free act and deed of AIRMOUSE
HOUSE LTD. PARTNERSHIP.
Before me, /s/
------------------------------------
Notary Public
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Exhibit 10.5
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT, dated June 15, 1999, between eNote.Com, Inc., a
Delaware corporation, with its principal place of business in Burlington,
Vermont ("Landlord"), and NYBOR Corporation, a Vermont corporation, with its
principal place of business in Williston, Vermont ("Tenant").
The Landlord lets to the Tenant and Tenant hires from the Landlord
approximately 2,500 square feet of office space located in the first floor of
the office building located at 185 Allen Brook Lane, Williston, Vermont (the
"Premises"), for use as offices for the term commencing June 15, 1999 and
expiring May 31, 2001 at the rental amount set forth herein, and fit up as
described in Exhibit A attached hereto.
The Tenant agrees to the following:
1. Payment. To pay Landlord without demand or set off, rent in the
amount of Twenty-Six Thousand One Hundred Twenty-Five and 00/100 Dollars
($26,125.00) per year, payable in equal monthly installments of Two Thousand One
Hundred Seventy-Seven and 08/100 Dollars ($2,177.08) on the first day of each
month, in advance, commencing on June 1, 1999 and continuing through the term of
the Sublease.
2. Repairs. At its expense, to keep the premises in good repair,
ordinary wear and tear, repairs to the roof, exterior of the building, and
structural repairs excepted, unless such repairs are made necessary by the
Tenant's act or negligence. Landlord shall be responsible for maintenance and
repair of the building grounds and for snow removal. At the expiration of the
term the Tenant shall remove its goods and effects and peaceably yield up the
premises to the Landlord in as good condition as when delivered to Tenant,
ordinary wear and tear, damage by fire, the elements, act of public enemy, or
casualty excepted. All notices to quit or vacate are expressly waived, any law,
usage or custom to the contrary notwithstanding. Tenant shall be responsible for
janitorial services for the Premises.
3. Compliance with Regulations. Comply promptly with all laws,
ordinances, requirements, and regulations of the federal, state, county,
municipal and other authorities, the fire insurance underwriters, and insurance
organizations or associations. However, the Tenant shall not be required to make
alterations to the exterior of the building, or alterations of structural
nature.
4. Viewing Premises. During the last three (3) months of this Sublease,
or any extension thereof, to permit the Landlord to show the premises to
prospective tenants. At any time during the term the Landlord, its landlord, or
either's agents, may enter the premises for the purpose of examining their
condition or making repairs in any part of the building. However, the Landlord
does not assume any liability for the care or supervision of the premises or
appurtenances.
<PAGE>
5. Assignment. The Tenant shall not make or permit to be made any
alterations or additions to the premises, assign, mortgage, or pledge this
Sublease, or sublet the whole or any part of the premises without the Landlord's
written consent. Such consent shall apply solely to the particular transaction
consented to and shall not constitute the Landlord's waiver of the provisions of
this Sublease.
6. Insurance. The Tenant shall not leave the premises unoccupied during
the term, or by any act or omission cause an increase in the rate of insurance
or the cancellation of any insurance policy. If any increase in the rate of
insurance iscaused by the Tenant's occupancy, the Tenant shall pay on demand the
amount of the increase, and in default of such payment, the amount may be added
to the next installment of rent as additional rent. The Tenant shall furnish the
Landlord with public liability insurance policies issued by insurance companies
licensed to do business in the State of Vermont and in amounts totaling one
million dollars ($1,000,000.00). To the extent permitted by such policies of
each, and without voiding the insurance provided thereby, Landlord and Tenant
hereby waive their rights of subrogation.
7. Signs. The Tenant shall not install awnings, advertisements, or signs
on any part of the premises without the Landlord's written consent, which
consent shall not be unreasonably withheld.
8. Taxes and Utilities. The Tenant shall pay one-third of all electric,
security and gas fuel costs for the building of which the Premises form a part.
Landlord shall bill Tenant monthly for such costs. Tenant shall pay its pro rata
share of any increase over the current amount of taxes imposed on the real
property.
9. Indemnification. The Landlord shall not be responsible for any defect
or change of condition in the premises, or for any damage thereto, or to any
person, or to goods or things contained therein due to any cause except the
Lessor's act or negligence. The Tenant shall indemnify the Landlord from all
claims, demands and actions arising in connection with the Tenant's use of the
property, or the use by any person occupying the premises during the term
hereof, or by reason of any breach or nonperformance of any covenant herein, or
the Tenant's violation of any law or regulation.
10. Fire Damage. If the premises are so damaged by fire, other casualty,
or other or act of public enemy so as to be substantially destroyed, this
Sublease shall terminate and any unearned rent paid in advance by the Tenant
shall be apportioned and refunded to it. However, if the premises are not
substantially destroyed, and such damage is covered by Landlord's fire and
casualty insurance, then the Landlord will promptly repair and restore same to
substantially the condition in which they were immediately prior to occurrence
of such casualty, using the proceeds of the insurance. A just proportion of the
rent shall abate according to the extent to which the premises have been
rendered untenantable until they have been restored. The Tenant shall give the
Landlord immediate notice of any damage to the premises.
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<PAGE>
11. Default and Remedies. If any one or more of the following events
("Events of Default") shall occur:
(a) If the Tenant shall fail to pay any Basic Rent; or other sum payable
hereunder as the same becomes due and payable; or
(b) If the Tenant shall fail to perform or comply with any terms of this
Lease other than those referred to in paragraph (a) above or with any term of
any other agreement between the parties, and such failure shall continue for
more than 15 days after the Tenant receives notice or knowledge of such failure;
or
(c) If the Tenant shall make a general assignment for the benefit of
creditors or shall admit in writing its inability to pay its debts as they
become due, or shall file a petition in bankruptcy, or shall be adjudicated a
bankrupt or insolvent, or shall file a petition seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, or shall file an
answer admitting or not contesting the material allegations of a petition filed
against it in any such proceeding, or shall seek or consent to or acquiesce in
the appointment of any trustee, receiver or liquidator of the Tenant or any
material part of its properties; or
(d) If, within 60 days after the commencement of any proceeding against
the Tenant seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statut,
law or regulation, such proceeding shall not have been dismissed or stayed (or
within 60 days after the expiration of any such stay such proceeding shall not
have been dismissed), or if, within 60 days after the appointment without the
consent or acquiescence of the Tenant of any trustee, receiver or liquidator of
the Tenant or of any material part of its properties, such appointment shall not
have been vacated or stayed (or within 60 days after the expiration of any such
stay such appointment shall not have been vacated); or
(e) If the Tenant shall default in the payment of any indebtedness for
borrowed money, or shall fail to perform or comply with any of the terms of any
such indebtedness, or of any instruments relation thereto, and such default or
failure shall continue beyond any grace period provided with respect thereof,
and such default or failure shall not have been waived, bonded or cured; or
(f) If the Tenant or its shareholder or directors shall take any action
looking to the dissolution or liquidation of the Tenant; or
(g) If a final judgment which, with other outstanding final judgments
against the Tenant, exceeds an aggregate of $100,000 shall be rendered against
the Tenant, and if, within 60 days after the expiration of such stay, such
judgment shall not have been discharged.
Then and in such event, regardless of the pendency of any proceeding which has
or might have the effect of preventing the Tenant from complying with the terms
of this Lease, the Landlord may at any time thereafter, during the continuance
of any such default, give a
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written termination notice to the Tenant specifying a date (not less than ten
days from the date of giving such notice) on which this Lease shall terminate,
and on such date, subject to the provisions of this Lease relating to the
survival of Tenant's obligations, the term of this Lease shall terminate by
limitation and all rights of the Tenant under this Lease shall cease unless
before such date (1) all arrears of Basic Rent, Additional Rent and all other
sums payable by the Tenant under this Lease, together with interest thereon at
the rate of 12% per annum, and all costs and expenses (including, without
limitation, attorneys' fees and expenses) incurred by or on behalf of the
Landlord shall have been paid by the Tenant, and (2) all other defaults at the
time existing under the Lease shall have been fully remedied to the satisfaction
of the Landlord. All costs and expenses incurred by or on behalf of the Landlord
(including, without limitation, attorneys' fees and expenses) occasioned by the
default by the Tenant under this Lease shall constitute Additional Rent
hereunder.
12. Additional Rent. If the Landlord makes expenditure for which the
Lessee is responsible, or if the Tenant fails to make any required payment under
this Sublease, Landlord may add such amount to any current or future installment
of rent.
13. Condemnation. If all or any part of the Premises are taken or
condemned for a temporary or permanent public or quasi-public use, the Landlord
may terminate this Sublease.
14. Notices. All notices or other documents under this Sublease shall be
in writing and delivered personally to the party to be notified or sent by
registered or certified mail addressed to such party at its last known address.
15. Sublease. This is a sublease. The Landlord's interest in the
premises is as tenant under an underlying Lease made by Airmouse House Ltd.
Partnership dated ______, 1999, a copy of which (with financial terms removed),
initialed for identification, is attached hereto. This Sublease is expressly
made subject to all the terms and conditions of the underlying lease, with the
exception of rental amounts provided in Section 1. The Tenant shall use the
premises in accordance with the terms of the underlying lease and not do or omit
to do anything which will breach any of its terms. If the underlying lease is
terminated, this Sublease shall terminate simultaneously and any unearned rent
paid in advance shall be refunded to the Tenant, if such termination is not the
result of a breach by the Tenant of the within Sublease. The Tenant shall assume
the obligation for performance of all the Landlord's obligation under the
underlying lease.
16. Quiet Enjoyment. Landlord covenants that the Tenant upon paying the
rent and complying with the provisions of this Sublease, shall peaceably and
quietly have, hold and enjoy the Demised Premises for the term of this Sublease.
17. Non-waiver.
(a) No agreement to accept a surrender of the Demised Premises prior to
the expiration of the Lease Term shall be valid unless in writing and signed by
an authorized representative of Landlord. The delivery of keys by or on behalf
of Tenant for any part of
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the Demised Premises to any employee or partner of Landlord or to Landlord's
agent or any employee of such agent shall not operate as a termination of this
Sublease or as a surrender of the Premises.
(b) The failure of Landlord or Tenant to seek redress for violation or
breach of, or to insist on the strict performance of, any covenant of this
Sublease whether by express waiver or otherwise, shall not be construed as a
waiver of any subsequent violation or breach or the same covenants.
(c) The receipt by Landlord of rent with knowledge of the breach of any
covenant of this Sublease shall not be deemed a waiver of such breach.
(d) The failure of Landlord to enforce any of the rules and regulations
against Tenant or any other tenant in the Property shall not be deemed a waiver
of any such rule or regulation.
(e) Landlord's consent to, or approval of, any act by Tenant requiring
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent similar act by
Tenant.
18. Accord and satisfaction. No payment by Tenant or receipt by Landlord
of a less amount than the monthly rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, nor shall an endorsement
or statement on any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
rent or pursue any other remedy in the Lease provided. Partial payment shall
only be construed as an accord and satisfaction if specifically set forth in a
separate instrument signed by Landlord.
19. Severability. It is the intention of the parties hereto that if any
provision of this Sublease is capable to two constructions, one of which would
render the provision valid, then the provision shall have the meaning which
renders it valid. If any term or provision or any portion thereof of this Lease,
or the application thereof to any person or circumstances, shall, to any extent,
be invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and each term
and provision of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
20. Entire Agreement, Applicable Law. This Sublease with any exhibits
and riders attached hereto contains the entire agreement of the parties and no
representations, inducements, promises or agreements not embodied herein shall
be of any force or effect, unless the same are in writing and signed by or on
behalf of the party to be charged. The captions of particular sections are
inserted as a matter of convenience and in no way affect or define the scope or
intent of this Sublease or any provision thereof. This Sublease shall be
governed by and interpreted in accordance with the laws of the State of Vermont.
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<PAGE>
21. Captions. The captions and numbers appearing herein are inserted
only as a matter of convenience and are not intended to define, limit, construe,
or describe the scope or intent of any section or paragraph, nor in any way
affect this Sublease.
22. Binding Effect. The provisions of this instrument shall be binding
upon and inure to the benefit of both parties and their respective legal
representatives, successors, and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Sublease as of
the date first-above written.
In the Presence of: eNote.Com, Inc.
/s/ By: /s/
- ------------------------------ ---------------------------------
NYBOR Corporation
/s/ By: /s/
- ------------------------------ ---------------------------------
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Exhibit 10.6
AGREEMENT OF LEASE
between
866 U.N. PLAZA ASSOCIATES LLC
Landlord,
and
eNOTE.com, INC.
Tenant.
Portion of the 3rd Floor
866 U.N. Plaza
New York, New York
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS, DEMISE, PREMISES, TERM, FIXED RENT...................... 1
Section 1.1. Definitions..................................... 1
Section 1.2. Demise.......................................... 1
Section 1.3. Fixed Rent...................................... 1
ARTICLE 2
ESCALATION........................................................... 2
Section 2.1. Certain Definitional Matters.................... 2
Section 2.2. Tax Payment..................................... 3
Section 2.3. Tax Reduction Proceedings....................... 4
Section 2.4. Porters Wage Payment............................ 5
Section 2.5. Building Energy................................. 6
ARTICLE 3
USE AND OCCUPANCY.................................................... 7
Section 3.1. Permitted Use................................... 7
Section 3.2. Limitations..................................... 7
Section 3.3. Advertising..................................... 7
ARTICLE 4
ALTERATIONS.......................................................... 7
Section 4.1. General......................................... 7
Section 4.2. Procedure for Alterations....................... 8
Section 4.3. Permits and Insurance for Alterations........... 8
Section 4.4. Financial Integrity............................. 8
Section 4.5. Effect of Building.............................. 9
Section 4.6. Time for Performance of Alterations; Rules...... 9
Section 4.7. Removal of Alterations and Tenant's Property.... 9
Section 4.8. Contractors; Architectural Supervision.......... 9
Section 4.9. Mechanics' Liens................................ 10
Section 4.10. Labor Conflicts................................. 10
Section 4.11. Landlord's Expenses............................. 10
ARTICLE 5
REPAIRS.............................................................. 10
Section 5.1. Landlord's Repairs.............................. 10
Section 5.2. Tenant's Repairs................................ 10
Section 5.3. Limitations..................................... 11
Section 5.4. Landlord's Obligation to Minimize Interference.. 11
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ARTICLE 6
REQUIREMENTS OF LAW.................................................. 11
Section 6.1. Tenant's Obligation to Comply with Requirements...... 11
Section 6.2. Landlord's Obligation to Comply with Requirements.... 12
Section 6.3. Tenant's Right to Contest Requirements............... 12
Section 6.4. Rent Contro.......................................... 12
ARTICLE 7
SUBORDINATION........................................................ 13
Section 7.1. Subordination and Non-Disturbance.................... 13
Section 7.2. Attornment........................................... 13
Section 7.3. Tenants Estoppel Certificate......................... 14
Section 7.4. Rights to Cure Landlord's Default.................... 14
Section 7.5. Zoning Lot........................................... 14
ARTICLE 8
RULES AND REGULATIONS................................................ 15
Section 8.1. Adoption; Enforcement................................ 15
ARTICLE 9
INSURANCE............................................................ 15
Section 9.1. Tenant's Insurance................................... 15
Section 9.2. Landlord's Insurance................................. 16
Section 9.3. Waiver of Subrogation................................ 16
Section 9.4. Evidence of Insurance................................ 17
ARTICLE 10
CASUALTY............................................................. 17
Section 10.1. Landlord's Obligation to Restore..................... 17
Section 10.2. Landlord's Termination Right......................... 18
Section 10.3. Termination Rights at End of Term.................... 18
Section 10.4. No Other Termination Rights.......................... 18
ARTICLE 11
EMINENT DOMAIN....................................................... 18
Section 11.1. Effect of Condemnation............................... 18
Section 11.2. Condemnation Award................................... 19
Section 11.3. Temporary Taking..................................... 19
ARTICLE 12
ASSIGNMENT, SUBLETTING MORTGAGING.................................... 20
Section 12.1. General Limitation................................... 20
Section 12.2.. Landlord's Expenses.................................. 20
Section 12.3. No Release........................................... 20
Section 12.4. Certain Permitted Transfers.......................... 20
Section 12.5. Replacement Lease.................................... 21
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Section 12.6. Certain Rights to Sublease.......................... 21
Section 12.7. Sublease Profit..................................... 23
Section 12.8. Certain Rights to Assign............................ 23
Section 12.9. Assignment Profit................................... 24
Section 12.10. Recapture Rights.................................... 24
Section 12.11....................................................... 26
ARTICLE 13
ELECTRICITY......................................................... 26
Section 13.1. Service............................................. 26
Section 13.2. Electricity Additional Rent......................... 26
Section 13.3. Termination of Electric Service..................... 28
ARTICLE 14
ACCESS TO PREMISES.................................................. 29
Section 14.1. Ducts, Pipes and Conduits........................... 29
Section 14.2. Access.............................................. 29
Section 14.3. Keys................................................ 29
Section 14.4. Building Changes.................................... 29
ARTICLE 15
DEFAULT............................................................. 30
Section 15.1. Events of Default................................... 30
Section 15.2. Termination......................................... 31
ARTICLE 16
REMEDIES AND DAMAGES................................................ 32
Section 16.1. Certain Remedies............................... 32
Section 16.2. Certain Waivers................................ 32
Section 16.3. Damages........................................ 33
ARTICLE 17
LANDLORD FEES AND EXPENSES.......................................... 34
Section 17.1. Landlord's Costs After Event of Default........ 34
Section 17.2. Interest on Late Payments...................... 34
ARTICLE 18
CONDITION OF PREMISED............................................... 34
Section 18.1. No Representations............................. 34
ARTICLE 19
END OF TERM......................................................... 35
Section 19.1. Condition of Premises at End of Term........... 35
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ARTICLE 20
QUIET ENJOYMENT..................................................... 35
Section 20.1. Landlord's Covenant............................ 35
ARTICLE 21
POSSESSION........................ 35
Section 21.1. Extent of Landlord's Liability................. 35
Section 21.2. Failure to Give Possession..................... 36
ARTICLE 22
NO WAIVER........................ 36
Section 22.1. No Surrender................................... 36
Section 22.2. No Waiver by Landlord.......................... 36
Section 22.3. No Waiver by Tenant............................ 36
ARTICLE 23
WAIVER OF TRIAL BY JURY............................................. 37
Section 23.1. Waiver......................................... 37
ARTICLE 24
SERVICES............................................................ 37
Section 24.1. Passenger Elevators............................ 37
Section 24.2. Freight Elevators.............................. 37
Section 24.3. HVAC........................................... 37
Section 24.4. Cleaning....................................... 38
Section 24.5. Directory...................................... 38
ARTICLE 25
INABILITY TO PERFORM ................................ 38
Section 25.1. Unavoidable Delays............................. 38
ARTICLE 26
BILLS AND NOTICES................................................... 39
Section 26.1. Means of Notice................................ 39
ARTICLE 27
VAULT SPACE......................................................... 39
Section 27.1. Outside of Premises............................ 39
ARTICLE 28
SECURITY.... ........................................................ 40
Section 28.1. Cash or Letter of Credit....................... 40
ARTICLE 29
BROKER.............................................................. 41
Section 29.1. Commission..................................... 41
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ARTICLE 30
INDEMNITY............................................................ 41
Section 30.1. Tenant's Indemnification of Landlord................. 41
Section 30.2. Landlord's Indemnification of Tenant................. 41
ARTICLE 31
ADDITIONAL PROVISIONS................................................ 42
Section 31.1. Not Binding Until Execution.......................... 42
Section 31.2. Extent of Landlord's Liability....................... 42
Section 31.3. Rent under Section 502(b)(7) of the Bankruptcy Code.. 42
Section 31.4. Survival............................................. 42
Section 31.5. No Recording......................................... 42
Section 31.6. Landlord's Consents and Approvals.................... 42
Section 31.7. Merger; Written Supplements.......................... 43
Section 31.8. Submission to Jurisdiction........................... 43
Section 31.9. Captions............................................. 43
Section 31.10. Parties Bound........................................ 43
Section 31.11. Schedules and Exhibits............................... 43
Section 31.12. Gender............................................... 43
Section 31.13. Divisibility......................................... 43
Section 31.13. Adjacent Excavation.................................. 44
Section 31.14. United Nations Plaza................................. 44
EXHIBITS
A DEFINITIONS
B CLEANING SPECIFICATIONS
LANDLORD'S WORK
SCHEDULES
PREMISES
RULES AND REGULATIONS
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THIS AGREEMENT OF LEASE, made as of the 11th day of May, 1999, between 866
U.N. PLAZA ASSOCIATES LLC ("Initial Landlord"), a New York limited liability
company, having an office c/o MRC Management LLC, 330 Madison Avenue, New York,
New York 10017, and eNOTE.com, INC. ("Initial Tenant"), a Delaware corporation,
having an office at One Lawson Lane, Burlington, Vermont 05402.
W I T N E S S E T H :
WHEREAS, Initial Landlord wishes to demise and let unto Initial Tenant,
and Initial Tenant wishes to hire and take from Initial Landlord, certain
premises on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the mutual receipt and legal sufficiency of which the
parties hereto hereby acknowledge, Initial Landlord and Initial Tenant hereby
agree as follows:
ARTICLE 1
DEFINITIONS, DEMISE, PREMISES, TERM, FIXED
RENT
Section 1.1. Definitions. Capitalized terms used herein shall have the
respective meanings indicated in Exhibit "A" attached hereto and made a part
hereof.
Section 1.2. Demise. Subject to the terms hereof, Landlord hereby demises
and lets to Tenant, and Tenant hereby hires and takes from Landlord, the
Premises for the Term.
Section 1.3. Fixed Rent. The annual base rental for the Premises (the
"Fixed Rent") shall be:
(1) Twenty-One Thousand Three Hundred Sixty-Eight and 52/100 Dollars
($21,368.52) for the period commencing on the Commencement Date and ending on
September 30, 1999 ($1,780.71 per month), and
(2) Twenty-Five Thousand Eight Hundred Seventy-One Dollars ($25,871) for
the period commencing on October 1, 1999 and ending on the Fixed Expiration Date
($2,155.92 per month),
which Tenant shall pay in equal monthly installments in advance, on the first
(1st) day of each calendar month during the Term commencing on the Commencement
Date, at the office of Landlord or such other place as Landlord may designate,
without any set-off, offset, abatement or deduction whatsoever (except to the
extent otherwise expressly provided herein). Tenant shall pay to Landlord
simultaneously with the execution and delivery hereof an amount equal to One
Thousand Seven Hundred Eighty and 71/100 Dollars ($1,780.71), which Landlord
shall apply against the Fixed Rent first coming due hereunder for the period
commencing on the Commencement Date.
<PAGE>
ARTICLE 2
ESCALATION
Section 2.1. Certain Definitional Matters.
(A) "Wage Rate" shall mean an amount equal to the minimum regular
wage and all other sums, in either case computed on an hourly basis, required to
be paid annually to or for the benefit of Porters pursuant to a collective
bargaining agreement negotiated by R.A.B. with Local 32B, it being understood
that:
(i) the Wage Rate shall include, but not be limited to, the aforesaid
minimum regular wage and all sums paid for pension, welfare, dental
and training fund contributions, mandatory bonuses, uniforms,
annuity funds, mandatory or customary overtime pay, social security,
unemployment, disability benefits, health, life, accident, workers'
Compensation and any other type of insurance,
(ii) the Wage Rate shall be computed by dividing the combined total
amount so required to be paid to or for the benefit of the employee,
annually, by the number of hours (including mandatory or customary
overtime) that the employee is actually or customarily required to
work annually if the employee takes all of the paid time off to
which he or she may be entitled (including, but not limited to, time
for vacations, holidays, sick days, birthdays, medical check-ups,
relief time and jury duty),
(iii) if length of service is a factor in determining any element of the
Wage Rate, such as, for example, vacation or the minimum regular
wage, it shall be conclusively presumed that all employees have had
five years' service,
(iv) the calculation of sums paid for workers' compensation shall be
based upon the annual rates for cleaners published by the New York
State Workers' Compensation Rating Board,
(v) jury duty shall be calculated on the basis of an average of three
days per year,
(vi) if any such agreement is not entered into or if R.A.B. ceases to
bargain collectively, then the Wage Rate shall be an amount equal to
the minimum wage rate and other sums as aforesaid, in either case
computed on an hourly basis, required to be paid annually, to or for
the benefit of Porters engaged in the maintenance and operation of
the Building and payable by either Landlord or the contractor
furnishing such services, and
(vii) if, by reason of any Requirement, an increase in the Wage Rate is
reduced or does not take effiect, or increases in the Wage Rate are
limited or prohibited, then for the period covered by such
Requirement, the applicable increase in the Wage Rate for purposes
hereof shall be the maximum increase or increases
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in the Wage Rate permitted during such period, and, upon the
expiration thereof, Tenant shall pay to Landlord, on demand, to the
extent permitted by applicable Requirements, the amount by which the
aggregate Porters Wage Payments applicable to such period exceed the
aggregate Porters Wage Payments paid for such period by Tenant
pursuant to such Requirement, together with interest thereon at the
lesser of (i) the Base Rate, and (ii) the maximum rate permitted by
law.
(B) "Taxes" shall mean the aggregate amount of real estate taxes and
any general or special assessments (exclusive of penalties and interest thereon)
imposed upon the Real Property (including, without limitation, i) assessments
made upon or with respect to any "air" and "development" rights now or hereafter
appurtenant to or affecting the Real Property, ii) any fee, tax or charge
imposed by any Governmental Authority for any vaults, vault space or other space
within or outside the boundaries of the Real Property, and iii) any taxes or
assessments levied after the date of this Lease in whole or in part for public
benefits to the Real Property or the Building (or by or on behalf of any
business improvement district) without taking into account (x) any discount that
Landlord may receive by virtue of any early payment of Taxes, or (y) any
Excluded Amounts; provided, however, that if because of any change in the
taxation of real estate, any other tax or assessment, however denominated
(including, without limitation, any franchise, income, profit, sales, use,
occupancy, gross receipts or rental tax), is imposed upon Landlord or the owner
of the Real Property or the Building, or the occupancy, rents or income
therefrom, in substitution for any of the foregoing Taxes, such other tax or
assessment shall be deemed part of Taxes computed as if Landlord's sole asset
were the Real Property. With respect to any Tax Year, all expenses, including
attorneys' fees and disbursements, experts' and other witnesses' fees, incurred
in contesting the validity or amount of any Taxes or in obtaining a refund of
Taxes shall be considered as part of the Taxes for such Tax Year.
Section 2.2. Tax Payment. (A) Subject to the provisions of this Section
2.2, Tenant shall pay to Landlord, on the first day of the calendar month
following the calendar month during which Landlord gives the initial Tax
Statement to Tenant, and on the first day of each succeeding calendar month
during the Term (until Landlord gives Tenant an additional Tax Statement
pursuant to Section 2.2(B) hereof), an amount equal to the quotient obtained by
dividing (x) the Tax Payment for the Tax Year covered by such Tax Statement, by
(y) twelve (12) (the "Initial Monthly Tax Amount"). If Landlord gives the
initial Tax Statement to Tenant after the first day of the Tax Year covered
thereby, then Tenant, on the first day of the following calendar month, shall
also pay to Landlord an amount equal to the product obtained by multiplying i)
the Initial Monthly Tax Amount, by ii) the number of calendar months which have
elapsed since the beginning of such Tax Year.
(B) Landlord shall give additional Tax Statements to Tenant from
time to time in respect of each Tax Year from and after the Tax Year covered by
the initial Tax Statement given to Tenant. Subject to the provisions of this
Section 2.2, Tenant shall pay to Landlord, on the first day of the calendar
month immediately following the calendar month during which Landlord gives to
Tenant such additional Tax Statement, and on the first day of each succeeding
calendar month during the Term (until Landlord gives Tenant an additional
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Tax Statement pursuant to this Section 2.2(B)), an amount equal to the quotient
obtained by dividing (x) the Tax Payment for the Tax Year covered by such
additional Tax Statement, by (y) twelve (the "Subsequent Monthly Tax Amount").
If the Subsequent Monthly Tax Amount exceeds the Initial Monthly Tax Amount, or
the Subsequent Monthly Tax Amount calculated using the previous Tax Statement
most recently given to Tenant, as the case may be (the amount of any such excess
being referred to herein as a "Monthly Tax Deficiency"), then, on the first day
of the calendar month immediately following the calendar month during which
Landlord gives to Tenant such additional Tax Statement, Tenant shall also pay to
Landlord an amount equal to the product obtained by multiplying i) the Monthly
Tax Deficiency, by ii) the number of calendar months which have elapsed since
the beginning of the Tax Year covered by such additional Tax Statement. If the
Initial Monthly Tax Amount, or the Subsequent Monthly Tax Amount calculated
using the previous Tax Statement most recently given to Tenant, as the case may
be, exceeds the Subsequent Monthly Tax Amount (the amount of any such excess
being referred to herein as a "Monthly Tax Surplus"), then Tenant shall be
entitled to a credit to apply against the Rental thereafter coming due in an
aggregate amount equal to the product obtained by multiplying (i) the Monthly
Tax Surplus, by (ii) the number of calendar months which have elapsed since the
beginning of the Tax Year covered by such additional Tax Statement; provided,
however, that if at the expiration or earlier termination of the Term, any such
credit remains unused, then Landlord shall make payment thereof to Tenant (net
of any amounts owing by Tenant to Landlord in connection with any termination of
the Term).
(C) Tenant shall make the Tax Payment regardless of whether Tenant
is exempt from the payment of Taxes for any reason, including, without
limitation, Tenant's diplomatic status.
Section 2.3. Tax Reduction Proceedings. (A) If, after a Tax Statement has
been sent to Tenant, an Assessed Valuation which had been used in computing the
Taxes for a Tax Year is reduced and, as a result thereof, a refund of Taxes is
received by or on behalf of Landlord, then, on or prior to the twentieth (20th)
day after the date when such refund is made, Landlord shall send Tenant a Tax
Statement adjusting the Taxes for such Tax Year (taking into account the
expenses mentioned in Section 2.1(B) hereof) and setting forth Tenant's share of
such refund. Tenant shall be entitled to a credit against the Rental thereafter
coming due in an aggregate amount equal to Tenant's share of such refund;
provided, however, that (x) Tenant's share of such refund shall in no event
exceed the portion of the Tax Payment, if any, which Tenant had theretofore paid
to Landlord attributable to increases in Taxes for the Tax Year to which the
refund is applicable, and (y) if at the expiration or earlier termination of the
Term, any such credit remains unused, then Landlord shall make payment thereof
to Tenant (net of any amounts owing by Tenant to Landlord).
(B) If, after a Tax Statement has been sent to Tenant, the Assessed
Valuation which had been used in computing the Base Taxes is reduced (as a
result of settlement, final determination of legal proceedings or otherwise),
then i) the Base Taxes shall be retroactively adjusted to reflect such
reduction, and ii) all retroactive Tax Payments
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resulting from such retroactive adjustment shall be due and payable on the tenth
(10th) day after Landlord gives Tenant an invoice therefor.
Section 2.4. Porters Wage Payment. (A) Subject to the provisions of this
Section 2.4, Tenant shall pay to Landlord, on the first day of the calendar
month following the calendar month during which Landlord gives to Tenant the
initial Porters Wage Statement, and on the first day of each succeeding calendar
month during the Term (until Landlord gives Tenant an additional Porters Wage
Statement pursuant to Section 2.4(B) hereof), an amount equal to the quotient
obtained by dividing (x) the Porters Wage Payment for the Comparison Year
covered by such Porters Wage Statement, by (y) twelve (12) (the "Initial Monthly
Porters Wage Amount"). If Landlord gives such Porters Wage Statement to Tenant
after the first day of the Comparison Year covered thereby, then Tenant, on the
first day of the following calendar month, shall also pay to Landlord an amount
equal to the product obtained by multiplying (i) the Initial Monthly Porters
Wage Amount, by (ii) the number of calendar months which have elapsed since the
beginning of such Comparison Year.
(B) Landlord shall give Tenant additional Porters Wage Statements
from time to time in respect of each Comparison Year from and after the
Comparison Year covered by the initial Porters Wage Statement given to Tenant.
Subject to the provisions of this Section 2.4, Tenant shall pay to Landlord, on
the first day of the calendar month immediately following the calendar month
during which Landlord gives to Tenant an additional Porters Wage Statement
(after having given the initial Porters Wage Statement to Tenant, as aforesaid),
and on the first day of each succeeding calendar month during the Term (until
Landlord gives Tenant an additional Porters Wage Statement pursuant to this
Section 2.4(B)), an amount equal to the quotient obtained by dividing (x) the
Porters Wage Payment for the Comparison Year covered by such Porters Wage
Statement, by (y) twelve (12) (the "Subsequent Monthly Porters Wage Amount"). If
the Subsequent Monthly Porters Wage Amount exceeds the Initial Monthly Porters
Wage Amount, or the Subsequent Monthly Porters Wage Amount calculated using the
previous Porters Wage Statement most recently given to Tenant, as the case may
be (the amount of any such excess being referred to herein as a "Monthly Porters
Wage Deficiency"), then, on the first day of the calendar month immediately
following the calendar month during which Landlord gives to Tenant such
additional Porters Wage Statement, Tenant shall also pay to Landlord an amount
equal to the product obtained by multiplying (i) the Monthly Porters Wage
Deficiency, by (ii) the number of calendar months which have elapsed since the
beginning of the Comparison Year covered by such additional Porters Wage
Statement. If the Initial Monthly Porters Wage Amount, or the Subsequent Monthly
Porters Wage Amount calculated using the previous Porters Wage Statement most
recently given to Tenant, as the case may be, exceeds the Subsequent Monthly
Porters Wage Amount (the amount of any such excess being referred to herein as a
"Monthly Porters Wage Surplus"), then Tenant shall be entitled to a credit to
apply against the Rental thereafter coming due in an aggregate amount equal to
the product obtained by multiplying (i) the Monthly Porters Wage Surplus, by
(ii) the number of calendar months which have elapsed since the beginning of the
Comparison Year covered by such additional Porters Wage Statement; provided,
however, that if at the expiration or earlier termination of the Term, any such
credit remains unused, then Landlord shall make payment thereof to Tenant (net
of any amounts owing by Tenant to Landlord).
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Section 2.5. Building Energy. (A) Subject to the provisions of this
Section 2.5, Tenant shall pay to Landlord, on the first day of the calendar
month following the calendar month during which Landlord gives to Tenant the
initial Building Energy Statement, and on the first day of each succeeding
calendar month during the Term (until Landlord gives Tenant an additional
Building Energy Statement pursuant to Section 2.5(B) hereof), an amount equal to
the quotient obtained by dividing (x) the Building Energy Payment for the Energy
Year covered by such Building Energy Statement, by (y) twelve (12) (the "Initial
Monthly Building Energy Amount"). If Landlord gives such Building Energy
Statement to Tenant after the first day of the Energy Year covered thereby, then
Tenant on the first day of the following calendar month, shall also pay to
Landlord an amount equal to the product obtained by multiplying (i) the Initial
Monthly Building Energy Amount, by (ii) the number of calendar months which have
elapsed since the beginning of such Energy Year.
(B) Landlord shall give Tenant Annual Building Energy Statements
from time to time in respect of each Energy Year from and after the Energy Year
covered by the initial Building Energy Statement given to Tenant. Subject to the
provisions of this Section 2.5, Tenant shall pay to Landlord, on the first day
of the calendar month immediately following the calendar month during which
Landlord gives to Tenant an additional Building Energy Statement (after having
given the initial Building Energy Statement to Tenant, as aforesaid), and on the
first day of each succeeding calendar month during the Term (until Landlord
gives Tenant an additional Building Energy Statement pursuant to this Section
2.5(B)), an amount equal to the quotient obtained by dividing (x) the Building
Energy Payment for the Energy Year covered by such Building Energy Statement, by
(y) twelve (12) (the "Subsequent Monthly Building Energy Amount"). If the
Subsequent Monthly Building Energy Amount exceeds the Initial Monthly Building
Energy Amount, or the Subsequent Monthly Building Energy Amount calculated using
the previous Building Energy Statement most recently given to Tenant, as the
case may be (the amount of any such excess being referred to herein as a
"Monthly Building Energy Deficiency"), then, on the first day of the calendar
month immediately following the calendar month during which Landlord gives to
Tenant such additional Building Energy Statement, Tenant shall also pay to
Landlord an amount equal to the product obtained by multiplying (i) the Monthly
Building Energy Deficiency, by (ii) the number of calendar months which have
elapsed since the beginning of the Energy Year covered by such additional
Building Energy Statement. If the Initial Monthly Building Energy Amount, or the
Subsequent Monthly Building Energy Amount calculated using the previous Building
Energy Statement most recently given to Tenant, as the case may be, exceeds the
Subsequent Monthly Building Energy Amount (the amount of any such excess being
referred to herein as a "Monthly Building Energy Surplus"), then Tenant shall be
entitled to a credit to apply against the Rental thereafter coming due in an
aggregate amount equal to the product obtained by multiplying (i) the Monthly
Building Energy Surplus, by (ii) the number of calendar months which have
elapsed since the beginning of the Energy Year covered by such additional
Building Energy Statement; provided, however, that if at the expiration or
earlier termination of the Term, any such credit remains unused, then Landlord
shall make payment thereof to Tenant (net of any amounts owing by Tenant to
Landlord).
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(C) The cost of any item which was included in Building Energy Costs
for the Base Energy Year and which is no longer being incurred by Landlord by
reason of the installation of an energy saving device shall be deleted from
Building Energy Costs for the Base Energy Year in connection with the
calculation of the Building Energy Payment for all Energy Years from and after
the Energy Year in which such installation occurs.
ARTICLE 3
USE AND OCCUPANCY
Section 3.1. Permitted Use. Subject to Section 3.2 hereof, Tenant shall
use and occupy the Premises only as general and executive offices, and for
purposes incidental thereto.
Section 3.2. Limitations. Tenant shall not use the Premises or any part
thereof, or permit the Premises or any part thereof to be used, (1) for the
business of photographic, multilith or multigraph reproductions or offset
printing, except to the extent incidental to Tenant's own business being
conducted in the Premises, (2) for any enterprise which conducts business in the
Premises with the general public on an off-the-street retail basis, (3) by any
Governmental Authority or any other Person having sovereign or diplomatic
immunity, (4) as an employment agency, executive search firm or similar
enterprise, labor union, school, or vocational training center (except for the
training of employees of Tenant to be employed at the Premises), (5) as a health
care facility, (6) as a television or radio studio, or (7) as a kitchen,
cafeteria or restaurant, except that Tenant, subject to Article 4 hereof, may
install a unit in the Premises to warm food and prepare light meals solely for
Tenant's officers, employees and guests.
Section 3.3. Advertising. Tenant shall not use advertising which i)
identifies the Building, and ii) impairs the reputation of the Building as a
first-class office building.
ARTICLE 4
ALTERATIONS
Section 4.1. General. Tenant shall not make any Alterations without
Landlord's prior consent. Landlord shall not unreasonably withhold or delay its
consent to Tenant's proposed Alterations, provided that such Alterations i) are
not visible, at street level, from the outside of the Building, ii) do not
require any alterations, installations, improvements, additions or other
physical changes to be performed in or made to any portion of the Real Property
other than the Premises, iii) do not affect the proper functioning of any
Building System, iv) do not affect the validity of the certificate of occupancy
for the Building or any part thereof, and v) do not constitute Alterations to
the structural components of the Building (any Alterations which satisfy the
requirements described in clauses (i) through (v) above being referred to herein
as "Qualified Alterations").
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Section 4.2. Procedure for Alterations. Tenant, before making any
Alterations, shall submit to Landlord detailed plans and specifications therefor
(including layout, architectural, mechanical and structural drawings). Landlord
shall include with any disapproval of Tenant's aforesaid plans and
specifications a statement of the reasons for such disapproval. Landlord shall
have the right to (a) disapprove any plans and specifications in part, (b)
reserve approval of items shown thereon pending Landlord's review and approval
of other plans and specifications, or (c) condition Landlord's approval on
Tenant making revisions to the plans and specifications or supplying additional
informative. Any review or approval by Landlord of any plans or specifications
or any preparation or design of any plans by any architect or engineer
designated by Landlord for any Alteration is solely for Landlord's benefit, and
without any representation or warranty whatsoever with respect thereto.
Section 4.3. Permits and Insurance for Alterations. Tenant, at Tenant's
expense, shall obtain all permits, approvals and certificates required by any
Governmental Authorities in connection with each Alteration. Tenant, at Tenant's
expense, shall also furnish to Landlord, in connection with each Alteration,
duplicate original policies of worker's compensation insurance (covering all
persons to be employed by Tenant, and Tenant's contractors and subcontractors,
in connection with such Alteration) and commercial general liability insurance
(including property damage coverage), in either case in such form, with such
companies, for such periods and in such amounts (not to exceed Five Million
Dollars ($5,000,000) with respect to general contractors and One Million Dollars
($ 1,000,000) with respect to subcontractors) as Landlord may reasonably
approve, naming Landlord, any Lessor and any Mortgagee as additional insureds
(it being agreed that Tenant, in lieu of providing Landlord with such insurance
policies, may deliver to Landlord certificates thereof in form and substance
reasonably acceptable to Landlord). Upon completion of each Alteration, Tenant,
at Tenant's expense, shall obtain for each Alteration any certificates of final
approval required by any Governmental Authority and shall furnish Landlord with
copies thereof, together with the "as-built" plans and specifications for such
Alterations. Upon the request of Tenant, Landlord shall join in any applications
for any permits, approvals or certificates required to be obtained by Tenant in
connection with any permitted Alteration and shall otherwise cooperate with
Tenant in connection with such applications, provided that (x) Landlord shall
not be obligated to incur any cost or expense, including, without limitation,
attorneys' fees and disbursements, or suffer any liability, in connection
therewith, and (y) the applicable Requirement requires Landlord to join in such
application. Tenant shall engage a Person designated reasonably by Landlord to
act as Tenant's expeditor for purposes of obtaining such permits, approvals or
certificates.
Section 4.4. Financial Integrity. Tenant shall not permit any materials or
equipment to be incorporated in the Premises in connection with any Alterations
to be subject to any lien, encumbrance, chattel mortgage or title retention or
security agreement. Tenant shall not make any Alteration at a cost for labor and
materials (as reasonably estimated by Landlord's architect, engineer or
contractor) in excess of Twenty-Five Thousand Dollars ($25,000), either
individually or in the aggregate with any other Alteration constructed in any
twelve (12) month period, prior to Tenants delivering to Landlord a performance
bond and labor and materials payment bond (issued by a surety company and in
form reasonably
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satisfactory to Landlord), each in an amount equal to such estimated cost for
labor and materials (as reasonably estimated by Landlord's architect, engineer
or contractor).
Section 4.5. Effect of Building. If, as a result of any Alterations
performed by Tenant, any alterations, installations, improvements, additions or
other physical changes are then required to be made to any portion of the
Building or the Real Property other than the Premises in order to comply with
any Requirements, which alterations, installations, improvements, additions or
other physical changes would not otherwise have had to be made pursuant to
applicable Requirements at such time, then (x) Landlord may make such
alterations, installations, improvements, additions or other physical changes,
and (y) Tenant shall pay to Landlord the reasonable costs incurred by Landlord
in performing such alterations, installations, improvements, additions or other
physical changes, not later than the tenth (10th) day after the date when
Landlord gives to Tenant Landlord's statement therefor. In addition, Tenant,
within five (5) days after demand by Landlord, shall provide Landlord with such
security as Landlord may reasonably require, in an amount equal to the
reasonable cost of such alterations, installations, improvements, additions or
other physical changes, as reasonably estimated by Landlord's architect,
engineer or contractor.
Section 4.6. Time for Performance of Alterations; Rules. Tenant shall not
perform Alterations during the hours of 8:00 A.M. to 6:00 P.M. on Business Days
to the extent such work interferes with or interrupts the Operation of the
Property. Tenant, in connection with Tenant's performance of Alterations, shall
comply with reasonable rules adopted by Landlord from time to time to minimize
the impact of the performance of Alterations on the Operation of the Property
and other tenants' use of the Building.
Section 4.7. Removal of Alterations and Tenant's Property. On or prior to
the Expiration Date, Tenant, at Tenant's sole cost and expense, (x) shall remove
Tenant's Property from the Premises, and (y) may remove any Alterations. Tenant
shall repair and restore in a good and workerlike manner to good condition any
damage to the Premises or the Building caused by such removal. Landlord may
require Tenant to remove any Specialty Alterations, and to repair and restore in
a good and workerlike manner to good condition any damage to the Premises or the
Building caused by such removal, by giving notice thereof to Tenant not later
than the thirtieth (30th) day before the Fixed Expiration Date, or, if the
Expiration Date is not the Fixed Expiration Date, the thirtieth (30th) day after
the Expiration Date. Tenant shall perform any work required by this Section 4.7
in accordance with the provisions of this Article 4. The provisions of this
Section 4.7 shall survive the expiration or earlier termination of the Term.
Section 4.8. Contractors; Architectural Supervision. Tenant shall perform
Alterations using contractors, subcontractors or mechanics approved by Landlord;
provided, however, that if any such Alteration affects a Building System, then
i) Tenant shall select a contractor therefor from a list of approved contractors
furnished by Landlord to Tenant (containing at least three (3) contractors), and
ii) the Alteration shall be designed, at Tenant's expense, by Landlord's
engineer for the relevant Building System. All Alterations requiring the consent
of Landlord shall be performed only under the supervision of an independent
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licensed architect approved by Landlord, which approval Landlord shall not
unreasonably withhold or delay.
Section 4.9. Mechanics' Liens. Any mechanic's lien filed against the
Premises or the Real Property for work claimed to have been done for, or
materials claimed to have been furnished to, Tenant shall be discharged by
Tenant within thirty (30) days after Tenant receives notice thereof, at Tenant's
expense, by payment, filing the bond required by law, or making a deposit into a
court of competent jurisdiction as provided by applicable law.
Section 4.10. Labor Conflicts. Tenant, at any time prior to or during the
Term, shall not directly or indirectly employ, or permit the employment of, any
contractor, mechanic or laborer in the Premises if such employment interferes or
causes any conflict with other contractors, mechanics or laborers engaged in the
Operation of the Property.
Section 4.11. Landlord's Expenses. Tenant shall pay to Landlord, from time
to time, the reasonable out-of-pocket costs incurred by Landlord in connection
with Alterations (including, without limitation, the reasonable out-of-pocket
costs incurred by Landlord or a Mortgagee or Lessor in reviewing Tenant's plans
and specifications for a proposed Alteration for which Landlord's consent is
required hereunder) and a reasonable charge for Landlord's oversight of the
applicable Alteration (it being understood that Landlord shall not have any
liability to Tenant or any third party for such oversight).
ARTICLE 5
REPAIRS
Section 5.1. Landlord's Repairs. Subject to Article 10 and Article 11
hereof, Landlord shall operate, maintain and make all necessary repairs or
replacements to i) the part of the Building Systems which provide service to the
Premises (but not to the distribution portions of such Building Systems located
within the Premises), and ii) the exterior and foundations of the Building and
the public portions of the Building, both exterior and interior, in either case
in conformance with standards applicable to first-class office buildings in
Manhattan.
Section 5.2. Tenant's Repairs. Subject to Article 10 and Article 11
hereof, Tenant, at Tenant's sole cost and expense, shall take good care of the
Premises and the fixtures, equipment and appurtenances therein, and the
distribution portions of the Building Systems located within the Premises, and
shall make all nonstructural repairs or replacements thereto as and when needed
to preserve them in good working order and condition, except for reasonable wear
and tear and obsolescence. Tenant shall perform any repairs required to be
performed by Tenant pursuant to this Article 5 in accordance with the provisions
of Article 4 hereof. If Tenant fails after twenty (20) days' prior notice (or
such shorter period as may be required due to an emergency) to proceed with due
diligence to make repairs required to be made by Tenant, then Landlord may make
such repairs, and the expenses thereof incurred by Landlord, with interest
thereon at the Applicable Rate, shall be forthwith paid to Landlord as
additional rent not later than the tenth (10th) day after Landlord gives
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Tenant an invoice therefor. Tenant shall give Landlord prompt notice of any
defective condition in the Building or in any Building System located in,
servicing or passing through the Premises.
Section 5.3. Limitations. Notwithstanding the provisions of Section 5.1
hereof and Section 5.2 hereof, (x) all damage or injury to the Premises or to
any other part of the building and Building Systems, whether requiring
structural or nonstructural repairs, to the extent caused by or resulting from
negligence or wilful misconduct of Tenant, or Alterations made by Tenant, shall
be repaired, at Tenants sole cost and expense, by Tenant to the reasonable
satisfaction of Landlord (if the required repairs are nonstructural in nature
and do not affect any Building System), or by Landlord (if the required repairs
are structural in nature or affect any Building System), and (y) all damage or
injury to the Premises, whether requiring structural or nonstructural repairs,
to the extent caused by or resulting from negligence or wilful misconduct of
Landlord, or repairs or replacements made by Landlord, shall be repaired, at
Landlord's sole cost and expense, by Landlord to the reasonable satisfaction of
Tenant; provided, however, that nothing contained in this Section 5.3 limits the
provisions of Section 9.3 hereof.
Section 5.4. Landlord's Obligation to Minimize Interference. Landlord
shall use reasonable efforts to minimize interference with Tenant's use and
occupancy of the Premises in making any repairs or replacements pursuant to this
Article 5; provided, however, that Landlord shall have no obligation to employ
contractors or labor at overtime or premium pay rates or to incur any other
overtime costs or expenses whatsoever. The validity of this Lease, and Tenant's
obligation to pay Rental hereunder, shall not be affected by any Requirement or
repair or other work undertaken by or on behalf of Landlord that in either case
requires the closing, darkening or bricking-up of any windows in the Premises.
ARTICLE 6
REQUIREMENTS OF LAW
Section 6.1. Tenant's Obligation to Comply with Requirements. Subject to
Section 6.3 hereof, Tenant, at Tenant's expense, shall comply with all
Requirements applicable to or arising by virtue of (x) the specific manner and
nature of the use of the Premises by Tenant ("Tenant's Specific Use"), or (y)
Alterations. Tenant shall not do or permit to be done any act or thing upon the
Premises which will invalidate or be in conflict with a standard "all-risk"
insurance policy. If, by reason of Tenant's Specific Use or Alterations, the
fire insurance rate for the Building is higher than it otherwise would be, then
Tenant shall reimburse Landlord, as additional rent hereunder, for the amount of
such excess. Tenant shall not at any time use or occupy the Premises in
violation of the certificate of occupancy at such time issued for the Premises
or for the Building. Tenant shall not place a load upon any floor of the
Premises which exceeds the live load permitted by the certificate of occupancy
for the Premises. Tenant shall not permit any of the windows of the Premises to
be cleaned in violation of any Requirement, including, without limitation,
Section 202 of the Labor Law of the State of New York.
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Section 6.2. Landlord's Obligation to Comply with Requirements. Landlord,
at its sole cost and expense, shall comply with (or cause compliance with) all
Requirements applicable to the Premises, the Building and the Building Systems
other than those Requirements with which Tenant is required to comply, to the
extent non-compliance therewith interferes with Tenant's use and occupancy of
the Premises. Subject to Articles 10 and 11 hereof, Landlord covenants that from
and after the Commencement Date, a temporary or permanent certificate of
occupancy covering the Premises shall be in force permitting the Premises to be
used as offices, provided, however, that i) nothing contained herein constitutes
Landlord's covenant, representation or warranty that the Premises, or any part
thereof, lawfully may be used or occupied for any particular purpose or in any
particular manner, as opposed to mere "office" use, and ii) Landlord shall have
no liability to Tenant under this Section 6.2 to the extent such certificate is
not in force by reason of Tenant's default hereunder or Alterations.
Section 6.3. Tenant's Right to Contest Requirements. Subject to the
provisions of this Section 6.3, Tenant, at its sole cost and expense and after
notice to Landlord, may contest by appropriate proceedings prosecuted diligently
and in good faith the legality or applicability of any Requirement affecting the
Premises (any such proceedings instituted by Tenant being referred to herein as
a "Compliance Challenge"). Tenant shall not institute any Compliance Challenge
if, by reason of such non-compliance or by reason of such Compliance Challenge,
the Real Property or any part thereof is subject to being condemned or vacated,
or the certificate of occupancy for the Premises or the Building is subject to
being suspended or any Landlord Indemnitee is subject to criminal prosecution
therefor. If any Landlord Indemnitee may be subject to any civil fines or
penalties, or if any Landlord Indemnitee may be liable to any independent third
party, in either case as a result of such noncompliance or such Compliance
Challenge, then, prior to instituting such Compliance Challenge, Tenant shall
furnish to Landlord a bond of a surety company reasonably satisfactory to
Landlord, in form and substance reasonably satisfactory to Landlord, and in an
amount equal to one hundred twenty percent (120%) of the sum of A) the cost of
such compliance, B) the penalties or fines that may accrue by reason of such
non-compliance (as reasonably estimated by Landlord), and C) the amount of such
liability to independent third parties (as reasonably estimated by Landlord). If
Tenant initiates any such Compliance Challenge, then Tenant shall keep Landlord
regularly advised as to the status thereof.
Section 6.4. Rent Control. If at the commencement of this Lease, or at any
time or times during the Term, the Rental reserved in this Lease is not fully
collectible by reason of any Requirement, then Tenant shall enter into such
agreements and take such other steps (without additional expense to Tenant) as
Landlord may request and as may be legally permissible to permit Landlord to
collect the maximum rents which may from time to time during the continuance of
such legal rent restriction be legally permissible (and not in excess of the
amounts reserved therefor under this Lease). Upon the termination of such legal
rent restriction prior to the expiration of the Term, (a) the Rental shall
become and thereafter be payable hereunder in accordance with the amounts
reserved in this Lease for the periods following such termination, and (b)
Tenant shall pay to Landlord, if legally permissible, an amount equal to i) the
items of Rental which would have been paid pursuant to this Lease but
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for such legal rent restriction, less ii) the rents paid by Tenant to Landlord
during the period or periods such legal rent restriction was in effect.
ARTICLE 7
SUBORDINATION[ON
Section 7.1. Subordination and Non-Disturbance. This Lease shall be
subject and subordinate to each Superior Lease and to each Mortgage.
Section 7.2. Attornment. If at any time prior to the expiration of the
Term, any Superior Lease terminates or any Mortgagee comes into possession of
the Real Property or the Building or the estate created by any Superior Lease,
then Tenant, at the election and upon demand of any owner of the Real Property
or the Building, or of the Lessor, or of any Mortgagee in possession of the Real
Property or the Building, shall attorn, from time to time, to any such owner,
Lessor or Mortgagee or any person acquiring the interest of Landlord as a result
of any such termination, or as a result of a foreclosure of the Mortgage or the
granting of a deed in lieu of foreclosure, upon the then executory terms and
conditions of this Lease, for the remainder of the Term, provided that such
owner, Lessor or Mortgagee, as the case may be, or receiver caused to be
appointed by any of the foregoing, shall not be:
(1) liable for any actor omission of any prior landlord (including,
without limitation, the then defaulting landlord), or
(2) subject to any defense or offsets which Tenant may have against
any prior landlord (including without limitation, the then defaulting Landlord),
or
(3) bound by any payment of Rental which Tenant may have made to any
prior landlord (including, without limitation, the then defaulting Landlord)
more than thirty (30) days in advance of the date upon which such payment was
due, or
(4) bound by any obligation to make any payment to or on behalf of
Tenant, or
(5) bound by any obligation to perform any work or to make
improvements to the Premises, except for i) repairs and maintenance pursuant to
the provisions of this Lease, the need for which repairs and maintenance first
arises or continues after the date when such owner, Lessor, or Mortgagee
succeeds to Landlord's interest in the Real Property, ii) repairs to the
Premises or any part thereof as a result of damage by fire or other casualty
pursuant to Article 10 hereof, but only to the extent that such repairs can be
reasonably made from the net proceeds of any insurance actually made available
to such Lessor or Mortgagee, and iii) repairs to the Premises as a result of a
partial condemnation pursuant to Article 11 hereof, but only to the extent that
such repairs can be reasonably made from the net proceeds of any award made
available to such Lessor or Mortgagee, or
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(6) bound by any amendment or modification of this Lease made without
the consent of such Mortgagee or Lessor, as the case may be.
The provisions of this Section 7.2 shall inure to the benefit of any such owner,
Lessor or Mortgagee, shall apply notwithstanding that, as a matter of law, this
Lease may terminate upon the termination of any Superior Lease, and shall be
self-operative upon any such demand, and no further instrument shall be required
to give effect to said provisions. Tenant, however, upon demand of any such
owner, Lessor or Mortgagee shall execute, from time to time, instruments, in
recordable form, in confirmation of the foregoing provisions of Section 7.1
hereof and this Section 7.2, reasonably satisfactory to any such owner, Lessor
or Mortgagee, acknowledging the subordination described in Section 7.1 hereof
and such attornment and setting forth the terms and conditions of its tenancy.
Section 7.3. Tenants Estoppel Certificate. Tenant, within seven (7) days
after Landlord's request from time to time, shall deliver to Landlord a written
statement executed by Tenant, in form reasonably satisfactory to Landlord, (1)
stating that this Lease is then in full force and effect and has not been
modified (or if modified, setting forth all modifications), (2) setting forth
the date to which the Fixed Rent additional rent and other items of Rental have
been paid, (3) stating whether or not, to the best knowledge of Tenant, Landlord
is in default under this Lease, and, if Landlord is in default, setting forth
the specific nature of all such defaults, and (4) as to any other matters
reasonably requested by Landlord and related to this Lease. Tenant acknowledges
that any statement delivered by Tenant pursuant to this Section 7.3 may be
relied upon by (x) any purchaser or owner of the Real Property or the Building,
or Landlord's interest in the Real Property or the Building, (y) any Mortgagee,
or (z) any Lessor.
Section 7.4. Rights to Cure Landlord's Default. If i) a Mortgage or
Superior Lease is in effect, and ii) Tenant has theretofore received notice
thereof and of the address for each Mortgagee or Lessor, then Tenant shall not
seek to terminate this Lease by reason of Landlord's default hereunder until the
tenth (10th) Business Day after the date when Tenant has given written notice of
such default to such Lessors and Mortgagees at such addresses; provided,
however, that if, during such ten (10) Business Day period, any such Lessor or
Mortgagee either (a) remedies such default, or (b) in respect of any such
default by Landlord which can be remedied but cannot with due diligence be
remedied during such ten (10) Business Day period, institutes action to remedy
such default (and thereafter diligently prosecutes such remedy to completion),
then Tenant shall not have the right to terminate this Lease by reason of such
default.
Section 7.5. Zoning Lot. Tenant hereby irrevocably waives any and all
rights it may have in connection with any zoning lot merger or transfer of
development rights with respect to the Real Property, including, without
limitation, any rights it may have to be a party to, to contest, or to execute,
any Declaration of Restrictions (as such term is used in Section 12-10 of the
Zoning Resolution of The City of New York effective December 15, 1961, as
amended) with respect to the Real Property, which would cause the Premises to be
merged with or unmerged from any other zoning lot pursuant to such Zoning
Resolution or to any document of a similar nature and purpose. Tenant agrees
that this Lease shall be
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subject and subordinate to any Declaration of Restrictions or any other document
of similar nature and purpose now or hereafter affecting the Real Property. In
confirmation of such subordination and waiver, Tenant shall execute and deliver
promptly any certificate or instrument that Landlord reasonably may request.
ARTICLE 8
RULES AND REGULATIONS
Section 8.1. Adoption; Enforcement. Tenant shall comply with the Rules and
Regulations. Nothing in this Lease shall impose upon Landlord any duty to
enforce the Rules and Regulations against any other tenant in the Building. If a
conflict or inconsistency exists between the Rules and Regulations and the
provisions of the remaining portion of this Lease, then the provisions of the
remaining portion of this Lease shall control.
ARTICLE 9
INSURANCE
Section 9.1. Tenant's Insurance. Tenant, at Tenant's sole cost and
expense, shall obtain and keep in full force and effect i) an "all risk"
insurance policy for Tenant's Property at the Premises, and ii) a policy of
commercial general liability and property damage insurance on an occurrence
basis, with a broad form contractual liability endorsement (the insurance policy
described in this clause (ii) being referred to herein as the "Liability
Policy"). Such policies shall name Tenant as the insured. Landlord, Landlord's
managing agent, and any Lessors and any Mortgagees (whose names have been
furnished to Tenant) shall be named as additional insureds on such policies, as
their respective interests may appear. The Liability Policy shall contain a
provision that (a) no act or omission of Tenant shall affect or limit the
obligation of the insurer to pay the amount of any loss sustained, and (b) the
policy shall be non-cancelable with respect to Landlord, Landlord's managing
agent, and such Lessors and Mortgagees unless written notice has been given to
Landlord, which notice shall contain the policy number and the names of the
insured and additional insureds, at least thirty (30) days prior to the
effective date of any such cancellation for any reason other than the
non-payment of premium, or at least ten (10) days prior to the effective date of
any such cancellation by reason of non-payment of premium. If i) any insurance
obtained by Tenant covers Alterations, and ii) this Lease does not terminate
after the occurrence of a fire or other casualty, then (a) Tenant, promptly
after the occurrence of such fire or other casualty, shall make an appropriate
claim against its insurer in respect thereof, (b) Tenant shall not settle,
adjust or compromise any such claim without Landlord's prior approval, which
approval Landlord shall not unreasonably withhold or delay, and (c) Tenant shall
pay to Landlord any amounts recovered from Tenant's insurer for damage to such
Alterations caused by such fire or other casualty, promptly after Tenant's
receipt thereof from such insurer (it being agreed, however, that Landlord's
obligation to restore such Alterations to the extent otherwise provided herein
shall be unaffected by the inadequacy of such insurance to cover the cost of
such restoration). Tenant shall deliver promptly to Landlord a copy of any
notice of cancellation or any other notice from the insurance carrier which may
adversely
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affect the coverage of the insureds under any policy of insurance described in
this Section 9.1. The minimum amounts of liability under the Liability Policy
shall be a combined single limit with respect to each occurrence in an amount of
Five Million Dollars ($5,000,000) for injury (or death) to persons and damage to
property, which amount may be increased from time to time to that amount of
insurance which in Landlord's reasonable judgment is then being customarily
required by prudent landlords of first-class buildings in Manhattan from tenants
leasing space similar in size, nature and location to the Premises. All
insurance required to be carried by Tenant pursuant to the terms of this Lease
shall be effected under valid and enforceable policies issued by reputable and
independent insurers permitted to do business in the State of New York, and
rated in Bests Insurance Guide, or any successor thereto (or if there is none,
an organization having a national reputation) as having a general policyholder
rating of "A" and a financial rating of at least "XIII".
Section 9.2. Landlord's Insurance. Landlord, at Landlord's expense, shall
obtain and keep in full force and effect (x) insurance against loss or damage by
fire and other casualty to the Building, including Alterations, as may be
insurable under then available standard forms of "all-risk" insurance policies,
in an amount equal to one hundred percent (100%) of the replacement value
thereof or in such lesser amount as will avoid coinsurance (including an "agreed
amount" endorsement), and (y) a policy of commercial general liability and
property damage insurance on an occurrence basis, with a broad form contractual
liability endorsement, in such amounts as reasonably determined by Landlord from
time to time. Notwithstanding the foregoing, Landlord shall not be liable to
Tenant for any failure to insure any Alterations unless Tenant has notified
Landlord of the completion of such Alterations and of the cost thereof, and
shall have maintained adequate records with respect to such Alterations to
facilitate the adjustment of any insurance claims with respect thereto. Tenant
shall cooperate with Landlord and Landlord's insurance companies in the
adjustment of any claims for any damage to the Building or such Alterations,
Section 9.3. Waiver of Subrogation. Subject to the provisions of this
Section 9.3, Landlord and Tenant shall procure an appropriate clause in, or
endorsement on, any fire or extended coverage insurance covering the Premises,
the Building and personal property, fixtures and equipment located thereon or
therein, pursuant to which the insurer waives subrogation, or consents to a
waiver of right of recovery. Landlord and Tenant, having obtained such clauses
or endorsements of waiver of subrogation or consent to a waiver of right of
recovery, shall not make any claim against or seek to recover from the other for
any loss or damage to its property or the property of others resulting from fire
or other hazards covered by such fire and extended coverage insurance; provided,
however, that the release, discharge, exoneration and covenant not to sue herein
contained shall be limited by and be coextensive with the terms and provisions
of the waiver of subrogation clause or endorsements or clauses or endorsements
consenting to a waiver of right of recovery. If the payment of an additional
premium is required for the inclusion of such waiver of subrogation provision,
then each party shall advise the other of the amount of any such additional
premium and such other party may, but shall not be obligated to, pay such
additional premium. If such other party does not elect to pay such additional
premium, then the first party shall not be required to obtain such waiver of
subrogation provision. If either party is unable to obtain the inclusion of such
clause even with the payment of an additional
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premium, then such party shall attempt to name the other party as an additional
insured (but not a loss payee) under the policy. If the payment of an additional
premium is required for naming the other party as an additional insured (but not
a loss payee), then each party shall advise the other of the amount of any such
additional premium and the other party at its own election may, but shall not be
obligated to, pay such additional premium. If such other party does not elect to
pay such additional premium or if it is not possible to have the other party
named as an additional insured (but not loss payee), even with the payment of an
additional premium, then (in either event) such party shall so notify the first
party and the first party shall not have the obligation to name the other party
as an additional insured.
Section 9.4. Evidence of Insurance. On or prior to the Commencement Date,
Tenant shall deliver to Landlord appropriate certificates of insurance,
including evidence of waivers of subrogation required pursuant to Section 9.3
hereof. Evidence of each renewal or replacement of a policy shall be delivered
by Tenant to Landlord at least twenty (20) days prior to the expiration of such
policy.
ARTICLE 10
CASUALTY
Section 10.1. Landlord's Obligation to Restore. Tenant shall notify
Landlord promptly of any fire or other casualty in the Premises. If the Premises
(including Alterations that Tenant has theretofore completed in accordance with
Article 4 hereof) are damaged by fire or other casualty, then, subject to the
provisions of this Article 10, Landlord shall diligently repair the damage, with
such modifications required to comply with Requirements, to substantially the
condition which existed immediately prior to such fire or other casualty (it
being agreed that Landlord shall have no liability to Tenant for Landlord's
failure to commence any such repair to the extent Tenant fails to give such
notice to Landlord of such fire or other casualty). Until such repairs which are
required to be performed by Landlord are Substantially Completed, the Fixed Rent
and the Escalation Rent shall be reduced in the proportion which the area of the
part of the Premises which is not usable by Tenant bears to the total area of
the Premises immediately prior to such casualty. Landlord shall have no
obligation to repair any damage to, or to replace, any Tenant's Property.
Landlord shall not be obligated to repair any damage to, or to replace, any
Alterations if Landlord's insurer fails to make insurance proceeds available to
Landlord to cover the cost of repairing such Alterations (excluding Landlord's
deductible) by reason of the failure of Tenant to have notified Landlord of the
completion of such Alterations and the cost thereof or to have maintained
adequate records with respect to such Alterations. Landlord shall use reasonable
efforts to minimize interference with Tenant's use and occupancy in making any
repairs pursuant to this Section 10.1. If the Premises (including any
Alterations) are damaged by fire or other casualty at any time prior to the
completion of the Initial Alterations, then Landlord's obligation to repair the
Premises (and any Alterations) shall be limited go (x) the part of the Building
Systems serving the Premises on the Commencement Date, but not the distribution
portions of such Building Systems located within the Premises, (y) the floor and
ceiling slabs of the Premises, and (z) the exterior walls of the Premises, all
to substantially
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the same condition which existed on the Commencement Date, in each case with any
modifications required to comply with Requirements.
Section 10.2. Landlord's Termination Right. If (x) the Building is damaged
by fire or other casualty, and (y) Landlord determines that substantial
alteration, demolition, or reconstruction of the Building is required
(regardless of whether the Premises have been damaged or rendered untenantable),
then Landlord may terminate this Lease by giving Tenant notice thereof on or
prior to the ninetieth (90th) day following such damage. If Landlord elects to
terminate this Lease, as aforesaid, then the Term shall expire upon a date set
by Landlord, but not sooner than the tenth (10th) day after Landlord gives such
notice and Tenant, on such date, shall vacate and surrender possession of the
Premises to Landlord in accordance with the provisions of Article 19 hereof.
Upon the termination of this Lease under the conditions provided in this Section
10.2, the Fixed Rent and Escalation Rent shall be apportioned and any prepaid
portion of Fixed Rent and Escalation Rent for any period after the termination
date shall be refunded by Landlord to Tenant.
Section 10.3. Termination Rights at End of Term. If the Premises are
substantially damaged during the last eighteen (18) months of the Term, then
Landlord may elect by notice, given to the other party within forty-five (45)
days after the occurrence of such damage, to terminate this Lease. If Landlord
makes such election, then the Term shall expire upon the thirtieth (30th) day
after notice of such election is given by Landlord, and, accordingly, Tenant, on
or prior to such date, shall vacate and surrender possession of the Premises to
Landlord in accordance with the provisions of Article 19 hereof. The Premises
shall be deemed to be substantially damaged for purposes of this Section 10.3 if
i) a fire or other casualty precludes Tenant from using more than fifty percent
(50%) of the Premises for the conduct of business, and ii) Tenant's inability to
use the Premises (or the applicable portion thereof) is reasonably expected to
continue until at least the earlier to occur of (a) the Fixed Expiration Date,
and (b) the ninetieth (90th) day after the date when such fire or other casualty
occurs.
Section 10.4. No Other Termination Rights. Tenant shall have no options to
cancel this Lease by virtue of a fire or other casualty except to the extent
specifically set forth herein. This Article 10 constitutes an express agreement
governing any case or damage or destruction of the Premises or the Building by
fire or other casualty, and Section 227 of the Real Property Law of the State of
New York, which provides for such contingency in the absence of an express
agreement, and any other law of like nature and purpose now or hereafter in
force, shall have no application in any such case.
ARTICLE 11
EMINENT DOMAIN
Section 11.1. Effect of Condemnation. Subject to Section 11.3 hereof, if
the whole of the Real Property, the Building or the Premises is acquired or
condemned for any public or quasi-public use or purpose, then this Lease and the
Term shall end as of the date of the vesting of title. If only a part of the
Real Property and not the entire Premises is so acquired
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or condemned, then (1) except as hereinafter provided in this Section 11.1, this
Lease and the Term shall continue in force and effect, but, (x) if a part of the
Premises is included in the part of the Real Property so acquired or condemned,
then, from and after the date of the vesting of title, the Fixed Rent and the
Space Factor shall be reduced in the proportion which the area of the part of
the Premises so acquired or condemned bears to the total area of the Premises
immediately prior to such acquisition or condemnation; (y) the Porters Wage
Factor shall be redetermined as the number of square feet of rentable area of
the Premises remaining after such acquisition or condemnation; and (z) Tenant's
Tax Share shall be redetermined based upon the proportion which the rentable
area of the Premises remaining after such acquisition or condemnation bears to
the rentable area of the Building remaining after such acquisition or
condemnation; (2) if at least twenty-five percent (25%) of the rentable area of
the Building is affected thereby, then Landlord may give to Tenant, within sixty
(60) days following the date when Landlord receives notice of vesting of title,
a notice of termination of this Lease; and (3) if the part of the Real Property
so acquired or condemned contains more than fifteen percent (15%) of the total
area of the Premises immediately prior to such acquisition or condemnation, or
if, by reason of such acquisition or condemnation, Tenant no longer has
reasonable means of access to the Premises, then Tenant shall have the right to
terminate this Lease by giving notice thereof to Landlord on or prior to the
sixtieth (60th) day after the date when Tenant receives notice of vesting of
title. If Landlord or Tenant gives any such notice to terminate this Lease, then
this Lease and the Term shall come to an end and expire upon the thirtieth
(30th) day after the date when such notice is given. If a part of the Premises
is so acquired or condemned and this Lease and the Term is not terminated
pursuant to the foregoing provisions of this Section 11.1, then Landlord, at
Landlord's expense, shall restore the part of the Premises not so acquired or
condemned to a self contained rental unit inclusive of Alterations, except that
if such acquisition or condemnation occurs prior to completion of the Initial
Alterations, Landlord shall only be required to restore that part of the
Premises not so acquired or condemned to a self-contained rental unit exclusive
of Alterations. Upon the termination of this Lease and the Term pursuant to the
provisions of this Section 11.1, the Fixed Rent and Escalation Rent shall be
apportioned and any prepaid portion of Fixed Rent and Escalation Rent for any
period after such date shall be refunded by Landlord to Tenant.
Section 11.2. Condemnation Award. Subject to Section 11.3 hereof, Landlord
shall be entitled to receive the entire award for any such acquisition or
condemnation of all or any part of the Real Property. Tenant shall have no claim
against Landlord or the condemning authority for the value of any unexpired
portion of the Term and Tenant hereby expressly assigns to Landlord all of its
right in and to any such award. Nothing contained in this Section 11.2 shall be
deemed to prevent Tenant from making a separate claim in any condemnation
proceedings for the then value of any Tenant's Property included in such taking,
and for any moving expenses.
Section 11.3. Temporary Taking. If the whole or any part of the Premises
is acquired or condemned temporarily during the Term for any public or
quasi-public use or purpose, then the Term shall not be reduced or affected in
any way and, accordingly, Tenant shall continue to pay in full all items of
Rental payable by Tenant hereunder without reduction or abatement. Tenant shall
be entitled to receive for itself any award or payments
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for such use; provided, however, that if the acquisition or condemnation is for
a period extending beyond the Term, such award or payment shall be apportioned
equitably between Landlord and Tenant. Tenant, at Tenant's sole cost and
expense, shall make Alterations to restore the Premises to the condition
existing prior to any such temporary acquisition or condemnation.
ARTICLE 12
ASSIGNMENT, SUBLETTING MORTGAGING
Section 12.1. General Limitation. Except as expressly permitted herein,
Tenant, without the prior consent of Landlord in each instance, shall not (a)
assign its rights or delegate its duties under this Lease (whether by operation
of law or otherwise), or mortgage or encumber its interest in this Lease, in
either case in whole or in part, (b) sublet, or permit the subletting of, the
Premises, or (c) permit the Premises to be occupied or used for desk space,
mailing privileges or otherwise, by any Person other than Tenant. Either a
transfer (including the issuance of treasury stock or the creation and issuance
of new stock or a new class of stock) of a controlling interest in the shares of
Tenant or of any entity which holds an interest in Tenant through one or more
intermediaries (if Tenant or such entity is a corporation or trust) or a
transfer of a majority of the total interest in Tenant or of any entity which
holds an interest in Tenant through one or more intermediaries Tenant or such
entity is a partnership or other entity) at any one time or over a period of
time through a series of transfers, directly or indirectly, shall be deemed an
assignment of this Lease and shall be subject to all of the provisions of this
Article 12; provided, however, that the transfer or issuance of shares of Tenant
or of any entity which holds an interest in Tenant through one or more
intermediaries (if Tenant or such entity is a corporation or trust) for purposes
of this Section 12.1 shall not include the sale of shares by persons other than
those deemed "insiders" within the meaning of the Securities Exchange Act of
1934, as amended, which sale is effected through the "over-the-counter market"
or through any recognized stock exchange.
Section 12.2.. Landlord's Expenses. Tenant shall reimburse Landlord on
demand for any reasonable out-of-pocket costs that Landlord incurs in connection
with any proposed assignment of Tenant's interest in this Lease or any proposed
subletting of the Premises, including, without limitation, reasonable attorneys'
fees and disbursements and the reasonable costs of making investigations as to
the acceptability of the proposed subtenant or the proposed assignee.
Section 12.3. No Release. Neither an assignment of Tenant's interest in
this Lease nor any subletting, occupancy or use of the Premises or any part
thereof by any Person other than Tenant, nor any collection of Rental by
Landlord from any Person other than Tenant shall, in any circumstances, relieve
Tenant of its obligations under this Lease on Tenant's part to be observed and
performed.
Section 12.4. Certain Permitted Transfers. Subject to the provisions of
this Section 12.4, Tenant, without first obtaining the consent of Landlord (and
without Landlord having
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the rights in respect thereof as provided in Section 12.10 hereof), shall have
the right to assign its interest in this Lease (in whole but not in part) i) to
any corporation which is a successor to Tenant either by merger or
consolidation, or ii) to a purchaser of all or substantially all of Tenant's
assets (provided such purchaser also assumes substantially all of Tenant's
liabilities). Tenant shall not make an assignment of this Lease without
Landlord's consent pursuant to this Section 12.4 to any Person if (x) the
principal purpose of the transaction comprising such assignment is to transfer
the tenant's interest in this Lease, or (y) the assignee has a net worth and
annual net income and cash flow, determined in accordance with either generally
accepted accounting principles or generally accepted auditing standards, in
either case consistently applied, after giving effect to such assignment, less
than Tenant's net worth and annual net income and cash flow on the date
immediately proceeding the effective date of any such assignment. If Tenant
makes an assignment of this Lease without Landlord's consent pursuant to this
Section 12.4, then Tenant shall deliver to Landlord, on or prior to the fifth
(5th) day after the effective date of such assignment, an instrument, in form
and substance reasonably satisfactory to Landlord, duly executed by Tenant and
the assignee, pursuant to which (I) Tenant makes such assignment to such
assignee, and (II) such assignee assumes all of the obligations of Tenant
arising hereunder from and after the effective date of such assignment. If
Tenant makes any such assignment to any Person (other than Tenant's Affiliate),
then Tenant shall also submit to Landlord, simultaneously with Tenant's
submission of such instrument to Landlord, reasonable evidence to the effect
that Tenant has complied with the provisions of clauses (x) and (y) above.
Section 12.5. Replacement Lease. If, at any time after Initial Tenant
herein has assigned Tenant's interest in this Lease, this Lease is disaffirmed
or rejected in connection with the occurrence of an Insolvency Event, or is
terminated by reason of the occurrence of an Event of Default, then any prior
Tenant, including, without limitation, Initial Tenant, upon request of Landlord,
shall (1) pay to Landlord all Rental due and owing by the assignee to Landlord
under this Lease to and including the date of such disaffirmance, rejection or
termination, and (2) as "tenant", enter into a new lease with Landlord for the
Premises for a term commencing on the effective date of such disaffirmance,
rejection or termination and ending on the Fixed Expiration Date, unless sooner
terminated as in such lease provided, at the same Fixed Rent and upon the then
executory terms, covenants and conditions as are contained in this Lease, except
that (a) Tenant's rights under the new lease shall he subject to the possessory
rights of the assignee under this Lease and the possessory rights of any person
claiming through or under such assignee or by virtue of any statute or of any
order of any court, and (b) such new lease shall require all defaults existing
under this Lease to be cured by Tenant with due diligence.
Section 12.6. Certain Rights to Sublease. (A) Subject to Section 12.10
hereof, Landlord shall not unreasonably withhold or delay its consent to any
subletting of the Premises, provided that:
(1) the Premises have not been sublet at a rental rate less than the
greater of (x) the prevailing rental rate set by Landlord for comparable space
in the Building or, if there is no comparable space, the prevailing rental rate
reasonably determined by Landlord, and (y) the Rental due hereunder;
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(2) no Event of Default has occurred and is continuing;
(3) the proposed subtenant has a financial standing (taking into
consideration the obligations of the proposed subtenant under the sublease)
reasonably satisfactory to Landlord, and be of a character, be engaged in a
business, and propose to use the Premises in a manner in keeping with the
standards in such respects of the other tenancies in the Building;
(4) the proposed subtenant (or any Affiliate of the proposed
subtenant) is neither a tenant or subtenant of any space in the Building, nor a
Person with whom Landlord is engaged in bona fide negotiations regarding the
leasing or subleasing of space in the Building;
(5) the subletting is not for a term of less than two (2) years
unless it commences less than two (2) years before the Fixed Expiration Date;
(6) the subletting is not for less than the entire Premises;
(7) Tenant and the subtenant execute and deliver an agreement, in
form and substance reasonably satisfactory to Landlord, pursuant to which
Landlord grants Landlord's consent to such sublease on terms which are
consistent with the provisions hereof; and
(8) such sublease expressly provides that the event of termination,
re-entry or dispossess of Tenant by Landlord under this Lease, then Landlord
may, at its option, take over all of the right, title and interest of Tenant, as
sublessor under such sublease, and such subtenant, at Landlord's option, shall
attorn to Landlord pursuant to the then executory provisions of such sublease,
except that Landlord shall not be:
(i) liable for any act or omission of Tenant under such sublease, or
(ii) subject to any defense or offsets which subh subtenant may have
Tenant, or
(iii) bound by any previous payment which such subtenant may have
made to Tenant of more than thirty (30) days in advance of the date upon which
such payment was due, unless previously approved by Landlord, or
(iv) bound by any obligation to make any payment to or on behalf of
such subtenant, or
(v) bound by any obligation to perform any work or to make
improvements to the Premises, or
(vi) bound by any amendment or modification of such sublease made
without its consent, or
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(vii) bound to return such subtenant's security deposit, if any,
until such deposit has come into Landlord's actual possession and such subtenant
would be entitled to such security deposit pursuant to the terms of such
sublease.
(B) Tenant hereby agrees that any sublease approved by Landlord
shall not be modified without the prior written consent of Landlord, or
assigned, encumbered or otherwise transferred, or the subleased premises further
sublet by the subtenant in whole or in part, or any part thereof suffered or
permitted by the subtenant to be used or occupied by others, without the prior
written consent of Landlord in each instance.
(C) If Tenant seeks to sublease the Premises pursuant to this
Section 12.6, then, in connection with Tenant's request for Landlord's consent,
Tenant shall submit to Landlord a statement containing the following information
(the "Sublease Statement"): (a) the name and address of the proposed subtenant,
(b) a copy of the proposed sublease, duly executed by Tenant and the proposed
subtenant, (c) the nature and character of the business of the proposed
subtenant, and (d) any other information that Landlord may reasonably request.
Section 12.7. Sublease Profit. Tenant shall pay to Landlord from time to
time an amount equal to one hundred percent (100%) of Sublease Profit promptly
after Tenant receives funds that constitute Sublease Profit.
Section 12.8. Certain Rights to Assign. (A) Subject to Section 12.10
hereof, Landlord shall not unreasonably withhold or delay its consent to an
assignment of this Lease in its entirety provided that:
(1) No Event of Default has occurred and is continuing;
(2) The proposed assignee i) has a net worth (determined in
accordance with generally accepted accounting principles, or generally accepted
auditing standards, in either case consistently applied) equal to or greater
than eight (8) times the sum of the then Fixed Rent and Escalation Rent, and ii)
is of a character, is engaged in a business, and proposes to use the Premises in
a manner in keeping with the standards in such respects of the other tenancies
in the Building;
(3) The proposed assignee (or any Affiliate of the proposed
assignee) is neither a tenant or subtenant of any space in the Building, nor a
person or entity with whom Landlord is engaged in bona fide negotiations
regarding the leasing or subleasing of space in the Building; and
(4) The assignee agrees to assume all of the obligations of Tenant
under this Lease from and after the date of the assignment.
(B) If Tenant seeks to assign this lease in its entirety pursuant to
this Section 12.8, then, in connection with Tenant's request for Landlord's
consent, Tenant shall submit to Landlord a statement containing the following
information (the "Assignment
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Statement"): i) the name and address of the proposed assignee, ii) the terms and
conditions of the proposed assignment, including, without limitation, the
consideration payable for such assignment and the value (including cost,
overhead and supervision) of any improvements (including any demolition to be
performed) to the Premises proposed to be made by Tenant to prepare the Premises
for occupancy by such assignee, iii) the nature and character of the business of
the proposed assignee, and iv) any other information that Landlord may
reasonably request.
(C) If Tenant does not consummate any such assignment of this Lease
(for which Landlord has granted Landlord's consent under this Section 12.8)
within sixty (60) days after the delivery of the Assignment Statement to
Landlord, then Tenant shall not have the right to thereafter consummate such
assignment without first again complying with the provisions of this Section
12.8.
(D) If Tenant assigns this Lease, then Tenant shall deliver promptly
to Landlord, (x) a duplicate original instrument of assignment in form and
substance reasonably satisfactory to Landlord, duly executed by Tenant, and (y)
an instrument in form and substance reasonably satisfactory to Landlord, duly
executed by the assignee, in which such assignee assumes observance and
performance of, and agrees to be personally bound by, all of the terms,
covenants and conditions of this Lease on Tenant's part to be observed and
performed from and after the date thereof.
Section 12.9. Assignment Profit. Tenant shall pay to Landlord from time to
time an amount equal to one hundred percent (100%) of Assignment Profit promptly
after Tenant receives funds that constitute Assignment Profit.
Section 12.10. Recapture Rights. (A) Subject to the terms of this Section
12.10, if (x) Tenant proposes to sublease the Premises pursuant to Section 12.6
hereof, or (y) Tenant proposes to assign this Lease pursuant to Section 12.8
hereof, then Landlord shall have the right to either (i) terminate this Lease
(the option described in this clause (i) being referred to herein as a
"Recapture Termination"), or (ii) (A) sublease the Premises from Tenant on the
terms and subject to the conditions set forth in the Sublease Statement (the
option described in this clause (ii)(A) being referred to herein as a "Recapture
Sublease"), or (B) take Tenant's interest in this Lease by assignment on the
terms and subject to the conditions set forth in the Assignment Statement (the
option described in this clause (ii)(B) being referred to herein as a "Recapture
Assignment"), as the case may be. Landlord shall have the right to elect a
Recapture Termination, or a Recapture Sublease or a Recapture Assignment (as the
case may be), only by giving notice thereof to Tenant on or prior to the
fifteenth (15th) day after the date when Tenant gives to Landlord the Sublease
Statement or the Assignment Statement (as the case may be).
(B) Landlord shall specify in any such notice pursuant to which
Landlord elects a Recapture Termination the date when this Lease shall terminate
(which shall be no sooner than sixty (60) days, and no more then one hundred
eighty (180) days, after the date when Landlord gives such notice to Tenant). If
Landlord exercises such right to terminate this Lease, then this Lease shall
expire on the aforesaid termination date designated by
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Landlord, and accordingly, on or prior to such date, Tenant shall vacate the
Premises and deliver possession thereof to Landlord in accordance with the terms
hereof that govern Tenant's obligation in respect thereof at the expiration or
earlier termination of the Tenn.
(C) Subject to the terms of this Section 11.10(C), if Landlord
elects a Recapture Sublease pursuant to this Section 12.10, then Tenant shall
demise and sublease to Landlord (or Landlord's designee), and Landlord (or
Landlord's designee) shall hire and take from Tenant, the Premises, for the
rental and for the term set forth in the Sublease Statement and otherwise on the
same terms set forth in this Lease. If Tenant's proposal to sublease as set
forth in the Sublease Statement contemplated that Tenant would provide the
proposed subtenant with a work allowance (or work performed by or on behalf of
Tenant in lieu thereof or in addition thereto), a free rent period, or other
similar inducements or concessions, then Landlord shall have the right to either
(x) reduce the rental due from Landlord or Landlord's designee to Tenant by
reason of the Recapture Sublease by an equitable amount to reflect that the
Recapture Sublease does not require Tenant to provide such inducements or
concessions to Landlord, or (y) require Tenant to provide such inducements or
concessions to Landlord or Landlord's designee under the Recapture Sublease.
Landlord shall have the right to further sublease the Premises (in whole or in
part) or assign Landlord's interest under such sublease, in each case without
Tenant's approval. Landlord shall have no obligation to make any payments to
Tenant on account of any profit derived by Landlord from any such sublease or
assignment. Landlord shall have the right to perform or to permit to be
performed alterations in the Premises, without Tenant's approval (it being
agreed, however, that Tenant shall have no obligation, upon the expiration or
earlier termination of the Term, to remove any such alterations performed in the
Premises). Landlord shall have no obligation to remove any such alterations upon
the expiration or earlier termination of the Recapture Sublease. Landlord (or
Landlord's subtenants or assignees) shall have the right to use the Premises
under a Recapture Sublease for any lawful purpose. If Landlord elects a
Recapture Sublease, then Tenant shall execute and deliver to Landlord (or
Landlord's designee), and Landlord shall execute and deliver (or shall cause
Landlord's designee to execute and deliver) to Tenant, a sublease prepared by or
on behalf of Landlord providing therefor, in accordance with the provisions of
this Section 12.10(C), as promptly as reasonably practicable after Landlord
elects such Recapture Sublease. Landlord acknowledges that a default by Landlord
(or Landlord's designee) under a Recapture Sublease, or the exercise by Landlord
or Landlord's designee of its rights under a Recapture Sublease, shall not
constitute a default by Tenant hereunder.
(D) Subject to the terms of this Section 12.10(D), if Landlord
elects a Recapture Assignment, then Tenant shall assign to Landlord or
Landlord's designee, promptly after the date when Landlord elects the Recapture
Assignment, the interest of the tenant hereunder, free and clear of all liens
and encumbrances, pursuant to an instrument prepared by Landlord that is in
accordance with the provisions of this Section 12.10(D). Landlord and Tenant
acknowledge that Tenant's assignment of the tenant's interest under this Lease
to Landlord or Landlord's designee shall not constitute a merger of Landlord's
estate as landlord hereunder with the estate of the tenant hereunder.
Simultaneously with the consummation of such assignment Landlord shall pay (or
shall cause to be paid) to Tenant an amount equal to the net consideration (if
any) that Tenant would have received from the
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proposed assignee in accordance with the terms of the Assignment Statement;
provided, however, that if the Assignment Statement contemplated that Tenant
would perform work in the Premises to prepare the Premises for the assignee's
occupancy (or pay a work allowance to the assignee in lieu thereof or in
addition thereto), then Landlord shall have the right to either (i) reduce such
consideration due from Landlord to Tenant for the Recapture Assignment to
reflect that Tenant is not performing such work or paying such allowance to
Landlord or Landlord's designee, or (ii) require Tenant to perform such work or
pay such allowance in connection with the Recapture Assignment. Landlord
acknowledges that Tenant shall not have any liability to Landlord hereunder to
the extent deriving from the default of the tenant hereunder from and after the
date of a Recapture Assignment. The consummation of a Recapture Assignment by
Landlord (or Landlord's designee) and Tenant shall not release Tenant from
liability hereunder that accrues with respect to the period prior to the date of
the Recapture Assignment (it being understood that such liability shall not be
impaired by reason of any amendment to this Lease that Landlord and the tenant
hereunder consummate from and after the date when the Recapture Assignment is
consummated).
Section 12.11. Notwithstanding any other provision of this Lease,
neither Tenant nor any direct or indirect assignee or subtenant of Tenant may
enter into any lease, sublease, license, concession or other agreement for use,
occupancy or utilization of space in the Premises which provides for a rental or
other payment for such use, occupancy or utilization based in whole or in part
on the net income or profits derived by any person from the property leased,
occupied or utilized, or which would require the payment of any consideration
which would not fall within the definition of "rents from real property", as
that term is defined in Section 856(d) of the Internal Revenue Code of 1986, as
amended.
ARTICLE 13
ELECTRICITY
Section 13.1. Service. Tenant shall not use any electrical equipment in
the Premises which causes Tenant's demand for electricity to exceed the capacity
of the existing feeders to the Building or the risers or wiring installations
therein or which will overload such installations or interfere with the
electrical service to other Tenants of the Building. Landlord shall not be
liable in any way to Tenant for any failure or defect in the supply or character
of electric service furnished to the Premises (except to the extent such failure
or defect results from Landlord's negligence or willful misconduct).
Section 13.2. Electricity Additional Rent. (A) Landlord shall furnish
electric current to the Premises in accordance with Section 13.1 hereof on a
"rent inclusion" basis, that is, there shall be no separate charge to Tenant for
such electric current by way of measuring such electric current on any meter.
Landlord, at Landlord's option, may cause a reputable and independent electrical
engineer or electrical consulting firm selected by Landlord (such engineer or
consulting firm being referred to herein as "Landlord's Engineer"), to make a
determination, at any time and from time to time during the Term following the
commencement of Tenant's normal business activities in the Premises, of the
charges that result from applying the Electric Rate that is then in effect to
Tenant's demand
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for and/or consumption of electric current (and/or any other method of
quantifying Tenant's use of or demand for electric current as set forth in the
tariff of the Person providing electricity to the Building) (such charges being
referred to herein as the "Full Value"). The Fixed Rent shall be increased from
time to time to the extent that the Full Value exceeds the sum of (x) One
Thousand Eight Hundred Ninety-Three Dollars ($1,893), and (y) any increases in
Fixed Rent that have theretofore occurred under this Section 13.2(A) or Section
13.2(B) hereof (the sum of the amounts described in clause (x) and clause (y)
above being referred to herein as the "Electricity Inclusion Factor").
(B) If, at any time and from time to time during the Term, the
Electric Rate increases over the Base Electric Rate, then the Electricity
Inclusion Factor that is then in effect shall be proportionately increased, and
accordingly, the Fixed Rent shall be increased by an amount equal to such
increase in the Electricity Inclusion Factor.
(C) Landlord shall give to Tenant a statement (an "Electricity
Statement") setting forth Landlord's determination of any increase in the Full
Value or any increase in the Electric Rate which results in an increase in the
Electricity Inclusion Factor pursuant to the provisions of either Section
13.2(A) hereof or Section 13.2(B) hereof. If the Electricity Statement describes
an increase in the Electricity Inclusion Factor pursuant to Section 13.2(A)
hereof, then Landlord shall include therewith a copy of the applicable report
from Landlord's Engineer. Any such increase in the Electricity Inclusion Factor
under Section 13.2(A) hereof or Section 13.2(B) hereof shall be effective as of
the date of the applicable increase in the Electric Rate or the applicable
increase in Tenant's consumption and/or demand of electric current and shall be
retroactive to such dates if necessary. Any such retroactive increase shall be
paid by Tenant within ten (10) days after Landlord's demand therefor.
(D) Each Electricity Statement given by Landlord pursuant to Section
13.2(C) hereof which describes an increase in the Electricity Inclusion Factor
by reason of an increase in Tenant's demand and/or consumption of electric
current shall be conclusive and binding upon Tenant unless, within thirty (30)
days after the date when Landlord gives to Tenant such Electricity Statement,
Tenant notifies Landlord that Tenant disputes such Electricity Statement.
Tenant, with such notice, shall submit a survey of Tenant's demand and/or
consumption of electric current, made at Tenant's sole cost and expense, by a
reputable and independent electrical engineer or electrical consulting firm
selected by Tenant (such engineer or consulting firm being referred to herein as
"Tenant's Engineer"). If Landlord and Tenant are unable to resolve the
differences between them within thirty (30) days after receipt by Landlord of a
copy of the determination of Tenant's Engineer, then the dispute shall be
decided by a third reputable and independent electrical engineer or electrical
consulting firm having at least fifteen (15) years of experience in providing
professional advice regarding electrical systems in first-class office buildings
in midtown Manhattan that are comparable to the Building (the "Third Engineer")
on the terms set forth in this Section 13.2. If the parties fail to agree upon
the dissipation of the Third Engineer within forty (40) days after the receipt
by Landlord of the determination of Tenant's Engineer, then either party may
apply to the American Arbitration Association or any successor thereto for the
designation of the Third Engineer (it being understood that the American
Arbitration
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Association or such successor shall be charged solely with the task of
designating the Third Engineer in accordance with the standards set forth in
this Section 13.2(D)). The Third Engineer shall conduct the hearings that would
be required under the rules of the American Arbitration Association (or its
successor) for arbitrations being determined by a single arbitrator. The Third
Engineer, within thirty (30) days after his or her designation, shall select the
determination of either Landlord's Engineer or Tenant's Engineer as the
determination that more accurately describes Tenant's consumption of and/or
demand for electric current. The Third Engineer's determination shall be
conclusive and binding upon the parties whether or not a judgment shall be
entered in any court. The Third Engineer shall have no right to change any of
the provisions of this Lease or to make any determination except for the
aforesaid selection of the determination of either Landlord's Engineer or
Tenant's Engineer. The fees of the Third Engineer and the costs of arbitration
shall be paid equally by the parties, except that each party shall pay its own
counsel fees and expenses, if any, in connection with the arbitration. Pending
the resolution of such dispute by agreement or arbitration as aforesaid, Tenant
shall pay the increase in the Electricity Inclusion Factor in accordance with
the Electricity Statement, without prejudice to Tenant's position, as herein
provided. If the dispute is resolved in Tenant's favor, Landlord, at its option,
shall either credit the amount of such overpayment against subsequent monthly
installments of Rental due hereunder or pay to Tenant the amount of such
overpayment.
(E) Landlord's failure during the Tenn to deliver any Electricity
Statement to Tenant shall not in any way be deemed to be a waiver of, or cause
Landlord to forfeit or surrender, its rights to collect any portion of the
increase in the Electricity Inclusion Factor (and therefore the Fixed Rent)
which may have become due pursuant to this Article 13 during the Term.
(F) The term "Electric Rate" shall mean the greater of:
(1) the service classification (or other applicable price
schedule) pursuant to which Landlord purchases electricity from the Person
providing electricity to the Building, and
(2) the service classification (or other applicable price
schedule) pursuant to which Landlord would purchase electricity from the Person
providing electricity to the Building, if the only user of electricity in the
Building is Tenant, and
(3) the service classification (or other applicable price
schedule) pursuant to which Tenant would purchase electricity if Tenant
purchased electricity directly from the Person providing electricity to the
Building,
with the understanding that the Electric Rate shall be determined after taking
into account all applicable surcharges, demand charges, energy charges, fuel
adjustment charges, time of day charges, taxes and other sums payable in respect
thereof
Section 13.3. Termination of Electric Service. Subject to the terms of
this Section 13.3, if Landlord is required by any Requirement or otherwise
elects to discontinue
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furnishing electricity to Tenant, then this Lease shall continue in full force
and effect and shall be unaffected thereby, except that from and after the
effective date of such discontinuance, (i) Landlord shall not be obligated to
furnish electricity to Tenant, (ii) Tenant shall not be obligated to pay the
Electricity Inclusion Factor, and (iii) the Fixed Rent otherwise due hereunder
shall be reduced by an amount equal to the Electricity Inclusion Factor that is
then in effect. If Landlord so discontinues furnishing electricity to Tenant,
then Tenant shall use diligent efforts to obtain electric energy directly from
the utility furnishing electric service to the Building. The costs of such
service shall be paid by Tenant directly to such utility. Such electricity may
be furnished to Tenant by means of the existing electrical facilities serving
the Premises, at no charge, to the extent the same are available, suitable and
safe for such purposes in each case as reasonably determined by Landlord.
Landlord, to the extent permitted by applicable Requirements, shall not
discontinue furnishing electricity to the Premises until Tenant is able to
obtain electricity directly from the utility.
ARTICLE 14
ACCESS TO PREMISES
Section 14.1. Ducts, Pipes and Conduits. Landlord shall have the right to
erect, use and maintain concealed ducts, pipes and conduits in and through the
Premises, provided that such pipes, ducts, or conduits are furred at points
immediately adjacent to partitioning columns or ceilings and that such pipes,
ducts, or conduits do not reduce the usable area of the Premises beyond a de
minimis amount.
Section 14.2. Access. Subject to the provisions of this Section 14.2,
Landlord and Landlord's designees shall have the right to enter the Premises at
all reasonable times upon reasonable prior notice (which notice may be oral), to
i) examine the Premises, ii) show the Premises to prospective purchasers, or
prospective or existing Mortgagees or Lessors, iii) make repairs, alterations,
improvements, additions or restorations which are reasonably necessary or
desirable in connection with the Operation of the Property (including, without
limitation, the repairs described in Section 5.2 hereof and Section 5.3 hereof),
or iv) for the purpose of complying with any Requirements. Landlord may take
material into the Premises to the extent required for any work being performed
by Landlord in the Premises pursuant to this Section 14.2. Landlord shall not be
required to give Tenant prior notice of Landlord's entry into the Premises if an
emergency exists. During the twelve (12) month period prior to the Fixed
Expiration Date, Landlord, at reasonable times and on reasonable prior notice
(which notice may be oral), may exhibit the Premises to prospective tenants
thereof.
Section 14.3. Keys. Tenant shall give to Landlord a key to the Premises
(it being agreed that if Tenant at any time changes the locks in or to the
Premises, then Tenant, simultaneously therewith, shall give Landlord a duplicate
of the keys thereto).
Section 14.4. Building Changes. Landlord shall have the right at any time
to change the arrangement or location of entrances or passageways, doors and
doorways, and corridors, elevators, stairs, toilets, or other public parts of
the Building, provided that any
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such change does not (a) unreasonably reduce, interfere with or deprive Tenant
of access to the Building or the Premises, or (b) reduce the rentable area of
the Premises. All parts (except surfaces facing the interior of the Premises) of
all walls, windows and doors bounding the Premises (including exterior Building
walls, exterior core corridor walls, exterior doors and entrances), all
balconies, terraces and roofs adjacent to the Premises, all space in or adjacent
to the Premises used for shafts, stacks, stairways, chutes, pipes, conduits,
ducts, fan rooms, heating, air cooling, plumbing and other mechanical
facilities, service closets and other Building facilities are not part of the
Premises, and Landlord shall have the use thereof, as well as reasonable access
thereto through the Premises for the purposes of operation, maintenance,
alteration and repair. Landlord shall have the right to change the name, number
or designation by which the Building is commonly known from time to time.
ARTICLE 15
DEFAULT
Section 15.1. Events of Default. Each of the following events shall be an
"Event of Default" hereunder:
(A) if Tenant defaults in the payment when due of any installment of
Rental and such default continues for five (5) days after notice of such default
is given to Tenant; or
(B) if the Premises become abandoned; or
(C) if Tenant's interest or any portion thereof in this Lease
devolves upon or passes to any person, whether by operation of law or otherwise,
except as expressly permitted under Article 12 hereof; or
(D) (1) if a Tenant Party generally does not, or is unable to, or
admits in writing its inability to, pay its debts as they become due; or
(2) if a Tenant Party commences or institutes any case,
proceeding or other action A) seeking relief on its behalf as debtor, or to
adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other relief
with respect to it or its debts under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, or B) seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its property; or
(3) if a Tenant Party makes a general assignment for the
benefit of creditors; or
(4) if any case, proceeding or other action is commenced or
instituted against a Tenant Party A) seeking to have an order for relief entered
against it as debtor or to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement,
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adjustment, winding-up, liquidation, dissolution, composition or other relief
with respect to it or its debts under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, or B) seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its property, which in either of such cases i) results in
any such entry of an order for relief, adjudication of bankruptcy or insolvency
or such an appointment or the issuance or entry of any other order having a
similar effect, or ii) remains undismissed for a period of sixty (60) days; or
(5) if any case, proceeding or other action is commenced or
instituted against a Tenant Party seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its property which results in the entry of an order for any such relief which is
not vacated, discharged, or stayed or bonded pending appeal within sixty (60)
days from the entry thereof, or
(6) if a Tenant Party takes any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clauses (2), (3), (4) or (5) above; or
(7) if a trustee, receiver or other custodian is appointed for
any substantial part of the assets of a Tenant Party, which appointment is not
vacated or stayed within fifteen (15) Business Days (the events described in
this Section 15.1 (D) being collectively referred to herein as "Insolvency
Events"); or
(E) if Tenant defaults in the observance or performance of any other
term, covenant or condition of this Lease on Tenant's part to be observed or
performed, and Tenant fails to remedy such default within twenty-five (25) days
after notice by Landlord to Tenant of such default, or if such default is of
such a nature that it can be remedied, but cannot with due diligence be
completely remedied within said period of twenty-five (25) days, Tenant does not
commence within said period of twenty-five (25) days, or does not thereafter
diligently prosecute to completion, all steps necessary to remedy such default.
Section 15.2. Termination. If i) an Event of Default (other than an
Insolvency Event) occurs and Landlord, at any time thereafter, at its option
gives written notice to Tenant stating that this Lease and the Term shall expire
and terminate on the date designated by Landlord in such notice, or ii) an
Insolvency Event occurs, then this Lease and the Term and all rights of Tenant
under this Lease shall expire and terminate as if the date specified in such
notice, or on the date when the Insolvency Event occurs, as the case may be,
were the Fixed Expiration Date, and Tenant immediately shall quit and surrender
the Premises, but Tenant shall nonetheless be liable for all of its obligations
hereunder, as provided in Articles 16 and 17 hereof.
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ARTICLE 16
REMEDIES AND DAMAGES
Section 16.1. Certain Remedies. If there occurs any Event of Default, and
this Lease and the Term expires and comes to an end as provided in Article 15
hereof, then:
(1) Tenant shall quit and peacefully surrender the Premises to
Landlord, and Landlord and its agents may immediately, or at any time after the
date when this Lease and the Term shall expire and come to an end, re-enter the
Premises or any part thereof, without notice, either by summary proceedings, or
by any other applicable action or proceeding, or by force or otherwise (without
being liable to indictment, prosecution or damages therefor), and may repossess
the Premises and dispossess Tenant and any other persons from the Premises and
remove any and all of their property and effects from the Premises; and
(2) Landlord, at Landlord's option, may relet the whole or any
portion or portions of the Premises from time to time, either in the name of
Landlord or otherwise, to such tenant or tenants, for such term or terms ending
before, on or after the Expiration Date, at such rental or rentals and upon such
other conditions, which may include concessions and free rent periods, as
Landlord, in its sole discretion, may determine; provided, however, that
Landlord shall have no obligation to relet the Premises or any part thereof and
shall in no event be liable for refusal or failure to relet the Premises or any
part thereof, or, in the event of any such reletting, for refusal or failure to
collect any rent due upon any such reletting, and no such refusal or failure
shall operate to relieve Tenant of any liability under this Lease or otherwise
affect any such liability, and Landlord, at Landlord's option, may make such
repairs, replacements, alterations, additions, improvements, decorations and
other physical changes in and to the Premises as Landlord, in its sole
discretion, considers advisable or necessary in connection with any such
reletting or proposed reletting, without relieving Tenant of any liability under
this Lease or otherwise affecting any such liability.
Section 16.2. Certain Waivers. Tenant, on its own behalf and on behalf of
all persons claiming through or under Tenant, including all creditors, does
further hereby waive any and all rights which Tenant and all such persons might
otherwise have under any present or future law to redeem the Premises, or to
reenter or repossess the Premises, or to restore the operation of this Lease,
after (a) Tenant has been dispossessed by a judgment or by warrant of any court
or judge, or (b) any re-entry by Landlord, or (c) any expiration or termination
of this Lease and the Term, whether such dispossess, re-entry, expiration or
termination shall be by operation of law or pursuant to the provisions of this
Lease. The words "re-enter," "re-entry" and "re-entered" as used in this Lease
shall not be deemed to be restricted to their technical legal meanings. In the
event of a breach or threatened breach by Tenant, or any persons claiming
through or under Tenant, of any term, covenant or condition of this Lease,
Landlord shall have the right to enjoin such breach and the right to invoke any
other remedy allowed by law or in equity as if re-entry, summary proceedings and
other special remedies were not provided in this Lease for such breach. The
right to invoke the remedies hereiribefore set forth are cumulative and shall
not preclude Landlord from invoking any other remedy allowed at law or in
equity.
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Section 16.3. Damages. (A) If this Lease and the Term shall expire and
come to an end as provided in Article 15 hereof, or by or under any summary
proceeding or any other action or proceeding, then, in any of said events:
(1) Tenant shall pay to Landlord all Rental payable under this Lease
by Tenant to Landlord to the date upon which this Lease and the Term shall have
expired and come to an end or to the date of re-entry upon the Premises by
Landlord, as the case may be;
(2) Tenant also shall pay to Landlord, as damages, the excess, if
any, of A) the Rental for the period which otherwise would have constituted the
unexpired portion of the Term, over B) the net amount, if any, of rents
collected under any reletting effected pursuant to the provisions of this
Article 16 for any part of such period (first deducting from the rents collected
under any such reletting all of Landlord's expenses in connection with the
termination of this Lease, Landlord's re-entry upon the Premises and with such
retelling, including, but not limited to, all repossession costs, brokerage
commissions, legal expenses, attorneys' fees and disbursements, alteration
costs, contribution to work and other expenses of preparing the Premises for
such reletting) (such excess being referred to herein as a "Deficiency"); any
such Deficiency shall be paid in monthly installments by Tenant on the days
specified in this Lease for payment of installments of Fixed Rent, Landlord
shall be entitled to recover from Tenant each monthly Deficiency as the same
shall arise, and no suit to collect the amount of the Deficiency for any month
shall prejudice Landlord's right to collect the Deficiency for any subsequent
month by a similar proceeding; and
(3) whether or not Landlord shall have collected any monthly
Deficiency as aforesaid, Landlord shall be entitled to recover from Tenant, and
Tenant shall pay to Landlord, on demand, in lieu of any further Deficiency as
and for liquidated and agreed final damages, a sum equal to the amount by which
the Rental for the period which otherwise would have constituted the unexpired
portion of the Term (commencing on the date immediately succeeding the last date
with respect to which a Deficiency, if any, was collected) exceeds the then fair
and reasonable rental value of the Premises for the same period, both discounted
to present worth at the Base Rate; if, before presentation of proof of such
liquidated damages to any court, commission or tribunal, the Premises, or any
part thereof, shall have been relet by Landlord for the period which otherwise
would have constituted the unexpired portion of the Term, or any part thereof,
the amount of rent reserved upon such reletting shall be deemed, prima facie, to
be the fair and reasonable rental value for the part or the whole of the
Premises so relet during the term of the reletting.
(B) If the Premises, or any part thereof, are relet together with
other space in the Building, then the rents collected or reserved under any such
reletting and the expenses of any such reletting shall be equitably apportioned
for the purposes of this Article 16. Tenant shall in no event be entitled to any
rents collected or payable under any reletting, regardless of whether such rents
exceed the Rental reserved in this Lease. Nothing contained in Article 15 hereof
or this Article 16 shall omit or preclude the recovery by Landlord from Tenant
of the maximum amount allowed to be obtained as damages by any statute or rule
of
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law, or of any sums or damages to which Landlord may be entitled in addition to
the damages set forth in this Section 16.3.
ARTICLE 17
LANDLORD FEES AND EXPENSES
Section 17.1. Landlord's Costs After Event of Default. If an Event of
Default occurs and is continuing, then Landlord may make any expenditure or
incur any obligation for the payment of money, including, without limitation,
reasonable attomeys' fees and disbursements, in instituting, prosecuting or
defending any action or proceeding relating to such Event of Default, and the
cost thereof, with interest thereon at the Applicable Rate, shall be additional
rent hereunder and shall be paid by Tenant to Landlord within ten (10) days
after Landlord gives Tenant an invoice therefor, and, if the Tenn has expired or
terminated at the time when Landlord makes such expenditures or incurs such
obligations, then such amounts shall be recoverable by Landlord as damages (any
such amounts recoverable by Landlord under this Section 17.1 being referred to
herein as "Landlord's Costs"). The provisions of this Section 17.1 shall survive
the expiration or earlier termination of the Term.
Section 17.2. Interest on Late Payments. If Tenant fails to pay any item
of Rental on or prior to the fifth (5th) day after the date when such payment is
due, then Tenant shall pay to Landlord, in addition to such item of Rental, as a
late charge and as additional rent, an amount equal to interest at the
Applicable Rate on the amount unpaid, computed from the date when such payment
was due to and including the date of payment. Nothing contained in this Section
17.2 limits Landlord's available rights or remedies after the occurrence of an
Event of Default,
ARTICLE 18
CONDITION OF PREMISED
Section 18.1. No Representations. (A) Landlord and Landlord's agents and
representatives have made no representations or promises with respect to the
Building, the Real Property or the Premises except as herein expressly set
forth, and no rights, casements or licenses are acquired by Tenant by
implication or otherwise except as expressly set forth herein. Subject to
Section 5.1 hereof, i) Tenant shall accept possession of the Premises in the
condition which shall exist on the Commencement Date "as is", and ii) Landlord
shall have no obligation to perform any work or make any installations in order
to prepare the Premises for Tenant's occupancy, except for the items set forth
on Exhibit "C" attached hereto and made a part hereof ("Landlord's Work"),
provided that Landlord shall be under no obligation to perform such Landlord's
Work unless and until Tenant, on or prior to the date which is six (6) months
after the Commencement Date, shall have delivered to Landlord written notice
requesting the performance of such Landlord's Work.
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(B) Landlord has made and makes no representation as to the date on
which it will complete Landlord's Work. No delay in completing Landlord's Work
shall in any way affect the validity of this Lease or the obligations of Tenant
hereunder or give rise to a claim for damages by Tenant or a claim for
rescission of this Lease, nor shall the same be construed in any wise to extend
the Term hereof. Landlord agrees that, subject to Unavoidable Delay, each item
of Landlord's Work shall be prosecuted with due diligence; provided, however,
that nothing contained in this Article 18 shall be deemed to impose upon
Landlord any obligation to employ contractors or labor at so-called overtime or
other premium pay rates or to incur any other overtime costs or expenses
whatsoever. Landlord shall have the right to enter the Premises subsequent to
the Commencement Date to complete Landlord's Work and the payment of Fixed Rent
and Escalation Rent shall not be affected thereby.
ARTICLE 19
END OF TERM
Section 19.1. Condition of Premises at End of Term. On the Expiration
Date, Tenant shall quit and surrender to Landlord the Premises, vacant, broom
clean, in good order and condition, ordinary wear and tear and damage for which
Tenant is not responsible under the terms of this Lease excepted, and otherwise
in compliance with the provisions of Article 4 hereof. In addition, on the
Expiration Date, Tenant shall deliver to Landlord the keys to i) the Premises,
and ii) if the Premises do not constitute the entire rentable area on any floor
of the Building, the core bathrooms.
ARTICLE 20
QUIET ENJOYMENT
Section 20.1. Landlord's Covenant. Landlord covenants that Tenant may
peaceably and quietly enjoy the Premises for the Term subject, nevertheless, to
the terms and conditions of this Lease.
ARTICLE 21
POSSESSION
Section 21.1. Extent of Landlord's Liability. Tenant waives any right to
rescind this Lease under Section 223-a of the New York Real Property Law or any
successor statute of similar nature and purpose then in force and further waives
the right to recover any damages which may result from Landlord's failure for
any reason to deliver possession of the Premises to Tenant on the Commencement
Date. If Landlord is unable to give possession of the Premises on the
Commencement Date, then the date on which Tenant shall commence the payment of
rent hereunder shall be adjourned for the number of days in the period beginning
on the Commencement Date and ending on the day immediately preceding the date
when Landlord delivers possession of the Premises to Tenant. Landlord's failure
to give possession
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of the Premises to Tenant on the Commencement Date shall not (i) affect the
validity of this Lease, (ii) subject to the terms of this Section 21.1, affect
the obligations of Tenant hereunder, (iii) give rise to any claim for damages by
Tenant or any claim for rescission of this Lease by Tenant, or (iv) be construed
to extend the Term. The provisions of this Article are intended to constitute an
"express provision to the contrary" within the meaning of Section 223-a of the
New York Real Property Law.
Section 21.2. Failure to Give Possession. Tenant acknowledges that the
Premises are currently occupied by another tenant. Landlord and Tenant expressly
acknowledge and agree that if Landlord is unable to deliver exclusive possession
of the Premises to Tenant due to the hold-over of such tenant on or before
September 1, 1999, then Landlord shall have the right to terminate this Lease by
written notice to Tenant, in which event Landlord and Tenant shall have no
further obligations to each other under this Lease other than those which are
expressly slated to survive the termination hereof.
ARTICLE 22
NO WAIVER
Section 22.1. No Surrender. Tenant acknowledges that Landlord shall be
deemed to have accepted a surrender of the Premises only if Landlord executes
and delivers to Tenant a written instrument providing therefor.
Section 22.2. No Waiver by Landlord. Landlord's failure to seek redress
for violation of, or to insist upon the strict performance of, any covenant or
condition of this Lease, or any of the Rules and Regulations, shall not prevent
a subsequent act, which would have originally constituted a violation of the
provisions of this Lease, from having all of the force and effect of an original
violation of the provisions of this Lease. The receipt by Landlord of Rental
with knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. No provision of this Lease shall be deemed to have been
waived by Landlord, unless such waiver is in writing signed by Landlord. No
payment by Tenant or receipt by Landlord of a lesser amount than the Rental
herein stipulated shall be deemed to be other than on account of the earliest
stipulated Rental, or as Landlord may elect to apply same, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment of Rental be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such Rental or to pursue any other remedy provided in this Lease.
Section 22.3.. No Waiver by Tenant. Tenant's failure to seek redress for
violation of, or to insist upon the strict performance of, any covenant or
condition of this Lease on Landlord's part to be performed, shall not be deemed
a waiver of such breach or prevent a subsequent act which would have originally
constituted a violation of the provisions of this Lease from having all of the
force and effect of an original violation of the provisions of this Lease. The
payment by Tenant of Rental or performance of any obligation of Tenant hereunder
with knowledge of any breach by Landlord of any covenant of this Lease shall not
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be deemed a waiver of such breach, and payment of the same by Tenant shall be
without prejudice to Tenant's right to pursue any applicable remedy against
Landlord.
ARTICLE 23
WAIVER OF TRIAL BY JURY
Section 23.1. Waiver. The respective parties hereto shall and they hereby
do waive trial by jury in any action, proceeding or counterclaim brought by
either of the parties hereto against the other (except for personal injury or
property damage) on any matters whatsoever arising out of or in anyway connected
with this Lease. If Landlord commences any summary proceeding against Tenant,
then Tenant shall not interpose any counterclaim of whatever nature or
description in any such proceeding (unless failure to impose such counterclaim
would preclude Tenant from asserting in a separate action the claim which is the
subject of such counterclaim), and will not seek to consolidate such proceeding
with any other action which may have been or will be brought in any other court
by Tenant.
ARTICLE 24
SERVICES
Section 24.1. Passenger Elevators. Landlord, at Landlord's expense, shall
provide passenger elevator service to the Premises on Business Days from 8:00
A.M. to 6:00 P.M. and have a passenger elevator subject to call at all other
times.
Section 24.2. Freight Elevators. Landlord, at Landlord's expense, shall
provide freight elevator service by keeping one (1) freight elevator on call on
a "first come, first served" basis on Business Days from 9:00 A.M. to 4:00 P.M.,
and on a reservation, "first come, first served" basis from 4:00 P.M. to 9:00
A.M. on Business Days and at any time on days other than Business Days. If
Tenant uses the freight elevators serving the Premises between 4:00 P.M. and
9:00 A.M. on Business Days or at any time on any other days, then Tenant shall
pay Landlord, as additional rent for such use, an amount computed at the
standard rates then fixed by Landlord for the Building, or if no such rates are
then fixed, at reasonable rates. Landlord shall not be required to furnish any
freight elevator services during the hours from 4:00 P.M. to 9:00 A.M. on
Business Days and at any time on days other than Business Days unless Landlord
has received advance notice from Tenant requesting such services prior to 2:00
P.M. on the day upon which such service is requested or by 2:00 P.M. of the last
preceding Business Day if such periods are to occur on a day other than a
Business Day. Landlord shall have the right to require Tenant to schedule
Tenant's move of substantial Tenant's Property or materials for Alterations into
or out of the Premises during the hours of 4:00 P.M. to 9:00 A.M. on Business
Days, or at times on days other than Business Days, in which case Tenant shall
pay to Landlord the charges for overtime freight elevator use as provided in
this Section 24.2.
Section 24.3. HVAC. Landlord, at Landlord's expense, shall furnish to the
perimeter of the Premises (for distribution by Tenant within (the Premises)
through the
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HVAC System, when required for the comfortable occupancy of the Premises, HVAC,
on a year round basis from 9:00 A.M. to 6:00 P.M. on Business Days and from 8:00
A.M. to 12:00 P.M. on Saturdays. Tenant shall draw and close the draperies or
blinds for the windows of the Premises whenever the HVAC System is in operation
and the position of the sun so requires. If Landlord furnishes HVAC to the
Premises at the request of Tenant at times other than 8:00 A.M. to 6:00 P.M. on
Business Days, and 8:00 A.M. to 12:00 P.M. on Saturdays (any such times other
than during such hours on Business Days and Saturdays being referred to herein
as "Overtime Periods"), then Tenant shall pay to Landlord additional rent for
such services at the standard rates then fixed by Landlord for the Building, or
if no such rates are then fixed, at reasonable rates. Landlord shall not be
required to furnish any such services during any Overtime Periods unless
Landlord has received advance notice from Tenant requesting such services prior
to 2:00 P.M. of the day upon which such services are requested or by 2:00 P.M.
of the last preceding Business Day if such Overtime Periods are to occur on a
day other than a Business Day.
Section 24.4. Cleaning. Provided Tenant shall keep the Premises in order,
Landlord, at Landlord's expense, shall cause the Premises, excluding any
portions thereof used for the storage, preparation, service or consumption of
food or beverages, to be cleaned, substantially in accordance with the standards
set forth in Exhibit "B" attached hereto and made a part hereof. Tenant shall
pay to Landlord, promptly after Landlord's request, the cost of removal of
refuse and rubbish from the Premises to the extent that such refuse and rubbish
exceeds the amount thereof usually attendant to the use of the Premises as
offices. Tenant, at Tenant's sole cost and expense, shall cause all portions of
the Premises used for the storage, preparation, service or consumption of food
or beverages to be cleaned daily in a manner reasonably satisfactory to
Landlord, and to be exterminated against infestation by vermin, rodents or
roaches regularly in a manner reasonably satisfactory to Landlord, and by
Persons reasonably approved by Landlord. If Tenant performs any cleaning
services in addition to the services provided by Landlord as aforesaid, then
Tenant shall employ the cleaning contractor providing cleaning services to the
Building on behalf of Landlord, provided that such cleaning contractor's rates
are commercially reasonable. Tenant shall comply with any recycling program
and/or refuse disposal program (including, without limitation, any program
related to the recycling, separation or other disposal of paper, glass or
metals) which Landlord imposes or which is required pursuant to any
Requirements.
Section 24.5. Directory. Tenant shall be entitled to Tenant's Tax Share of
the aggregate available space on the directory in the lobby of the Building to
list Tenant and Tenant's senior officers.
ARTICLE 25
INABILITY TO PERFORM
Section 25.1. Unavoidable Delays. This Lease and the obligation of Tenant
to pay Rental hereunder and perform all of the other covenants and agreements
hereunder on the part of Tenant to be performed shall not be affected, impaired
or excused, and Landlord
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shall not be in default in respect of Landlord's obligations hereunder, because
(i) Landlord is unable to fulfill any of its obligations under this Lease by
reason of any cause beyond Landlord's reasonable control, including, but not
limited to, the impact of Requirements or the failure of the Building Systems,
or (ii) Landlord stops any Building System by reason of accident or emergency,
or for repairs, additions, replacements or improvements thereto.
ARTICLE 26
BILLS AND NOTICES
Section 26.1. Means of Notice. Except as otherwise expressly provided in
this Lease, any bills, statements, consents, notices, demands, requests or other
communications required or desired to be given under this Lease shall be in
writing and shall be deemed sufficiently given or rendered if delivered by hand
(against a signed receipt) or if sent by registered or certified mail (return
receipt requested) addressed
if to Tenant (a) at Tenant's address set forth in this Lease,
Attn.: Mr. Michael Grennan, Chief Financial Officer, if mailed
prior to Tenant's taking possession of the Premises, or (b) at
the Building, Attn.: _____________________, if mailed
subsequent to Tenant's taking possession of the Premises, or
(c) at any place where Tenant or any agent or employee of
Tenant may be found if mailed subsequent to Tenant's vacating,
deserting, abandoning or surrendering the Premises, in each
case with a copy to _______________________, or
if to Landlord at Landlord's address set forth in this Lease,
Attn.: Kevin R. Wang, and with copies to (y) Proskauer Rose
LLP, 1585 Broadway, New York, New York 10036 (Attn: Lawrence
J. Lipson, Esq.), and (z) each Mortgagee and Lessor which
shall have requested same, by notice given in accordance with
the provisions of this Article 26 at the address designated by
such Mortgagee or Lessor, or
to such other address or addresses as Landlord, Tenant or any Mortgagee or
Lessor may designate as its new address or addresses for such purpose by notice
given to the other in accordance with the provisions of this Article 26. Any
such bill, statement, consent, notice, demand, request or other communication
shall be deemed to have been rendered or given on the date when it has been hand
delivered, or three (3) Business Days from when it has been mailed as provided
in this Article 26.
ARTICLE 27
VAULT SPACE
Section 27.1. Outside of Premises. Notwithstanding anything to the
contrary contained in this Lease or indicated on any sketch, blueprint or plan,
any vaults, vault space or other space outside the boundaries of the Real
Property are not included in the Premises. All vaults and vault space and all
other space outside the boundaries of the Real Property
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which Tenant may be permitted to use or occupy are to be used or occupied under
a revocable license, and if any such license is revoked, or if the amount of
such space shall be diminished or required by any Governmental Authority or by
any public utility company, such revocation, diminution or requisition shall not
constitute an actual or constructive eviction, in whole or in part, or entitle
Tenant to any abatement or diminution of Rental, or relieve Tenant from any of
its obligations under this Lease, or impose any liability upon Landlord.
ARTICLE 28
SECURITY
Section 28.1. Cash or Letter of Credit. Subject to the terms of this
Section 28.1, Tenant shall deposit with Landlord on the signing of this Lease a
"clean," unconditional, irrevocable and transferable letter of credit (the
"Letter of Credit") in the amount of Four Thousand Three Hundred Eleven and
84/100 Dollars ($4,311.84), in form reasonably satisfactory to Landlord, issued
by and drawn on a bank reasonably satisfactory to Landlord and which is a member
of the New York Clearing House Association, for the account of Landlord, for a
term of not less than one (1) year, as security for the faithful performance and
observance by Tenant of the terms, covenants, conditions and provisions of this
Lease, including, without limitation, the surrender of possession of the
Premises to Landlord as herein provided. If an Event of Default occurs and is
continuing, then Landlord may present the Letter of Credit for payment and apply
the whole or any part of the proceeds thereof i) toward the payment of any
Rental as to which Tenant is in default, ii) for any Landlord's Costs, and iii)
against any damages or deficiency which Landlord may suffer or incur in the
reletting of the Premises, whether such damages or deficiency accrue or accrues
before or after summary proceedings or other re-entry by Landlord. If Tenant
fully and faithfully complies with all of the terms, provisions, covenants and
conditions of this Lease, then the Letter of Credit (or the unapplied proceeds
thereof, as the case may be) shall be returned to Tenant promptly after the
Expiration Date and delivery of possession of the Premises to Landlord. If a
sale or leasing of the Real Property or the Building occurs, then Landlord shall
have the right to transfer the Letter of Credit (or the unapplied proceeds
thereof, as the case may be) to the vendee or lessee and Landlord shall
thereupon be released by Tenant from all liability for the return of the Letter
of Credit (or such unapplied proceeds, as the case may be), and Tenant shall
cause the bank which issued the Letter of Credit to issue an amendment to the
Letter of Credit or issue a new Letter of Credit naming the vendee or lessee as
the beneficiary thereunder. Tenant shall look solely to the new landlord for the
return of the Letter of Credit (or such unapplied proceeds, as the case may be).
The provisions hereof shall apply to every transferor assignment of the Letter
of Credit (or the unapplied proceeds thereof, as the case may be) made to a new
landlord. If Tenant fails to renew the Letter of Credit from time to time for a
term of at least one (1) year (and deliver evidence of such renewal to Landlord)
at least thirty (30) days prior to the expiration of the Letter of Credit then
Landlord may present the Letter of Credit for payment and retain the proceeds
thereof as security in lieu of the Letter of Credit (it being agreed that
Landlord shall have the right to use, apply and transfer such proceeds in the
manner described above in respect of the proceeds of the Letter of Credit).
Tenant shall have the right at any time to
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post cash rather than the Letter of Credit, in the amount provided in this
Section 28.1, in which case (x) Landlord shall promptly return the Letter of
Credit to Tenant, and (y) Landlord shall have the right to use, apply and
transfer such cash security deposit in the manner described above in respect of
proceeds of the Letter of Credit.
ARTICLE 29
BROKER
Section 29.1. Commission. Each party represents and warrants to the other
party that it has n or dealt with any broker or Person acting as a broker,
finder or salesperson in connection with this Lease. Tenant shall indemnify and
hold Landlord harmless from and against any and all claims for commission, fee
or other compensation by any Person who has dealt with Tenant in connection with
this Lease and for any and all costs incurred by Landlord in connection with
such claims, including, without limitation, reasonable attorneys' fees and
disbursements. Landlord shall indemnify and hold Tenant harmless from and
against any and all claims for commission, fee or other compensation by any
Person who has dealt with Landlord in connection with this Lease and for any and
all costs incurred by Tenant in connection with such claims, including, without
limitation, reasonable attorneys' fees and disbursements. The provisions of this
Section 29.1 shall survive the expiration or earlier termination of the Term.
ARTICLE 30
INDEMNITY
Section 30.1. Tenant's Indemnification of Landlord. Subject to Section 9.3
hereof, Tenant shall indemnify, defend and save the Landlord Indemnitees
harmless from and against (a) all claims arising from damage to the Building or
bodily injury of whatever nature made against the Landlord Indemnitees to the
extent arising from any negligence or wilful misconduct of Tenant, its
contractors, licensees, agents, servants, employees, invitees or visitors, (b)
all claims against the Landlord Indemnitees arising from any act, omission,
accident, injury or damage whatsoever caused to any person or to the property of
any person and occurring during the Term in the Premises (other than any such
claim to the extent resulting from the negligence or wilful misconduct of
Landlord, its contractors, licensees, agents, servants, employees, invitees or
visitors), and (c) all claims against the Landlord Indemnitees arising out of a
Compliance Challenge. Tenant shall have no liability for any consequential
damages suffered either by Landlord or by any party claiming through Landlord.
Section 30.2. Landlord's Indemnification of Tenant. Subject to Section 9.3
hereof, Landlord shall indemnify, defend and save the Tenant Indemnitees
harmless from and against all claims against the Tenant Indemnitees to the
extent arising from any damage to the Premises or any bodily injury resulting
from the negligence or wilful misconduct of Landlord, its contractors,
licensees, servants, employees, invitees or visitors. Landlord shall
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have no liability for any consequential damages suffered either by Tenant or by
any party claiming through Tenant.
ARTICLE 31
ADDITIONAL PROVISIONS
Section 31.1. Not Binding Until Execution. This Lease shall not be binding
upon Landlord or Tenant unless and until Landlord and Tenant have each executed
and unconditionally delivered a fully executed copy of this Lease to the other.
Section 31.2. Extent of Landlord's Liability. The obligations of Landlord
under this Lease shall not be binding upon Landlord after the sale, conveyance,
assignment or transfer by Landlord of its interest in the Building or the Real
Property, and in the event of any such sale, conveyance, assignment or transfer,
Landlord shall be and hereby is entirely freed and relieved of all covenants and
obligations of Landlord hereunder. The Landlord Indemnitees (other than
Landlord) shall not be liable for the performance of Landlords obligations under
this Lease. Tenant shall look solely to Landlord to enforce Landlord's
obligations hereunder and shall not seek any damages against any of the other
Landlord Indemnitees. The liability of Landlord for Landlord's obligations under
this Lease shall be limited to Landlord's interest in the Real Property and
Tenant shall not look to any other property or assets or the property or assets
of any of the other Landlord Indemnitees in seeking either to enforce Landlord's
obligations under this Lease or to satisfy a judgment for Landlord's failure to
perform such obligations. Landlord shall not have any liability to Tenant for
any damage, loss or liability sustained by Tenant to the extent deriving from
Tenant entrusting any property to any employee of Landlord or Landlord's agent,
Section 31.3. Rent under Section 502(b)(7) of the Bankruptcy Code.
Notwithstanding anything contained in this Lease to the contrary, all amounts
payable by Tenant to or on behalf of Landlord under this Lease, whether or not
expressly denominated as Rental, shall constitute rent for the purposes of
Section 502(b)(7) of the Bankruptcy Code.
Section 31.4. Survival. Tenant's liability for all items of Rental shall
survive the Expiration Date.
Section 31.5. No Recording. This Lease shall not be recorded.
Section 31.6. Landlord's Consents and Approvals. Subject to the provisions
of this Section 31.6, Tenant hereby waives any claim against Landlord which
Tenant may have based upon any assertion that Landlord has unreasonably withheld
or unreasonably delayed any consent or approval requested by Tenant (in respect
of which Landlord agreed herein to not unreasonably withhold or delay such
consent or approval), and Tenant agrees that its sole remedy shall be an action
or proceeding to enforce the applicable provision or for specific performance,
injunction or declaratory judgment. In the event of a determination that such
consent or approval has been unreasonably withheld or delayed, the requested
consent or approval shall be deemed to have been granted; however, Landlord
shall have no liability to
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Tenant for its refusal or failure to give such consent or approval. Tenant's
sole remedy for Landlord's unreasonably withholding or delaying consent or
approval shall be as provided in this Section 31.6.
Section 31.7. Merger; Written Supplements. This Lease contains the entire
agreement between the parties and supersedes all prior understandings, if any,
with respect thereto. This Lease shall not be modified, changed, or
supplemented, except by a written instrument executed by both parties. All
references in this Lease to the consent or approval of Landlord shall be deemed
to mean the written consent or approval of Landlord and no consent or approval
of Landlord shall be effective for any purpose unless such consent or approval
is set forth in a written instrument executed by Landlord.
Section 31.8. Submission to Jurisdiction. Tenant hereby (a) irrevocably
consents and submits to the jurisdiction of any Federal, state, county or
municipal court sitting in the State of New York in respect to any action or
proceeding brought therein by Landlord against Tenant concerning any matters
arising out of or in any way relating to this Lease; (b) irrevocably waives all
objections as to venue and any and all rights it may have to seek a change of
venue with respect to any such action or proceedings; (c) agrees that the laws
of the State of New York shall govern in any such action or proceeding and
waives any defense to any action or proceeding granted by the laws of any other
country or jurisdiction unless such defense is also allowed by the laws of the
State of New York; and (d) agrees that any final judgment rendered against it in
any such action or proceeding shall be conclusive and may be enforced in any
other jurisdiction by suit on the judgment or in any other manner provided by
law. Tenant further agrees that any action or proceeding by Tenant against
Landlord in respect to any matters arising out of or in any way relating to this
Lease shall be brought only in the State and County of New York.
Section 31.9. Captions. The captions are inserted herein only for
reference and in no way define, limit or describe the scope of this Lease or the
intent of any provision hereof.
Section 31.10. Parties Bound. The covenants, conditions and agreements
contained in this Lease shall bind and inure to the benefit of Landlord and
Tenant and their respective legal representatives, successors, and, except as
otherwise provided in this Lease, their assigns.
Section 31.11. Schedules and Exhibits. All of the Schedules and Exhibits
attached hereto are incorporated in and made a part of this Lease, but, in the
event of any inconsistency between the terms and provisions of this Lease and
the terms and provisions of the Schedules and Exhibits hereto, the terms and
provisions of this Lease shall control.
Section 31.12. Gender. Wherever appropriate in this Lease, personal
pronouns shall be deemed to include the other genders and the singular to
include the plural.
Section 31.13. Divisibility. If any term, covenant, condition or provision
of this Lease, or the application thereof to any person or circumstance, shall
ever be held to be
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invalid or unenforceable, then in each such event the remainder of this Lease or
the application of such term, covenant, condition or provision to any other
Person or any other circumstance (other than those as to which it shall be
invalid or unenforceable) shall not be thereby affected, and each term,
covenant, condition and provision hereof shall remain valid and enforceable to
the fullest extent permitted by law.
Section 31.14. Adjacent Excavation. If any excavation is made upon land
adjacent to the Premises, or is authorized to be made, then Tenant, upon
reasonable advance notice, shall afford to the person causing or authorized to
cause such excavation a license to enter upon the Premises for the purpose of
doing such work as said person shall deem necessary to preserve the wall or the
Building from injury or damage and to support the same by proper foundations,
without any claim for damages or indemnity against Landlord, or diminution or
abatement of Rental, provided that Tenant shall continue to have access to the
Premises.
Section 31.15. United Nations Plaza. Nothing herein shall be construed to
confer upon Tenant any right in or to the use of the apartment tower known as
860 United Nations Plaza, now erected over the westerly end of the Building as a
section of said structure ("United Nations Plaza") or the appurtenant air space
or the apartment tower known as 870 United Nations Plaza, now erected over the
westerly end of the Building as a section of said structure ("870 United Nations
Plaza") or the appurtenant air space or in or to the use of any entrance, lobby
or other facility situated within the Land and/or the Building and which
exclusively serves 860 United Nations Plaza and/or 870 United Nations Plaza.
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IN WITNESS WHEREOF, Initial Landlord and Initial Tenant have duly executed
and delivered this Agreement of Lease as of the day and year first above
written.
866 U.N. PLAZA ASSOCIATES LLC, Landlord
By: Vornado Realty L.P., member
By: Vornado Realty Trust, general partner
By: /s/ Irwin Goldberg
---------------------------------
Irwin Goldberg
Vice-President and Chief Financial Officer
eNOTE.com, INC., Tenant
By: /s/
----------------------------
Name: Michael T. Grennan
Title: CFO
Federal I.D. No.: 59-3453153
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EXHIBIT "A"
DEFINITIONS
The following definitions shall apply for purposes of this Lease:
"Affiliate" shall mean a Person which (1) Controls, (2) is under the
Control of, or (3) is under common Control with, the Person in question.
"Alterations" shall mean alterations, installations, improvements,
additions or other physical changes (other than decorations) in or about the
Premises performed by Tenant or any Person claiming by, through or under Tenant.
"Annual Building Energy Statement" shall mean a statement in reasonable
detail setting forth (x) a comparison of the Building Energy Costs for an Energy
Year with the Base Building Energy Costs, and (y) the amount of the Building
Energy Payment.
"Applicable Rate" shall mean the lesser of (x) two (2) percentage points
in excess of the then current Base Rate, and (y) the maximum rate permitted by
applicable law.
"Assessed Valuation" shall mean the amount for which the Real Property is
assessed pursuant to applicable provisions of the New York City Charter and of
the Administrative Code of The City of New York for the purpose of calculating
all or any portion of the Taxes.
"Assignment Profit" shall mean all consideration payable to Tenant,
directly or indirectly, by any assignee, or any other amount received by Tenant
from or in connection with any assignment of this Lease (including, but not
limited to, sums paid (x) for the sale or rental, or consideration received on
account of any contribution, of Tenant's Property, or (y) in connection with a
Recapture Assignment) after deducting therefrom: (i) in the event of a sale (or
contribution) of Tenant's Property, the then unamortized or undepreciated cost
thereof determined on the basis of Tenant's federal income tax returns, (ii) the
reasonable out-of-pocket costs and expenses of Tenant in making such assignment,
such as brokers' fees, attorneys' fees, and advertising fees paid to unrelated
third parties, (iii) any real property transfer tax of the United States or the
City or State of New York (other than any income tax), (iv) any sums paid by
Tenant to Landlord pursuant to Section 12.2 hereof, (v) the cost of improvements
or alterations made by Tenant expressly and solely for the purpose of preparing
the Premises for such assignment, as determined by Tenant's federal income tax
returns, (vi) the unamortized or undepreciated cost of any Tenant's Property
leased to and used by such assignee, and (vii) the then unamortized or
undepreciated cost of the Alterations determined on the basis of Tenant's
federal income tax returns. If the consideration paid to Tenant for any
assignment is paid in installments, then the expenses specified above shall be
amortized over the period during which such installments are paid.
"Assignment Statement" shall have the meaning set forth in Section 12.8
hereof.
<PAGE>
"Bankruptcy Code" shall mean 11 U.S.C. Section 101 et seq., or any statute
of similar nature and purpose.
"Base Building Energy Costs" shall mean the Building Energy Costs for the
Base Energy Year.
"Base Energy Year" shall mean the calendar year 1999.
"Base Rate" shall mean the rate of interest publicly announced from time
to time by The Chase Manhattan Bank, N.A., or its successor, as its "prime
lending rate" (or such other term as may be used by The Chase Manhattan Bank,
N.A., from time to time, for the rate presently referred to as its "prime
lending rate"), which rate was Seven and Seventy-Five hundredths of one percent
(7.75%) on May 1, 1999.
"Base Taxes" shall mean the Taxes payable for the twelve (12) month period
commencing on January 1, 1999 and ending on December 31, 1999. Accordingly, Base
Taxes shall mean fifty percent (50%) of the sum of (x) the Taxes for the Tax
Year commencing on July 1, 1998 and ending on June 30, 1999, and (y) the Taxes
for the Tax Year commencing on July 1, 1999 and ending on June 30, 2000.
"Base Wage Rate" shall mean the Wage Rate in effect on December 31, 1999.
"Building" (whether capitalized or not) or any similar term shall be
construed to refer to the commercial section of the combination commercial and
apartment structure now erected on the easterly side of the complex known as
United Nations Plaza located between East 48th Street and East 49th Street in
the Borough of Manhattan, City of New York, rather than to said structure in its
entirety, and shall not include the other improvements now or hereafter erected
on the Land.
"Building Energy Costs" shall mean the cost of all charges for gas, oil,
steam, electricity (for the portions of the Building and the Land not leased to
and occupied by tenants in the Building), heat, ventilation, air conditioning,
water and other utilities furnished to the Building, together with any taxes or
other impositions imposed with regard to such utilities.
"Building Energy Payment" shall mean, with respect to any Energy Year, the
product obtained by multiplying (x) the excess of Building Energy Costs for such
Energy Year over the Base Building Energy Costs, by (y) Tenant's Energy Share.
"Building Energy Statement" shall mean an Annual Building Energy Statement
or an Estimated Building Energy Statement.
"Building Systems" shall mean the service systems of the Building,
including, without limitation, the mechanical, gas, electrical, sanitary,
heating, air conditioning, ventilating, elevator, plumbing, and life-safety
systems of the Building.
<PAGE>
"Business Days" shall mean all days, excluding Saturdays, Sundays and all
days observed as legal holidays by (i) either of the governments of the State of
New York or the United States, and (ii) the labor unions serving the Building.
"Commencement Date" shall mean June 1, 1999.
"Comparison Year" shall mean each calendar year subsequent to the calendar
year 1999.
"Compliance Challenge" shall have the meaning set forth in Section 6.3
hereof.
"Control" shall mean direct or indirect ownership, directly or indirectly,
of (x) more than fifty percent (50%) of the outstanding voting stock of a
corporation, or (y) more than fifty percent (50%) of the equity interests in any
other form of entity, and, in either case, the possession, directly or
indirectly, of power to direct or cause the direction of the management and
policy of such corporation or other entity, whether through the ownership of
voting securities, by statute or according to the provisions of a contract.
"Deficiency" shall have the meaning set forth in Section 16.3 hereof.
"Electricity Inclusion Factor" shall have the meaning set forth in Section
13.2 hereof.
"Electric Rate" shall have the meaning set forth in Section 13.2 hereof.
"Electricity Statement" shall have the meaning set forth in Section 13.2
hereof
"Energy Year" shall mean each calendar year following the Base Energy
Year.
"Escalation Rent" shall mean the Tax Payment and the Porters Wage Payment.
"Estimated Building Energy Statement" shall mean a statement, in
reasonable detail, setting forth Landlord's reasonable estimate of the Building
Energy Payment for a particular Energy Year.
"Event of Default" shall have the meaning set forth in Section 15.1
hereof.
"Excluded Amounts" shall mean (w) any taxes imposed on Landlord's income,
(x) estate or inheritance taxes imposed on Landlord, (y) franchise taxes imposed
on Landlord, and (z) any other similar taxes imposed on Landlord.
"Expiration Date" shall mean the Fixed Expiration Date or such earlier
date when the term of this Lease ends pursuant to the terms of this Lease or
pursuant to law.
"Fixed Expiration Date" shall mean September 30, 2000.
"Fixed Rent" shall have the meaning set forth in Section 1.2 hereof.
<PAGE>
"Full Value" shall have the meaning set forth in Section 13.2 hereof.
"Governmental Authority" shall mean the United States of America, the
State of New York, The City of New York, any political subdivision of any of the
foregoing and any agency, department, commission, board, bureau or
instrumentality of any of the foregoing, or any quasi-governmental authority, in
each case now existing or hereafter created, having jurisdiction over the Real
Property or any portion thereof.
"HVAC" shall mean heat, ventilation and air conditioning.
"HVAC Systems" shall mean the Building Systems providing HVAC.
"Initial Alterations" shall mean the Alterations which Tenant performs
before occupying the Premises initially for the conduct of business.
"Initial Landlord" shall have the meaning set forth in the introductory
paragraph hereof.
"Initial Monthly Porters Wage Amount" shall have the meaning set forth in
Section 2.4 hereof.
"Initial Monthly Tax Amount" shall have the meaning set forth in Section
2.2 hereof.
"Initial Tenant" shall have the meaning set forth in the introductory
paragraph hereof.
"Insolvency Events" shall have the meaning set forth in Section 15.1
hereof.
"Land" shall mean the lot within which the Building is now erected,
designated Lot 1 in Block 1360 on the Tax Map of the Borough of Manhattan for
the Tax Year 1964-65, which lot excludes the volumes of air space appurtenant to
860 United Nations Plaza and 870 United Nations Plaza, respectively.
"Landlord", on the date as of which this Lease is made, shall mean Initial
Landlord, but thereafter, "Landlord" shall mean only the fee owner of the Real
Property, or if there exists a Superior Lease, the lessee thereunder.
"Landlord Indemnitees" shall mean Landlord, the members or partners
comprising Landlord and its and their members, partners, shareholders, officers,
directors, and employees.
"Landlord's Costs" shall have the meaning set forth in Section 17.1
hereof..
"Landlord's Engineer" shall have the meaning set forth in Section 13.2
hereof.
"Landlord's Work" shall have the meaning set forth in Section 18.1 hereof.
<PAGE>
"Lessor" shall mean a lessor under a Superior Lease.
"Letter of Credit" shall have the meaning set forth in Section 28.1
hereof.
"Liability Policy" shall have the meaning set forth in Section 9.1 hereof.
"Local 32B" shall mean Local 32B-32J of the Service Employees
International Union, AFL-CIO, or its successor, or if there shall be no
successor, then any other union representing employees employed at the Building
and performing similar services.
"Monthly Building Energy Deficiency" shall have the meaning set forth in
Section 2.5 hereof.
"Monthly Building Energy Surplus" shall have the meaning set forth in
Section 2.5 hereof.
"Monthly Porters Wage Deficiency" shall have the meaning set forth in
Section 2.4 hereof.
"Monthly Porters Wage Surplus" shall have the meaning set forth in Section
2.4 hereof.
"Monthly Tax Deficiency" shall have the meaning set forth in Section 2.2
hereof.
"Monthly Tax Surplus" shall have the meaning set forth in Section 2.2
hereof.
"Mortgage" shall mean any trust indenture or mortgage which now or
hereafter affects the Real Property, the Building or any Superior Lease and the
leasehold interest created thereby, and all renewals, extensions, supplements,
amendments, modifications, consolidations and replacements of such indenture or
mortgage, and substitutions therefor.
"Mortgagee" shall mean any holder of a Mortgage.
"Operation of the Property" shall mean the maintenance, operation, repair
and management of the Real Property and the curbs, sidewalks and areas adjacent
thereto.
"Overtime Periods" shall have the meaning set forth in Section 24.3
hereof.
"Person" shall mean any natural person, a partnership, a corporation and
any other form of business or legal association or entity.
"Porters" shall mean the classification of employees engaged in the
general maintenance and operation of Class A office buildings most nearly
comparable to the classification now applicable to porters in the current
agreement between R.A.B. and Local 32B (which classification is currently termed
"others" in said agreement).
<PAGE>
"Porters Wage Factor" shall mean Six Hundred Thirty-One (631).
"Porters Wage Payment" shall mean the amount obtained by multiplying (i)
the Porters' Wage Factor, by (ii) the amount by which the Wage Rate in effect on
January 1 of a Comparison Year exceeds the Base Wage Rate.
"Porters Wage Statement" shall mean a written statement furnished by
Landlord to Tenant setting forth the Porters Wage Payment.
"Premises" shall mean the portion of the third (3rd) floor of the Building
as set forth on the floor plans attached hereto as Schedule "1" and made a part
hereof.
"Qualified Accountant" shall mean an independent firm of certified public
accountants, provided that such firm is one of the so-called "big-five"
accounting firms or, if at such time there is no group of accounting firms
commonly referred to as "big-five", then a nationally recognized firm of at
least one hundred fifty (150) partners or principals who are certified public
accountants.
"Qualified Alterations" shall have the meaning set forth in Section 4.1
hereof.
"R.A.B." shall mean the Realty Advisory Board on Labor Relations,
incorporated, or its successor.
"Real Property" shall mean the Building, together with the plot of land
upon which it stands.
"Recapture Assignment" shall have the meaning set forth in Section 12.10
hereof
"Recapture Sublease" shall have the meaning set forth in Section 12.10
hereof.
"Recapture Termination" shall have the meaning set forth in Section 12.10
hereof.
"Rental" shall mean Fixed Rent, Escalation Rent, all additional rent and
any other sums payable by Tenant hereunder.
"Requirements" shall mean all present and future laws, rules, orders,
ordinances, regulations, statutes, requirements, codes and executive orders of
all Governmental Authorities and of any applicable fire rating bureau, or other
body exercising similar functions, affecting the Real Property or any portion
thereof, or any street, avenue or sidewalk comprising a part thereof or adjacent
thereto, or any vault in or under the Real Property.
"Rules and Regulations" shall mean the rules and regulations attached
hereto as Schedule "2" and made a part hereof, and such other and further rules
and regulations as Landlord may from time to time adopt as provided in Article 8
hereof.
<PAGE>
"Space Factor shall mean Six Hundred Thirty-One (631), as the same may be
decreased pursuant to the terms hereof.
"Specialty Alterations" shall mean Alterations which (i) affect the
structure of the Building, (ii) affect any Building Systems, (iii) establish a
connection between any portions of the Premises which are not contiguous or are
not on the same floor of the Building (such as staircases, dumbwaiters, and
pneumatic tubes), (iv) constitute Alterations made to accommodate Tenant's
particular technical installations (such as raised flooring for computer
installations), (v) constitute vaults or libraries, or (vi) constitute or
require floor reinforcement.
"Sublease" means any sublease, sub-sublease, occupancy agreement, license
or other similar agreement (i) that grants to any other party the right to
occupy or use the Premises or any part thereof, and (ii) in respect of which
Tenant, or any other Person claiming by, through or under Tenant is the
sublessor, grantor or licensor thereunder.
"Sublease Expenses" shall mean, in connection with a Sublease, (i) in the
event of a sale of Tenant's Property, the then unamortized or undepreciated cost
thereof determined on the basis of Tenant's federal income tax returns, (ii) the
reasonable out-of-pocket costs and expenses incurred by Tenant in connection
with making such Sublease, such as brokers' fees, attorneys' fees, and
advertising fees paid to unrelated third parties, (iii) any sums paid to
Landlord pursuant to Section 12.2 hereof, (iv) the cost of improvements or
alterations made by Tenant expressly and solely for the purpose of preparing the
Premises for such Sublease, and (v) the unamortized or undepreciated cost of any
Tenant's Property leased under such Sublease. In determining Sublease Rent, (a)
the costs described in clauses (ii), (iii) and (iv) above shall be amortized on
a straight-line basis over the term of such Sublease, and (b) the costs in
clause (v) above shall be amortized on a straight-line basis over the greater of
the longest useful life of such improvements, alterations or Property (as
permitted pursuant to the Internal Revenue Code of 1986, as amended) and the
term of such Sublease.
"Sublease Profit" shall mean the product obtained by multiplying the
excess of (A) the Sublease Rent, over (B) the Fixed Rent (which includes the
Electricity Additional Rent) and Escalation Rent.
"Sublease Rent" shall mean the excess of (a) any rent or other
consideration paid by the subtenant, grantee or occupant under any Sublease
(including, but not limited to, (x) sums paid for the sale or rental, or
consideration received on account of any contribution, of Tenant's Property, (y)
sums paid in connection with the supply of electricity or HVAC, or (z) sums paid
in connection with a Recapture Sublease), over (b) the Sublease Expenses.
"Sublease Statement" shall have the meaning set forth in Section 12.6
hereof.
"Subsequent Monthly Building Energy Amount" shall have the meaning set
forth in Section 2.5 hereof.
<PAGE>
"Subsequent Monthly Porters Wage Amount" shall have the meaning set forth
in Section 2.4 hereof.
"Subsequent Monthly Tax Amount" shall have the meaning set forth in
Section 2.2 hereof
"Substantial Completion" or "Substantially Completed" or words of similar
import shall mean that the applicable work has been substantially completed, it
being agreed that such work shall be deemed substantially complete
notwithstanding that minor or insubstantial details of construction or
demolition and/or mechanical adjustment and/or decorative items remain to be
performed.
"Superior Lease" shall mean a ground or underlying lease of the Real
Property or the Building and all renewals, extensions, supplements, amendments
and modifications thereof.
"Taxes" shall have the meaning set forth in Section 2.1 hereof.
"Tax Payment" shall mean, with respect to any Tax Year, the product
obtained by multiplying (x) the excess of Taxes for such Tax Year over Base
Taxes, by (y) Tenant's Tax Share.
"Tax Statement" shall mean a statement in reasonable detail setting forth
(x) a comparison of the Taxes for a Tax Year with the Base Taxes, and (y) the
amount of the Tax Payment.
"Tax Year" shall mean the period July 1 through June 30 (or such other
period as hereinafter may be duly adopted by the Governmental Authority then
imposing taxes as its fiscal year for real estate tax purposes), any portion of
which occurs during the Term.
"Tenant", on the date as of which this Lease is made, shall mean Initial
Tenant, but thereafter "Tenant" shall mean only the tenant under this Lease at
the time in question; provided, however, that Initial Tenant and any assignee of
this Lease shall not be released from liability hereunder in the event of any
assignment of this Lease.
"Tenant Indemnitees" shall mean Tenant and its shareholders, partners,
directors, officers, and employees.
"Tenant Party" shall mean Tenant and any Person which (x) Previously
constituted Tenant hereunder, and (y) assigned its interest as tenant hereunder
without Landlord's consent pursuant to Section 12.4 hereof.
"Tenant's Engineer" shall have the meaning set forth in Section 13.2
hereof.
"Tenant's Property" shall mean Tenants personal property, including,
without limitation, furniture, furnishings and equipment.
<PAGE>
"Tenant's Specific Use" shall have the meaning set forth in Section 6.1
hereof.
"Tenant's Tax Share" shall mean Two tenths of one percent (0.2%), as the
same may be increased or decreased pursuant to the terms hereof.
"Term" shall mean a term which commence on the Commencement Date and
expires on the Expiration Date.
"Third Engineer" shall have the meaning set forth in Section 13.2 hereof.
"Wage Rate" shall have the meaning set fort in Section 2.1 hereof.
<PAGE>
EXHIBIT "B"
CLEANING SPECIFICATIONS
GENERAL CLEANING:
NIGHTLY (ON BUSINESS DAYS)
General Offices:
1 All hardsurfaced flooring to be swept using approved dustdown
preparation.
2 Carpet sweep all carpets, moving only light furniture (desks, file
cabinets, etc. not to be moved).
3 Hand dust and wipe clean all furniture, fixtures and window sills.
4 Empty and clean all ash trays and screen all sand urns.
5 Empty and clean all waste disposal cans and baskets.
6 Wash clean all water fountains and coolers.
Public Lavatories (Base Building):
1. Sweep and wash all floors, using proper disinfectants.
2. Wash and polish all mirrors, shelves, bright work and enameled
surfaces.
3. Wash and disinfect all basins, bowls and urinals.
4. Wash all toilet seats.
5. Hand dust and clean all partitions, tile walls, dispensers and
receptacles in lavatories and restrooms.
6. Empty paper receptacles and remove wastepaper.
7. Fill and clean all soap, towel and toilet tissue dispensers as needed,
supplies therefore to be furnished by Landlord at a reasonable charge
to Tenant. If the Premises consists of a part of a rentable floor, said
charge to Tenant shall be that portion of a reasonable charge for such
supplies that is reasonably allocable to Tenant.
8. Empty and clean sanitary disposal receptacles.
<PAGE>
WEEKLY:
1. Vacuum clean all carpeting and rugs.
2. Dust all door louvres and other ventilating louvres within a person's
reach.
3. Wipe clean all brass and other bright work.
QUARTERLY:
High dust the Premises complete, including the following:
1. Dust all pictures, frames, charts, graphs and similar wall hangings not
reached in nightly cleaning.
2. Dust clean all vertical surfaces, such as walls, partitions, doors and
door bucks and other surfaces not reached in nightly cleaning.
3. Dust all pipes, ventilating and air-conditioning louvres, ducts, high
moulding and other high areas not reached in nightly cleaning.
4. Dust all venetian blinds.
Wash exterior and interior of windows periodically, subject to weather
conditions and requirements of law.
<PAGE>
EXHIBIT "C"
LANDLORD'S WORK
Landlord will, at its expense, perform the following work and installations, all
of which shall be of material, design, capacity, finish and color (if
applicable) of the standard adopted by Landlord for the Building (but in no
event more than the type and quantity of work set forth below):
1. Paint the Premises with one (1) coat of Building-standard pant, one (1)
color per room. Tenant shall select color from Landlord's
Building-standard color chart.
2. Install Building-standard carpeting in the Premises. Tenant shall select
color from Landlord's Building-standard sample book.
<PAGE>
SCHEDULE 1
PREMISES
This floor plan is annexed to and made a part of this Lease solely to indicate
the Premises by outlining and diagonal marking. All areas, conditions,
dimensions and locations are approximate.
<PAGE>
SCHEDULE 2
RULES AND REGULATIONS
(1) The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors, or halls of the Building shall not be obstructed or
encumbered by Tenant or used for any purpose other than ingress and egress to
and from the Premises and for delivery of merchandise and equipment in a prompt
and efficient manner, using elevators and passageways designated for such
delivery by Landlord.
(2) No awnings, air-conditioning units, fans or other projections shall be
attached to the outside walls of the Building. No curtains, blinds, shades, or
screens, other than those which conform to Building standards as established by
Landlord from time to time, shall be attached to or hung in, or used in
connection with, any window or door of the Premises, without the prior written
consent of Landlord which shall not be unreasonably withheld or delayed. Such
awnings, projections, curtains, blinds, shades, screens or other fixtures must
be of a quality, type, design and color, and attached in the manner reasonably
approved by Landlord.
(3) No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by Tenant on any part of the outside of the
Premises or Building or on the inside of the Premises if the same can be seen
from the outside of the Premises without the prior written consent of Landlord
except that the name of Tenant may appear on the entrance door of the Premises.
Interior signs on doors and directory table shall be of a size, color and style
reasonably acceptable to Landlord.
(4) The exterior windows and doors of the Premises shall not be covered or
obstructed.
(5) The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, acids or other similar substances shall be deposited
therein.
(6) Tenant shall not make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of this or neighboring
buildings or premises or those having business with them whether by the use of
any musical instrument, radio, television set, talking machine, unmusical noise,
whistling, singing, or in any other way.
(7) Tenant shall not at any time bring in or keep upon, or permit to be
brought in or kept upon, the Premises any inflammable, combustible or explosive
fluid, chemical or substance except such as are incidental to usual office
occupancy.
(8) No bicycles, vehicles or animals of any kind except for seeing eye
dogs shall be brought into or kept by Tenant in or about the Premises or the
Building.
<PAGE>
(9) Landlord reserves the right to exclude from the Building between the
hours of 6 P.M. and 8 A.M. and at all hours on days other than Business Days all
persons who do not present a pass to the Building approved by Landlord.
(10) There shall not be used in any space, or in the public halls of the
Building, either by Tenant or by jobbers or others, in the delivery or receipt
of merchandise, any hand trucks, except those equipped with rubber tires and
side guards.
(11) Tenant shall keep the entrance door to the Premises closed at all
times.
(12) Landlord shall have the right to require that all messengers and
other Persons delivering packages, papers and other materials to Tenant (i) be
directed to deliver such packages, papers and other materials to a Person
designated by Landlord who will distribute the same to Tenant, or (ii) be
escorted by a person designated by Landlord to deliver the same to Tenant.
(13) Tenant shall cause Tenant's furniture, equipment, machines, cartons
or other bulky material to be moved in or out of the Building using only the
freight entrances to the Building and the freight elevators.
(14) Tenant shall not adjust or tamper with any controls for the HVAC
System.
Exhibit 10.7
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into this 6th day of August, 1999, by
and among James D. Richards, III and Martine Richards (collectively, "Seller"),
eNote.Com, Inc., a Delaware corporation with a business address at 185 Allen
Brook Lane, Williston, Vermont 05495 ("Purchaser") and SolutioNet, Ltd., a
Delaware corporation with a business address at 185 Allen Brook Lane, Williston,
Vermont 05495 (the "Company").
WHEREAS, the Seller is the record owner and holder of all of the issued
and outstanding shares of stock of the Company, being 2,5000 shares of common
stock, $0.01 par value, and
WHEREAS, the Purchaser desires to purchase 1,375 shares of said stick
and the Seller desires to sell 1, 375 shares of said stock (the "Stock"), upon
terms and subject to the conditions hereinafter set forth;
WHEREAS, Seller, Purchaser and the Company previously entered into a
Letter of Intent dated April 13, 1999, outlining the terms and conditions that
will govern the purchase and sale of the Stock, a copy of which respecting the
Stock; and
WHEREAS, because the purchase and sale of the Stock is contingent upon
the Seller obtaining a certain release from the Bankruptcy Trustee for the
estate of Selectech, Ltd. by September 30, 1999, the transaction contemplated
hereby will be effected by escrow.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, the receipt and sufficiency of which is hereby
acknowledged, and in order to consummate the purchase and the sale of the Stock
aforementioned, it is hereby agreed as follows:
1. DELIVERY TO ESCROW AGENT: Subject to the terms and conditions hereinafter set
forth, upon execution of this Agreement, the Seller shall deliver to the Escrow
Agent certificates representing the Stock, and the Purchaser shall deliver to
the Escrow Agent the Purchase Price, less the Deposit currently held by the
Seller. The certificates representing the Stock shall be duly executed in favor
of Purchaser. In addition, both parties (as necessary) shall execute and deliver
(or cause to be executed and delivered) to the Escrow Agent the following six
documents (collectively, the "Ancillary Documents"):
o Amended By-Laws of the Company
o Amended Certificate of Incorporation of the Company
o Unanimous written consent of the Shareholders electing a three-person
Board of Directors and approving such Amendments to the Bylaws and
Articles;
o Unanimous written consent of the Board of Directors approving such
Amendments to the Bylaws and Articles and approving the Shareholder's
Agreement;
o A Shareholder Agreement by and among the Company, Seller and Purchaser;
and
o Consulting Agreement between the Company and James D. Richard, III.
<PAGE>
Under the Shareholder Agreement, Seller and Purchaser each agree to take all
actions necessary to vote all shares of Stock which he or it now owns or may
hereafter own (i) to fix the number of directors that constitute the entire
Board of Directors of the Corporation at three (3), and (ii) to elect as members
of the Board of Directors one designee of James D. Richards, III, one designee
of Purchaser and one director mutually acceptable to James D. Richards, III and
Purchaser has not yet been selected by the date this Agreement is executed ad
delivered, then such third person shall be selected on or promptly after the
date Closing.
2. CLOSING. the closing of the transaction contemplated by this agreement
("closing"), shall be contingent upon the Closing Condition contained in the
Agreement, and shall in no even occur later than September 30, 1999, unless
extended by mutual agreement. The date for the Closing shall be the first
business day after the satisfaction of the Closing Condition. Upon receipt of
written notice executed by the Purchaser and the Seller (which written notice
may be executed and delivered separately by each party), the Escrow Agent shall
effect the Closing by a) releasing the cash held in the amount of the Purchase
Price less the Deposit ($245,000), together with any interest earned on such
account, to the Seller, b) releasing the stock certificates evidencing the Stock
to the Purchaser, and c) filing, recording and/or releasing the Ancillary
Documents to the Seller and Purchaser and the Company. The Company shall then
make such filings of the Ancillary Documents as amy be necessary and shall
record eNote's ownership of the Stock on the corporate stock ledger of the
Company.
3. AMOUNT AND PAYMENT OF PURCHASE PRICE.
(a) Consideration. As total consideration for the purchase and sale of the Stock
pursuant to this Agreement, the Purchaser shall pay to the Seller the sum of Two
Hundred and Fifty Thousand Dollars ($250,000) such total consideration to be
referred to in this Agreement as the "Purchase Price."
(b) Deposits. The seller hereby acknowledges its prior receipt of Five Thousand
Dollars ($5,000), paid by Purchaser as a good faith deposit and held for the
benefit of the Seller, to be credited toward Purchaser payment of the full
Purchase Price (the "Deposit"). Such Deposit shall be forfeited if the Closing
does not occur.
(c) Payment. The Purchase Price, less the Deposit, shall ne delivered to the
Escrow Agent upon the execution of this Agreement, to be disturbed to the Seller
at Closing unless earlier returned for failure to meet the Closing Condition or
on account of any party's default. The Purchase Price shall ne payable in the
form of either a cashier's check or by wire transfer to the Escrow Agent's
attorney-client trust account as set forth in the written instructions form the
Escrow Agent. The Purchase Price, less the Deposit, shall be held by the Escrow
Agent in an interest-bearing attorney-client account, with any interest earned
credited to such account and distributed as provided herein. In the event that
such account is not established upon receipt of funds hereunder, Escrow Agent
will take such reasonable steps to have such account created promptly after the
receipt of funds hereunder.
(d) Escrow Agent: The Escrow Agent shall be Peter Doremus, Esq. The Escrow Agent
shall not be personally liable to any party except in instances of willful
misconduct. The
- 2 -
<PAGE>
parties shall jointly and severally indemnify and hold the Escrow Agent harmless
from all loss or expense of any nature, including attorney's fees, arising out
of the holding of the Purchase Price, the Stock and the Ancillary Documents
(collectively, the "Goods"). In the event of a dispute, the Escrow Agent may
deposit the Goods into a court of competent jurisdiction for the purpose of the
holding of the Goods. All costs and expenses of such action including attorney's
fees incurred by the Escrow Agent shall be borne jointly and severally by
Seller, the Company and the Purchaser.
4. REPRESENTATIONS AND WARRANTIES OF COMPANY and JAMES D. RICHARDS,III
A. The Company hereby warrants and represents that is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Delaware and has conducted and to take any
and all actions contemplated by or attendant to this transaction.
B. James D. Richards, III represents and warrants to the Purchaser as
follows:
(a) Capitalization. The aggregate number of shares which the Company
is authorized to issue is 2500 common shares, $0.01 par value, of
which 2500 shares are issued and presently outstanding. All such
issued have been validly issued and are fully paid and
non-accessible.
(b) Financial statements. The Seller has delivered to the Buyer
non-audited balance sheet and profit and loss statements for the
year ending December 31, 1998. Except to the extent reflected or
reserved against in the Company's financial statements as at
December 31, 1998 or interim financial statements for fiscal year
1999 provided to the Purchaser, the Company as of December 31,
1998 had no liabilities of any nature, whether accrued, absolute,
or contingent, including, without limitation, tax liabilities due
or to become due, and whether incurred in respect of or measure by
the Company's income for any period prior to December 31, 1998, or
arising out of transactions entered into, or any state of facts
existing, prior thereto. James D. Richards represents that he does
not know or have reasonable grounds to know of any basis for the
assertion against the Company, as at December 31, 1998,od any
liability of any nature or in any amount not fully reflected or
reserved against in the financial statements so provided to the
Purchaser.
(c) Litigation. Other than the proceeding entitles Selectech, Ltd v.
Richards, Chittenden Superior Court, which has been previously
disclosed to the Purchaser, thee is not litigation or proceeding
pending, against or relating to the Company, its properties, or
business.
C. James D. Richards hereby agrees to indemnify Purchaser against any loss,
damage or deficiency resulting form any misinterpretation or breach of any
warranty set forth in Section 4B above or Section 5 below; provided, however
that any such liability for indemnification shall be limited to an amount not to
exceed the Purchaser Price,
- 3 -
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents and
warrants (a) Seller is not a party to any agreement, written or oral, creating
rights with respect to the Company's stock in any third person r relating to the
voting of the Company's stock, except for the Letter of Intent dated as of April
13, 1999 and entered into among Seller, the Company and Purchaser; and (b)
Seller is the lawful owner of the Stock, free and clear of all security
interests and liens.
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER. The Purchaser hereby warrants
and represents is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the corporate power and
authority to carry on its business as it is now being conducted and to take any
and all actions contemplated by or attendant to this transaction. The Purchaser
acknowledges that all documents, records and books pertaining to the purchase of
the Stock and/or the Company have been made available for inspection by
Purchaser and its agents and that the books and records of the Company were
available during reasonable business hours at the Company's principal place of
business. The Purchaser and/or its adviser(s) have had a reasonable opportunity
to ask questions of and receive answers from the Company, or from Seller
concerning the Stock and the Company. All such questions have been answered to
the full satisfaction of the Purchaser. The Purchaser understands that the Stock
has not been registered under any federal state securities laws.
7. REPRESENTATIONS AND WARRANTIES OF SELLER AND PURCHASER. Seller and Purchaser
hereby represent and warrant that there has been no act or omission by Seller,
Purchaser or the Company which would give rise to any valid claim against any of
the parties hereto for a brokerage commission, finder's fee, or other like
payment in connection with the transaction contemplated hereby.
8. CLOSING CONDITION. It shall be a condition to closing that Seller and/or the
Company provide to Purchaser a release, obtained from the Bankruptcy Trustee for
the estate of Selectech, Ltd., releasing James D. Richards III from any and all
claims the estate may have against him relating to the pending civil suit
entitled Selectech, Ltd. v. Richards, Chittenden Superior Court Docket No.
S861-96-CnC. Seller and Purchaser agree that upon receipt of such document,
Seller and Purchaser will each provide written instructions to the Escrow Agent
to effect the Closing by disbursing the Goods to the appropriate parties as
provided in paragraph 2.
9. OPTIONS:
Purchaser's Option: For a period of one (1) year after the Closing (if
such closing occurs), the Purchaser;s shall have the right and option to require
Seller to re-purchase the Stock for an amount equal to the Purchase Price if the
Purchaser is named as a defendant in any litigation arising from (1) it being a
shareholder in the Company, and (2) such lawsuit arises from facts and
circumstances relating to the Company and occurring prior to the date of the
Closing. Payment for repurchase of the Stock shall be in the form of a
promissory note for which the Stock shall serve as collateral. If requested by
the Purchaser, the Company shall grant a security interest in its intellectual
property as collateral for such note.
- 4 -
<PAGE>
The term of such note shall be as specified by the maker and shall be for no
more than ten (10) years and bear interest at a fixed interest rate of 7% per
annum.
Seller's Option: For a period of two (2) years after the Closing, Seller
shall have the right and option, in his sole and absolute discretion, to
re-purchase the Stock for an mount equal to the Purchase Price if exercised
during the first year or for an amount determined by independent appraisal of
the value of the Stock if exercised during the second year, if (i) Seller's
employment by the Purchaser is terminated for any reason; (ii) any of the terms
of Seller's employment by the Purchaser are changes in any way detrimental to
Seller; (iii) Purchaser becomes insolvent, is dissolved or liquidated takes any
action related to its dissolution or winding up, or enters proceedings under any
law relating to bankruptcy, insolvency, reorganization or relief from debts;
(iv) Purchaser's market value declines to less than $15,000,000; or (v) Seller's
level of equity ownership in Purchaser (based upon his current level of 250, 000
shares to 17,000,000 shares issued and outstanding) is diluted by more than
thirty percent (30%). Payment for re-purchase of the Stock shall be in the from
of a promissory note for which the Stock shall serve as collateral. If requested
by the Purchaser, the Company shall grant a security interest in its
intellectual property as collateral for such note. The term of such note shall
be as specific by the maker and shall be for not more than ten (10) years and
bear interest at a fixed interest rate of 7% per annum.
8. DEFAULT AND TERMINATION.
(a) In the event that the Closing Condition set forth above is not satisfied on
or before September 30, 1999, Purchaser may, as its election, either a)
terminate this Agreement by providing written notice to Seller and to the Escrow
Agent, in which case the Purchase Price, less the Deposit, shall be returned to
the Purchaser, the Stock shall be returned to the Seller, and the Ancillary
Documents shall be destroyed, or b) waive the satisfaction of the Closing
Conditions and proceed with the Closing.
(b) If the event that Purchaser breaches its obligations to close under this
Agreement, or in the event Purchaser breaches any of the representations and
warrantee that it had made herein, Seller may terminate this Agreement by
written notice to Purchaser and to the Escrow Agent, and may then seek
reimbursement from Purchaser for all costs and expenses actually incurred by
Seller in connection with this transaction, and may seek legal and equitable
remedies including specific performance.
(c) In the event that Seller breaches its obligations to close under this
Agreement, or in the even Seller breaches any of the representations and
warranties that it has made herein, Purchaser may terminate this Agreement by
written notice to Seller and to the Escrow Agent, and shall be entitled to seek
reimbursement from Seller for all costs and expenses actually incurred by
Purchaser in connection with this transaction, such amount not to exceed %5,000.
Such remedy shall be Purchaser's sole remedy at law or in equity.
11. NOTICES. Any notice or other communication to be given hereunder shall
be in writing and mailed. certified with return receipt requested, by facsimile
or sent by nationally recognized overnight courier (e.g., Federal Express) to
such party at the address or
-5-
<PAGE>
number set forth below (which may be changes by either party by notice given to
the other party in the following manner):
If to Seller: James D. Richards, III
Martine Richards, III
1647 Lake Road
Charlotte, Vermont 05445
Telephone No: 802-425-2028
If to Company: SolutioNet, Ltd.
Attn: Mr. James D. Richards, III
185 Allen Brook Lane
Williston, VT 05495
Telephone No.: 802/872-2100 x-114
Facsimile No.: 802/872-2888
If to Purchaser: eNote.Com, Inc.
Attn: Mr. John Varsames
185 Allen Brook Lane
Williston, VT 05495
Telephone No.: 802/288-9000
Facsimile No.: 802/288-9330
If to Escrow Agent: Peter Doremus, Esq.
Doremus Kantor & Daly
112 Lake Street
Burlington, VT 05401
Telephone No.: 802/863-9603
Facsimile No.: 802/658-5685
12. CLARIFICATIONS OF INTENTION. The parties hereby acknowledge and agree
that the Seller and the Company may continue to use and disburse the Company's
cash, including making distributions to its shareholder(s), as if this
transaction was not pending. Pending the Closing, the Company shall continue to
operate its business in the ordinary course.
13. GENERAL PROVISIONS.
(a) Captions The captions contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of any
provision in this Agreement.
(b) Governing Law. This Agreement and all transactions contemplated
hereby, shall be governed by, construed and enforced in accordance with the laws
of the State of Vermont.
(c) Entire Agreement. This Agreement, together with the Ancillary
Documents and the Letter of Intent, embodies the entire agreement and
understanding between the parties
- 6 -
<PAGE>
relating to the subject matter hereof and there are no covenants, promises,
agreements, conditions, or understandings, oral or written, except as set forth
herein or in the Ancillary Documents and the Letter of Intent. All Exhibits
hereto and the terms contained therein are made a part of this Agreement and the
contents thereof are hereby incorporated by reference.
(d) Amendment. This Agreement may not be amended, waived or discharged
except by an instrument in writing executed by the party against whom such
amendment, waiver or discharge is to be enforced.
(e) Assignment. The rights and obligations set forth in this Agreement may
not be transferred, delegated or assigned to any third party or parties without
the prior written consent of all the parties to this Agreement, such consent to
be within he sole discretion of every party hereto.
(f) Severability. In the event that any provision of this Agreement or the
application of such provision to any party or circumstance shall, for any
reason, be determined to be invalid, illegal, or unenforceable in any respect,
the remaining provisions of this Agreement or the application of the provisions
to any party or circumstances other than those as to which the provision was
held invalid, illegal, or unenforceable, shall not be affected by such
determination and shall be valid and enforceable to the fullest extent permitted
by law.
[Signature Page follows]
- 7 -
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by each of its
parties hereto on the date first above written.
Signed, sealed and delivered in the presence of:
SolutioNet, Ltd.
_____________________________ By: ____________________________
Witness James D. Richard III, President
- ----------------------------- ----------------------------
Witness James D. Richards, III
- ----------------------------- ----------------------------
Witness Martine Richards
eNote.Com, Inc
_____________________________ By: ____________________________
Witness John Varsames, President & CEO
Acknowledged:
Escrow Agent:
- ----------------------------
Peter Doremus, Esq.
- 8 -
Exhibit 10.8
CONSULTING AGREEMENT
This Consulting Agreement is dated as of August 6, 1999 between
SOLUTIONET, LTD., a corporation organized and existing under the laws of the
State of Delaware and having its executive offices at 185 Allen Brook Lane,
Williston, Vermont (the "Corporation"), and James D. Richards, III, an
individual residing in Charlotte, Vermont ("Consultant").
Whereas, the Corporation is engaged in the business of developing
computer and software technology;
Whereas, the Consultant was previously the sole shareholder of the
Corporation but has sold an approximately 55% interest in the Corporation to
eNote.Com, Inc.
Whereas, the Corporation will continue to need the services of the
Consultant, to serve as acting President of the Corporation, recognizing that
the Consultant is currently employed by eNote.Com, Inc. ("eNote") as eNote's
Director of Technology;
Now Therefore, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agrees as follows:
1. Engagement. Upon the terms and conditions contained in this
Agreement, the Corporation hereby engages the Consultant, and the Consultant
hereby accepts the engagement, and agrees to be a consultant to the Corporation
as its acting President.
2. Services. During the term of this Agreement, as defined in
Section 4 below (the "Term"), at the request of the Corporation, the Consultant
shall give to the Corporation the benefit of the Consultant's skill in
performing the tasks described herein (the "Consulting Services"). Consulting
Services shall mean preparing and reviewing the Corporation's financial and
business projections, reviewing the Corporation's work in process, providing
assistance to the Corporation with respect to its technological developments and
improvements, performing similar duties commensurate with Consultant's
experience, advising on past or potential projects, advising on past or
potential corporate actions, and tracking the financial progress and condition
of the Corporation as summarized by the financial statements of the Corporation
that are provided to the Consultant. The Consultant shall be given access to all
necessary documents, materials and other information in order to render such
Consulting Services. In no event shall the consultant be required to provide
Consulting Services for more than two hundred (200) hours per year, all of which
services shall be rendered during times that are mutually agreeable to the
Corporation and the Consultant.
The Corporation recognizes that the Consultant is employed by
eNote.Com, Inc., a shareholder of the Corporation, and that the Consulting
Services to be provided hereunder are not to conflict with any obligations that
Consultant has under any employment agreement that he may have with eNote.Com,
Inc.
-2-
<PAGE>
3. Compensation. The Corporation shall pay the Consultant $2083 per
month in compensation for services rendered as President of the Corporation,
such amount to be payable in advance on the first Friday of every month.
Notwithstanding the foregoing, said compensation shall only be paid to the
extent that the Corporation has funds available from (a) earnings before
Interest, Taxes, Depreciation and Amortization, (b) paid-in capital or surplus,
and/or (c) retained earnings (collectively referred to as "Available Funds"). In
the event that Available Funds are not sufficient to make the monthly payment in
full, the amount not so paid shall continue to accrue (without interest) and be
paid from the next available funds. In the event that there does not exist
Available Funds to make payment, the Consultant may, at his option, agree to not
perform Consulting Services in any month, in which case, the compensation for
such month shall be waived.
4. Term. The term of the Consultant's engagement (the "Term") shall
commence on the date hereof and continue until the date that is two years from
the Closing Date that eNote purchases the stock in the Company from Consultant,
as such date is determined in accordance with that certain Stock Purchase
Agreement dated on or about August 6, 1999 by and among James D. Richards, III,
Martine Richards, the Company and eNote.Com, Inc.
5. General Provisions.
A. No Waiver. Waiver of any provision of this Agreement, in whole or
in part, in any one instance shall not constitute a waiver of any other
provision in the same instance, but each provision shall continue in full force
and effect with respect to any other then-existing or subsequent breach.
B. Notice. Any notice required or permitted under this Agreement
shall be given in writing by (A) delivery in hand, or (B) by postage prepaid,
United States first class mail or (C) by facsimile, promptly followed by postage
prepaid, United States first class mail to the parties at their respective
addressees specified above or at such other address for a party as that party
may specify by notice. Notice shall be effective upon receipt if by hand
delivery, or within three days of mailing if sent by mail.
C. Miscellaneous. This Agreement: (i) may be executed in any number
of counterparts, each of which, when executed by both parties to this Agreement
shall be deemed to be an original, and all of which counterparts together shall
constitute one and other same instrument; (ii) shall be governed by and
construed under the laws of The State of Vermont applicable to contracts made,
accepted, and performed wholly within the State, without application of
principles of conflicts of laws; (iii) may be amended, modified, or terminated,
and any right under the Agreement may be waived in whole or in part, only by a
writing signed by both parties; (iv) contains headings only for convenience,
which headings do not form part, and shall not be used in construction, of this
Agreement, and (v) shall bind and inure to the benefit of the parties and their
respective legal representatives, successors and assigns, except that no party
may delegate any of its obligations under this Agreement or assign this
Agreement, without prior written consent of the other party.
-3-
<PAGE>
6. Taxes. The Corporation shall not be required to withhold any
amounts for state or federal income tax or for FICA taxes from sums becoming due
to the Consultant under this Agreement. The Consultant shall be responsible for
all state and federal withholdings and FICA taxes due or to become due with
respect to the compensation paid to Consultant under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
SOLUTIONET, LTD.
- ---------------------------------- By:
Witness ----------------------------
Duly Authorized Agent
CONSULTANT
- ---------------------------------- ---------------------------------
Witness James D. Richards, III
Exhibit 10.9
SHAREHOLDERS' AGREEMENT
This Agreement is made as of the 6th day of August, 1999, by and among
James D. Richards, III, and Martine Richards, individuals residing at 1647 Lake
Road Charlotte, Vermont (referred to herein collectively as "Richards"),
eNote.Com, Inc., a Delaware corporation with an executive office at 185 Allen
Brook Lane, Williston, Vermont ("eNote"), (Richards and eNote are hereinafter
collectively referred to as the "Shareholders", or individually as a
"Shareholder"), and SolutioNet, Ltd., a Delaware corporation (the
"Corporation").
WHEREAS, Richards has sold the 1375 shares in the Corporation to eNote
(the "Initial Shares") pursuant to a stock purchase agreement of approximate
even date herewith, which sale was made under the letter of intent dated April
13, 1999 between eNote and Richard (a copy of which is attached hereto and
incorporated herein);
WHEREAS, the Shareholders and the Corporation believe it to be
reasonable and desirable and in their interest to set forth the agreements
continued herein;
NOW THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, it is agreed as follows:
1. CURRENT STOCK. The Shareholders hereby acknowledge that they are the
owners of all the issued and outstanding shares of the Corporation, owning in
the aggregate all 2500 authorized and issued shares of the Corporation as
follows:
Number of Percentage Ownership
Shareholder Shares of Corporation
James D. Richards, III
And
Martine Richards,
as tenants by the entirety 1125 45%
ENote.Com, Inc. 1375 55%
Total 2500 100%
2. LIMITATION ON STOCKHOLDINGS.
A. The parties hereto agree that the number of shares in the
Corporation, and the percentage ownership of the issued and outstanding shares
of the Corporation, shall not change or be altered without the prior written
consent of each party. Any transfer or issuance of shares that will result in an
ownership interest different than that set forth above shall be prohibited, and
to the extent that such a prohibited transfer is consummated, it shall be deemed
void and of no effect.
<PAGE>
3. PURCHASE OPTION.
A. eNote Purchase Option. For a period of one (1) year after the closing
of purchase by eNote of the Initial Shares (as such date is determined in
accordance with the Stock Purchase Agreement among the parties and referred to
herein as the "Closing Date"), eNote shall have the right and option to require
Richards to re-purchase the Initial Shares for an amount equal to the Purchase
Price of $250,000 for such Initial Shares, but only if eNote is named as a
defendant in any litigation arising from (1) it being a shareholder the
Corporation, and (2) such lawsuit arises from facts and circumstances relating
to the Corporation and occurring prior to the date of the closing of the
purchase of the Initial Shares. Payment for repurchase of the Initial Shares
shall be in the form of a promissory note for which said Initial shall serve as
collateral. If requested by eNote, the Corporation shall grant a security
interest in its intellectual property as collateral for such note. The term of
such note shall be as specified by the maker and shall be for not more than ten
(10) years and bear interest at a fixed interest rate of 7% per annum.
B. Richards Purchase Option. For a period of two (2) years after the
Closing Date of the purchase of the Initial Shares, Richards shall have the
right and option, in their sole and absolute discretion, to re-purchase the
Initial Shares for an amount equal to the Purchase Price of $250,000 for such
Initial Shares if such option is exercised during the first year or for an
amount determined by independent appraisal of the value of the Shares if such
option is exercise during the second year, if (i) Richards' employment by eNote
is terminated for any reason; (ii) any of the terms of Richards' employment by
eNote are changed in any way detrimental to Richards; (iii) eNote becomes
insolvent, is dissolved or liquidated, takes any action related to dissolution
or winding up of the eNote, or enters proceedings under any law relating to
bankruptcy, insolvency, reorganization or relief from debts; (iv) eNote's market
value declines to less than $15,000,000; or (v) Richards' level of equity
ownership in eNote (based upon his current level of 250,000 shares to 17,000,000
shares issued and outstanding is diluted by more than thirty percent (30%).
Payment for re-purchase of the Shares shall be in the form of a promissory note
for which the Initial Shares shall serve as collateral. If requested by eNote,
the Corporation shall grant a security interest in its intellectual property as
collateral for such note. The term of such note shall be as specified by the
maker and shall be for not more than ten (10) years and bear interest at a fixed
interest rate of 7% per annum.
4. VOTING COVENANTS AND RESTRICTIONS.
A. Board of Directors. Each Shareholder covenants and agrees that they
will take all actions necessary to vote all shares of Stock which he or it now
owns or may hereafter own (i) to fix the number of directors that constitute the
entire Board of Directors of the Corporation at three (3), and (ii) to elect as
members of the Board of Directors one designee of James D. Richards III, one
designee of eNote, and one director mutually acceptable to Richards and eNote.
James D. Richards shall remain as the President of the Corporation pursuant to
the Consulting Agreement of approximate even date herewith between the
Corporation and James D. Richards, III.
B. The Shareholders and the Corporation covenant and agree that the
Corporation will not, without the prior approval of a majority of the members of
the Board of Directors (which
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<PAGE>
majority must include the director designated by James D. Richards III), take
any of the following actions: (a) change materially the fundamental nature of
the business of the Corporation; (b) appoint or terminate a Chief Executive
Officer or President of the Corporation; (c) amend, alter, modify or repeal the
Certificate of Incorporation or Bylaws of the Corporation (or recommend the same
to the Shareholders, as the case may be); (d) issue, sell, distribute, grant,
repurchase or redeem any equity securities; (e) merge or consolidate with any
person or entity (or recommend the same to the Shareholders, as the case may
be); (f) transfer, pledge or mortgage, or grant a security interest or other
adverse right or encumbrance in all, or substantially all, of the assets of the
Corporation; (g) sell, lease, exchange or transfer, directly or indirectly, in a
single transaction or series of transactions, any material assets of the
Corporation; (h) pay any dividend or make any distribution of assets in respect
of any equity securities; (i) dissolve or liquidate the Corporation or
authorize, permit or seek the liquidation or winding up of the Corporation, or
the relief or protection form debts of the Corporation under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors; or (j) terminate
the Consulting Agreement by and between the Corporation and James D. Richards,
III. Any such action without the approval of the Director appointed or selected
by James D. Richards, III shall be null and void.
C. The Corporation has previously provided employee options to acquire
non-voting stock in the Corporation. No such shares have yet to be issued nor
has the non-voting class yet been established in the Articles of Incorporation.
It is expected that Chris Chambers, currently an employee of the Corporation,
will become an employee of eNote upon the sale of the Initial Shares from
Richards to eNote. This would leave not more than 2% of non-voting stock in the
Corporation to be allocated for employee stock options. In the event that eNote
acquires the remaining shares in the Corporation from Richards, at the
Corporation's sole discretion, the Corporation shall repurchase all vested
employee shares upon receipt of notice that eNote is exercising its option to
purchase the remaining shares in the Corporation now held by Richards.
5. LEGEND ON STOCK CERTIFICATES. Upon the execution of this Agreement, the
certificates of stock subject hereto shall be surrendered to the Corporation and
endorsed as follows:
"This Certificate is subject to the limitations set forth in the
Shareholders Agreement effective as of August 6th, 1999, among James D.
Richards III & Martine Richards, eNote.Com, Inc. and SolutioNet Ltd., a
copy of which is on file in the office of the Corporation."
After endorsement, the Certificate shall be returned to the Shareholders
who shall, subject to the terms of this Agreement, be entitled to exercise all
rights of ownership of such shares, subject to the terms of this Agreement. All
shares hereinafter issued to the Shareholders during the term of this Agreement
shall bear the same endorsement.
6. TERM. This Agreement shall terminate upon the occurrence of any of the
following events, otherwise it shall remain in full force and effect:
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<PAGE>
(a) The voluntary agreement of all parties who are then bound
by the terms hereof;
(b) The repurchase by Richards of the Initial Shares from eNote
pursuant to Section 2 above;
(c) The purchase by eNote of all remaining shares held by
Richards.
7. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not be used to interpret the provisions of this
Agreement.
8. BENEFIT. This Agreement shall be binding upon and shall operate for the
benefit of each of the Shareholders and the Corporation and their respective
executors, administrators, successors and assigns.
9. CORPORATION. The Corporation by its execution of this Agreement agrees
that it shall take all actions as may be necessary or desirable so as to further
the purposes and provisions of this Agreement.
10. SPECIFIC PERFORMANCE. The parties hereto declare that it is impossible
to measure in money the damages that will accrue to a party hereto by reason of
a failure to perform any of the obligations under this Agreement. Therefore, if
any parties hereto shall institute an action or proceeding to enforce the
provisions hereof, any person whom such action or proceeding is brought hereby
waives a claim or defense therein that such party has an adequate remedy at law
and such person shall not urge in any action or proceeding the claim or defense
that such remedy at law exists.
11. AMENDMENTS. This Agreement, including the percentage limitations
contained in Paragraph 2 above, may be only be amended if in writing and signed
by all of the parties hereto.
[Signature Page to follow]
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<PAGE>
In Witness Whereof, the parties have executed this Agreement under seal
as of the date first written above.
STOCKHOLDERS
- ------------------------------- -------------------------------
Witness James D. Richards, III
- ------------------------------- -------------------------------
Witness Martine Richards
eNote.Com, Inc.
- ------------------------------- By: ____________________________
Witness duly authorized agent
CORPORATION
SOLUTIONET, LTD.
- ------------------------------- By: ____________________________
Witness Duly Authorized Agent
-5-
Exhibit 10.10
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of August 13,
1999, by and between WebATM.com, Inc., a Delaware corporation with a place of
business in Williston, Vermont ("Buyer"), and Gary Cronin of Colchester, Vermont
("Seller").
This Agreement sets forth the terms and conditions upon which Buyer
agrees to purchase from Seller, and Seller agrees to sell to Buyer, free and
clear of all liabilities, obligations, claims, liens and encumbrances of
whatever nature, the property and assets of Seller known as WEBATM.
In consideration of the mutual agreements contained herein, the parties
hereto agree as follows:
I. TRANSFER OF ASSETS AND LIABILITIES
1.01 Assets to be Sold.
(a) Subject to the terms and conditions of this Agreement,
at the Closing provided for in Section 1.05 hereof (the "Closing"), Seller shall
sell, convey, assign, transfer and deliver to Buyer and Buyer shall purchase
from Seller, all of the WEBATM assets including, without limitation, the assets
described in Exhibit A annexed hereto (the "Assets").
(b) Such sale, conveyance, assignment, transfer and
delivery will be effected by delivery by Seller to Buyer of (i) a duly executed
bill of sale in the form of Exhibit B annexed hereto (the "Bill of Sale"), and
(ii) such other good and sufficient instruments of conveyance and transfer as
shall be necessary to vest in Buyer good and marketable title to the Assets
including, but not limited to, assignments of all leases, if any, necessary to
operate the Assets (equipment or otherwise), assignments of all licenses, if
any, and all other documents evidencing assignment of intangible Assets
(collectively, the "Related Instruments"), whether absolute, accrued, contingent
or otherwise, all as listed on Exhibit C annexed hereto, free and clear of all
liabilities, obligations, claims, liens and encumbrances.
1.02 No Liabilities to be Assumed. Buyer shall assume no liabilities of
Seller.
1.03 Consideration. Subject to the terms and conditions of this
Agreement, in reliance on Seller's representations, warranties and agreements
contained herein, and in consideration of the aforesaid sale, conveyance,
assignment, transfer and delivery o the Assets, Buyer shall pay, in full payment
for the aforesaid sale, conveyance, assignment, transfer and delivery of the
Assets and the Covenants, the sum of One Hundred Thousand and 00/100 Dollars
($100,000.00) (the "Purchase Price"). The Purchase Price shall be paid as
follows:
<PAGE>
(a) The parties acknowledge that a deposit of Twenty-Five
Thousand Dollars ($25,000.00) has been paid by Buyer to
Seller;
(b) Buyer shall pay to Seller Twenty-Five Thousand Dollars
($25,000.00) at Closing; and
(c) Buyer shall pay Seller the balance on January 15, 2000.
1.04 Closing. Subject to the terms and conditions of this Agreement, the
Closing of the transactions contemplated by this Agreement shall take place
within thirty (30) days of execution of this Agreement, or approval of this
Agreement by Buyer's Board of Directors, whichever occurs later. This date or
such other date mutually agreed upon on which the Closing actually occurs is
hereinafter referred to as the "Closing Date."
1.05 Delivery by Seller. At the Closing, Seller will deliver to Buyer
(unless delivered previously) the following:
(a) The duly executed Bill of Sale;
(b) The Other Instruments referred to in Exhibit C, in form and
substance satisfactory to Buyer;
(c) A Non-Compete Agreement, substantially in the form attached
hereto as Exhibit D.
(d) All other previously undelivered documents, instruments and
writings related to the Assets, or required to be delivered by Seller to Buyer
at or prior to the Closing pursuant to this Agreement or otherwise required in
connection herewith.
1.06 Delivery by Buyer. At the Closing, Buyer will deliver to Seller
(unless delivered previously) all other previously undelivered documents,
instruments and writings required to be delivered by Buyer to Seller at or prior
to the Closing pursuant to this Agreement or otherwise required in connection
herewith.
1.07 Express Agreement. Except as and to the extent otherwise expressly
provided in this Agreement, Buyer has not agreed to pay, will not be required to
assume and will have no liability or obligation with respect to, any liability
or obligation, direct or indirect, absolute or contingent, of Seller or any
other person or entity. Seller shall (i) pay and discharge and (ii) indemnify
Buyer and hold it harmless from and against any such liabililty or obligation.
-2-
<PAGE>
II. REPRESENTATIONS AND WARRANTIES OF SELLER
2.01 No Violation. Neither the execution and delivery of this Agreement,
the Exhibits, nor any of the Related Instruments nor the consummation of the
transactions contemplated hereby or thereby will violate or be in conflict with,
or constitute a default (or an event or condition which, with notice or lapse of
time or both, would constitute a default) under, or result in the termination
of, or result in the creation or imposition of any security interest, lien,
charge or other license, lease, contract, commitment, understanding,
arrangement, agreement or restriction of any kind or character to which Seller
is a party or by which Seller may be bound or affected or to which the property
or assets of Seller may be subject, or violate any statute or law or any
judgment, decree, writ, order, injunction, regulation or rule of any court or
governmental authority.
2.02 Absence of Certain Changes. With respect to the Business, since May
4, 1999, Seller has not:
(a) Sold, transferred or otherwise disposed of any portion of the
Assets;
(b) Taken any other action not either in the ordinary course of
business and consistent with past practice or provided for in this Agreement;
and
(c) Agreed, whether in writing or otherwise, to take any of the
actions set forth in this Section 2.02.
2.03 Title to Properties, Encumbrances. Seller has good, valid and
marketable title to all the Assets which it purports to own (tangible and
intangible), as of the date of this Agreement.
2.04 Good Title Conveyed, Etc. Seller has complete and unrestricted
power and the unqualified right to sell, assign, transfer and delivery to Buyer,
and upon consummation of the transactions contemplated by this Agreement, Buyer
will acquire good, valid and marketable title to the Assets to be transferred to
Buyer hereunder, free and clear of all mortgages, pledges, liens, security
interests, conditional sales agreements, encumbrances or charges of any kind.
The Related Instruments will be duly and validly executed and delivered by
Seller to Buyer at the Closing, and when so executed and delivered, will be
valid and binding obligations of Seller, enforceable in accordance with their
respective terms, and will effectively vest in Buyer good, valid and marketable
title to all of the Business Assets.
2.05 Disclosure. No representation or warranty by Seller contained in
this Agreement, any Exhibit or any other document, list, certificate, financial
statement or record, tax return or other writing furnished or to be furnished by
or on behalf of Seller to Buyer or any of its representatives in connection with
the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was or will be made, in
order to make the statements herein or therein not misleading, or necessary in
order to fully
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<PAGE>
and fairly provide the information required to be provided in any such document,
list, certificate, financial statement or record, tax return or other writing.
2.06 Creditor's Rights. Neither the transactions contemplated hereby nor
the application of the proceeds arising hereunder nor any action or statement
made by Buyer or Seller or any other party in connection herewith will, directly
or indirectly, result in any claim or liability against Buyer nor violate any
rights of any creditor or any law dealing with bankruptcy, insolvency or any law
affecting creditors' rights including, but not limited to, Sections 547 and 548
of the United States Bankruptcy Code and any similar state or federal law.
III. CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are subject to the
satisfaction, at or before the Closing, of each of the following conditions:
3.01 Representations and Warranties. The representations and warranties
of Seller contained herein, and the statements contained in any schedule,
instrument, list, financial statement or record, tax return, certificate or
writing delivered by Seller pursuant to this Agreement shall be true, complete
and accurate as of the date when made and at and as of the Closing Date as
though such representations and warranties were made at and as of such date,
except for any changes expressly permitted by the terms of this Agreement.
3.02 Performance. Seller shall have performed, complied with and entered
into all agreements, obligations, covenants and conditions required or
contemplated by this Agreement to be so performed, complied with and entered
into at or prior to the Closing.
3.03 No Proceeding or Litigation. There shall not be threatened,
instituted or pending any suit, action, investigation, inquiry or other
proceeding by or before any court or governmental or other regulatory or
administrative agency or commission requesting or looking toward an order,
judgment or decree which (a) restrains or prohibits the consummation of the
transactions contemplated hereby, (b) in the reasonable judgment of Buyer might
have a material adverse effect on Buyer's ability to exercise control over or
manage the Business after the Closing, (c) in the reasonable judgment of Buyer,
might have a material adverse effect on Buyer, or (d) in the reasonable judgment
of Buyer, might have a material adverse effect on Buyer's prospects for use of
the Assets.
3.04 No Injunction. There shall be no effective injunction, writ,
preliminary restraining order or any order of any nature issued by a court of
competent jurisdiction directing that the transactions provided for herein or
any of them not be consummated as so provided or imposing any conditions on the
consummation of the transactions contemplated hereby which Buyer deems
unacceptable in its sole discretion.
3.05 Documents. The Related Instruments and all other documents to be
delivered by Seller to Buyer at the Closing shall be in form and substance
satisfactory to Buyer.
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<PAGE>
3.06 Consents and Approvals. All licenses, permits, consents, approvals
and authorizations of all third parties, and governmental bodies and agencies
shall have been obtained which, in the sole judgment of counsel for Buyer, are
necessary in connection with (a) the consummation of the purchase of the
Business Assets and other transactions contemplated hereby, (b) the ownership by
Buyer of the Business Assets and the operation and management by Buyer of the
Business, and (c) the conduct by Buyer after the Closing of the Business as
conducted by Seller (and its relevant subsidiaries) on the date hereof.
3.07 Inspection. Buyer or Buyer's designee shall have conducted all
reasonable inspections of the Business premises and operations deemed necessary
by Buyer and all such inspections must be completed to Buyer's satisfaction, as
determined in its sole discretion. Said inspections must b conducted no later
than 8/12/99 (1) day prior to the Closing.
IV. CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement are subject to the
satisfaction, at or before the Closing, of each of the following conditions:
4.01 Performance. Buyer shall have performed and complied with all
agreements, obligations and conditions required by this Agreement to be so
performed or complied with by it or prior to the time required by the applicable
provisions of this Agreement.
4.02 No Injunction. There shall be no effective injunction, writ,
preliminary restraining order or any order of any nature issued by a court of
competent jurisdiction directing that the transactions provided for herein or
any of them not be consummated as so provided.
V. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
5.01 Survival of Representations. All representations, warranties and
agreements made by any party to this Agreement or pursuant hereto shall survive
the Closing hereunder and any instigation made by or on behalf of any party
hereto.
5.02 Statements as Representations. All statements contained herein or
in any schedule, exhibit, certificate, list, description, financial statement or
record, tax return or other document delivered pursuant hereto or in connection
with the transactions contemplated hereby shall be deemed representations or
warranties within the meaning of Sections 3.01 and 5.01 hereof.
5.03 Agreements to Indemnify. Seller hereby agrees to indemnify, defend
and hold harmless Buyer, its agents and representatives, from and against all
demands, claims, actions, courses of action or liabilities arising out of
operation of the business and accruing on or prior to the Closing. Buyer hereby
agrees to indemnify, defend and hold harmless Seller, his
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<PAGE>
agents and representatives, from and against all demands, claims, actions,
causes of action or liabilities arising out of operation of the business and
accruing subsequent of the Closing.
VI. TERMINATION OF AGREEMENT
Termination of Agreement. This Agreement may be terminated at any time
prior to the Closing:
(a) By mutual written agreement of Seller and Buyer:
(b) By Buyer, if there has been a material violation or breach by
Seller of any of the agreements, covenants, conditions, representations or
warranties contained in this Agreement which has not been waived in writing or
if there has been a material failure of satisfaction of a condition to the
obligations of Buyer which has not been waived in writing.
(c) By Seller, if there has been a material failure of
satisfaction of a condition to the obligation of Seller hereunder which has not
been waived in writing.
VII. MISCELLANEOUS
7.01 Further Assurances. From time to time, at Buyer's request and
without further consideration, Seller will execute and deliver to Buyer such
documents and take such other action as Buyer may reasonably request in order to
consummate more effectively the transactions contemplated hereby and to vest in
Buyer good and marketable title to the Business Assets.
7.02 Parties in Interest. This Agreement will be binding upon, inure to
the benefit of, and be enforceable by the respective heirs, successors and
assigns of the parties hereto.
7.03 Entire Agreement; Amendments. This Agreement, the Exhibits, the
Related Instruments and any other writings referred to herein or delivered
pursuant hereto which form a part hereof contain the entire understanding of the
parties with respect to its subject matter. This Agreement supersedes all prior
agreements and understandings between the parties with respect to its subject
matter. This Agreement may be amended only by a written instrument duly executed
by the parties. Any condition to a party's obligations hereunder may be waived
in writing by such party.
7.04 Headings. The Article and Section headings contained in this
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement.
7.05 Notices. All notices, claims, certificates, requests, demands and
other communications hereunder will be in writing and will be deemed to have
been duly given if delivered or mailed (registered or certified air mail,
postage prepaid, return receipt requested) as follows:
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<PAGE>
If to Seller: Gary Cronin
125 Bank Street
Burlington, VT 05401
With a Copy to: Not Applicable
______________________________
______________________________
If to Buyer: Michael Grennan
c/o eNote.com, Inc.
185 Allen Brook Lane
P.O. Box 1138
Williston, VT 05495
With a Copy to: M. Cecilia Daly, Esq.
Doremus, Kantor & Daly
112 Lake Street, Suite 3
Burlington, VT 05401
or to such other address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth above,
provided that notice of a change of address shall be deemed given only upon
receipt.
7.06 Law Governing. This Agreement will be governed by, and construed
and enforced in accordance with, the laws of the State of Vermont without regard
to its conflicts of law rules.
7.07 Third Parties. Except s specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person other than the parties hereto and their heirs,
successors or assigns, any rights or remedies under or by reason of this
Agreement.
7.08 Counterparts. This Agreement may be executed simultaneously in
several counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
7.09 Attorneys' Fees. In the event of any legal action to enforce the
provisions of this Agreement, the prevailing party in such action shall be
entitled to recover its reasonable attorneys' fees and other costs incurred in
such action.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by Buyer and Seller on the date first above written.
SELLER
/s/ /s/ Gary P. Cronin
- ---------------------------- ---------------------------------
Gary Cronin
BUYER
WebATM.com, Inc.
/s/ By: /s/ Michael T. Grennan
- ---------------------------- ---------------------------------
Its Duly Authorized Agent
-8-
Exhibit 10.11
[CAPSTON NETWORK COMPANY LETTERHEAD]
John R. Varsames, President
eNote.com, Inc.
Via fax 802-288-9330
Dear Mr. Varsames,
This letter will confirm the substantive points of our recent oral
agreements respecting the best means of resolving certain questions of Delaware
law that have arisen in connection of Kramer & Levin's review of certain
corporate actions taken by Webcor Electronics, Inc. prior to its business
combination with Navis Technologies, Inc. While we do not necessarily agree with
Kramer & Levin's legal conclusions, we accept the fact that they have expressed
well-considered reservations, and that the existence of a potential unresolved
problem is unacceptable given eNote's plans to seek additional financing in the
next few months. Therefore, we believe it makes sense for all concerned parties
to work together toward a prompt resolution of the potential problems, rather
than arguing over the relative risks. Based on the foregoing, we have agreed as
follows:
1. Capston retained Stradley, Ronon, Stevens & Young, LLP of
Wilmington, Delaware to serve as its Delaware counsel in this
matter;
2. eNote.com retained Richards, Layton & Finger of Wilmington,
Delaware to serve as its Delaware counsel in this matter;
3. Stradley, Ronon, Stevens & Young, LLP and Richards, Layton &
Finger are jointly charged with determining the most appropriate
method of resolving the potential problems identified by Kramer &
Levin, and minimizing the risk associated therewith.
4. Once a course of action has been agreed upon by our legal
counsel, Richards, Layton & Finger has assumed the lead role in
implementing the proposed solution and Stradley, Ronon, Stevens &
Young, LLP is providing such assistance as may be reasonably
required under the circumstances;
5. eNote has advanced retainers and will continue to advance, as
required, the reasonable and necessary fees of both law firms.
Further, it is agreed that both Capston and eNote will review the
bills and agree upon their reasonableness and accuracy.
6. Notwithstanding the advancement of such fees by eNote, it is
agreed that Stradley, Ronon, Stevens & Young, LLP is and will
remain legal counsel for Capston. It is also agreed that the
advancement of such fees by eNote will not, in any way, impair
the ability of Stradley, Ronon, Stevens & Young, LLP to represent
<PAGE>
Capston in any future action, including future actions where
Capston may have interests adverse to those of eNote. It is also
agreed that Richards, Layton & Finger will be representing eNote
and that Capston waives any conflict of interest or other
conflict that exists or may exist by reason of their
representation of the Company and expressly agree that Richards,
Layton & Finger may represent the Company in any future action on
these matters. Further, should eNote wish to retain either firms
as Company counsel or Capston wishes to engage either firm for
future projects not concerning each other, neither party will
object.
7. When Capston's 6-month holding period under Section 16 of the
Securities Exchange Act of 1934 has expired with respect to such
securities, Capston will begin to promptly liquidate sufficient
stock in Telemetrix, Inc., FAB Global, Inc. and/or eNote to repay
eNote $150,000 in connection with legal fees resulting from their
efforts on behalf of the parties. After the fees have been paid
to Richards, Layton & Finger and Stradley, Ronon, Stevens &
Young, LLP, then eNote will have full authority to use the
remaining funds to offset professional fees.
8. Since it is not the desire of eNote to cause Capston by this
agreement to either a)violate any agreements as to the reference
stock holding, b)violate any state or federal regulations or or
c)to disrupt the market of any of the stocks, Capston will have
until January 30, 2000 to repay the advances in total and the
collateral will remain in place until the $150,000 is repaid to
eNote. Further, Capston will request from eNote in writing any
exception it desires from its current agreement on how its stock
will be sold into the market. If eNote does not approve of the
request in writing, then Capston is prohibited from violating its
agreement, even to meet this obligation.
9. Stradley, Ronon, Stevens & Young, LLP currently hold Certificate
No. 282 representing 50,000 shares of eNote stock issued to
Capston Network Company. This stock will be given to Peter
Doremus, attorney at law, previously representing Navis
Technoloiges, as an escrow agent or to some other mutually
agreeable escrow agent. After the default date, escrow agents, is
directed to surrender the shares to John R. Varsames, President
of eNote.com, Inc.
10. As a result of the agreement on the rounding of the shareholders
Capston Network Company agrees to designate 6001 shares out of
the same collateral (50,000 shares), to be used as collateral for
the same number of stock which is to be returned to the Company.
Once 6001 shares are returned to the Company, Capston Network
Company will have satisfied all requirements for any return of
stock to eNote.com, Inc. by Capston Network Company, Sally Fonner
or any associates of either Capston or Fonner. Should the 6001
shares not be surrender voluntarily to the Company, then the
escrow agent shall cause the certificate to be re-issued so that
6001 shares are returned to the Company, with the remaining being
liquidated for any default on the payment of the $150,000.
<PAGE>
11. Both parties agree that this Agreement shall be:
a) governed by the laws of the State of Delaware
b) this is the whole agreement until replaced by a more formal
pledge agreement; and
c) written notices in regard to this agreement must have notice by
third party of receipt to addressee with copies of all
communication being provided by facsimile to John Varsames at
802-288-9330 and Sally Fonner at 727-443-5240.
d) binding upon the approval of the majority shareholders and
consent executed by the sole director, Sally Fonner, who agrees
to execute such consent upon authorization from said
shareholders
This agreement is binding on all heirs, Successors or assigns of Capston Network
Company and Sally Fonner.
The signatures below are given to facilitate the best solution for the
stockholders of eNote.com, Inc.
/s/ August 26, 1999
- -----------------------------------------
Sally Fonner, President
Capston Network Company
/s/
- -----------------------------------------
eNote.com, Inc.
John R. Varsames, President
Approved by John R. Varsames holding proxy for __% of the shares on this 26th
date of August, 1999
Exhibit 20.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF EARLIEST REPORTED EVENT - MARCH 31, 1999
eNote.COM, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 0-7349 59-3453153
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File Number) Identification Number)
1612 N. OSCEOLA
CLEARWATER, FLORIDA
(Address of Registrant's principal executive offices)
(727) 443-3434
(Registrant's telephone number, including area code)
(727) 443-5240
(Registrant's facsimile number, including area code)
Webcor Electronics, Inc.
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS
Name Change, Reverse Split and Increase in Authorized Capital
On March 31, 1999, the Corporation filed an amendment to its Certificate of
Incorporation that (a) changed the name of the Corporation from "Webcor
Electronics, Inc." to "eNote.Com, Inc." (b) effected a reverse stock split in
the ratio of one (1) share of the $0.01 par value common stock of eNote.Com Inc.
("New Common") for every six and three-quarters (6 3/4) shares of the $0.01 par
value common stock of Webcor Electronics, Inc. ("Old Common") currently issued
and outstanding; and (c) increased its authorized capital stock to 25,000,000
shares of $0.01 par value Common Stock and 5,000,000 shares of $0.01 par value
preferred stock. Each of the amendments was approved at a meeting of the
Corporation's stockholders that was duly called, noticed and held on June 19,
1998, and finalized on March 23, 1999 after several adjournments of less than 30
days each.
No fractional shares of New Common will be issued in connection with the
reverse split and all calculations that would result in the issuance of a
fractional share will be rounded up to the nearest whole number. In addition, no
stockholder who was the beneficial owner of at least 100 shares of Old Common on
the date of the Amendment, will receive fewer than 100 shares of the New Common
in connection with the implementation of the reverse split and all calculations
that would result in the issuance of fewer than 100 shares of New Common to such
a stockholder will be rounded up to 100 shares. As a result of the amendment,
the 3,476,370 issued and outstanding shares of Old Common will be consolidated
into approximately 540,000 shares of New Common.
The New Common of eNote.Com, Inc. will be listed on the OTC Bulletin Board
under the symbol "ENOT" and open for trading on Monday, April 5, 1999. All
registered holders of certificates for shares of Old Common will be requested to
forward their certificates to the corporation's transfer agent, together with a
completed and executed letter of transmittal, in order to receive the shares of
eNote.Com Inc. New Common of to which they are entitled.
Probable Acquisition of Subsidiaries
On March 25, 1999, the Corporation entered into a memorandum of understanding
with Friedlander International Limited ("Friedlander") and the stockholders of
Navis Technologies, Ltd. ("Navis") to enter into a business combination
transaction (the "Transaction") in which (a) the Corporation agreed to effect a
reverse split to reduce its issued and outstanding common stock to 540,000
shares, more or less, (b) the stockholders of Navis Technologies, Ltd., agreed
to contribute all of their interest in Navis to the Corporation solely in
exchange for 8,000,000 shares of common stock, (c) Friedlander International
Limited agreed to contribute $5,000,000 in cash to the Corporation in exchange
for 5,000,000 shares of convertible preferred stock and 2,000,000 common stock
purchase warrants; (d) the Corporation agreed to issue 540,000 shares, more or
less, of common stock to certain persons designated by Capston Network Company
in accordance with a plan of reorganization previously approved by the
Corporation's stockholders; (e) the Corporation agreed to issue 270,000 shares
of registered common stock to legal counsel for the parties as compensation for
services; and (f) the Corporation agreed to issue a total of 650,000 shares of
registered common stock to certain financial consultants and other professionals
as compensation for services rendered to the Corporation in connection with the
negotiation and implementation of the Transaction.
The preferred stock issuable to Friedlander International Limited will have a
liquidation preference of $1 per share, or $5,000,000 in the aggregate, and be
convertible into Common Stock on a share for share basis, subject to adjustment
for certain post closing stock issuances. The warrants issuable to Friedlander
International Limited will be exercisable for five
<PAGE>
years from the date of issuance at a price of $1 per share, and be subject to
voluntary redemption by the Company at a redemption premium of $1 per warrant
over the spread between the exercise price of the warrant and the market price
of the Common Stock on the redemption date.
Taking all of the foregoing into account, there will be approximately
10,000,000 shares of Common Stock, 5,000,000 shares of Preferred Stock and
2,000,000 warrants issued and outstanding upon closing of the Transaction. The
closing of the Transaction is subject to negotiation and execution of a
definitive business combination agreement containing customary terms and
conditions and the filing of a Form S-8 Registration Statement under the
Securities Act of 1933 for the shares of Common Stock issuable to Capston, legal
counsel and the financial consultants. The closing is expected to take place on
April 2, 1999, or as soon thereafter as practicable.
After completion of the Transaction, the Corporation will finalize the
development and commence commercialization of a proprietary "tvemail" technology
developed by Navis and eNote Communications. The tvemail system is designed to
serve as a low cost internet alternative for residential customers who desire
access to e-mail and other on-line services, but wish to avoid the cost and
complexity of a PC or network computer based system. The tvemail system will
link client servers owned by the Corporation with inexpensive remote
communications interfaces that are connected directly to residential customers'
existing televisions. The in-home equipment includes a communications interface
and wireless keyboard which will, in tandem with the Corporation's server
system, give an end-user easy access to e-mail, news and a limited array of
online services. The tvemail system is expected to be significantly less
expensive than any available alternative, including network computers and Web
TVT, and the Corporation intends to provide both the in-home hardware and the
requisite on-line service to end-users for a fixed monthly fee that is
comparable to the monthly fees charged by low-cost internet service providers.
ITEM 7. Financial Statements and Exhibits
(c) Exhibits.
3.1 Amendment to the Certificate of Incorporation of eNote.COM, Inc.
(formerly Webcor Electronics, Inc.) dated March 24, 1999
4.1 Specimen Certificate for shares of the Corporation's $0.01 par value
Common Stock
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
eNote.COM, Inc.
March 26, 1999
By: /s/
---------------------------------------
Sally A. Fonner, Chief Executive Officer
Exhibit 20.2
Securities and Exchange Commission
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act Of 1934
Date of Earliest Reported Event - April 5, 1999
eNote.com Inc.
(Exact name of Registrant as specified in its charter)
Delaware 0-7349 59-3453153
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File Number) Identification Number)
One Lawson Lane, Third Floor
Burlington, Vermont 05402
(Address of Registrant's principal executive offices)
(802) 862-5100
(Registrant's telephone number, including area code)
(802) 862-1631
(Registrant's facsimile number, including area code)
1612 OSCEOLA
CLEARWATER, FLORIDA
(Former name or former address, if changed since last report)
<PAGE>
INTRODUCTORY NOTE
Unless otherwise indicated, all information in this Current Report on Form
8-K (the "Report") has been adjusted to reflect a 1-for-6-3/4 reverse stock
split effected on April 2, 1999 and a business combination transaction that
closed on April 5, 1999. References to "Webcor" shall refer to the company
before the business combination and references to "eNote," the "Company," "we,"
"us" and "our" shall refer to eNote.com, Inc. and our subsidiaries after the
business combination.
Our quarterly and annual operating results will be affected by a wide
variety of factors that could materially and adversely affect our actual
results. These factors include, but are not limited to:
o Changes in general economic conditions;
o Fluctuations in the securities markets;
o Changes in the demand for e-mail and online information services;
o Changes in the nature of our business resulting from the introduction of
new products and services;
o Competition from other firms who offer competitive products and services; o
Changes in regulatory requirements; and o Risks related to the year 2000.
As a result of these factors and others, our future operating results may
fluctuate on a quarterly or annual basis. Such fluctuations could materially and
adversely affect our business, financial condition, operating results, and stock
price.
This report and other documents that we file with the Securities and
Exchange Commission (the "SEC") contain forward-looking statements about our
business. These forward-looking statements are subject to many risks and
uncertainties. Therefore, our actual results may differ significantly from the
forward-looking statements. Except as specified in SEC regulations, we have no
duty to publicly release information that updates the forward-looking statements
contained in this Report. An investment in our stock involves various risks,
including those mentioned above and described elsewhere in this Report.
Additional risks will be disclosed from time to time in our future SEC filings.
Item 1. Change In Control of Registrant
General. eNote.com Inc. is a Delaware corporation that was formerly known
as Webcor Electronics, Inc. Webcor conducted an initial public offering in May
1982 pursuant to a Form S-1 Registration Statement under the Securities Act of
1933 (the "Securities Act"). In connection with an application to list its
Common Stock on the NASDAQ system, Webcor also registered its Common Stock
pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange
Act"). As a result of a 1989 bankruptcy proceeding, Webcor became an inactive
shell that had with no material assets, liabilities or business activities.
Webcor remained inactive until March 11, 1997, when its stockholders approved a
plan of reorganization proposed by Capston Network Company of Clearwater,
Florida ("Capston"). This plan of reorganization authorized Capston to seek a
suitable business combination opportunity for Webcor, authorized a series of
changes in Webcor's corporate structure, and provided for stock-based
compensation to Capston and others for services rendered and to be rendered in
connection with the implementation of the plan of reorganization. Capston and
its president Sally A. Fonner, who also serves as our sole director, began
actively seeking a business combination opportunity for Webcor in the spring of
1997. After investigating a number of opportunities, Capston negotiated an
agreement with the stockholders of Navis Technologies, Ltd. ("Navis") in March
of 1999. In connection with this transaction, the stockholders of Navis agreed
to contribute all of their Navis stock to Webcor in exchange for 8,000,000
shares of common stock (the "Navis Transaction"). At the same time, Capston
negotiated an agreement with Friedlander International Limited ("Friedlander")
where Friedlander agreed to contribute $5,000,000 in cash to eNote in exchange
for 5,000,000 shares of convertible preferred stock and 2,000,000 common stock
purchase warrants (the "Friedlander Transaction"). The Navis Transaction closed
<PAGE>
on April 5, 1999, and the Friedlander Transaction closed on April 6, 1999.
The Navis Transaction. Webcor acquired Navis in a business combination
transaction that was structured as a reverse takeover, or "RTO." In connection
with the Navis Transaction, the stockholders of Navis exchanged their Navis
stock for newly issued stock of Webcor, and Navis became a wholly-owned
subsidiary of our company. Before the Navis Transaction, Webcor had no material
assets, liabilities or business operations. No relationship existed between
Webcor and Navis prior to the Navis Transaction and no funds of Webcor were
spent to acquire the stock of Navis. As consideration for the Navis Transaction,
Webcor issued shares of Common Stock to the former stockholders of Navis. The
number of shares issued by Webcor in the Navis Transaction was determined by
arms-length negotiation between the parties.
Until March 31, 1999, Webcor had 3,476,370 shares of common stock ("Old
Common") issued and outstanding. In preparation for the Navis Transaction,
Webcor changed its name to eNote.com, Inc. It also effected a "reverse split"
where the Old Common was consolidated in the ratio of one post-consolidation
share ("Common Stock") for every six and three-quarters (6-3/4) shares of Old
Common, provided, that no stockholder's ownership was reduced to fewer than 100
shares of Common Stock if that stockholder owned at least 100 shares of Old
Common on March 31, 1999. In connection with the Navis Transaction, Webcor
agreed to acquire all of the issued and outstanding shares of Navis in exchange
for 8,000,000 shares of Common Stock. In addition, Webcor agreed to issue
1,460,000 shares of Common Stock to certain consultants and advisors, including
540,000 shares of Common Stock that were issued to persons designated by
Capston, 270,000 shares of Common Stock that were issued to legal counsel for
the parties and 650,000 shares of Common Stock that were issued to certain
financial consultants as finders fees.
The Friedlander Transaction. On April 6, 1999, eNote sold 5,000,000 shares
of convertible preferred stock ("Preferred Stock") and 2,000,000 common stock
purchase warrants ("Warrants") to Friedlander for $5,000,000 in cash. The
Preferred Stock has a liquidation preference of $1 per share, or $5,000,000 in
the aggregate, and is convertible into Common Stock on a share-for-share basis.
The Warrants are exercisable for five years from the date of issuance at a price
of $1 per share, and are subject to voluntary redemption by eNote at a
redemption premium of $1 per Warrant over the spread between the exercise price
of the Warrant and the market price of the Common Stock on the redemption date.
Under the Friedlander agreements, the holders of Preferred Stock and Warrants
are protected against dilution resulting from certain post-closing stock
issuances and are entitled to certain demand and piggy-back registration rights.
New Management Team. In connection with the closing of the Navis
Transaction, Sally A. Fonner appointed three persons designated by Navis to
serve as executive officers of eNote. Our new executive officers, and the
positions held by such persons are set forth below. It is anticipated that our
new executive officers will continue to serve in such capacities for the
foreseeable future.
Name Age Positions
John R. Varsames....... 48 President, Chief Executive
Officer
Michael T. Grennan..... 45 Chief Financial Officer
James D. Richards...... 44 Director of Technology
Under the terms of the Friedlander and Navis transactions, Friedlander and
the former stockholders of Navis have the right to replace the current board of
directors with their own nominees (the "New Directors"). Two New Directors have
already been nominated by the former stockholders of Navis and two New Directors
will be nominated by Friedlander. The former stockholders of Navis have
nominated John R. Varsames and Michael T. Grennan to serve as New Directors of
eNote. The proposed changes in our board of directors will not become effective
and the New Directors will not assume office until 10 days after we file an
Information Statement and Notice of Change in the Majority of the Board of
Directors with the SEC and send copies of the Notice to our stockholders. At
that time, Sally A. Fonner will appoint the New Directors and then resign from
our board of directors. Thereafter, the New Directors will manage our business.
<PAGE>
John R. Varsames was appointed President and Chief Executive Officer of our
Company on April 5, 1999. He will also be appointed to serve as a New Director.
Mr. Varsames founded Navis in June 1996 and has served as the president and
chief executive officer of Navis since that time. Before forming Navis, Mr.
Varsames served as a consultant and then as Vice President for AirMouse Remote
Controls and its AirMarket Interactive System, a company specializing in
interactive peripherals and television technology, where he was instrumental in
the deployment of two interactive television projects. Previously, Mr. Varsames
co-founded and served for 10 years as the president and chief executive officer
of Northshore Companies, a construction, development and real estate investment
firm that grew to become one of Vermont's larger development and residential
construction firm.
Mr. Varsames is a graduate of St. Michael's College (Business
Administration/Political Science), and a past chairman of the St. Michael's
College Associate Board of Trustees. He served in the United States Air
Force, Reserve and Guard, during the Vietnam conflict in classified
communication and intelligence. Mr. Varsames has also pursued postgraduate
education in engineering, marketing and business. He has served his community
as a director of several charitable organizations and also served as a
National Director for the National Association of Home Builders.
Michael T. Grennan was appointed Chief Financial Officer of our Company on
April 5, 1999. He will also be appointed to serve as a New Director. Before
joining our company, Mr. Grennan worked for seven years as a self-employed
business and financial consultant. Previously, Mr. Grennan worked for 14 years
in public accounting, first on the audit staff of Coopers and Lybrand, and then
as a staff member, manager and partner of the accounting firm of Urbach, Kahn,
and Werlin, PC. Mr. Grennan is a 1977 graduate of the University of Florida
(BSBA in Accounting with High Honors), a Certified Public Accountant and a
former member of the AICPA's Ethics Enforcement Committee. In addition to his
experience in public accounting Mr. Grennan has extensive consulting experience
for a variety of public and private corporations including banks, manufacturing
and operating companies.
James T. Richards was appointed Director of Technology on April 5, 1999.
Mr. Richards founded SolutioNet in 1987 and has served as the president and
chief executive officer of SolutioNet since that time. SolutioNet has developed
and patented a Two-Way Infrared Protocol ("TWIRP(TM)") for wireless TV web
browser peripherals and licensed the TWIRP technology to Acorn Computers and the
Oracle Corporation. Over the course of his career, Mr. Richards has built a
high-technology company from start-up through $18 million in profitable annual
sales and raised over $20 million in capital for four emerging technology firms.
He also has been involved in the editing and acceptance of six technical papers
for Institute of Electrical and Electronics Engineers ("IEEE") conferences. Mr.
Richards is a 1977 graduate of the Massachusetts Institute of Technology (BS in
Electrical Engineering) and a member of the Technical Committee which is a part
of the Consumer Electronics Society of the IEEE.
Principal Stockholders. Taking all of the stock issuances into account,
there are 10,000,000 shares of Common Stock, 5,000,000 shares of Preferred Stock
and 2,000,000 Warrants issued and outstanding on the date of this Report. After
giving pro forma effect to the conversion of the Preferred Stock and the
exercise of the Warrants, the following table sets forth the number of shares of
Common Stock owned by (i) each executive officer and director, (ii) all
executive officers and directors as a group, and (iii) each person who will own
of record or own beneficially, more than five percent (5%) of our outstanding
Common Stock.
Name and Address of Beneficial Owner Shares Percent
Owned of Class
John R. Varsames (1)(2)(3) 7,100,000 47.3% (6)
Michael T. Grennan (1) 250,000 1.7% (6)
James D. Richards (1) 250,000 1.7% (6)
Friedlander International Limited (4)(5) 7,000,000 41.2% (7)
<PAGE>
c/o Morning Star Ireland Limited,
132 Custom House Harbour
Dublin 1, Ireland
Bert Friedlander (3)(4) 7,000,000 41.2% (7)
Greenwich, Connecticut
Executive Officers and Directors as a Group (4 persons)7,600,000 50.1% (6)
(1) c/o eNote.com, Inc., One Lawson Lane, Third Floor Burlington, Vermont 05402
(2) Mr. Varsames shares beneficial ownership and voting power with his wife
Heidi A. Varsames.
(3) Includes 20,000 shares of Common Stock held of record by the children of
John R. and Heidi A. Varsames.
(4) Includes 5,000,000 shares of Common Stock issuable upon conversion of the
Preferred Stock and 2,000,000 shares of Common Stock issuable upon full
exercise of immediately exercisable Warrants.
(5) Mr. Friedlander exercises sole voting and investment control over shares of
Common Stock held by Friedlander International Limited.
(6) Based on 15,000,000 shares of Common Stock outstanding. (7) Based on
15,000,000 shares of Common Stock and 2,000,000 presently exercisable
Warrants outstanding.
Compensation to Capston and Others. In connection with the plan of
reorganization approved by Webcor's stockholders, certain persons designated by
Capston received 540,000 shares of Common Stock for administrative and
management services. Ms. Fonner received 180,600 shares of Common Stock for her
personal account. In addition, to the shares issued to designees of Capston,
270,000 shares of Common Stock were issued to legal counsel for the parties for
services rendered and 650,000 shares of Common Stock were issued to two finders
who assisted in the identification of Navis as a potential business combination
candidate, the introduction of Navis to Webcor, the collection and analysis of
due diligence information on Navis, and other financial consulting and advisory
services. All shares of Common Stock issued to designees of Capston, legal
counsel for the parties and the finders were registered prior to issuance on a
Form S-8 Registration Statement under the Securities Act of 1933. We believe
that each of these transactions were on terms that were no less favorable than
we could have obtained in transactions with unrelated third parties.
ITEM 2. Acquisition or Disposition of Assets
Introduction and Overview.
After extensive demographic and market studies, tvemail has been developed
to service the needs of those groups and individuals that are currently not
served or under served by computers and the internet. Therefore, we intend to
finish the development and begin commercialization of a proprietary "tvemail"
system developed by Navis. The tvemail system is designed to function as a low
cost Internet alternative for customers who want access to e-mail and other
online services, but want to avoid the cost and complexity of a personal
computer ("PC") or network computer ("NC") based system. The tvemail system will
be easier to use and much less expensive than any available alternative,
including PCs, NCs and Web TV(TM). We believe this low cost combination of
television, e-mail and limited online services will appeal to a large segment of
the potential market and help transform advertising, electronic commerce and
information delivery for the consumer mass market.
The Internet has experienced rapid growth over the last few years. Despite
this growth, approximately 65% of U.S. households have no access to e-mail and
other online services. While there seems to be almost universal agreement that
e-mail and online services are desirable, a large segment of the population does
not intend to "get wired" in the foreseeable future. The principal reasons cited
for a lack of e-mail and access to online services include:
o The cost, complexity and size of PC and NC equipment; o The time and effort
required to learn about information equipment and services;
o The time and effort required to use PC and NC equipment; o The inability to
<PAGE>
access desired content without time consuming log-on and navigation procedures;
o The high monthly cost of online information services; and o "Information
Overload" resulting from too many choices.
The tvemail system has been designed to overcome all of these objections.
We have designed a compact in-home information terminal that uses the customer's
television set as a monitor and connects directly to the customer's telephone
line for access to our servers. The terminal uses a wireless keyboard as an
input device and can either be placed on top of the television set or discretely
tucked away. While PCs, NCs and other information appliances require the
customer to boot-up, log-on and navigate, our tvemail system automatically
downloads and stores the customer's e-mail and other content every few hours. A
blinking "message received" indicator notifies the customer when e-mail or other
new content has been received and reviewing the new material is as simple as
turning on the television set and selecting a color-coded icon from our
graphical user interface ("GUI").
The tvemail system does not provide complete Internet access and we do not
intend to compete for customers who already have complex information retrieval
systems. Instead, we intend to provide basic e-mail and a limited array of
online services, such as news, sports, weather reports and online shopping, to
the 65% of U.S. households that do not have or desire full Internet access. Due
to the simplicity of the tvemail system, we expect to be able to provide both
the in-home equipment and the required online services for $9.95 per month.
Since the tvemail system is simple, inexpensive, automatic and instantly
accessible, we believe it will have significant mass market appeal.
Nevertheless, our business is subject to considerable risk and uncertainty and
there is no assurance that we will succeed in our efforts to finish the
development and effectively market our tvemail system.
History of Navis and the tvemail Technology.
Navis was founded in 1996 for the purpose of developing and commercializing
communication appliances, electronic point of sale devices and infrared
subsystems for NCs (Network Computer) and other "thin client" data retrieval and
storage systems, As a subcontractor to Acorn, the team develop for Oracle, IBM,
Apple, Netscape, and Sun the original reference design for the NC concept. The
NC concept was designed as an alternative to the PC and the companies formed the
NC Consortium to develop and commercialize the technology. In an NC environment,
memory and processing intensive computer tasks are performed on a remote
computer and the user relies on a small and relatively unsophisticated data
entry and retrieval device that is connected to the main computer. In 1996,
Navis was selected by the NC consortium to develop the infrared communications
("IR") protocol and input devices to be used by the NC Consortium members.
Working in conjunction with SolutioNet, Navis developed a series of peripherals
that rely on SolutioNet's TWIRP technology. These peripherals were adopted by
the NC licencees and were implemented in the first generation of NC products. At
the date of this Report, Navis provides remote controls to three NC
manufacturers. Navis receives royalty revenues from third party sales of
TWIRP(TM) chips, advanced remote control units, and wireless keyboards. It also
derives revenue from contract engineering and consulting work in the field of NC
input devices and wireless communications. Since 1996, Navis has supplied
infrared protocol and advanced input devices to NC manufacturers such as Acorn,
NCI, RCA, Akai, and NetProducts.
Navis' involvement in the NC Consortium gave it extensive experience in
developing, manufacturing, and marketing specialized information appliances. The
experience also convinced Navis' management that a substantial market exists for
simple, low cost information appliances that will give users easy access to
e-mail and a limited variety of online services. Therefore, Navis has developed
the tvemail hardware, software and related server systems and is prepared to
launch commercial sales of the tvemail system in late 1999.
The tvemail System.
The tvemail system has been designed to give users easy access to e-mail,
<PAGE>
information gathering, and online shopping services in a format that is far less
expensive and complex than Internet access technologies that operate on PC or NC
platforms. We believe the principal competitive advantages of the tvemail system
include:
o Low Cost--The tvemail system, including hardware, wireless keyboard and
monthly online service fees is expected to cost less than $120 per year. We
believe these costs compare quite favorably with a first-year outlay of
approximately $500 for WebTV and approximately $1,200 for an entry level
PC.
o Simplicity of Operation--While PCs, NCs and other information appliances
require the customer to boot-up, log-on and navigate, our tvemail system
automatically downloads and stores the customer's e-mail and other content
every few hours. As a result, checking messages on the tvemail system is as
simple as turning on the television set and selecting a color-coded icon
from our GUI.
o Customized Content--The tvemail system gives users the ability to select
the particular online services they want without receiving content or
advertising that they don't want. We intend to continually upgrade our
content options to meet the particular requirements of our customers and
expect that expanded service options will also give rise to new revenue
opportunities.
o Speed--Since the tvemail system automatically downloads and stores the
customer's e-mail and other content every few hours, retrieval of stored
information is virtually instantaneous. In addition, if a customer wants to
manually check messages or update his other content, total retrieval time
normally is less than 30 seconds, the time required to dial up and log-on
to a local server.
o Efficiency--The tvemail system makes very efficient use of server,
telephone and modem resources because the information is collected on the
server and/or the in-home terminal and automatically transferred at
pre-determined intervals. Since the user is not online while composing or
reading messages, the connect time for each session is minimal, and a large
number of clients can be accommodated on a single server.
Technical Specifications.
General. The tvemail system is comprised of two principal elements: an
in-home terminal, including an IR receiver, IR keyboard and accessories (the
"Client Hardware"), and our proprietary back-end server systems (the "Server
Systems"). We have completed the initial design and "proof of concept" phases on
both the Client Hardware and the Server Systems and are now redesigning the
Client Hardware to take advantage of value engineering and recent declines in
the price of semi-conductors and memory chips. Beta versions of the Server
Systems have also been evaluated and final specifications have been relayed to
our product development team. At the date of this Report, our Server Systems are
being implemented and back-end processes such as billing and reporting are being
evaluated. We expect fully operational beta versions of our Server Systems to be
available for pilot deployment by the second quarter of 1999. We intend to
conduct field trials of the entire tvemail system in the third quarter of 1999
and expect that participant feed-back will lead to additional modifications of
the Client Hardware Server Systems. Depending on the success of our field
trials, we intend to commence full scale commercial deployment of the tvemail
system in the fourth quarter of 1999.
Client Hardware Features. Our first generation Client Hardware will
offer the following features:
o A blinking LED indicator prompts the user to check messages; o A
color-coded GUI to guide the user through e-mail and other content
functions
o On demand send and receive e-mail functions; o Up to 5 password protected
user mailboxes per subscriber; o Storage capacity for up to 250 e-mail
messages; o A common address book plus customized user address books; o
Simple text input for
<PAGE>
e-mail, letters, book reports and other documents; o Send fax capabilities; o
Customizable content with news, sports and weather reports, online
shopping and other services;
o Targeted banner and direct e-mail advertising; and
o Simple downloadable games such as Tetris, crossword puzzles, Jumbles and
Hocus Focus.
Due to the inherent flexibility of the Client Hardware and Server System
many of the features mentioned above can be implemented or enhanced after
initial installation. The tvemail Client Hardware has been designed to satisfy
the user's requirements while maintaining an efficient telephone and server
usage profile that maximizes the return on the service provider's investment.
Since the user cannot be online while creating an e-mail message or fax the
modem is utilized only during prearranged dial-ups, or when the user initiates a
manual connection. The Client Hardware can be configured to poll the server to
send and receive e-mail and other content between four and twelve times per day
depending on user preferences. Individual units can be configured to dial during
different time windows so the call load can be distributed throughout the day
and concentrated during non-peak usage times. This allows us to secure low cost
Point of Presence ("POP") access from multiple Internet Service Providers
("ISPs").
Server System Specifications. Our proprietary Server System has been
designed to be modular, flexible, and compatible with most relational database
products. These features will facilitate reporting, scheduling and batch
processing, and permit us to send targeted advertising, mass mailings, and
surveys to our customers based on their particular location or other demographic
information. Additional services such as custom news, stock quotes, games,
online banking, and other content will use separate servers to ensure the
integrity of the tvemail system and prevent system crashes in the event that a
particular feature goes offline. In addition, our Server System incorporates the
following technical features:
o C,C+ and Visual Basic programming;
o Online maintenance of subscriber information for log-in synchronization,
billing, account management and advertising management;
o Easy interface with other servers for optional content including games,
news services, and stock quotes;
o Automatic conversion of Internet communications protocols (SMTP, HTML, and
GIF) to tvemail format.
o Optional storage of non-compatible e-mail attachments on the server for
forwarding to another e-mail address;
o Form processing for online shopping and surveys; and
o Debit and credit card billing capabilities for account management and
online transactions.
Business Strategy.
Our business objective is to transform advertising, commerce and
information delivery for the consumer mass market through the tvemail system
which combines the convenience of television with e-mail and limited online
services. The principal elements of our business strategy include:
Provide easy to use and cost-effective e-mail and online service access. We
offer customers easy to use and cost-effective e-mail and online service access
that is designed to the specific demands of customers who have no prior
experience with e-mail or the Internet. Our tvemail system is designed to
function as a low cost Internet alternative for customers who want access to
e-mail and other online services, but want to avoid the cost and complexity of a
PC or NC based system. We intend to capitalize on our expertise in thin client
server platforms to develop new products and services based on our tvemail
platform that meet the specific requirements of individual consumers and private
communications networks. These products will offer higher performance and more
advanced functionality while continuing to offer a simple and cost effective
solution for our customers.
Provide compelling value for end-users. While many companies focus on
providing content to people who have enough technical knowledge and appropriate
<PAGE>
equipment to access and use the Internet, eNote is focused on bringing the
convenience and utility of e-mail and other online services to the 65% of U.S.
households that do not have PCs or Internet access. We designed the tvemail
system to provide a simple, compact and cost effective alternative to PCs, NCs,
WebTV and other full scale Internet access products. In contrast to other online
services, eNote does not require consumers to purchase or install any in-home
equipment. To use the tvemail system, a consumer needs only her existing
television, a phone line and the tvemail Client Hardware, which will be provided
without up-front cost when the customer signs a one-year service contract.
Provide compelling value for advertisers and e-commerce merchants. Due to
the nature of the tvemail system and our ability to sort our customers on the
basis of location or other demographic information, advertisers, online
merchants and other providers of online services will be able to carefully
target their promotions and surveys.
Develop and expand multiple distribution channels. We intend to distribute
our products through direct advertising, retail merchants, resellers and our
field sales team. To quickly reach a broad, worldwide audience, we will seek to
establish a world-wide network of retailer merchants, wholesale distributors and
resellers. We intend to develop multiple distribution channels directed at the
specific needs of individual consumers and private networks.
Aggressively penetrate global markets. We believe that the market for the
tvemail system is global in scope and we will seek to rapidly deploy our Server
Systems in the United States, Canada, China, Europe, Latin America and Southeast
Asia. Due to the simplicity and low cost of the tvemail system, we believe it is
likely to become the technology of choice in less developed countries and we
intend to provide local content directories and user interfaces in multiple
languages for the tvemail system as the demand arises.
Create brand identity. eNote intends to create an identity for its tvemail
system under the brand name "tvemail" and has registered this service mark in
the United States and Canada. We also intend to file service mark applications
in several countries. eNote believes that the creation of a brand identity is
important to its strategy to become the preferred provider of e-mail and online
information services to households that do not presently have access to PC or NC
based information retrieval systems. By creating consumer awareness of the
tvemail system, eNote believes it will drive penetration in its potential
markets and increase the pace at which consumers, online service providers and
e-commerce merchants recognize the service benefits of the tvemail system.
Develop Closed Network Applications. While eNote developed the tvemail
system for use as a mass market consumer product that would give our customers
easy access to e-mail and other online services, we believe the underlying
technology platform has significant potential for use in captive commercial
systems where the collection, archiving and distribution of internally and
externally generated information is important. Examples of the potential
commercial applications for private networks based on the tvemail technology
include:
o Hospitals and other health care facilities that need to collect, archive
and distribute patient information;
o Nursing homes and other extended care facilities that need to communicate
with physicians, staff and residents;
o Hotels, resorts and other accommodations that need to effectively
communicate with guests;
o Colleges and universities that need to communicate effectively with
resident students;
o Community organizations that need to effectively communicate with
members; and
o Other organizations where televisions are common and the collection and
distribution of data is important.
Product Testing and Marketing.
As noted above, we expect fully operational beta versions of our Server
Systems to be available for pilot deployment by the second quarter of 1999 and
<PAGE>
we intend to conduct field trials of the entire tvemail system in the third
quarter of 1999. Concurrently with our field testing of the consumer version of
the tvemail system, we will commence three field trials for closed private
networks based on the tvemail technology. These pilot scale closed network
studies, when combined with feedback from our larger field trials of the public
tvemail system, are expected to provide valuable user feedback that will enable
us to further refine the tvemail system before commencing general
commercialization in the fourth quarter of 1999.
eNote will rely on a multi-pronged marketing approach for the tvemail
system. The principal elements of our planned product roll-out to the consumer
market include:
o An extensive television infomercial campaign will be conducted; o Targeted
advertising directed at senior citizens who do not typically have Internet
access but would like to use e-mail for communicating with friends and
family;
o Targeted advertising directed at other affinity groups whose members do not
typically have Internet access but would like to use e-mail and other
online services;
o Targeted advertising to families of college-aged children who frequently do
not have Internet access but would like to use e-mail and other online
services;
o Targeted advertising to low income families who could not otherwise afford
access to e-mail and other online services;
In addition to our planned roll-out to the consumer market, we intend to
conduct a focused marketing campaign directed at potential commercial users of
private tvemail systems, including:
o A customized network system for hospitals, HMOs and other healthcare
providers, tentatively named "ecare," that will enable health care workers
to call up patient medical information on demand and add information to
patient records on a real time basis, thereby reducing required paperwork
and increasing efficiency in diagnosis;
o A customized network system for hotels and resorts, tentatively named
"eguest," for the management of guest communications and the distribution
of detailed information on upcoming events and local services; and
o A customized network system for colleges and universities, tentatively
named "ecampus," for the management of student communications and the
distribution of detailed information on campus services, upcoming events
and other material;
We intend to provide the Client Hardware and associated online service for
a flat fee of $9.95 per month. Our proposed service will include unlimited
e-mail access, daily news, weather, sports, catalog shopping, fast food
delivery, and other consumer services. We believe the principal factor that
distinguishes the tvemail system from traditional Internet service providers is
our ability to send and deliver the user's mail automatically without direct
user involvement.
eNote plans to aggressively pursue partnerships with local ISPs and online
service providers such as banks and utilities for co-marketing of the tvemail
system. In addition, traditional advertising via print, radio, and infomercials
will heighten brand and product awareness on a regional and national scale.
eNote also plans to mount an online marketing effort for the tvemail system via
banner ads, direct e-mails, and online promotions. Targets for the online effort
include people who have a PC but not at home, and friends and family of avid PC
users. Points of purchase will include a 1-800 number, the tvemail web-site,
infomercials, and retail distribution locations.
Research and Development.
Since 1996, Navis has been actively involved in the design, development and
testing of components, embedded software and server systems necessary for the
effective deployment of the tvemail system. Substantially all of our Client
Hardware and Server Systems are in the final Beta prototype stage. Because of
<PAGE>
the high levels of technical expertise required for the development of our
products, we have established a close working relationship with the NC
Consortium and a number of strategic alliances described elsewhere herein.
Substantially all of our activities to date have been financed by capital
contributions from the founder of Navis, subordinated third-party debt that was
converted into equity in connection with the Navis Transaction, and cash flow
from operations. It is expected that we will be required to pay all future R&D
costs from our own resources and may require additional R&D funding to complete
the development and commercialization of our existing and proposed products.
Features being explored for inclusion in our second and third-generation tvemail
devices include:
o MSR and smart card capability, for online purchases and bill paying
o Voice mail capability
o Digital camera support
o Flash ROM for full portability
o Modular upgrade for full web browsing
o Universal control with input devices
o Voice recognition
o Spyglass or comparable thin client web browser for unrestricted browsing
Employees.
As of the date of this Report, we have nine full-time employees, including
our three executive officers, two part-time employees and several consultants
who are employed on a full-time basis by others. Within the next twelve months,
we expect to hire 20 additional employees in the technology and marketing
departments. eNote is not subject to any collective bargaining agreements and we
consider our relations with employees to be good. All of eNote employees in the
technical area are all highly experienced electrical engineers, advanced
computer programmers, internet specialists and product marketing people.
In addition to our executive officers, we also rely on the education and
experience of several key technical employees who have been instrumental in the
development of the tvemail system. Each of the technical employees identified
below has entered into an employment agreement with the Company that provides
for a negotiated annual salary, participation in our stock option plans, annual
incentive bonuses at the discretion of the Board of Directors, the fringe
benefits offered generally to our employees, and reimbursement for expenses
incurred for the benefit of the Company. The agreements also prohibit direct
competition for a period of two years after termination of employment. Under the
terms of these agreements, the employees identified below are required to devote
substantially all of their business time to the affairs of the Company.
Legal Proceedings.
As of the date of this Report, there are no legal proceedings involving the
Company or the tvemail system.
Certain Important Risk Factors.
We may experience difficulties implementing our marketing and business
plans. Navis began operations and has spent the last three years developing the
tvemail technology. We have not yet derived any revenues from the sale of our
tvemail product to consumers. As a result, our operating, sales and marketing
and other strategies are still being developed, and we do not have a history
which may give us or you an indication of how we may respond to situations
presented to us. If we are not successful in implementing our marketing and
business plans on a timely basis or otherwise effectively managing our
development, our business, operating results and financial condition will be
materially and adversely affected.
If we continue to incur losses, we may not be able to finance the
commercial deployment of the tvemail system. While Navis operated profitably in
1996 and 1997, it experienced losses and had negative cash flow in each quarter
of 1998, and we expect to continue to operate at a loss for the foreseeable
future. For us to make a profit, we need introduce the tvemail system to the
<PAGE>
market and obtain sufficient levels of sales at a low enough cost to generate
and operating profit. If we are not able to do so, our losses may extend beyond
the foreseeable future and we may not be able to finance the commercial
deployment, development and enhancement of the tvemail system.
We may be unable to obtain necessary additional capital to fund operations
in the future. To date, we have funded operations primarily through private
sales of equity and convertible debt securities. If we are unable to obtain
additional financing on terms acceptable to us as needed, our business,
operating results and financial condition would be materially and adversely
affected. Our capital requirements in the future will depend on numerous
factors, including:
o the rate of acceptance of the tvemail system by consumers, advertisers,
e-commerce companies and online service providers,
o our ability to maintain and expand the number of subscribers, and o the
expansion of our marketing activities into foreign countries.
We cannot accurately predict the timing and amount of our capital
requirements. Any additional equity financing, if available, may be dilutive to
our stockholders, and debt financing, if available, may involve significant
restrictions on our financing and operating activities.
Because television-based e-mail and online service access is new, we cannot
be certain that a market or sustainable demand for the tvemail system will
develop. The market for television-based e-mail and online service access is new
and evolving, and no single technology or approach to providing this access has
yet been broadly adopted by consumers. As a result, we cannot guarantee that a
market for television-based e-mail and online service access in general, or for
the tvemail system in particular, will develop or that demand for the tvemail
system will be sustainable. If the market does not develop, develops more slowly
than expected or becomes saturated with competitors, our business, operating
results, and financial condition will be materially and adversely affected.
The competitive market for e-mail and online service access may limit
demand or pricing for the tvemail system. We expect to experience intense
competition. Many companies provide e-mail and online service access and other
services, which provide functionality superior to those included in the tvemail
system. As a result of this competition, demand for the tvemail system may
suffer, we may be restricted in the service rates we can charge for the tvemail
system and our business, financial condition and results of operations may be
adversely affected. Competitors provide their services through a variety of
technologies, which are in various stages of implementation and adoption. Many
of our competitors have significantly greater financial, technical, marketing,
distribution, customer support, other resources, name recognition, compelling
content and access to consumers, advertisers and online service providers than
we have.
We are subject to capacity constraints and system failures. The ability of
the tvemail system to accommodate a substantial number of users is not yet
known. We cannot assure you that we will be able to provide reliable performance
and error free service as the number of subscribers grows. In addition, as
subscriber penetration grows it may be necessary for our local ISPs to purchase
additional equipment, and we cannot assure you that they will do so.
The performance of the tvemail system is also subject to reduction in
performance and interruption from human errors, telecommunication failures,
computer viruses and similar events. Any of these problems in our systems or
those of our local ISPs could result in reduced subscriber demand. We expect to
experience performance reduction and service interruptions from time to time.
Our failure to provide uninterrupted service at a level of performance
acceptable to our customers would have a material adverse effect on our
business, financial condition and results of operations.
We may have liability for information retrieved and replicated on the
internet. Claims for negligence, copyright or trademark infringement or other
legal theories could be made against us because information can be downloaded
and redistributed by users of the tvemail system. Copyright and trademark laws
<PAGE>
are evolving both domestically and internationally and we are uncertain as to
their applicability to the tvemail system. The imposition of liability for
information carried by us would have a material adverse effect on our business,
operating results and financial condition.
We may have liability for e-commerce transactions. As part of our business,
we are seeking to enter into agreements with content providers, advertisers and
e-commerce merchants under which we will receive a share of revenue from the
purchase of goods and services by users of the tvemail system. These
arrangements may expose us to additional legal risks and uncertainties,
including potential liabilities to consumers of these products and services. Our
insurance may not cover potential claims of this type or may not be adequate to
indemnify us for all liability that may be imposed.
We could become subject to burdensome government regulation which affects
our ability to offer our service or which affects demand for our service. We are
subject to varying degrees of federal, state, local and foreign regulation as
well as laws enacted by the U.S. Congress and other governments. The Federal
Communications Commission has established regulations that among things set
licensure, installation and equipment standards for communications systems. A
number of these regulations will apply to the tvemail system and compliance with
existing and future regulations may increase our cost of providing the tvemail
service, or otherwise damage the competitive position of the tvemail service.
It is also anticipated that due to the increasing popularity and use of the
Internet, it will be subject to increased attention and regulation. These laws
and regulations may regulate issues such as user privacy, defamation, network
access, pricing, taxation, content, quality of products and services and
intellectual property ownership and infringement. These laws and regulations
could expose us to liability, materially increase our cost of providing our
service, and decrease the growth and acceptance of the Internet in general and
access to the Internet over cable systems.
Our business would suffer if we were to lose the services of Messrs.
Varsames and Richards or other key personnel. Our success depends in significant
part upon the continued service of our key technical, sales and senior
management personnel, particularly Messrs. Varsames and Richards, who have
significant relevant experience in the development of thin client information
retrieval systems. Our future success will also depend on our ability to
attract, train, retain and motivate highly qualified senior management,
technical, marketing and sales personnel. Because competition for these
personnel is intense, we cannot assure you that we will be able to do so.
Your ability to influence the outcome of stockholder votes will be limited.
After giving proforma effect to the conversion of the Preferred Stock and the
exercise of the Warrants, Friedlander will beneficially own 7,000,000 shares of
Common Stock and John Varsames will beneficially own 7,100,000 shares of Common
Stock. These ownership positions will each account for approximately 41% of the
outstanding common stock. Accordingly, Friedlander and Mr. Varsames will each
have the voting power to exercise substantial control over the election of our
board of directors and all votes on matters requiring stockholder approval. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of our company.
Year 2000 risks may adversely affect eNote and the demand for the tvemail
system. Year 2000 problems experienced by us or any third parties could
materially adversely affect our business. Additionally, demand for the tvemail
system would suffer if the Internet experiences serious disruptions arising from
the Year 2000 problem. We cannot guarantee you that our own systems will be Year
2000 compliant in a timely manner, that any of our local ISPs will be Year 2000
compliant in a timely manner, or that there will not be problems with technology
systems working together. We also cannot guarantee that the Internet generally,
and the tvemail system specifically, will continue without serious disruptions
arising from the Year 2000 problem. Given the pervasive nature of the Year 2000
problem, we cannot guarantee that disruptions in other industries and market
segments will not adversely affect our business. Moreover, the costs related to
Year 2000 compliance could be significant.
<PAGE>
Anti-takeover provisions in our charter documents could discourage unwanted
takeover attempts and could reduce the opportunity for stockholders to get a
premium for their shares. We are subject to Delaware laws and to provisions of
our certificate of incorporation and by-laws that could have the effect of
delaying, deterring or preventing a change in control of eNote. As a result, our
management could attempt to utilize these laws and provisions to discourage or
reject unsolicited bids to acquire us, including bids that would have paid
stockholders a premium over the then current market price of their shares.
Substantial sales of our common stock could lower our stock price. The
market price for our common stock could drop as a result of sales of a large
number of our presently outstanding shares, or the perception that these sales
could occur. These factors also could make it more difficult for us to raise
funds through future offerings of our common stock.
Our results can materially differ from those forecasted or expressed in the
forward-looking statements contained in this Report. This Report contains
forward-looking statements that are not historical facts, but rather are based
on our current expectations, estimates and projections about eNote's industry
and our beliefs and assumptions. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions are
intended to identify forward-looking statements. These statements are not
guarantees of future performance and are subject to some risks, uncertainties
and other factors, many of which are beyond our control, are difficult to
predict and could cause actual results to differ materially from those expressed
or forecasted in the forward-looking statements. We caution you not to place
undue reliance on these forward-looking statements, which reflect our
management's view only as of the date of this Report. We are not obligated to
update these statements or publicly release the result of any revisions to them
to reflect events or circumstances after the date of this Report or to reflect
the occurrence of unanticipated events.
Item 5. Other Events
The Friedlander Transaction. On April 6, 1999, the Registrant sold
5,000,000 shares of Preferred Stock and 2,000,000 Warrants to Friedlander for a
total cash consideration of $5,000,000.
Until the fifth anniversary of the date of the Friedlander transaction, or
until Friedlander is the beneficial owner of less than 10% of the issued and
outstanding voting securities of the Registrant, whichever occurs first,
Friedlander shall be entitled to appoint two members of the Registrant's Board
of Directors. For so long as Friedlander is entitled to appoint two members of
the Registrant's Board of Directors, the total number of members constituting
the entire Board of Directors shall not exceed seven.
Description of Preferred Stock
Class and Number of Shares. The authorized Preferred Stock of the
Registrant consists of 5,000,000 shares of $0.01 par value Preferred Stock. All
5,000,000 authorized shares of Preferred Stock were issued and sold to
Friedlander International Limited in connection with the Friedlander
transaction. The Preferred Stock has a stated value of $1 per share and ranks
senior to the Common Stock with respect to the distribution of assets upon
liquidation, dissolution or winding up.
Anti-dilution Protection. The Preferred Stock contains typical antidilution
provisions, and also provides that the number of shares of Common Stock issuable
upon conversion of the Preferred Stock shall be subject to adjustment in the
event that the Registrant shall, at any time prior to the completion of an
underwritten secondary offering of Common Stock which has been registered under
the Securities Act of 1933, effect a sale of Common Stock, securities
convertible into common stock, or rights to purchase Common Stock which has not
been expressly approved in writing by a majority in interest of the holders of
Preferred Stock.
Dividends. The holders of Preferred Stock are not entitled to any dividend
<PAGE>
preference but will share ratably with the holders of Common Stock in all
dividends that may be declared by the Board of Directors. For purposes of
calculating the dividends, if any, payable to the holders of Preferred Stock,
the Registrant will determine the number of shares of Common Stock that would be
issuable if the Preferred Stock had been converted into Common Stock immediately
prior to the record date, and then determine the per share dividend payable to
holders of Preferred Stock.
Liquidation Preference. In the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Registrant, the holders of
Preferred Stock are entitled to receive a liquidation preference of $1 per share
before any distribution of assets is made to holders of Common Stock. After
payment of the full liquidation preference, the holders of shares of the
Preferred Stock will share proportionally with the holders of shares of Common
Stock in any additional distribution of the Registrant's assets.
Voting Rights. The holders of Preferred Stock (a) are entitled to the
number of votes equal to the number of shares of Common Stock into which shares
of Preferred Stock could be converted as of the record date for the
determination of stockholders entitled to vote on such matters, and (b) have
voting rights and powers equal to the voting rights and powers of the Common
Stock. Except as required by law, the holders of Preferred Stock and the holders
of Common Stock shall vote together as a single class and not as separate
classes.
So long as any Preferred Stock is outstanding, the Registrant shall not,
without the affirmative vote of the holders of at least 66% of all outstanding
shares of Preferred Stock, voting separately as a class, (i) amend, alter or
repeal any provision of the Certificate of Incorporation or the Bylaws of the
Registrant so as to adversely affect the relative rights, preferences,
qualifications, limitations or restrictions of the Preferred Stock, or (ii)
effect any reclassification of the Preferred Stock.
Optional Conversion. The holders of Preferred Stock have the right, at any
time, to convert each share of Preferred Stock into one share of Common Stock.
The Conversion Ratio will be subject to adjustment in certain events, including:
(i) stock splits and subdivisions of the Common Stock; (ii) combinations or
consolidations of the Common Stock; and (iii) future sales of Common Stock,
securities convertible into Common Stock, or rights to purchase Common Stock
which have not been expressly approved in writing by a majority in interest of
the holders of Preferred Stock. No adjustment in the Conversion Ratio will be
required to be made until cumulative adjustments aggregate 1% or more of the
Conversion Ratio as last adjusted; however, any adjustment not made shall be
carried forward.
In case of any reclassification of the Common Stock, any consolidation of
the Registrant with, or merger of the Registrant into, any other person, any
merger of any person into the Registrant (other than a merger that does not
result in any reclassification of, or change in the outstanding shares of Common
Stock), any sale or transfer of all or substantially all of the assets of the
Registrant (other than a sale-lease back, collateral assignment, mortgage or
other similar financing transaction), or any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or other properties,
then provision shall be made that the holders of Preferred Stock then
outstanding shall have the right thereafter to convert the Preferred Stock into
the kind and amount of securities, cash or other property receivable upon such
reclassification, consolidation, merger, sale, transfer or share exchange by a
holder of the number of shares of Common Stock into which such share of
Preferred Stock might have been converted immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange.
No fractional shares of Common Stock will be issued upon conversion, but,
in lieu thereof, an appropriate amount will be paid in cash by the Registrant
based on the Closing Price for the shares of Common Stock on the trading day
before the date of conversion.
Automatic Conversion. If the Registrant successfully completes and closes
on an underwritten secondary offering of Common Stock which has been (a)
<PAGE>
approved in writing by a majority in interest of the holders of Preferred Stock,
and (b) registered under the Securities Act of 1933, all shares of Preferred
Stock then outstanding shall immediately and automatically be converted into
shares of Common Stock.
Registration Rights. The holders of Preferred Stock have been granted
unlimited "piggy-back" registration rights and two (2) demand registration
rights for the shares of Common Stock issued or issuable upon conversion of the
Preferred Stock. Notwithstanding the foregoing, the holders of Preferred Stock
may not exercise their demand registration rights until 180 days after the
effective date of any registration statement for a public offering of securities
by the Registrant where the holder was afforded an opportunity to sell shares of
Common Stock pursuant to the piggy-back registration rights.
Description of Warrants
Class and Number of Warrants. In connection with the Friedlander
transaction, the Registrant authorized and issued 2,000,000 Warrants. The
Warrants are exercisable, at a price of $1 per share, at any time prior to
3:30 p.m., E.S.T. on March 31, 2004.
Anti-dilution Protection. The Warrant Agreement contains typical
antidilution provisions and also provides that the number of shares of Common
Stock issuable upon exercise of the Warrants shall be subject to adjustment in
the event that the Registrant shall, at any time prior to the completion of an
underwritten secondary offering of Common Stock which has been registered under
the Securities Act of 1933, effect a sale of Common Stock, securities
convertible into common stock, or rights to purchase Common Stock which has not
been expressly approved in writing by a majority in interest of the holders of
Preferred Stock.
Redemption of Warrants. Until April 1, 2000, the Registrant may repurchase
up to 500,000 Warrants for a redemption price which is equal to the greater of
$3 per Warrant, or the average closing bid price of the Registrant's Common
Stock during the 30 calendar days immediately preceding the date of the notice
of redemption. During the period between April 2, 2000 and April 1, 2001, the
Registrant may repurchase up to 500,000 Warrants (or 1,000,000 Warrants if the
first redemption option was not exercised) for a redemption price which is equal
to the greater of $7 per Warrant, or the average closing bid price of the
Registrant's Common Stock during the 30 calendar days immediately preceding the
date of the notice of redemption. During the period between April 2, 2001 and
April 1, 2002, the Registrant may repurchase all remaining unexercised Warrants
for a redemption price which is equal to the greater of $10 per Warrant, or the
average closing bid price of the Registrant's Common Stock during the 30
calendar days immediately preceding the date of the notice of redemption.
Notwithstanding the generality of the foregoing, if the Registrant mails a
notice of redemption and the Warrantholder exercises the number of Warrants
called for redemption in such notice within 10 days of the date of such notice,
then notice of redemption shall be null and void and the number of Warrants
subject to redemption by the Registrant shall be reduced by the number of
Warrants so exercised.
Registration Rights. The holders of Warrants have been granted unlimited
"piggy-back" registration rights and two (2) demand registration rights for the
shares of Common Stock issued or issuable upon exercise of the Warrants.
Notwithstanding the foregoing, the holders of Warrants may not exercise their
demand registration rights until 180 days after the effective date of any
registration statement for a public offering of securities by the Registrant
where the holder was afforded an opportunity to sell shares of Common Stock
pursuant to the piggy-back registration rights.
Item 6. Resignations of Directors and Executive Officers.
No director has resigned or declined to stand for re-election to the Board
of Directors since the date of the last annual meeting of stockholders because
of any disagreement with the Registrant on any matter relating to the
Registrant's operations, policies or practices.
<PAGE>
Under the terms of the Transactions, Friedlander and the former
stockholders of Navis have the right to replace the current board of directors
with their own nominees. Three of the New Directors have been nominated by the
former stockholders of Navis and two New Directors will be nominated by
Friedlander. The former stockholders of Navis have nominated John R. Varsames
and Michael T. Grennan to serve as directors of eNote (the "New Directors"). The
proposed changes in our board of directors will not become effective and the New
Directors will not assume office until 10 days after we file an Information
Statement and Notice of Change in the Majority of the Board of Directors with
the SEC and send copies of the Notice to our stockholders. At that time, Sally
A. Fonner will appoint the New Directors and then resign as a director.
Thereafter, the New Directors will manage our business.
Our Board does not currently have any committees. After the appointment of
the New Directors, the Board intends to form an Audit Committee and a
Compensation Committee. The Audit Committee will review the services provided by
our independent accountants, consult with our independent accountants on audits,
review certain filings with the SEC, assess need for internal auditing
procedures and assess the adequacy of internal controls. The Compensation
Committee will determine executive compensation and review transactions between
the Company and our affiliates, including any associates of affiliates.
Compensation of Executive Officers and Directors. Ms. Fonner has not
received any cash compensation for services performed during the two years
prior to the Transaction. In connection with the plan of reorganization
approved by Webcor's stockholders, certain persons designated by Capston
received 540,000 shares of Common Stock for administrative and management
services. Ms. Fonner received 180,600 shares of Common Stock for her personal
account.
Executive Employment Contracts. There are no employment agreements
between the Registrant and any of its current or former officers. The
Registrant intends to enter into employment agreements with Messrs. Varsames,
Grennan, and Richards.
ITEM 7. Financial Statements and Exhibits
(a) Financial statements of acquired business.
As permitted by Item 7(a)(4) of Form 8-K, the audited financial
statements of the acquired business will be filed within 60 days after
the date of this Report
(b) Pro forma financial information.
As permitted by Item 7(a)(4) of Form 8-K, complete pro forma financial
statements of the Registrant and its recently acquired subsidiary will
be filed within 60 days after the date of this Report.
(c) Exhibits.
(2.1) Reorganization Agreement, dated April 5, 1999, between and among the
Registrant, Navis Technologies Limited, and the stockholders of Navis
Technologies, Limited
(4.1) Certificate of Powers, Designations, Preferences and Rights of the
Convertible Preferred Stock Par Value $0.01 Per Share of eNote.com,
Inc.
(4.2) Form of Certificate for the $0.01 par value Convertible Preferred
Stock eNote.com, Inc.
(4.3) Common Stock Purchase Warrant dated April 6, 1999 between eNote.com,
Inc. and Friedlander International Limited
(10.1) Purchase and Sale Agreement dated April 6, 1999 between eNote.com,
Inc. and Friedlander International Limited
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<PAGE>
eNote.com Inc., a Delaware corporation
(formerly known as Webcor Electronics, Inc.)
April 20, 1999
By: /s/
-------------------------------------------
John R. Varsames, Chief Executive Officer
Exhibit 20.3
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Confidential for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 14a-11(c) or Rule 14a-12
WEBCOR ELECTRONICS, INC.
(Name of Registrant as Specified in its Charter)
Capston Network, Co.
(Name of Person Filing Proxy Statement)
Paymentof Filing Fee (Check appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a- 6(i)(1) or 14a-6(i)(2)
[ ] $500 for each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
[ ] Fee computed per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and identifying the filing for
which the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule and the
date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
Dear Fellow Stockholders;
You are cordially invited to attend a Special Meeting of the Stockholders
(the "Meeting") of WEBCOR ELECTRONICS, INC., an inactive Delaware corporation
("Webcor" or the "Company"). The Meeting will be held at 10:00 a.m. on Tuesday,
February 24, 1997, Gulfview in the Cardita Room of the Sheraton at Sand Key
Resort, 1160 Gulf Blvd., Clearwater Beach, Florida.
Webcor has not engaged in any business activities since filing a voluntary
bankruptcy petition in February, 1989. At present, the Company has no assets,
liabilities, management or ongoing operations. As a result, your Webcor shares
have been worthless for several years. At the Meeting you will be asked to
approve a plan (the "Plan") proposed by Capston Network Co. ("Capston"), a
Stockholder of the Company whereby the Company will be restructured as a "clean
public shell" for the purpose of effecting a business combination transaction
with a suitable privately-held company that has both business history and
operating assets.
While the business combination transaction contemplated by the Plan may be
structured as a merger or consolidation, Capston believes that the reverse
takeover format will be most attractive to potential acquisition targets.
Accordingly, Capston is seeking prior shareholder authorization for a reverse
takeover transaction that will involve up to 4,500,000 shares of Common Stock.
If the proposed business combination will involve the issuance of less than
4,500,000 shares to the owners of the privately-held company, then Capston
intends to seek shareholder approval of the proposed transaction, without regard
to whether such shareholder approval might be required under Delaware law.
If this Plan is successfully implemented, you may be able to salvage some
of the value that your Webcor shares once represented. However, there can be no
assurance the Plan will be approved by shareholders or successfully implemented.
Moreover, even if the Plan is approved and successfully implemented, there can
be no assurance that the value of your Webcor shares will increase. In any
event, Capston cannot go forward with the Plan without first obtaining
stockholder approval. Therefore, it is critically important that you read the
enclosed Proxy Statement and promptly mark your vote, sign and return your Proxy
Card.
While the elements of the Plan will be presented to Stockholders as
separate proposals, the Plan is an integrated whole and if all elements of the
Plan are not approved, Capston intends to abandon the Plan in its entirety. The
specific matters to be considered by the Stockholders are:
1. To ratify the actions of Capston in (i) effecting a renewal, revival and
restoration of the Company's Certificate of Incorporation; (ii) adopting
amended by-laws to govern the business affairs of the Company, and (iii)
filing the reports and other documents necessary to bring the Company current
with respect to its reporting obligations under the Securities Exchange Act
of 1934;
2. To elect a person designated by Capston to serve as the sole member of the
Board of Directors until the 1998 annual Meeting of stockholders, or until
her successor is elected and qualified;
<PAGE>
3. To consider and vote upon proposed an Amendment to the Company's Certificate
of Incorporation that will effect a reverse split of all issued and
outstanding shares of Common Stock in the ratio of one (1) share of new
Common Stock for each 11.5879 shares presently outstanding so that
immediately thereafter the Company will have a total of 300,000 shares issued
and outstanding;
4. To consider and vote upon a proposal to issue 200,000 shares of Common Stock
to persons designated by Capston as compensation for services rendered in
connection with the implementation of the Plan;
5. To consider and vote upon a proposal which will give the Board of Directors
authority to pay an in-kind Finder's Fee to unrelated third party finders.
who introduce the Company to a suitable acquisition prospect.
6. Consider and vote upon a proposal that will give the Board of Directors
discretionary authority to (i) change the Company's name and (ii) issue up to
4,500,000 shares of Common Stock to unrelated third parties, all without
prior stockholder approval, in connection with a business combination
transaction of the type contemplated by the Plan; and
7. To consider and vote upon a proposed Amendment to the Company's Certificate
of Incorporation that will increase the authorized capital stock of the
Company to 25,000,000 shares of $0.01 par value Common Stock and 5,000,000
shares of $0.01 par value Preferred Stock.
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON. HOWEVER,
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, YOU ARE URGED TO PROMPTLY MARK
YOUR VOTE, SIGN, DATE, AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE
ENCLOSED, SELF-ADDRESSED, STAMPED ENVELOPE SO THAT THE PRESENCE OF A QUORUM MAY
BE ASSURED AND YOUR SHARES OF STOCK MAY BE REPRESENTED AND VOTED IN ACCORDANCE
WITH YOUR DESIRES. A STOCKHOLDER MAY REVOKE A PROXY BY DELIVERING TO CAPSTON A
WRITTEN NOTICE OF REVOCATION, DELIVERING TO CAPSTON A SIGNED PROXY OF A LATER
DATE OR APPEARING AT THE SPECIAL MEETING AND VOTING IN PERSON.
-------------------------------
Capston Network Co.
Sally A. Fonner,
President
<PAGE>
WEBCOR ELECTRONICS, INC.
1612 North Osceola Avenue
Clearwater, Florida 34615
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on February 24, 1997
Pursuant to 312(h) of the General Corporation Law of Delaware, notice is
hereby given that a Special Meeting of the Stockholders of WEBCOR ELECTRONICS,
INC., an inactive Delaware corporation ("Webcor" or the "Company"), will be held
at 10:00 a.m. on Tuesday, February Gulfview 24, 1997, in the Cardita Room of the
Sheraton at Sand Key Resort, 1160 Gulf Blvd., Clearwater Beach, Florida, for the
following purposes:
1. To ratify the actions of Capston Network Co. ("Capston") in (i) effecting a
renewal, revival and restoration of the Company's Certificate of
Incorporation; (ii) adopting amended by-laws to govern the business affairs
of the Company, and (iii) filing the reports and other documents necessary to
bring the Company current with respect to its reporting obligations under the
Securities Exchange Act of 1934;
2. To elect a person designated by Capston to serve as the sole member of the
Board of Directors until the 1998 annual Meeting of stockholders, or until
her successor is elected and qualified;
3. To consider and vote upon proposed an Amendment to the Company's Certificate
of Incorporation that will effect a reverse split of all issued and
outstanding shares of Common Stock in the ratio of one (1) share of new
Common Stock for each 11.5879 shares presently outstanding so that
immediately thereafter the Company will have a total of 300,000 shares issued
and outstanding;
4. To consider and vote upon a proposal to issue 200,000 shares of Common Stock
to persons designated by Capston as compensation for services rendered in
connection with the implementation of the Plan;
5. To consider and vote upon a proposal which will give the Board of Directors
authority to pay an in-kind Finder's Fee to unrelated third party finders.
who introduce the Company to a suitable acquisition prospect.
6. Consider and vote upon a proposal that will give the Board of Directors
discretionary authority to (i) change the Company's name and (ii) issue up to
4,500,000 shares of Common Stock to unrelated third parties, all without
prior stockholder approval, in connection with a business combination
transaction of the type contemplated by the Plan; and
7. To consider and vote upon a proposed Amendment to the Company's Certificate
of Incorporation that will increase the authorized capital stock of the
Company to 25,000,000 shares of $0.01 par value Common Stock and 5,000,000
shares of $0.01 par value Preferred Stock.
A record of stockholders has been taken as of the close of business on
January 20, 1997, and only those stockholders of record on that date will be
entitled to notice of and to vote at the Meeting. A stockholders' list will be
available commencing January 28, 1997, and may be inspected during
<PAGE>
normal business hours prior to the Meeting at the offices of the Company, 1612
North Osceola Avenue, Clearwater, Florida 34615.
If you do not expect to be present at the Meeting, please ark your vote,
sign and date the enclosed proxy and return it promptly in the enclosed stamped
envelope which has been provided for your convenience. The prompt return of
proxies will ensure the presence of a quorum and save Capston the expense of
further solicitation.
By Order of Capston
Network Co.
Sally A. Fonner,
President
Clearwater, Florida
January 13, 1997
<PAGE>
PROXY STATEMENT
This proxy statement is being mailed to all known Stockholders of WEBCOR
ELECTRONICS, INC. ("Webcor" or the "Company") commencing on or about January 28,
1997, in connection with the solicitation by Capston Network, Co. ("Capston") of
proxies to be voted at a Special Meeting of Stockholders(the "Meeting") to be
held in Clearwater Beach, Florida on Tuesday, February 24, 1997, and at any
adjournment thereof. The Meeting has been called by Capston pursuant to 312(h)
of the General Corporation Law of Delaware for the purpose of considering a plan
proposed by Capston (the "Plan") whereby the Company will be restructured as a
"clean public shell" for the purpose of effecting a business combination
transaction with a suitable privately-held company.
Proxies will be voted in accordance with the directions specified thereon
and do not confer discretionary authority on any person. Any proxy on which no
direction is specified will be voted in favor of all proposals. A Stockholder
may revoke a proxy at any time prior to the start of the meeting by ensuring
delivering to and receipt by Capston of a written notice of revocation,
delivering to Capston a signed proxy of a later date or by appearing at the
Meeting and voting in person.
As of December 31, 1996, there were issued, outstanding and entitled to
vote 3,476,370 shares of common stock of the Company ("Common Stock"). Each
share of Common Stock entitles the holder to one vote on each matter presented
for consideration by the Stockholders. Under the Company's ByLaws, the presence,
in person or by proxy, of shares entitled to cast a combined total of 1,157,631
votes will constitute a quorum. According to the Company's annual report on Form
10-K for fiscal year ended March 31, 1988, there are 779 stockholders entitled
to vote. With the exception of Capston Network Company, no stockholders has
indicated a pre-approval of the proposals described in this proxy.
In connection with the reinstatement of the Company's Charter, Capston
adopted amended by-laws for the conduct of the Company's business, subject to
the approval and ratification of the Stockholders. There are three material
changes in the amended by-laws. First, under the amended by-laws adopted by
Capston, the presence, in person or by proxy, of one-third (1/3) of the total
number of shares entitled to vote at the Meeting will constitute a quorum rather
a majority of the total number of shares entitled to vote at the meeting. The
amendment, Article II, Section 5.
Quorum: Adjournment, reads as follows:
With respect to any matter, a quorum shall be present at a meeting of
stockholders if the holders of at least on-third (1/3) of the shares
entitled to vote on that matter are represented at the meeting in person or
by proxy. If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to
vote who are present, in person or by proxy, may adjourn the meeting to
another place, date or time without notice other than announcement at the
meeting, until a quorum shall be present or represented.
The second material change is the provision that permits voting by implied
consent under certain circumstances and that amendment, Article II, Section 11.
Method of Giving
<PAGE>
Consent, Approval, etc., reads as follow:
Any vote, consent, approval, ratification or disapproval required by these
by-laws may be given as follows:
(a) by a written Consent executed by the consenting Stockholder, provided
that such Consent shall not have been withdrawn by the Consenting
Stockholder by Notification to the Company at or prior to the time of
the doing of such act or thing; or (b)by the affirmative vote by the
Consenting Stockholder to the doing of the act or thing for which the
Consent is solicited at any meeting called and held pursuant to these
by-laws to consider the doing of such act or thing. (c)by failing to
respond, within the time set forth in a Notice which specifies (i) the
specific act or proposal for which Consent is being requested by the
Company; (ii) that the Company intends to rely on the provisions of
this Section 11(c) in determining whether the requisite percentage in
interest of the Stockholders has consented to the specific act or
proposal; and (iii) a Record Date not less than 20 days after the date
of the Notice on which the specific act or proposal will be deemed
approved unless at least 10% in Interest of the Stockholders object in
writing prior to such Record Date.
The third material change is the addition of Article VIII, Indemnification,
which reads as follows:
Section 1. Mandatory Indemnification of Directors and Officers. Each
person who at any time is or was a director or officer of the Corporation,
and who was, is or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative (a "Proceeding," which shall
include any appeal in such a Proceeding, and any inquiry or investigation
that could lead to such a Proceeding), by reason of the fact that such
person is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the
Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise shall be indemnified by the
Corporation to the fullest extent authorized by the General Corporation Law
of Delaware as the same exists or may hereafter be amended from time to
time (the "GCLD"), or any other applicable law as may from time to time be
in effect (but, in the case of any such amendment or enactment, only to the
extent that such amendment or law permits the Corporation to provide
broader indemnification rights than such law prior to such amendment or
enactment permitted the Corporation to provide), against judgments,
penalties (including excise and similar taxes), fines, settlements and
reasonable expenses (including court costs and attorneys' fees) actually
incurred by such person in connection with such Proceeding. The
Corporation's obligations under this Section include, but are not limited
to, the convening of any meeting, and the consideration of any matter
thereby, required by statute in order to determine the eligibility of any
person for indemnification. Expenses incurred in defending a Proceeding
shall be paid by the Corporation
<PAGE>
in advance of the final disposition of such Proceeding to the fullest
extent permitted, and only in compliance with, the GCLD or any other
applicable laws as may from time to time be in effect. The Corporation's
obligation to indemnify or to prepay expenses under this Section shall
arise, and all rights granted hereunder shall vest, at the time of the
occurrence of the transaction or event to which such proceeding relates, or
at the time that the action or conduct to which such proceeding relates was
first taken or engaged in (or omitted to be taken or engaged in),
regardless of when such proceeding is first threatened, commenced or
completed. Notwithstanding any other provision of the Articles of
Incorporation or these Bylaws, no action taken by the Corporation, either
by amendment of the Articles of Incorporation or these Bylaws or otherwise,
shall diminish or adversely affect any rights to indemnification or
prepayment of expenses granted under this Section 1 which shall have become
vested as aforesaid prior to the date that such amendment or other
corporate action is taken.
Section 2. Permissive Indemnification of Employees and Agents. The rights
to indemnification and prepayment of expenses which are conferred to the
Corporation's directors and officers by Section 1 of this Article VIII may
be conferred upon any employee or agent of the Corporation if, and to the
extent, authorized by its Board of Directors.
Section 3. Indemnity Insurance. The Corporation shall have power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent or similar functionary of
another corporation, partnership, joint venture, sole proprietorship,
trust, employee benefit plan, or other enterprise, against any liability
asserted against him and incurred by him in any such capacity or arising
out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of the
GCLD. Without limiting the power of the Corporation to procure or maintain
any kind of insurance or other arrangement, the Corporation may, for the
benefit of persons indemnified by the Corporation (1) create a trust fund,
(2) establish any form of self-insurance, (3) secure its indemnity
obligation by grant of a security interest or other lien on the assets of
the Corporation, or (4) establish a letter of credit, guaranty or surety
arrangement.
Capston has engaged the public accounting firm of Want & Ender, C.P.A. of
New York, New York to audit the Company's financial statement for the period
ending November 13, 1996, and the years ending every year from March 31,1989 to
March 31,1996. Capston has also retained the firm of Want & Ender as auditors of
various other companies, but has no other relationship with the firm. Ms. Fonner
has no relationship with the firm of Want & Ender. A representative from the
firm of Want & Ender will attend the meeting and be available to answer
questions from stockholders.
<PAGE>
Corporate Background Information
Webcor conducted an initial public offering of its Common Stock in April
of 1982 pursuant to a Form S-1 Registration Statement under the Securities Act
of 1933 (the "Securities Act") that was declared effective by order of the
Securities and Exchange Commission (the "SEC") on May 1, 1982. In connection
with an application to list its Common Stock on the AMS system, the Company also
registered its Common Stock pursuant to Section 12(g) of the Securities Exchange
Act of 1934 (the "Exchange Act"). The Company remained current with respect to
its reporting obligations under the Exchange Act until 1989, when its last
annual report on Form 10-K was filed with the SEC.
After pursuing its business for several years, Webcor filed a voluntary
petition under Chapter 11 of the Bankruptcy Act on February 1, 1989. This
proceeding was filed in with the U.S. Bankruptcy Court for the Eastern District
of New York and designated as Case # 89-10328. On October 1, 1990, the Company's
Chapter 11 case was voluntarily converted to a case in Chapter 7 which resulted
in the orderly liquidation of all corporate assets and the use of the proceeds
to repay the Company's creditors. On November 13, 1996 the Company's case under
Chapter 7 was closed by an order of the Court. As a result of the Bankruptcy,
the Company has no assets, liabilities, management or ongoing operations and has
not engaged in any business activities since February 1989.
During the pendancy of the Bankruptcy, the Company did not file franchise
tax returns with and pay the required franchise taxes to the State of Delaware.
As a result, the Company's corporate charter was revoked by order of the
Secretary of State of the State of Delaware on March 1, 1991. Similarly, the
Company did not file with the SEC either (a) the regular reports that are
required of all companies that have securities registered under the Exchange
Act, or (b) a certification on Form 15 terminating its registration under the
Exchange Act. As a result, the Company remained a Registrant under the Exchange
Act but was seriously delinquent in its SEC reporting obligations. According to
the National Quotation Bureau, the last published quotation for the Company's
Common Stock was posted by Carr Securities, Inc., one of the Company's market
makers, on October 15, 1996. At that time, the published quote was $0.00 bid and
$0.10 asked. There have been no published quotations for the Company's Common
Stock since October 15, 1996.
Acting in its capacity as a Stockholder of the Company, and without first
receiving any consent, approval or authorization of any officer, director or
other Stockholder of the Company, Capston effected a renewal, revival and
restoration of the Company's certificate of incorporation pursuant to Section
312 of the General Corporation Law of the State of Delaware. In general, Section
312 provides that any corporation may "procure an extension, restoration,
renewal or revival of its certificate of incorporation, together with all the
rights, franchises, privileges and immunities and subject to all of its duties,
debts and liabilities which had been secured or imposed by its original
certificate of incorporation" upon compliance with certain procedural
requirements.
After reviewing the applicable files, Capston determined that the only
debt of the Company that was "secured or imposed by its original certificate"
was the
<PAGE>
obligation of Webcor to pay its Delaware taxes. Therefore, Capston paid all past
due franchise taxes on behalf of the Company and then filed a Certificate of
Renewal, Revival, Extension and Restoration of the Company's Certificate of
Incorporation on behalf of the Company under the authority granted by Section
312(h). The total out-of-pocket costs paid by Capston incurred in connection
with the restoration of the Company's charter was $450. This Certificate was
filed in the office of the Secretary of State of the State of Delaware on
December 26, 1996 and at the date of this Proxy Statement the Company is
lawfully incorporated, validly existing and in good standing under the laws of
the State of Delaware.
Proposed Operations
While the Company has no assets, liabilities, management or ongoing
operations and has not engaged in any business activities since February 1989,
Capston believes that it may be possible to recover some value for the
Stockholders through the adoption and implementation of a Plan whereby the
Company will be restructured as a "clean public shell" for the purpose of
effecting a business combination transaction with a suitable privately-held
company that has both business history and operating assets.
Capston believes the Company will offer owners of a suitable
privately-held company the opportunity to acquire a controlling ownership
interest in a public company at substantially less cost than would otherwise be
required to conduct an initial public offering. Nevertheless, Capston is not
aware of any empirical statistical data that would independently confirm or
quantify Capston's beliefs concerning the perceived value of a merger or
acquisition transaction for the owners of a suitable privately-held company. The
owners of any existing business selected for a business combination with the
Company will incur significant costs and expenses, including the costs of
preparing the required business combination agreements and related documents,
the costs of preparing the a Current Report on Form 8-K describing the business
combination transaction and the costs of preparing the documentation associated
with any future reporting under the Exchange Act and registrations under the
Securities Act.
If the Plan is approved by the Stockholders, the Company will be fully
reactivated and then used as a corporate vehicle to seek, investigate and, if
the results of such investigation warrant, effect a business combination with a
suitable privately-held company or other business opportunity presented to it by
persons or firms that seek the perceived advantages of a publicly held
corporation. The business operations proposed in the Plan are sometimes referred
to as a "blind pool" because Stockholders will not ordinarily have an
opportunity to analyze the various business opportunities presented to the
Company, or to approve or disapprove the terms of any business combination
transaction that may be negotiated by Capston on behalf of the Company.
Consequently, the Company's potential success will be heavily dependent on the
efforts and abilities of Capston and its officers, directors and consultants,
who will have virtually unlimited discretion in searching for, negotiating and
entering into a business combination transaction. Capston and its officers,
directors and consultants have had limited experience in the proposed business
of the Company. Although Capston believes that the Company will be able to enter
into a business combination transaction within 12 months after the approval of
the Plan
<PAGE>
by the Stockholders, there can be no assurance as to how much time will elapse
before a business combination is effected, if ever. The Company will not
restrict its search to any specific business, industry or geographical location,
and the Company may participate in a business venture of virtually any kind or
nature.
Capston and its officers, directors and consultants anticipate that the
selection of a business opportunity for the Company will be complex and
extremely risky. Because of general economic conditions, rapid technological
advances being made in some industries, and shortages of available capital,
Capston believes that there are numerous privately-held companies seeking the
perceived benefits of a publicly traded corporation. Such perceived benefits may
include facilitating debt financing or improving the terms on which additional
equity or may be sought, providing liquidity for the principals of the business,
creating a means for providing incentive stock options or similar benefits to
key employees, providing liquidity for all stockholders and other factors.
Potential business opportunities may occur in many different industries
and at various stages of development, all of which will make the task of
comparative investigation and analysis of such business opportunities extremely
difficult and complex. Capston anticipates that the Company will be able to
participate in only one business venture. This lack of diversification should be
considered a substantial risk inherent in the Plan because it will not permit
the Company to offset potential losses from one venture against gains from
another. Moreover, due to the Company's lack of any meaningful financial,
managerial or other resources, Capston believes the Company will not be viewed
as a suitable business combination partner for either developing companies or
established business that are in need of substantial additional capital.
Acquisition of Opportunities
In implementing a particular business combination transaction, the Company
may become a party to a merger, consolidation, reorganization, joint venture,
franchise or licensing agreement with another corporation or entity. It may also
purchase stock or assets of an existing business. After the consummation of a
business combination transaction, it is likely that the present Stockholders of
the Company will only own a small minority interest in the combined companies.
In addition, as part of the terms of the acquisition transaction, all of the
Company's officers and directors will ordinarily resign and be replaced by new
officers and directors without a vote of the Stockholders. Capston does not
intend to obtain the approval of the Stockholders prior to consummating any
acquisition other than a statutory merger that requires a Stockholder vote.
Capston and its officers, directors and consultants do not intend to sell any
shares held by them in connection with a business acquisition.
It is anticipated that any securities issued in a business combination
transaction will be issued in reliance on exemptions from registration under
applicable Federal and state securities laws. In some circumstances, however, as
a negotiated element of a business combination, the Company may agree to
register such securities either at the time the transaction is consummated or at
some specified time thereafter. The issuance of substantial additional
securities and their potential sale into any trading market
<PAGE>
that may develop may have a depressive effect on such market. While the actual
terms of a transaction to which the Company may be a party cannot be predicted,
it may be expected that the parties to the business transaction will find it
desirable to avoid the creation of a taxable event and thereby structure the
acquisition in a so called "tax free" reorganization under Sections 368(a)(1) or
351 of the Internal Revenue Code of 1986, as amended (the "Code"). In order to
obtain tax free treatment under the Code, it may be necessary for the owners of
the acquired business to own 80% or more of the voting stock of the surviving
entity. In such event, the stockholders of the Company would retain less than
20% of the issued and outstanding shares of the combined companies, which could
result in significant dilution in the equity of such stockholders. The Company
intends to structure any business combination in such manner as to minimize
Federal and state tax consequences to the Company and any target company.
As part of the Company's investigation of potential business
opportunities, Capston and its officers, directors and consultants will
ordinarily meet personally with management and key personnel, may visit and
inspect material facilities, obtain independent analysis or verification of
certain information provided, check reference of management and key personnel,
and take other reasonable investigative measures, to the extent of the Company's
limited resources and Capston's limited expertise. The manner in which the
Company participates in an opportunity will depend on the nature of the
opportunity, the respective needs and desires of the Company and other parties
and the relative negotiating strength of the Company and such other management.
With respect to any business combination negotiations, Capston will
ordinarily focus on the percentage of the Company which target company
stockholders would acquire in exchange for their ownership interest in the
target company. Depending upon, among other things, the target company's assets
and liabilities, the Company's stockholders will in all likelihood only own a
small minority interest in the combined companies upon completion of the
business combination transaction. Any business combination effected by the
Company can be expected to have a significant dilutive effect on the percentage
of shares held by the Company's current Stockholders.
Upon completion of a business combination transaction, there can be no
assurance that the combined companies will have sufficient funds to undertake
any significant development, marketing and manufacturing activities.
Accordingly, the combined companies may be required to either seek additional
debt or equity financing or obtain funding from third parties, in exchange for
which the combined companies might be required to issue a substantial equity
position. There is no assurance that the combined companies will be able to
obtain additional financing on terms acceptable to the combined companies.
It is anticipated that the investigation of specific business
opportunities and the negotiation, drafting and execution of relevant
agreements, disclosure documents and other instruments will require substantial
management time and attention and substantial costs for accountants, attorneys
and others. If a decision is made not to participate in a specific business
opportunity the costs incurred in the related investigation would not be
recoverable. Furthermore, even if an agreement is reached
<PAGE>
for the participation in a specific business opportunity, the failure to
consummate that transaction may result in the loss of the Company of the related
costs incurred.
Exemption from Rule 419
As an existing Registrant under the Exchange Act, the Company's proposed
activities are not subject to SEC Rule 419 which was adopted to strengthen the
regulation of "blind pool" companies which Congress has found to have been
common vehicles for fraud and manipulation in the penny stock market. The
Company is not subject to Rule 419 because it is not offering stock to the
public in an offering registered under the Securities Act. Accordingly,
Stockholders are not entitled to the substantive protection provided by Rule
419.
Fees to Capston and Others
Expense Reimbursement. No cash compensation has been paid or accrued to
Capston or any of its officers, director or consultants to date. Under the Plan,
Capston and its officers, directors and consultants will be entitled to
reimbursement for the actual out-of-pocket expenses incurred in connection with
the reinstatement of the Company's certificate of incorporation, the preparation
and filing of the Company's reports under the Exchange Act and the negotiation
of a business combination transaction, but they will not be entitled to any cash
compensation in connection with services rendered prior to the closing of a
business combination. Moreover, any such reimbursement will be subject to the
express approval of the owners of the business opportunity acquired by the
Company.
Stock Issuance. Subject to Stockholder approval, the Company intends file
a Form S-8 Registration Statement under the Securities Act to register 200,000
shares of Common Stock that will be issuable to persons designated by Capston as
compensation for services rendered in connection with the implementation of the
Plan. Therefore, if Capston is successful in arranging a business combination
for the Company, approximately forty percent (40%) of the net value derived by
the Company's Stockholders will vest in Capston and its officers, directors and
consultants and the remaining sixty percent (60%) will inure to the benefit of
the existing Stockholders of the Company.
Finder's Fees. As is customary in the industry, the Company may pay a
finder's fees to unrelated third parties who introduce the Company to a suitable
acquisition prospect. If any such fee is paid, it will be approved by the
Company's Board of Directors and will be in accordance with the standards
discussed below. Finder's fees are customarily between 1% and 5% of the total
transaction value, based upon a sliding scale of the amount involved. The
traditional "Lehman Formula" for calculating finder's fees is 5% of the first $1
million in transaction value, plus 4% of the second $1 million, plus 3% of the
third $1 million, plus 2% of the fourth $1 million plus 1% of any transaction
value in excess of $4 million. In Capston's opinion, the traditional Lehman
Formula finder's fee minimizes the economic incentive of finder's who are
involved in larger transactions. Therefore, if the Plan is approved by
Stockholders, Capston intends to offer a "reversed stretched Lehman fee" to
unrelated third party finders who introduce the Company to a suitable
acquisition prospect. Under the reversed stretched Lehman formula proposed by
Capston, the finder will receive 1% of the first $2 million in transaction
value, 2% of the second $2 million
<PAGE>
in transaction value, 3% of the third $2 million in transaction value, 4% of the
fourth $2 million in transaction value and 5% of any transaction value in excess
of $8 million. Since the Company does not have sufficient financial resources to
pay such a finder's fee in cash, it is anticipated that any finder's fees will
be paid with shares of the Company's Common Stock which may be registered under
the Securities Act prior to issuance. Notwithstanding the foregoing, no finder's
fees will be paid to Capston or any of its officers, directors, employees,
agents or affiliates without the prior consent of the Stockholders.
RISK FACTORS
The Plan proposed by Capston involves a high degree of risk. Stockholders
should carefully consider the following factors, among others, before executing
the form of Proxy enclosed herewith.
No Recent Operating History. The Company has no assets, liabilities,
management or ongoing operations and has not engaged in any business activities
since February 1989. Even if the Capston Plan is approved by the Stockholders,
the Company will be subject to all of the risks inherent in the commencement of
a new business enterprise with new management. There can be no assurance that
the Company will be able to acquire an operating business or that such business
if acquired, will prove to be profitable. Although Capston and its officers,
directors and consultants have had experience with respect to business
acquisitions, the Company has no recent operating history to aid stockholders in
making an informed judgment regarding the merits of the Plan. As of the date of
this Proxy Statement, Capston has not entered into any arrangement for, nor is
it presently negotiating with respect to, an acquisition of any operating
business.
No Specific Acquisition Plans. The Company intends to engage as soon as is
reasonably possible, in the search for and evaluation of potential acquisition
opportunities, but it will not engage in the business of investing, reinvesting,
owning, holding, or trading securities. Capston has made no specific acquisition
plans and no specific industry or area of business has been selected for
investment. There is no assurance Capston and its officers, directors and
consultants will possess the experience and skills necessary to make an informed
judgment about any business or industry that may be chosen. Accordingly, the
nature of the Plan involves an extremely high degree of risk and the Common
Stock is not a suitable investment for anyone who cannot afford the loss of his
entire investment.
Blind Pool. Inasmuch as Capston has not contemplated the acquisition of
any specific operating business, the Company's proposed business will, in fact,
be a Blind Pool over which Stockholders will have no control. It is anticipated
that under most circumstances stockholders will not be afforded the opportunity
to pass upon the merits of any business opportunity that the Company may
ultimately acquire and, therefore, Stockholders must rely upon the abilities of
Capston and its officers, directors and consultants.
Limited Assets of the Company. As of the date of this Proxy Statement, the
Company has no substantial assets and it is not anticipated that the Company
will acquire any substantial assets other than the assets of any business
opportunity it may acquire. Any business activity the
<PAGE>
Company may eventually undertake will require substantial capital. Since the
Company does not know which type of business it will acquire or the capital
requirements for such business, there can be no representations respecting the
future capital needs of the Company.
Potential Need for Additional Financing. Capston intends to advance funds
from time to time to help defray the Company's operating costs, including the
cost of professionals retained by the Company, costs associated with complying
with filing requirements of the SEC and costs associated with investigating and
evaluating proposed acquisitions. These advances will be recorded as liabilities
on the books of the Company and will be reimbursed to Capston upon successful
completion of a business combination transaction. There is no assurance that
Capston will have sufficient resources to advance all required expenses and if
Capston's resources are insufficient, the Company may be required to seek
capital. No assurance can be given that the Company will be able to obtain
additional capital or, that any funds will be available on terms acceptable to
the Company.
Intense Competition. The Company is and will continue to be an
insignificant participant in the business of seeking business opportunities. A
large number of established and well-financed entities, including venture
capital firms, have recently increased their merger and acquisition activities,
especially among companies active in high technology fields. Nearly all such
entities have significantly greater financial resources, technical expertise and
managerial capabilities than the Company and, consequently, the Company will be
at a competitive disadvantage in identifying suitable acquisition candidates and
concluding a business combination transaction.
Dependence on Part-Time Management. The Company has no employees as of the
date hereof. Accordingly, the Company's success will be largely dependent on the
decisions made by Capston and its officers, directors and consultants, none of
whom will devote their full time to the affairs of the Company.
Experience of Capston. Although Capston and its officers, directors and
consultants have general business, finance and acquisition experience,
Stockholders should be aware that Capston and its officers, directors and
consultants are not expected to have any significant experience in operating
such business as the Company might choose to acquire. Accordingly, the Company
will be required to obtain outside professionals to assist them initially in
assessing the merits and risks of any proposed acquisition and thereafter in
operating any acquired business. No assurance can be made that the Company will
be able to obtain such assistance on terms acceptable to the Company.
No Assurance of Acquisition of Operating Entity. Although the Company
proposes to combine with an existing, privately held business which may or may
not be profitable but which is believed to have profitable growth potential
(irrespective of the industry in which such company engages) and although
Capston has received inquires from several companies seeking to combine with
publicly held "shells" and/or blind pools, neither the Company nor Capston has
solicited any proposals regarding the Company's combination with another
business. There are no assurances that Capston and its officers, directors and
consultants will be able to locate a suitable combination partner or that a
combination
<PAGE>
can be structured on terms acceptable to the Company.
Control of Combination Procedure by Capston. A combination of the Company
with another entity may be structured as a merger or consolidation or involve
the direct issuance of the Company's Common Stock in exchange for the other
company's stock or assets. The General Corporation Law of Delaware requires the
affirmative vote of the holders of at least a majority of the outstanding shares
of a Delaware corporation's capital stock to approve a merger or consolidation,
except in certain situations in which no vote of the stockholders is necessary.
Since stockholder approval is not required in connection with the issuance of
stock in exchange for stock or assets and since the Plan will specifically
authorize the issuance of up to 4,500,000 shares of Common Stock, without prior
Stockholder approval, in connection with a business combination transaction, it
is anticipated that Capston will have complete control over the Company's
combination policies and procedures.
Dilution Resulting from Combination. It is anticipated that any entity
which satisfies the Company's combination suitability standards will possess
assets and other indicia of value substantially greater than those of the
Company. Consequently, any combination will almost certainly result in a
substantial dilution in the percentage of equity ownership and voting power of
holders of the Company's Common Stock as stockholders of the combined
enterprise. In the aggregate, holders of the Company's Common Stock will
probably own a small minority percentage of the combined enterprise's voting
securities, with a concomitant reduction in their power to elect directors and
otherwise to influence management policy.
Likely Change in Control. The successful completion of a merger or
acquisition will likely result in a change of control resulting from the
issuance of a large number of shares of the Company's authorized and unissued
Common Stock. Any such change in control is also likely to result in the
resignation or removal of the Company's present Officers and Directors. In such
an event, no assurance can be given as to the experience or qualification of
such persons either in the operation of the Company's activities or in the
operation of the business, assets or property being acquired, although it is
likely that successor management will have greater experience in the business of
the combined companies than Capston and its advisors.
No Market Research. The Company has neither conducted nor have others made
available to it results of market research concerning the availability of
potential business opportunities. Therefore, Capston and its advisors can offer
no assurances that market demand exists for an acquisition or merger as
contemplated by the Company. Capston and its advisors have not identified any
particular industry or specific business within an industry for evaluation by
the Company. There is no assurance the Company will be able to acquire a
business opportunity on favorable terms
Lack of Diversification. In the event the Capston and its advisors are
successful in identifying and evaluating a suitable business opportunity, the
Company will in all likelihood be required to issue its Common Stock in an
acquisition or merger transaction. Inasmuch as the Company's cash is limited and
the issuance of additional Common Stock will result in a dilution of interest
for present stockholders, it is unlikely the Company will be capable of
<PAGE>
negotiating more than one acquisition or merger. Consequently, the Company's
lack of diversification may subject it to economic fluctuation within a
particular industry in which an acquired enterprise conducts business.
Potential Conflicts of Interest. Capston and its advisors are all engaged
full-time in other business activities, some of which may be competitive with
the proposed business activities of the Company. In particular, Capston's
principal business involves the restructuring of defunct public companies as
clean public shells for the purpose of effecting business combination with a
suitable operating companies. To the extent that Capston and its advisors have
fiduciary duties to such other business activities, possible conflicts of
interest may arise or may appear to exist in respect to the possible diversion
of corporate opportunities to other entities with which they are or may become
associated. No assurance can be given that any such potential conflicts of
interest will not cause the Company to lose potential opportunities.
No Market Maker. The Company's securities may be quoted on NASD's
Electronic Bulletin Board which reports quotations by brokers or dealers making
a market in particular securities. The Company has no agreement with any broker
or dealer to act as a market maker for the Company's securities and there is no
assurance Capston and its advisors will be successful in obtaining a market
maker.
No Assurance of Public Market. Prior to this Proxy Statement, there has
been no public market for the Common Stock and there is no assurance that a
public market will ever develop. If a trading market does in fact develop for
the Common Stock, there is a possibility that it will not be sustained and
Stockholders may have difficulty in selling their Common Stock in the future at
any price.
Possible Issuance of Additional Shares. If the Plan is approved by the
Stockholders, the Company's Certificate of Incorporation will authorize the
issuance of 25,000,000 shares of Common Stock and 5,000,000 shares of Preferred
Stock. Any Preferred Stock that is subsequently issued by the Company may be
subject to conversion into Common Stock on terms approved by the Board of
Directors. If the Plan is approved by the Stockholders, approximately 98% of the
Company's authorized shares of Common Stock will remain unissued. The Plan
specifically contemplates the issuance of up to 4,500,000 shares of Common Stock
to unrelated third parties in connection with a business combination
transaction. Moreover, after completion of a business combination, the Board of
Directors of the combined companies will have the power to issue additional
shares of Common Stock without stockholder approval. Although the Company
currently has no commitments, contracts or intentions to issue any additional
shares, Stockholders should be aware that any such issuance may result in a
reduction of the book value or market price, if any, of the outstanding shares
of Common Stock. If the Company issues additional shares, such issuances will
also cause a reduction in the proportionate ownership and voting power of all
other Stockholders. Further, any new issuance of shares of Common Stock may
result in a change of control of the Company. If any acquisition resulted in a
change of control, there can be no assurance as to the experience or
qualifications of those new persons involved in either the management of the
Company or of the business being acquired. In that event, future operations of
the Company and the payment of dividends, if any, would be wholly dependent upon
<PAGE>
such persons.
No Assurance of Dividends. The Company has not paid any dividends upon its
Common Stock, and by reason of its present financial status and its contemplated
financial requirements, does not contemplate paying any dividends in the
foreseeable future.
RATIFICATION OF REINSTATEMENT, BY-LAWS AND SEC FILINGS
Acting in its capacity as a Stockholder of the Company, and without first
receiving any consent, approval or authorization of any officer, director or
other Stockholder of the Company, Capston effected a renewal, revival and
restoration of the Company's certificate of incorporation pursuant to Section
312 of the General Corporation Law of the State of Delaware. In general, Section
312 provides that any corporation may "procure an extension, restoration,
renewal or revival of its certificate of incorporation, together with all the
rights, franchises, privileges and immunities and subject to all of its duties,
debts and liabilities which had been secured or imposed by its original
certificate of incorporation" upon compliance with certain procedural
requirements.
After reviewing the applicable files, Capston determined that the only
debt of the Company that was "secured or imposed by its original certificate"
was the obligation of Webcor to pay its Delaware taxes. Therefore, Capston paid
all past due franchise taxes on behalf of the Company and then filed a
Certificate of Renewal, Revival, Extension and Restoration of the Company's
Certificate of Incorporation on behalf of the Company. This Certificate was
filed in the office of the Secretary of State of the State of Delaware on
December 26, 1996 and at the date of this Proxy Statement the Company is
lawfully incorporated, validly existing and in good standing under the laws of
the State of Delaware.
In connection with the reinstatement of the Company's Charter, Capston
adopted amended by-laws for the conduct of the Company's business, subject to
the approval and ratification of the Stockholders. Under the amended by-laws
adopted by Capston, the presence, in person or by proxy, of one-third (1/3) of
the total number of shares entitled to vote at the Meeting will constitute a
quorum.
Acting in its capacity as a Stockholder of the Company, and without first
receiving any consent, approval or authorization of any officer, director or
other Stockholder of the Company, Capston filed with the SEC an omnibus Annual
Report on Form 10-K for the fiscal years ended March 31, 1988. In connection
therewith, Capston advanced all of the costs and expenses associated with the
preparation of audited financial statements for the Company, together with all
of the filing fees due to the SEC. As a result of these actions, the Company has
been brought current with respect to its reporting obligations under the
Exchange Act and is once again in compliance with applicable SEC regulations
respecting reporting.
Stockholders Entitled to Vote and Vote Required.
Reinstatement of Charter. Since the actions of Capston in effecting a
renewal, revival and restoration of the Company's certificate of incorporation
were not previously authorized by the Company's Officers, Directors or
Stockholders, it is necessary for the Stockholders to ratify
<PAGE>
and adopt such actions by a majority vote The affirmative vote of the holders of
a majority of all shares of Common Stock entitled to vote and represented in
person or by proxy at the Meeting is required to ratify Capston's Reinstatement
of the Company's Charter. In conformity with Article II, Section 11 of the
Company's amended by-laws, the failure to appear in person or by proxy and vote
on matters presented to the Meeting will be treated as a vote FOR all proposals
unless the holders of least 10% of the Company's outstanding Common Stock appear
in person or by proxy and vote AGAINST the proposal. Executed proxies that are
marked "Abstain" and broker non-votes will be counted as votes against the
proposal.
Adoption of By-Laws. Since the actions of Capston in adopting new by-laws
for the Company were not previously authorized by the Company's Officers,
Directors or Stockholders, it is necessary for the Stockholders to ratify and
adopt such actions by a majority vote The affirmative vote of the holders of a
majority of all shares of Common Stock entitled to vote and represented in
person or by proxy at the Meeting is required to ratify Capston's adoption of
new by-laws for the Company In conformity with Article II, Section 11 of the
Company's amended by-laws, the failure to appear in person or by proxy and vote
on matters presented to the Meeting will be treated as a vote FOR all proposals
unless the holders of least 10% of the Company's outstanding Common Stock appear
in person or by proxy and vote AGAINST the proposal. Executed proxies that are
marked "Abstain" and broker non-votes will be counted as votes against the
proposal.
Filing of SEC Reports. Since the actions of Capston in preparing and
filing an omnibus Annual Report on From 10-K for the fiscal years ended March
31, 1988 were not previously authorized by the Company's Board of Directors or
Stockholders, it is necessary for the Stockholders to ratify and adopt such
actions by a majority vote. The affirmative vote of the holders of a majority of
all shares of Common Stock entitled to vote and represented in person or by
proxy at the Meeting is required to ratify Capston's filing of an omnibus Annual
Report on From 10-K for the fiscal years ended March 31, 1988. In conformity
with Article II, Section 11 of the Company's amended by-laws, the failure to
appear in person or by proxy and vote on matters presented to the Meeting will
be treated as a vote FOR all proposals unless the holders of least 10% of the
Company's outstanding Common Stock appear in person or by proxy and vote AGAINST
the proposal. Executed proxies that are marked "Abstain" and broker non-votes
will be counted as votes against the proposal.
CAPSTON ASKS ALL STOCKHOLDERS TO APPROVE EACH OF THE FOREGOING PROPOSALS. THE
PROXY ENCLOSED HEREWITH WILL BE VOTED FOR EACH PROPOSAL UNLESS THE STOCKHOLDER
SPECIFICALLY VOTES AGAINST ONE OR MORE PROPOSAL OR EXPRESSLY ABSTAINS FROM
VOTING. SINCE CAPSTON HAS PROPOSED THE PLAN AS AN INTEGRATED WHOLE, CAPSTON
INTENDS TO ABANDON THE PLAN IN ITS ENTIRETY IF ALL ELEMENTS OF THE PLAN ARE NOT
APPROVED BY THE STOCKHOLDERS.
ELECTION OF DIRECTORS
The by-laws of the Company provide that the Company shall have not less
than one (1) nor more than nine (9) Directors, the exact number to be fixed by
the Board of Directors from time to time. Since Capston only effected a renewal,
revival and restoration of the Company's
<PAGE>
certificate of incorporation in December of 1996, there are presently no members
of the Board of Directors and it will be necessary to appoint at least one
person to serve as a director of the Company to serve, subject to the provisions
of the by-laws of the Company, until the 1998 annual Meeting of the
Stockholders, and until the election and qualification of a successor board of
directors. Capston's sole nominee for membership on the Board of Directors is
Ms. Sally A. Fonner, the principal stockholder and president of Capston. A brief
account of Ms. Fonner's business experience and education follows:
Ms. Sally A. Fonner, age 48, has been an independently employed business
consultant for most of the past fifteen years. She graduated from Stephens
University in 1969 with a Bachelor of Arts Degree in Social Systems. After a
stint in the private sector, Ms. Fonner returned to further her education and
obtained her MBA Degree from the Executive Program of the University of Illinois
in 1979. In many of her assignments as a business consultant, she is frequently
engaged in dealings which involve financiers and large monetary transactions.
Currently, Ms. Fonner has been engaged for the last two years in the complex
area of financing rehabilitation providers.
Board and Committee Activity, Structure and Compensation. As Capston's
representative, Ms. Fonner will receive no compensation for serving on the Board
of Directors, although she will likely be allocated a substantial portion of the
200,000 compensation shares provided for in the Plan. After the completion of a
business combination transaction, directors who are not a salaried employees of
the Company will likely receive a cash stipend for attending Meetings of the
Board, together with reimbursement for expenses incurred in connection with
attending each such Meeting. The Company does not currently have any standing
committees; however, it is expected that the Board will likely designate an
Executive Committee, a Compensation Committee and an Audit Committee after the
completion of a business combination transaction.
Stockholders Entitled to Vote and Vote Required.
Directors will be elected by a plurality of the votes cast by the holders
of all shares of Common Stock entitled to vote at the Meeting. Abstentions and
broker non-votes will be disregarded in the tabulation of votes for the election
of Directors.
CAPSTON ASKS ALL STOCKHOLDERS TO VOTE FOR THE ELECTION OF MS. FONNER TO SERVE AS
THE SOLE DIRECTOR OF THE COMPANY UNTIL THE 1998 ANNUAL MEETING OF STOCKHOLDERS.
THE PROXY ENCLOSED HEREWITH WILL BE VOTED FOR EACH PROPOSAL UNLESS THE
STOCKHOLDER SPECIFICALLY VOTES AGAINST ONE OR MORE PROPOSALS OR EXPRESSLY
ABSTAINS FROM VOTING. SINCE CAPSTON HAS PROPOSED THE PLAN AS AN INTEGRATED
WHOLE, CAPSTON INTENDS TO ABANDON THE PLAN IN ITS ENTIRETY IF ALL ELEMENTS OF
THE PLAN ARE NOT APPROVED BY THE STOCKHOLDERS.
PROPOSED REVERSE SPLIT
At the date of this Proxy Statement, the Company has an aggregate of
3,476,370 shares of Common Stock issued and outstanding. Since (i) Capston
believes that the owners of a suitable target company will ordinarily want to
control between 80% and 90% of the Company's Common Stock upon the completion of
a business combination transaction, and (ii) Capston believes an ultimate
capitalization in the 2,500,000
<PAGE>
to 5,000,000 share range is ideal for a small public Company, Capston believes
that it will be in the best interest of the Company and its Stockholders to
reduce the number of outstanding shares to approximately 300,000 shares by means
of a reverse split. Capston believes such action will optimize the number of
shares issued and outstanding after a business combination transaction, result
in a higher reported market price for the Common Stock of the combined
companies, and reduce the market volatility of the Common Stock of the combined
companies. These changes, in turn, are expected to enhance the overall
perception of the Common Stock among institutional investors and larger
brokerage firms. These goals, if achieved, are expected to enhance the Company's
ability to raise additional equity capital, and attract new market makers and
institutional stockholders.
Capston believes that the proposed reverse split will be beneficial to the
Company by significantly reducing the number of issued and outstanding shares of
Common Stock, reducing the expected level of price volatility, and otherwise
stabilizing the anticipated market price of the Common Stock. Capston also
believes the proposed reverse split would increase the Company's posture and
relative worth of its shares in the eyes of the investment community, although
there is a risk that the market may not adjust the price of the Company's Common
Stock by the ratio of a reverse split. Capston is aware of instances where only
modest price appreciation per share has resulted from a reverse stock split.
Trading in the Common Stock thereafter will be at prices determined by supply
and demand and prevailing market conditions, which will not necessarily result
in the Common Stock of the Company maintaining a market price in proportion to
the reverse split effected.
The Common Stock is currently registered under Section 12(g) of the
Exchange Act, and as a result, the Company is subject to the periodic reporting
and other requirements of the Act. The proposed reverse split will not effect
the registration of the Common Stock under the Act, and the Company has no
present intention of terminating its registration under the Act in order to
become a "private" company.
Other than the decrease in the total shares to be outstanding, no
substantive changes are being made in the rights of Common Stock. Accordingly,
upon the Effective Date of a reverse split, each holder of record of new shares
would be entitled to one vote for each new share held at each Meeting of the
Stockholders in respect to any matter on which Stockholders have the right to
vote. Stockholders have no cumulative voting rights, nor will they have the
preemptive right to purchase any additional shares of Common Stock. Holders
would be entitled to receive, when and as declared by the Company's Board of
Directors, out of earnings and surplus legally available therefor, any dividends
payable either in cash, in property or in shares of the capital stock of the
Company.
No fractional new shares will be issued. Each holder of less than 11.5879
shares, after exchange of all other old shares held by the holder, will be
issued one (1) new share in exchange for such remaining old shares.
As soon as practical after the Effective Date of a reverse split, the
Company will mail letters of transmittal to each holder of record of a stock
certificate or certificates which represents issued shares of Common Stock
outstanding on the Effective Date. The letter of transmittal will contain
instructions for the surrender of such
<PAGE>
certificate or certificates to the Company's transfer agent in exchange for the
certificates representing the number of whole shares of new Common Stock into
which the shares of Common Stock have been converted as a result of a reverse
split. No payment will be made or new certificate issued to a stockholder until
he has surrendered his outstanding certificates together with the letter of
transmittal to the Company's transfer agent.
Stockholders Entitled to Vote and Vote Required.
The affirmative vote of the holders of a majority of all shares of Common
Stock entitled to vote and represented in person or by proxy at the Meeting will
be required to approve the proposed reverse split. Stockholders have no right
under Delaware law or the Certificate of Incorporation to dissent from a reverse
split In conformity with Article II, Section 11 of the Company's amended
by-laws, the failure to appear in person or by proxy and vote on matters
presented to the Meeting will be treated as a vote FOR all proposals unless the
holders of least 10% of the Company's outstanding Common Stock appear in person
or by proxy and vote AGAINST the proposal. Executed proxies that are marked
"Abstain" and broker non-votes will be counted as votes against the proposal.
CAPSTON ASKS ALL STOCKHOLDERS TO APPROVE THE PROPOSED REVERSE SPLIT. THE PROXY
ENCLOSED HEREWITH WILL BE VOTED IN FAVOR OF THE PROPOSED REVERSE SPLIT UNLESS
THE STOCKHOLDER SPECIFICALLY VOTES AGAINST THE PROPOSAL OR EXPRESSLY ABSTAINS
FROM VOTING. SINCE CAPSTON HAS PROPOSED THE PLAN AS AN INTEGRATED WHOLE, CAPSTON
INTENDS TO ABANDON THE PLAN IN ITS ENTIRETY IF ALL ELEMENTS OF THE PLAN ARE NOT
APPROVED BY THE STOCKHOLDERS.
ISSUANCE OF COMPENSATION SHARES
As part of the Plan, Capston proposes to issue a total of 200,000 shares
of Common Stock ("Compensation Shares") to individuals designated by Capston as
compensation for services rendered in connection with the implementation of the
Plan. The purpose of this proposed grant of Compensation Shares is to increase
the personal stake of the Grantees in the Company since the Company's long-term
business objectives will be dependent in large part upon their efforts,
expertise and abilities.
Subject to Stockholder approval, the Company intends file a Form S-8
Registration Statement to register the 200,000 Compensation Shares under the
Securities Act. Thereafter, the Compensation Shares will be issued from time to
time to individuals designated by Capston who have materially participated in
the implementation of the Plan. Such shares will not, however, be issued to
finders or for services rendered in a capital raising transaction. If Capston is
successful in arranging a business combination for the Company, approximately
forty percent (40%) of the net value derived by the Company's Stockholders will
vest in Capston and its officers, directors and consultants and the remaining
sixty percent (60%) will inure to the benefit of the existing Stockholders of
the Company.
A Grantee will recognize income for federal tax purposes at the time the
Compensation Shares are issued. In general, the amount of ordinary income
recognized by a Grantee will equal the fair market value of the Compensation
Shares on the date of grant. Gain or loss (if any) from a disposition of
Compensation Shares after the Grantee
<PAGE>
recognizes ordinary income will generally constitute short or long-term capital
gain or loss. The Company will be entitled to a tax deduction at the time the
Grantee recognizes ordinary income on the Compensation Shares.
Stockholders Entitled to Vote and Vote Required.
The affirmative vote of the holders of a majority of all shares of Common
Stock entitled to vote and represented in person or by proxy at the Meeting will
be required to approve the proposed issuance of 200,000 Compensation Shares to
persons designated by Capston. In conformity with Article II, Section 11 of the
Company's amended by-laws, the failure to appear in person or by proxy and vote
on matters presented to the Meeting will be treated as a vote FOR all proposals
unless the holders of least 10% of the Company's outstanding Common Stock appear
in person or by proxy and vote AGAINST the proposal. Executed proxies that are
marked "Abstain" and broker non-votes will be counted as votes against the
proposal.
CAPSTON ASKS ALL STOCKHOLDERS TO APPROVE THE PROPOSED ISSUANCE OF 200,000
COMPENSATION SHARES. THE PROXY ENCLOSED HEREWITH WILL BE VOTED IN FAVOR OF THE
PROPOSED ISSUANCE OF COMPENSATION SHARES UNLESS THE STOCKHOLDER SPECIFICALLY
VOTES AGAINST THE PROPOSAL OR EXPRESSLY ABSTAINS FROM VOTING. SINCE CAPSTON HAS
PROPOSED THE PLAN AS AN INTEGRATED WHOLE, CAPSTON INTENDS TO ABANDON THE PLAN IN
ITS ENTIRETY IF ALL ELEMENTS OF THE PLAN ARE NOT APPROVED BY THE STOCKHOLDERS.
APPROVAL OF FINDER'S FEE FORMULA
As is customary in the industry, the Plan contemplates the payment of
finder's fees to unrelated third parties who introduce the Company to a suitable
acquisition prospect. If any such fee is paid, it will be approved by the
Company's Board of Directors and will be in accordance with the standards
discussed below.
Finder's fees are customarily between 1% and 5% of the total transaction
value, based upon a sliding scale of the amount involved. The traditional
"Lehman Formula" for calculating finder's fees is 5% of the first $1 million in
transaction value, plus 4% of the second $1 million, plus 3% of the third $1
million, plus 2% of the fourth $1 million plus 1% of any transaction value in
excess of $4 million. In Capston's opinion, however, the traditional Lehman
Formula finder's fee minimizes the economic incentive of finder's who are
involved in larger transactions.
In Capston's opinion, the Company and its Stockholders will be better
served by accepting a relatively small percentage interest in a relatively large
transaction, as opposed to requiring a relatively large percentage interest in a
relatively small transaction. The reasons for this belief are numerous. First,
Capston believes that the ongoing costs and expenses associated with reporting
under the Exchange Act can be a significant burden for a small company. Second,
Capston believes that relatively large companies are more likely to thrive and
prosper than smaller companies. Third, Capston believes that relatively large
companies are better suited to shell transactions than small companies. Finally,
Capston believes that a relatively large company will be required to satisfy the
minimum entry standards for the NASDAQ Stock Market and the Regional and
National Stock Exchanges. For example, the following table outlines the
newly-adopted Entry Standards for companies that wish to have their securities
listed in the NASDAQ Small Cap Market:
<PAGE>
NASDAQ Small Cap Market
Net Tangible Assets (Total Asset less Total
Liabilities and Goodwill) $4,000,000, or
Market Capitalization $50,000,000, or
Net Income (2 of last 3 years) $750,000
Total Assets N/A
Total Equity N/A
Public Float (Shares) 1,000,000
Market Value of Float $5,000,000
Bid Price $4.00
Market Makers 3
Stockholders 300
Operating History (years) 1 or
Market Capitalization $50,000,000
Similarly, the following table outlines the newly-adopted Entry Standards for
companies that wish to have their securities listed in the NASDAQ National
Market System:
NASDAQ National Market System
Net Tangible Assets $6,000,000 $18,000,000 N/A
Market Capitalization N/A N/A $75,000,000
Total Assets N/A N/A $75,000,000
Total Revenue N/A N/A $75,000,000
Pre-tax Earnings (2 of last 3 years) $1,000,000 N/A N/A
Public Float (shares) 1,100,000 1,100,000 1,100,000
Market Value of Float $8,000,000 $18,000,000 $20,000,000
Bid Price $5.00 $5.00 $5.00
Market Makers 3 3 4
Stockholders 400 400 400
Operating History (years) N/A 2 N/A
Since the size of the business operation acquired by the Company will, in
large part, determine the market where the securities of the combined companies
will qualify for listing, Capston intends to use all reasonable efforts to
identify and negotiate with the largest possible business combination partners.
In furtherance thereof, Capston intends to offer a "reversed stretched Lehman
fee" to unrelated third party finders who introduce the Company to a suitable
acquisition prospect. Under the reversed stretched Lehman formula proposed by
Capston, the finder may receive 1% of the first $2 million in transaction value,
2% of the second $2 million in transaction value, 3% of the third $2 million in
transaction value, 4% of the fourth $2 million in transaction value and 5% of
any transaction value in excess of $8 million. Since the Company does not have
sufficient financial resources to pay such a finder's fee in cash, it is
anticipated that any finder's fees will be paid with shares of the Company's
Common Stock which may be registered under the Securities Act prior to issuance.
Notwithstanding the foregoing, no finder's fees will be paid to Capston or any
of its officers, directors, employees, agents or affiliates without the prior
consent of the Stockholders.
Stockholders Entitled to Vote and Vote Required.
The affirmative vote of the holders of a majority of all shares of Common
Stock entitled to vote and represented in person or by proxy at the Meeting will
be required to approve the proposed finder's fee formula. In conformity with
Article II, Section 11 of the Company's amended by-laws, the failure to appear
in person or by proxy and vote on matters presented to the Meeting will be
treated as a vote FOR all proposals unless the holders of least 10% of the
Company's outstanding Common Stock appear in person or by proxy and vote AGAINST
the proposal. Executed proxies
<PAGE>
that are marked "Abstain" and broker non-votes will be counted as votes against
the proposal.
CAPSTON ASKS ALL STOCKHOLDERS TO APPROVE THE PROPOSED FINDER'S FEE FORMULA. THE
PROXY ENCLOSED HEREWITH WILL BE VOTED IN FAVOR OF THE PROPOSED FINDER'S FEE
FORMULA UNLESS THE STOCKHOLDER SPECIFICALLY VOTES AGAINST THE PROPOSAL OR
EXPRESSLY ABSTAINS FROM VOTING. SINCE CAPSTON HAS PROPOSED THE PLAN AS AN
INTEGRATED WHOLE, CAPSTON INTENDS TO ABANDON THE PLAN IN ITS ENTIRETY IF ALL
ELEMENTS OF THE PLAN ARE NOT APPROVED BY THE STOCKHOLDERS.
APPROVAL OF NAME CHANGE AND BUSINESS COMBINATION FORMAT
In general, a business combination may be structured in the form of a
merger, consolidation, reorganization, joint venture, franchise, licensing
agreement or purchase of the stock or assets of an existing business. Certain
business combination transactions, such a statutory merger, are complex to
negotiate and implement and require stockholder approval from both parties to
the merger. On the other hand, the simplest form of business combination is
commonly known as a reverse takeover. In a reverse takeover transaction, the
stockholders of the privately-held company exchange their private company shares
for newly issued stock of the public company. As a result of the transaction,
the privately-held company becomes a wholly-owned subsidiary of the Public
Company and due to the large number of public company shares that are
customarily issued to stockholders of the privately-held company, those
stockholders end up with a controlling interest in the public company and are
then free to appoint their own slate of officers and directors.
By using an existing public company, a privately-held concern that wants
to establish a public market for its stock can start with an existing
stockholder base. In addition, there are usually several brokers who will have
an interest in the newly reorganized company because they have stock on their
books.
There are several potential problems that arise in connection with a
reverse takeover. First, there may be large blocks of stock in the hands of
individuals who are eager to sell at any price, thereby making it difficult to
support the market during the period immediately after the reorganization.
Second, in addition to inheriting the stockholders and brokers associated with
the public company, the stockholders of the private company will also inherit
the business history of the public company. Accordingly, a thorough due
diligence investigation of the public company and its principal stockholders is
essential to ensure that there are no unreported liabilities or other legal
problems.
In general, reverse takeovers are viewed with some skepticism by both the
financial community and the regulatory authorities until the reorganized company
has been active for a sufficient period of time to demonstrate credible
operating performance. Until this performance is demonstrated, it can be
difficult to raise additional money for a company that went public through a
reverse takeover transaction. Therefore, the reverse takeover strategy is most
appropriate in cases where the purpose for establishing a public trading market
is not related to a perceived short-term need for additional capital. If a
privately-held company believes that substantial additional capital will be
required within the next 6 to 12 months, a reverse takeover transaction may not
be the best alternative.
<PAGE>
While the business combination transaction contemplated by the Plan may be
structured as a merger or consolidation, Capston believes that the reverse
takeover format will be most attractive to potential acquisition targets.
Accordingly, Capston is seeking prior stockholder authorization for a reverse
takeover transaction that will involve up to 4,500,000 shares of Common Stock.
In the event that a proposed business combination will involve the issuance of
less than 4,500,000 shares to the owners of the privately-held company, then
Capston will be authorized to conclude the business combination without first
seeking the approval of the Stockholders. If, on the other hand, the proposed
business combination transaction will involve the issuance of more than
4,500,000 shares to the owners of the privately-held company, then Capston will
seek prior stockholder approval of the proposed transaction, without regard to
whether such stockholder approval might be required under Delaware law.
In connection with a business combination transaction, it is almost
certain that management of the acquisition target will require the Company to
change its name to one selected by the Board of Directors or stockholders of the
acquisition target. Since it is also almost certain that the stockholders of the
acquisition target will possess sufficient voting power to cause the Company to
change its name after the acquisition, Capston is seeking prior stockholder
authorization for a change in the Company's name that is (i) a negotiated
element of a business combination transaction of the type contemplated by the
Plan, and (ii) communicated to all Stockholders of the Company as soon as
possible following the consummation of the Plan.
Stockholders Entitled to Vote and Vote Required.
Authorization of Stock Issuance. The affirmative vote of the holders of a
majority of all shares of Common Stock entitled to vote and represented in
person or by proxy at the Meeting is required to authorize the issuance of up to
4,500,000 shares of Common Stock to unrelated third in connection with a
business combination transaction of the type contemplated by the Plan. In
conformity with Article II, Section 11 of the Company's amended by-laws, the
failure to appear in person or by proxy and vote on matters presented to the
Meeting will be treated as a vote FOR all proposals unless the holders of least
10% of the Company's outstanding Common Stock appear in person or by proxy and
vote AGAINST the proposal. Executed proxies that are marked "Abstain" and broker
non-votes will be counted as votes against the proposal.
Authorization of Name Change. The affirmative vote of the holders of a
majority of all shares of Common Stock entitled to vote and represented in
person or by proxy at the Meeting is required authorize an amendment to the
Company's Certificate of Incorporation to effect a Change in the Company's name
that is (i) a negotiated element of a business combination transaction of the
type contemplated by the Plan, and (ii) communicated to all Stockholders of the
Company as soon as possible following the consummation of the Plan. In
conformity with Article II, Section 11 of the Company's amended by-laws, the
failure to appear in person or by proxy and vote on matters presented to the
Meeting will be treated as a vote FOR all proposals unless the holders of least
10% of the Company's outstanding Common Stock appear in person or by proxy and
vote AGAINST the proposal. Executed proxies that are marked "Abstain" and broker
non-votes will be counted as votes against the
<PAGE>
proposal.
CAPSTON ASKS ALL STOCKHOLDERS TO APPROVE EACH OF THE FOREGOING PROPOSALS. THE
PROXY ENCLOSED HEREWITH WILL BE VOTED FOR EACH PROPOSAL UNLESS THE STOCKHOLDER
SPECIFICALLY VOTES AGAINST ONE OR MORE PROPOSAL OR EXPRESSLY ABSTAINS FROM
VOTING. SINCE CAPSTON HAS PROPOSED THE PLAN AS AN INTEGRATED WHOLE, CAPSTON
INTENDS TO ABANDON THE PLAN IN ITS ENTIRETY IF ALL ELEMENTS OF THE PLAN ARE NOT
APPROVED BY THE STOCKHOLDERS.
Increase in Authorized Capitalization.
The authorized capitalization of the Company is presently fixed at
20,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock. At
March 31, 1988, the Company had 3,476,370 shares of Common Stock issued and
outstanding. Thus, at March 31, 1988, there were approximately 16,523,630
authorized shares of Common Stock and 1,000,000 authorized shares of Preferred
Stock that were both unissued and not reserved for future issuance.
Since the Company's business plan contemplates the issuance of up to
4,500,000 shares of Common Stock to the current owners of an unidentified
business or businesses, and Capston believes that the Company is likely to need
substantial additional financing in the future, although the amount and timing
of the Company's future financing requirements is not presently ascertainable,
Capston believes that an increase in the authorized capitalization of the
Company is desirable to facilitate the Company's future financing activities.
Accordingly, Capston proposes to increase the authorized Preferred Stock of the
Company from 1,000,000 shares to 5,000,000 shares, and increase the authorized
Common Stock of the Company from 20,000,000 shares to 25,000,000 shares. Under
this proposal, the relative rights and limitations of the holders of Preferred
and Common Stock would remain unchanged.
The proposed increase in the authorized capitalization of the Company has
been recommended by Capston to assure that an adequate supply of authorized and
unissued shares is available to finance the acquisition of suitable business
opportunities and the future growth of the Company. In addition, the proposed
new shares could also be used for general corporate purposes, such as future
stock dividends or stock splits.
The issuance of additional shares of Common Stock may, among other things,
have a dilutive effect on earnings per share and on the equity and voting power
of existing holders of Common Stock. Until the Board determines the specific
rights, preferences and limitations of any future series of Preferred Stock, the
actual effect on the holders of Common Stock of the issuance of such shares
cannot be ascertained. However, such effects might include restrictions on
dividends on the Common Stock if dividends on the Preferred Stock are in
arrears, dilution of the voting power of the holders of Common Stock to the
extent that any series of Preferred Stock has voting rights, and reduction of
amounts available on liquidation of the Company as a result of any liquidation
preference granted to the holders of any series of Preferred Stock.
There are no current plans or arrangements relating to the issuance of any
additional shares of Common or Preferred Stock proposed to be authorized. In
addition, the Company has no present intention to issue shares of Common or
<PAGE>
Preferred Stock to any person in connection with any acquisition of assets,
merger, business combination, exchange of securities or other similar
transaction. The terms of any future offering of Common or Preferred Stock will
be largely dependent on market conditions and other factors existing at the time
of issuance and sale.
If this proposal is approved by the stockholders, the Board will be
authorized to issue additional Common and/or Preferred Stock, from time to time,
within the limits authorized by the proposal without further stockholder action,
except as may otherwise be provided by law or the Articles of Incorporation as
to holders of Preferred Stock. Such additional shares may be issued for cash,
property or services, or any combination thereof, and at such price as the Board
deems reasonable under the circumstances. The increase in authorized shares of
Common Stock and Preferred Stock has not been proposed for an
anti-takeover-related purpose and the Board and management have no knowledge of
any current efforts to obtain control of the Company or to effect large
accumulations of the Company's stock. Nevertheless, the issuance of additional
shares by the Company may potentially have an anti-takeover effect by making it
more difficult to obtain stockholder approval of various actions, such as a
merger or removal of management.
Stockholders Entitled to Vote and Vote Required.
Increase in Common Stock. The affirmative vote of the holders of a
majority of all shares of Common Stock entitled to vote and represented in
person or by proxy at the Meeting will be required to approve the proposed
increase in the Company's authorized Common Stock. In conformity with Article
II, Section 11 of the Company's amended by-laws, the failure to appear in person
or by proxy and vote on matters presented to the Meeting will be treated as a
vote FOR all proposals unless the holders of least 10% of the Company's
outstanding Common Stock appear in person or by proxy and vote AGAINST the
proposal. Executed proxies that are marked "Abstain" and broker non-votes will
be counted as votes against the proposal.
Increase in Preferred Stock. The affirmative vote of the holders of a
majority of all shares of Common Stock entitled to vote and represented in
person or by proxy at the Meeting will be required to approve the proposed
increase in the Company's authorized Preferred Stock. In conformity with Article
II, Section 11 of the Company's amended by-laws, the failure to appear in person
or by proxy and vote on matters presented to the Meeting will be treated as a
vote FOR all proposals unless the holders of least 10% of the Company's
outstanding Common Stock appear in person or by proxy and vote AGAINST the
proposal. Executed proxies that are marked "Abstain" and broker non-votes will
be counted as votes against the proposal.
CAPSTON ASKS ALL STOCKHOLDERS TO APPROVE THE PROPOSED INCREASES IN THE COMPANY'S
AUTHORIZED COMMON AND PREFERRED STOCK. THE PROXY ENCLOSED HEREWITH WILL BE VOTED
IN FAVOR OF BOTH PROPOSALS UNLESS THE STOCKHOLDER SPECIFICALLY VOTES AGAINST THE
PROPOSALS OR EXPRESSLY ABSTAINS FROM VOTING. SINCE CAPSTON HAS PROPOSED THE PLAN
AS AN INTEGRATED WHOLE, CAPSTON INTENDS TO ABANDON THE PLAN IN ITS ENTIRETY IF
ALL ELEMENTS OF THE PLAN ARE NOT APPROVED BY THE STOCKHOLDERS.
<PAGE>
ADDITIONAL INFORMATION
Additional materials enclosed herewith include copies of the Company's
Annual Report on Form 10-K for the year ended March 31, 1996, as filed with the
Securities and Exchange Commission on December 31, 1996 "Exhibit A" and the
Company's Amended By-Laws "Exhibit B." The Form 10-K and By-Laws incorporated
herein by this reference and all disclosures herein relating to the Company and
its management, business and financial condition are qualified in their entirety
by reference to the Form 10-k.
This solicitation is being conducted by Capston Network Company on behalf
of Webcor Electronics, Inc. The cost of soliciting proxies in the accompanying
form will be advanced by Capston and reimbursed by the Company if, as and when a
suitable business combination transaction is effected. The cost of solicitation
including legal, accounting, printing, mailing and other miscellaneous expenses
are estimated at $12,000. To date, Capston's out-of-pocket expenses have been
approximately $5,000. There is no known opposition to the solicitation. In
addition to solicitations by mail, Directors, officers and regular employees of
Capston may solicit proxies by telephone, telegram, fax or personnel
solicitation. Brokers, nominees, fiduciaries and other custodians will be
instructed to forward soliciting material to the beneficial owners of shares
held of record by them, and such custodians will be reimbursed for their
expenses.
The persons designated as proxies to vote shares at the Meeting intend to
exercise their judgment in voting such shares on other matters that may properly
come before the Meeting. Capston does not expect that any matters other than
those referred to in this proxy statement will be presented for action at the
Meeting.
<PAGE>
PROXY WEBCOR ELECTRONICS, INC. PROXY
This Proxy is Solicited by Capston Network Co. for the
Special Meeting of Stockholders to be Held on February 24, 1997
The undersigned hereby appoints John L. Petersen and Lisa Duncan, and each
of them, either one of whom may act without joinder of the other, each with full
power of substitution and ratification, attorneys and proxies of the undersigned
to vote all shares of common stock of WEBCOR ELECTRONICS, INC. which the
undersigned is entitled to vote at a special meeting of Stockholders to be held
at 10:00 a.m. on Tuesday, February 24, 1997, in the Cardita Room of the Sheraton
at Sand Key 430 S. Gulfview Resort, 1160 Gulf Blvd., Clearwater Beach, Florida,
and at any and all adjournments thereof:
1. FOR the ratification of all actions of Capston Network Co. ("Capston")
in (i) effecting a renewal, revival and restoration of the Company's
Certificate of Incorporation; (ii) adopting amended by-laws to govern
the business affairs of the Company, and (iii) filing the reports and
other documents necessary to bring the Company current with respect to
its reporting obligations under the Securities Exchange Act of 1934
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. FOR the election of Sally A. Fonner to serve as the sole member of the
Board of Directors until the 1998 annual Meeting of stockholders, or
until her successor is elected and qualified
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSED AMENDMENTS TO ARTICLES OF INCORPORATION.
(a) To effect a reverse split of all issued and outstanding shares of
Common Stock in the ratio of one (1) share of new Common Stock for
each 11.5879 shares presently outstanding so that immediately
thereafter the Company will have a total of 300,000 shares issued
and outstanding
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(b) To increase the authorized Common Stock of the Company to
25,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(c) To increase the authorized Preferred Stock of the Company to
5,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSED COMPENSATION SHARE ISSUANCE. To approve the issuance of
200,000 shares of Common Stock to persons designated by Capston as
compensation for services rendered in connection with the
implementation of the Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. TO consider and vote upon a proposal which will give the Board of
Directors authority to pay an in-kind Finder's Fee to unrelated third
party finders. who introduce the Company to a suitable acquisition
prospect.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. PROPOSED AUTHORIZATION OF STOCK ISSUANCE. To authorize the Board of
Directors to (i) change the Company's name and (ii) issue up to
4,500,000 shares of Common Stock to unrelated third parties, all
without prior stockholder approval, in connection with a business
combination transaction of the type contemplated by the Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. IN their discretion Upon such other matters
<PAGE>
which may properly come before the meeting and any adjournment
thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE
MANNER DIRECTED HEREIN. UNLESS OTHERWISE SPECIFIED, THE
SHARES WILL BE VOTED FOR THE DIRECTOR NOMINEE AND FOR ALL PROPOSALS.
The undersigned hereby revokes any Proxy previously given in respect
of the Annual Meeting.
Dated: _____________________, 1997
- ---------------------------------------
Signature of
Stockholder(s)Note: Signature should agree with the
name on stock certificate as
printed thereon.
Executors, administrators
and
other fiduciaries should so indicate when signing.
[ ] I Plan to personally attend the Special Meeting of the Stockholders
PLEASE DATE, SIGN AND RETURN THIS PROXY TO CAPSTON
IN THE ENCLOSED ENVELOPE. THANK YOU.
Exhibit 20.4
Proxy Statement -Page
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Company X
Filed by a Party other than the Company _
Check the appropriate box:
|_| Preliminary Proxy Statement
|X| Definitive Proxy Statement
|_| Confidential for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to 14a-11(c) or Rule 14a-12
Webcor Electronics, Inc.
(Name of Registrant as Specified in its Charter)
Capston Network Company
(Name of Person Filing Proxy Statement)
Payment of Filing Fee (Check appropriate box):
|_| $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or
14a-6(i)(2)
|_| $500 for each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3)
|_| Fee computed per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined:
(4) Proposed maximum aggregate value of transaction:
(5)Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identifying the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
Dear Fellow Stockholders;
You are cordially invited to attend a Special Meeting of the Stockholders
(the "Meeting") of Webcor Electronics, Inc., an inactive Delaware corporation
(the "Company). The Meeting will be held on June 19, 1998 at 1:00 p.m., in a
posted room at the Tampa Airport Marriott of Tampa, Florida.
As you may recall, in a Proxy Statement dated January 29, 1997, Capston
Network Company, a Delaware corporation sought Stockholder approval of a
financial restructuring plan for Webcor that contemplated a 1 for 11.5879
reverse split and the issuance of a 90% equity interest in the Company to the
stockholders of an unidentified privately-held company. The Plan proposed by
Capston was ultimately approved by over 96% of the Stockholders who voted on the
proposal and Capston has been actively seeking a business combination
opportunity for the Company since March 11, 1997.
As a result of discussions with the management of several potential
acquisition candidates, Capston and its president, Ms. Sally A. Fonner, have
determined that a number of issues exist that will make it difficult to
negotiate an acceptable business combination transaction. First, while the
meeting was held in full compliance with the amended by-laws that were adopted
by Capston for purposes of the meeting, a full 50% quorum of the Stockholders
was not present at the meeting in person or by proxy and questions have been
raised as to whether the one-third quorum requirement of the amended by-laws was
sufficient to confirm the Plan. Second, the Plan established an arbitrary upper
limit on the number of shares that could be issued in connection with a business
combination transaction and Capston has discovered that this "one size fits all"
approach results in unreasonable expectations when negotiating with smaller
companies and does not provide sufficient flexibility when negotiating with
larger companies. Third, the reverse-split contemplated by the Plan would have
resulted in a large number of "odd lot" Stockholders (Stockholders who own fewer
than 100 shares) who would not be counted as Stockholders of record for purposes
of determining listing eligibility under new Nasdaq standards that were adopted
after the date of the original meeting. Finally, the Plan did not provide a
mechanism for the issuance of equity-based incentives to the employees of an
acquisition candidate in connection with the completion of a business
combination transaction.
As a result of these discussions, Capston and Ms. Fonner have developed a
revised plan (the "Revised Plan") whereby the Company will be restructured as a
"public shell" for the purpose of effecting a business combination transaction
with a suitable privately-held company that has both business history and
operating assets. If this Revised Plan is approved by the Stockholders and
successfully implemented, you may be able to salvage some of the value that your
Webcor shares once represented, although there can be no assurance that the
value of your Webcor shares will ever increase. In any event, Capston and Ms.
Fonner cannot go forward with the Revised Plan without first obtaining
Stockholder approval. Therefore, it is critically important that you read the
enclosed Proxy Statement and promptly mark your vote, sign and return your Proxy
Card.
While the elements of the Revised Plan will be presented to Stockholders as
separate proposals, the Revised Plan is an integrated whole and if all elements
of the Revised Plan are not approved, Capston and Ms. Fonner intend to abandon
the Revised Plan in its entirety. The specific matters to be considered by the
Stockholders are:
1. To ratify the actions of Capston and Ms. Fonner in (i) effecting a renewal,
revival and restoration of the Company's Certificate of Incorporation and
(ii) filing the reports and other documents necessary to bring the Company
current with respect to its reporting obligations under the Securities
Exchange Act of 1934;
2. To amend the Company's by-laws to authorize the election of a single-member
Board of Directors to serve until the total stockholders' equity of the
Company exceeds the sum of $100,000;
<PAGE>
3. To elect Sally A. Fonner, the president of Capston, to serve as the sole
member of the Board of Directors until the completion of a business
combination transaction of the type contemplated by the Revised Plan;
4. To consider and vote upon proposed Amendments to the Company's Certificate of
Incorporation that will:
(a) Effect a reverse split of all issued and outstanding shares of Common
Stock in the ratio of 1 share of new Common Stock for each 12 shares
presently outstanding so that immediately thereafter the Company will
have approximately 300,000 shares of Common Stock issued and
outstanding;
(b) Increase the authorized Common Stock of the Company to 25,000,000
shares;
(c) Increase the authorized Preferred Stock of the Company to 5,000,000
shares; and
(d) Authorize the Board of Directors to change the Company's name without
additional Stockholder approval in connection with a business
combination of the type contemplated by the Revised Plan;
5. To consider and vote upon a proposal to issue approximately 300,000 shares of
Common Stock to Ms. Fonner and other persons designated by Capston as
compensation for services rendered and to be rendered in connection with the
development of the Plan, the Revised Plan and the management of the Company
pending completion of the business combination;
6. To consider and vote upon a proposal that will give the Board of Directors
authority to pay an in-kind Finder's Fee to unrelated third party finders who
introduce the Company to a suitable acquisition prospect;
7. To consider and vote upon a proposal that will give the Board of Directors
discretionary authority to issue an indeterminate number of shares of Common
Stock to unrelated third parties, all without additional Stockholder
approval, in connection with a business combination transaction;
8. To consider and vote upon a proposal to adopt an Incentive Stock Plan for the
Company; and
9. To consider and vote upon any other matters that may properly come before the
meeting.
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON. HOWEVER,
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, YOU ARE URGED TO PROMPTLY MARK
YOUR VOTE, SIGN, DATE, AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED,
SELF-ADDRESSED, STAMPED ENVELOPE SO THAT THE PRESENCE OF A QUORUM MAY BE ASSURED
AND YOUR SHARES MAY BE REPRESENTED AND VOTED IN ACCORDANCE WITH YOUR DESIRES. A
STOCKHOLDER MAY REVOKE A PROXY BY DELIVERING TO CAPSTON A WRITTEN NOTICE OF
REVOCATION, DELIVERING TO CAPSTON A SIGNED PROXY OF A LATER DATE OR APPEARING AT
THE SPECIAL MEETING AND VOTING IN PERSON.
- -------------------------------
Capston Network Company
Sally A. Fonner, President
<PAGE>
WEBCOR ELECTRONICS, INC.
1612 North Osceola Avenue
Clearwater, Florida 33755
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS To Be Held on June 19, 1998
At 1:00 P.M.
Notice is hereby given that a Special Meeting of the Stockholders of Webcor
Electronics, Inc., an inactive Delaware corporation (the "Company"), will be
held on June 19, 1998 at 1:00 p.m., in a posted room at the Tampa Airport
Mariott of
Tampa, Florida, for the following purposes:
1. To ratify the actions of Capston and Ms. Fonner in (i) effecting a renewal,
revival and restoration of the Company's Certificate of Incorporation and
(ii) filing the reports and other documents necessary to bring the Company
current with respect to its reporting obligations under the Securities
Exchange Act of 1934;
2. To amend the Company's by-laws to authorize the election of a single-member
Board of Directors to serve until the total stockholders' equity of the
Company exceeds the sum of $100,000;
3. To elect Sally A. Fonner, the president of Capston, to serve as the sole
member of the Board of Directors until the completion of a business
combination transaction of the type contemplated by the Revised Plan;
4. To consider and vote upon proposed Amendments to the Company's Certificate of
Incorporation that will:
(a) Effect a reverse split of all issued and outstanding shares of Common
Stock in the ratio of 1 share of new Common Stock for each 12 shares
presently outstanding so that immediately thereafter the Company will
have approximately 300,000 shares of Common Stock issued and
outstanding;
(b) Increase the authorized Common Stock of the Company to 25,000,000
shares;
(c) Increase the authorized Preferred Stock of the Company to 5,000,000
shares; and
(d) Authorize the Board of Directors to change the Company's name without
additional Stockholder approval in connection with a business
combination of the type contemplated by the Revised Plan;
5. To consider and vote upon a proposal to issue approximately 300,000 shares of
Common Stock to Ms. Fonner and other persons designated by Capston as
compensation for services rendered and to be rendered in connection with the
development of the Plan and the Revised Plan and the management of the
Company pending completion of the business combination;
6. To consider and vote upon a proposal that will give the Board of Directors
authority to pay an in-kind Finder's Fee to unrelated third party finders who
introduce the Company to a suitable acquisition prospect;
7. To consider and vote upon a proposal that will give the Board of Directors
discretionary authority to issue an indeterminate number of shares of Common
Stock to unrelated third parties, all without additional Stockholder
approval, in connection with a business combination transaction;
8. To consider and vote upon a proposal to adopt an Incentive Stock Plan for the
Company; and
9. To consider and vote upon any other matters that may properly come before the
meeting.
<PAGE>
A record of Stockholders has been taken as of the close of business on March
30, 1998, and only persons who were Stockholders of record on that date will be
entitled to notice of and to vote at the Meeting. A Stockholders' list will be
available commencing April 6, 1998, and may be inspected during normal business
hours prior to the Meeting at the offices of the Company, 1612 North Osceola
Avenue, Clearwater, Florida 33755.
If you do not expect to attend the Meeting, please mark your vote, sign and
date the enclosed Proxy Card and return it promptly in the stamped envelope that
has been enclosed for your convenience. The prompt return of Proxy Cards will
ensure the presence of a quorum and save Capston the expense of further
solicitation.
Clearwater, Florida By Order of Capston
Network Company
________, 1998 Sally A. Fonner,
President
<PAGE>
PROXY STATEMENT
This Proxy Statement is being mailed to all known Stockholders of Webcor
Electronics, Inc. ("Webcor" or the "Company"), commencing on or about April 3,
1998, in connection with the solicitation by Capston Network Company, a Delaware
corporation ("Capston"), of proxies to be voted at a Special Meeting of
Stockholders (the "Meeting") to be held on June 19, 1998 at 1:00 p.m., in a
posted room at the Tampa Airport Marriott of Tampa, Florida,, and at any
adjournment thereof. The Meeting has been called by Capston and its president
Ms. Sally A. Fonner for the purpose of considering a plan proposed by Capston
and Ms. Fonner (the "Revised Plan") whereby the Company will be restructured as
a "public shell" for the purpose of effecting a business combination transaction
with a suitable privately-held company.
Introductory Note
In a Proxy Statement dated January 29, 1997, Capston sought Stockholder
approval of a financial restructuring plan for Webcor that contemplated a 1 for
11.57879 reverse split and the issuance of a 90% equity interest in the Company
to the stockholders of an unidentified privately-held company. The Plan proposed
by Capston was considered at a meeting of the stockholders held in Tampa,
Florida on March 10, 1997 and ultimately approved by approximately 96% of the
Stockholders who voted on the plan. As a result, Capston has been actively
seeking a business combination opportunity for the Company since March 11, 1997.
As a result of discussions with the management of several potential
acquisition candidates, Capston and Ms. Fonner have determined that a number of
issues exist that will make it difficult to negotiate an acceptable business
combination transaction. First, while the meeting was held in full compliance
with the amended by-laws that were adopted by Capston for purposes of the
meeting, a full 50% quorum of the Stockholders was not present at the meeting in
person or by proxy and questions have been raised as to whether the one-third
quorum requirement of the amended by-laws was sufficient to confirm the Plan.
Second, the Plan established an arbitrary upper limit on the number of shares
that could be issued in connection with a business combination transaction and
Capston has discovered that this "one size fits all" approach results in
unreasonable expectations when negotiating with smaller companies and does not
provide sufficient flexibility when negotiating with larger companies. Third,
the reverse-split contemplated by the Plan would have resulted in a large number
of "odd lot" Stockholders (Stockholders who own fewer than 100 shares) who would
not be counted as Stockholders of record for purposes of determining listing
eligibility under new Nasdaq standards that were adopted after the date of the
original meeting. Finally, the Plan did not provide a mechanism for the issuance
of equity-based incentives to the employees of an acquisition candidate in
connection with the completion of a business combination transaction.
As a result of these discussions, Capston and Ms. Fonner have developed a
revised plan (the "Revised Plan") whereby the Company will be restructured as a
"public shell" for the purpose of effecting a business combination transaction
with a suitable privately-held company that has both business history and
operating assets. If this Revised Plan is approved by the Stockholders and
successfully implemented, you may be able to salvage some of the value that your
Webcor shares once represented, although there can be no assurance that the
value of your Webcor shares will ever increase. In any event, Capston and Ms.
Fonner cannot go forward with the Revised Plan without first obtaining
Stockholder approval. Therefore, it is critically important that you read the
enclosed Proxy Statement and promptly mark your vote, sign and return your Proxy
Card.
Voting and Procedural Matters
Michael Weber and Yanie Dubouchage have been selected to serve as the
designated proxies for the meeting. Mr. Weber is a Tampa Bay attorney who has
worked with Capston and Ms. Fonner in connection with certain business matters
and Ms. Dubouchage is
<PAGE>
Ms. Fonner's personal assistant.
With respect to proposals 1 through 7, Proxies will be voted only in
accordance with the directions specified thereon. If any additional matters are
properly brought before the meeting, Proxies will be voted in accordance with
the judgment of the Mr. Weber and Ms. Dubouchage. To avoid potential conflicts
of interest, Capston and Ms. Fonner do not intend to bring any additional
matters before the meeting.
Any Proxy on which no direction is specified will be voted: (i) for the
ratification of Capston's actions in restoring the Company's Certificate of
Incorporation and filing the Company's required reports with the Securities and
Exchange Commission (the "SEC"), (ii) for the proposed amendment to the
Company's by-laws to permit the election of a single-member Board of Directors
(iii) for the election of Sally A. Fonner to serve as sole director until the
completion of a business combination transaction of the type contemplated by the
Revised Plan; (iv) for the proposed Amendments to the Company's Certificate of
Incorporation; (v) for ratification of a proposal to issue approximately 300,000
shares of Common Stock to Ms. Fonner and other persons designated by Capston as
compensation for services rendered and to be rendered in connection the
development of the Plan, the Revised Plan and the management of the Company
pending completion of the business combination; (vi) for the ratification of a
proposal which will give the Board of Directors authority to pay an in-kind
Finder's Fee to unrelated third party finders who introduce the Company to a
suitable acquisition prospect, (vii) for the ratification of a proposal that
will give the Board of Directors discretionary authority to issue an
indeterminate number of shares of Common Stock to unrelated third parties in
connection with a business combination transaction of the type contemplated by
the Revised Plan; (viii) for the proposal to adopt an Incentive Stock Plan for
the Company; and (ix) in the discretion of such Proxies, for or against such
other matters as may properly come before the meeting. A Stockholder may revoke
a proxy by delivering to Capston written notice of revocation, delivering to
Capston a signed proxy of a later date or appearing at the Meeting and voting in
person.
As of January 30, 1998, after adjusting for 481,014 shares of treasury stock
held by the Company, there were issued, outstanding and entitled to vote
3,476,370 shares of the Company's common stock, par value $.01 per share (the
"Common Stock"). According to American Stock Transfer & Trust Company, the
transfer agent for the Company's Common Stock, there are 831 record holders
entitled to vote at the meeting. Each share of Common Stock entitles the holder
to one vote on each matter presented for consideration by the Stockholders. With
the exception of Capston, no Stockholder has indicated a pre-approval of the
proposals described in this Proxy Statement.
The proxy card provides space for a shareholder to withhold voting for the
nominee for the Board of Directors or to abstain from voting for any proposal if
the shareholder chooses to do so. The proposed amendments to the Certificate of
Incorporation will require the affirmative vote of a majority of the shares
represented at the meeting in person or by proxy. For purposes of determining
the number of votes cast with respect to the proposed amendments to the
Certificate of Incorporation, abstentions will be counted as votes cast against
the proposals and broker non-votes will be excluded from the tabulation. Each
other matter to be submitted to the shareholders requires the affirmative vote
of a majority of the votes cast at the meeting. For purposes of determining the
number of votes cast with respect to any other voting matter, only those cast
"for" or "against" a proposal will be included in the tabulation.
CONDUCT OF THE MEETING
The required quorum for the transaction of business at the meeting is a
majority of the issued and outstanding stock of the Company, or 1,738,186 shares
(the "Quorum"). Since Delaware law requires that amendments to a corporation's
articles of incorporation be proposed by the board of directors and then
<PAGE>
submitted to the Stockholders for approval, Ms. Fonner intends to call the
Meeting to order, determine whether a Quorum is present, and then request an
immediate vote on (i) the ratification of Capston's actions in restoring the
Company's Certificate of Incorporation and filing the Company's required reports
with the SEC, (ii) the proposed amendment to the Company's by-laws that will
authorize the election of a single-member Board of Directors, and (iii) the
election of Ms. Fonner to serve as the sole member of the Company's Board of
Directors until the completion of a business combination transaction. If a
Quorum is present at the Meeting and if Ms. Fonner is elected by the requisite
Stockholder vote, the Meeting will be adjourned for a brief period, Ms. Fonner
will assume her position as the sole director of the Company, the Board of
Directors will then consider the Revised Plan, recommend the amendments
described herein to the Stockholders and the Meeting will be reconvened for the
purpose of considering and voting on the other proposals set forth herein. If a
Quorum is not present, the Meeting may be adjourned for one or more periods of
up to 30 days to permit the solicitation of additional proxies. If Capston and
Ms. Fonner are unable to obtain sufficient proxies to constitute a Quorum, or if
a Quorum is present and Ms. Fonner is not elected by the requisite Stockholder
vote, then Capston and Ms. Fonner will report the results of the Meeting to the
SEC and abandon all further efforts on behalf of the Company.
SPECIAL INSTRUCTIONS FOR
BROKERAGE FIRMS, CUSTODIANS AND OTHER NOMINEES.
In connection with this Proxy Solicitation, Capston has made every
reasonable effort to ascertain the identities and mailing addresses of the
beneficial owners of shares of the Company's Common Stock that are held of
record in "street name" or other custodial accounts. With the assistance of
American Stock Transfer and Trust Co., Depository Trust Company and ADP Proxy
Services, all worthless securities positions have been restored to the brokerage
firms and other custodians who originally held shares of the Company's Common
Stock on behalf of clients. Nevertheless, past experience has demonstrated that
brokerage firms and custodians are not always able to readily identify and
communicate with beneficial owners of securities that were written off in prior
years.
Based on a review of the SEC's Proxy Regulations, and discussions with legal
counsel, DTC, ADP and the Proxy Departments of several large brokerage firms,
Ms. Fonner has concluded that the most appropriate response from brokerage firms
and other custodians who hold shares of the Company's Common Stock for the
accounts of unidentified or non-locatable clients will be to appear by Proxy
with respect to all shares held of record, and to submit a formal broker
non-vote for any shares of Common Stock that are held for the accounts of
unidentified or non-locatable clients. By following this procedure, Capston and
Ms. Fonner believe that (i) the meeting will be less likely to fail because of a
lack of a Quorum, (ii) brokerage firms and other custodians will not be required
to exercise any authority on behalf of unidentified or non-locatable clients,
and (iii) the ultimate decision making authority with respect to the proposals
set forth herein will be vested in a majority of the identifiable and locatable
owners of the Company's Common Stock who receive actual notice of the Meeting
and vote on the proposals set forth herein.
BROKERAGE FIRMS AND OTHER CUSTODIANS ARE URGED TO APPEAR BY PROXY WITH RESPECT
TO ALL SHARES OF THE COMPANY'S COMMON STOCK THAT ARE HELD OF RECORD BY THEM, BUT
TO SUBMIT A FORMAL BROKER NON-VOTE FOR ANY SHARES OF THE COMPANY'S COMMON STOCK
THAT ARE HELD FOR THE ACCOUNT OF UNIDENTIFIED OR UNLOCATABLE CLIENTS. THIS
ACTION WILL HELP ASSURE THE PRESENCE OF A QUORUM AND VEST THE ULTIMATE DECISION
MAKING AUTHORITY IN THOSE HOLDERS OF COMMON STOCK WHO RECEIVE ACTUAL NOTICE OF
THE MEETING AND VOTE WITH RESPECT TO THE PROPOSALS SET FORTH HEREIN.
BACKGROUND INFORMATION ON WEBCOR
The Company was incorporated on December 3, 1971 under the
<PAGE>
laws of the State of Delaware. The Company's business consisted of manufacturing
and selling cordless telephones, telephone accessories, electronic scales and
calculators. The Company conducted an initial public offering of its Common
Stock in May, 1982 pursuant to a Form S-1 registration Statement under the
Securities Act of 1933 (the "Securities Act") and concurrently registered its
Common Stock under Section 12(g) of the Securities Exchange Act of 1934 (the
"Exchange Act").
After pursuing its business for several years, the Company filed a voluntary
petition under Chapter 11 of the Bankruptcy Act on February 1, 1989. This
proceeding was filed in with the U.S. Bankruptcy Court for the Eastern District
of New York (Brooklyn) and designated as Case No. 89-10328. On October 16, 1990,
the Company's Chapter 11 case was voluntarily converted to a case in Chapter 7
which resulted in the orderly liquidation of all corporate assets and the use of
the proceeds to repay the Company's creditors. On November 13, 1996, the
Company's case under Chapter 7 was closed by an order of the Court and the
trustee was discharged. As a result of the Bankruptcy, the Company has no
assets, liabilities, management or ongoing operations and has not engaged in any
business activities since October, 1990. The Company has been totally inactive
since November 13, 1996.
During the pendancy of the Bankruptcy, the Company did not file franchise
tax returns with and pay the required franchise taxes to the State of Delaware.
As a result, the Company's corporate charter was revoked by order of the
Secretary of State of the State of Delaware on March 1, 1991. Similarly, the
Company did not file with the SEC either (a) the regular reports that are
required of all companies that have securities registered under the Exchange
Act, or (b) a certification on Form 15 terminating its registration under the
Exchange Act. As a result, the Company remained a reporting company under the
Exchange Act but was seriously delinquent in its SEC reporting obligations.
Acting in its capacity as a Stockholder of the Company, and without first
receiving any consent, approval or authorization of any other stockholder, or
any former officer or director of the Company, Capston effected a renewal,
revival and restoration of the Company's certificate of incorporation pursuant
to Section 312 of the General Corporation Law of the State of Delaware (the
"GCLD"). In general, Section 312 provides that any corporation may "procure an
extension, restoration, renewal or revival of its certificate of incorporation,
together with all the rights, franchises, privileges and immunities and subject
to all of its duties, debts and liabilities which had been secured or imposed by
its original certificate of incorporation" upon compliance with certain
procedural requirements.
After reviewing the applicable files, Capston and Ms. Fonner determined that
the only debt of the Company that was "secured or imposed by its original
certificate" was the obligation of the Company to pay its Delaware taxes.
Therefore, Capston paid past due franchise taxes of $450.00 on behalf of the
Company and Ms. Fonner then filed a Certificate of Renewal, Revival, Extension
and Restoration of the Company's Certificate of Incorporation under the
authority granted by Section 312(h). This Certificate was filed in the office of
the Secretary of State of the State of Delaware on December 26, 1996 and at the
date of this Proxy Statement the Company is lawfully incorporated, validly
existing and in good standing under the laws of the State of Delaware.
After restoring the Company's Certificate of Incorporation, Capston retained
the accounting firm of Want & Ender, CPAs, to prepare audited financial
statements for the Company and then filed with the SEC an omnibus Annual Report
on Form 10-K in order to bring the Company current with respect to its reporting
obligations under the Exchange Act. Since then, Capston and Ms. Fonner have
filed with the SEC all quarterly and other reports required by SEC regulations
and as a result, the Company is now current with respect to its reporting
obligations. under the Exchange Act.
The foregoing actions have been taken by Capston, acting in its capacity as
a stockholder, and by Ms. Fonner, acting in her
<PAGE>
capacity as the sole stockholder, officer and director of Capston, for the
express purpose of calling and holding a meeting of the Company's stockholders
in conformity with the requirements of Section 312(h) of the GCLD. Capston and
Ms. Fonner have not assumed general authority to act on behalf of the Company
and have taken no actions that are not required by statute, rule or regulatory
authority to be taken prior to the Meeting. As a result, Capston and Ms. Fonner
have voluntarily assumed statutory liability under the GCLD and the Exchange Act
and, accordingly, must at all times comply with the obligations imposed thereby.
These obligations include, among others, the duty to act in a manner that is in
or not opposed to the best interest of the Stockholders, to file with the SEC
the periodic and other reports required under Section 12 of the Exchange Act and
to make timely, full and fair disclosure of all material facts. In the event a
Quorum is not present at the meeting, or the stockholders reject the Revised
Plan, then Capston and Ms. Fonner intend to withdraw the Certificate of Renewal,
Revival, Extension and Restoration of the Company's Certificate of
Incorporation, file with the SEC a Current Report on Form 8-K describing the
results of the Meeting and take no further action on behalf of the Company,
thereby restoring the status quo as it existed prior to restoration of the
Company's Certificate of Incorporation.
The National Quotation Bureau reported that on October 15, 1996 there was a
closing ask of .10, with no closing bid. Even though the Company's stock has
been continuously listed on the over NASD's Electronic Bulletin Board, there was
no significant market activity. Although since the updating of the Company's
records and last proxy, trading activity has been light, sporadic and irregular.
On February 9, 1998, according to Bloomberg there were four market makers with
the highest closing $.06 bid and highest asking bid of $.42 asked.
BACKGROUND INFORMATION ON CAPSTON
Capston was incorporated in the State of Delaware on May 6, 1996 to serve as
a corporate vehicle for the proposed business activities of Ms. Sally A. Fonner
in the restoration and marketing defunct publicly-held corporations, commonly
known as shells. Before proceeding with the organization of Capston, Ms. Fonner
and her professional advisors spent several months researching the subject of
public shells in general and the numerous problematic business practices that
ordinarily make public shells an unattractive alternative for established
companies that want to create a public market for their securities. After
completing this research and thoroughly evaluating her options, Ms. Fonner
concluded that it would be possible to develop a business structure and strategy
for defunct public companies that would provide suitable privately-held
companies with a reasonable alternative to the more traditional initial public
offering, or "IPO," provide the shareholders of a public shell a reasonable
opportunity to realize some value from their investment, and provide a
reasonable profit to Capston in light of the liabilities and risks assumed and
the effort and costs to be expended. Capston was then organized for the purpose
of effecting Ms. Fonner's business plan and this Proxy Statement embodies the
business structure and strategy developed by Capston and Ms. Fonner.
Ms. Fonner presently serves as the sole director of Arnox Corporation and
Bio-Response, Inc. Each of these companies is a publicly-held shell that has
been re-activated by Capston and Ms. Fonner within the preceding 18 months
pursuant to a plan of reorganization that is similar to the Revised Plan
described in this Proxy Statement. In addition, Capston and Ms. Fonner have
filed a substantially identical proxy statement for Marci International Imports,
Inc. and anticipate that the meeting of Marci's stockholders will be conducted
on the same date and at the same place the meeting of Webcor's stockholders,
although such meetings will be held at different times. Moreover, Capston and
Ms. Fonner intend to file substantially identical proxy statements for up to 12
additional companies within the next 12 months. While Capston is actively
negotiating proposed business combination agreements for Arnox and Bio-Response,
and evaluating several potential acquisitions for Marci and Webcor, none of the
<PAGE>
pending transactions has closed at the date of this Proxy Statement, none of the
potential transactions is probable at the date of this proxy statement and there
can be no assurance that one or more of these companies will not ultimately
compete with the Company for a business opportunity.
To avoid the conflicts of interest inherent in the management of multiple
shell companies, Capston and Ms. Fonner intend to take an "inventory approach"
to marketing. In general, Capston and Ms. Fonner will not actively seek out
potential business combination candidates for a particular shell. Instead, it
will represent within its financial industry subgroup that it has a number of
shells available for suitable companies and then wait for a brokerage firm,
finder or other consultant to initiate discussions relating to a specific
private company. When Capston receives an inquiry from an authorized
representative of a private company, it will first request preliminary due
diligence information, including a detailed business plan, financial statements
and financial projections. If the preliminary information shows that the private
company does not meet Capston's minimum business activity and net worth
standards, discussions will terminate at that level. If, on the other hand, the
preliminary due diligence information establishes the suitability of the private
company, then discussions will proceed to the next level where the private
company will provide complete due diligence information to Capston, and Capston
will provide complete due diligence information on all available shells to the
private company. Assuming that both sides are satisfied with the information
provided by the other, discussions will then move from the general to the
specific, the private company will select the shell best suited to its needs,
and negotiations will proceed to deal terms and documentation issues.
While the inventory approach described above will minimize the potential for
conflicts of interest, it may increase the risk that due diligence or bankruptcy
issues will make one shell managed by Capston and Ms. Fonner less attractive
than another in the eyes of a potential business combination partner. To the
extent that a potential business combination partner's due diligence
investigations uncover an unresolved legal problem or other technical defect,
Capston and Ms. Fonner will use reasonable commercial efforts to correct the
problem or defect. There can be no assurance, however, that such efforts will be
successful or that a potential business combination partner will ever select the
Company. If Capston and Ms. Fonner conclude that such problem or defect is
incurable, then they may elect to abandon the Company, de-register the Company's
Common Stock by filing a Form 15 with the SEC describing the problem or defect,
dissolve the Company in accordance with the GCLD and take no further action on
behalf of the Company.
Since the Company has no material assets or liabilities, no operating staff
and no intrinsic value other than its status as a reporting issuer under the
Exchange Act, the Revised Plan contemplates triangular arrangement between the
Company, Capston and Ms. Fonner. Under this arrangement, Ms. Fonner, in her
individual capacity, will assume all of the powers and responsibilities of the
Company's board of directors, and accept the fiduciary duties imposed on
directors by the GCLD. Concurrently, the Company will enter into a project
management agreement with Capston (the "PMA") that (i) retains Capston to
conduct the ministerial accounting and administrative functions associated with
maintaining the Company's status as a reporting issuer under the Exchange Act,
(ii) authorizes Capston to locate and negotiate a business combination agreement
with a suitable privately held company, (iii) obligates Capston to pay, at its
sole risk, the costs and expenses associated with maintaining the Company's
status as a reporting issuer and locating and investigating business combination
opportunities, and (iv) provides Capston, Ms. Fonner and their consultants with
a substantial interest in any economic gains that may arise from their efforts
on behalf of the Company.
While Capston will be employed to perform a variety of ministerial
administrative and management functions on behalf of the Company, it will not be
authorized to bind the Company. Instead, all management functions will be
delegated to Ms. Fonner
<PAGE>
who, acting in her fiduciary capacity as the sole director of the Company, will
have the ultimate right and responsibility to faithfully discharge the
obligations of management and to accept or reject business combination proposals
on behalf of the Company. Therefore, while the Stockholders of the Company will
have limited recourse to Capston under the PMA, they will be afforded all of the
protections provided by the GCLD.
In general, Ms. Fonner will be accountable to the Stockholders as a
fiduciary and consequently must exercise the utmost good faith and integrity in
handling the Company's affairs. Notwithstanding the foregoing, Article Nine of
the Company's Certificate of Incorporation is intended to take full advantage of
the enabling provisions of the GCLD with respect to limiting the personal
liability of its officers, directors, employees and agents. The Certificate
provides that the Company may indemnify any and all persons whom it shall have
power to indemnify from and against any and all expenses, liabilities or other
matters referred to or covered by Section 145 of the GCLD. Thus, the Company may
be prevented from recovering damages for certain alleged errors or omissions by
the Ms. Fonner. Under the Company's by-laws, indemnification payments may only
be made upon a determination that the indemnified person acted in good faith and
in a manner such person reasonably believed to be in, or not opposed to, the
best interests of the Company and, with respect to a criminal proceeding, had no
reasonable cause to believe such conduct was unlawful. Such determination shall
be made (i) by a majority of the disinterested members of the Board of
Directors, (ii) by independent legal counsel in a written opinion, or (iii) by
the Stockholders. It is the position of the SEC that exculpation from and
indemnification for liabilities arising under the Federal securities laws and
the rules and regulations thereunder is against public policy and therefore
unenforceable
DESCRIPTION OF PLAN OF REORGANIZATION
AND PROPOSED OPERATIONS
While the Company has no assets, liabilities, management or ongoing
operations and has not engaged in any business activities since February 1990,
Capston and Ms. Fonner believe that it may be possible to recover some value for
the Stockholders through the adoption and implementation of a Revised Plan
whereby the Company will be restructured as a "public shell" for the purpose of
effecting a business combination transaction with a suitable privately-held
company that has both business history and operating assets (a "Target
Company"). Notwithstanding the foregoing, there can be no assurances that the
Revised Plan will be approved by the Stockholders, successfully implemented, or
that your Webcor shares will ever increase in value.
Capston and Ms. Fonner believe the Company will offer owners of a Target
Company the opportunity to acquire a controlling ownership interest in a public
company at substantially less cost than would otherwise be required to conduct
an initial public offering. Nevertheless, Capston and Ms. Fonner are not aware
of any empirical statistical data that would independently confirm or quantify
their beliefs concerning the perceived value of acquisition transaction for the
owners of a Target Company. The owners of any Target Company selected for a
business combination with the Company will incur significant costs and expenses,
including the costs of preparing the required business combination agreements
and related documents, the costs of preparing a Current Report on Form 8-K
describing the business combination transaction and the costs of preparing the
documentation associated with any future reporting under the Exchange Act and
registrations under the Securities Act.
If the Revised Plan is approved by the Stockholders, the Company will be
fully reactivated and then used as a corporate vehicle to seek, investigate and,
if the results of such investigation warrant, effect a business combination with
a suitable privately-held company or other business opportunity presented to it
by persons or firms that seek the perceived advantages of a publicly held
corporation. The business operations proposed in the Revised Plan are sometimes
referred to as a "blind pool" because Stockholders will not ordinarily have
<PAGE>
an opportunity to analyze the various business opportunities presented to the
Board of Directors by Capston, or to approve or disapprove the terms of any
business combination transaction that may be negotiated on behalf of the
Company. Consequently, the Company's potential success will be heavily dependent
on the efforts and abilities of Capston, Ms. Fonner and their consultants, who
will have virtually unlimited discretion in searching for, negotiating and
entering into a business combination transaction. Capston, Ms. Fonner and their
consultants have had limited experience in the proposed business of the Company.
Although Capston and Ms. Fonner believe that the Company will be able to enter
into a business combination transaction within 12 months after the approval of
the Revised Plan by the Stockholders, there can be no assurance as to how much
time will elapse before a business combination is effected, if ever. The Company
will not restrict its search to any specific business, industry or geographical
location, and the Company may participate in a business venture of virtually any
kind or nature.
Potential business opportunities may occur in many different industries and
at various stages of development, all of which will make the task of comparative
investigation and analysis of such business opportunities extremely difficult
and complex. Capston and Ms. Fonner anticipate that the Company will be able to
participate in only one business venture. This lack of diversification should be
considered a substantial risk inherent in the Revised Plan because it will not
permit the Company to offset potential losses from one venture against gains
from another. Moreover, due to the Company's complete lack of financial,
managerial and other resources, Capston and Ms. Fonner believe the Company will
not be viewed as a suitable business combination partner for either developing
companies or established business that are in need of substantial additional
capital.
Capston and Ms. Fonner anticipate that the selection of a Target Company
will be complex and extremely risky. Because of general economic conditions,
rapid technological advances being made in some industries and shortages of
available capital, Capston and Ms. Fonner believe that there are numerous
privately-held companies seeking the perceived benefits of a publicly traded
corporation. Such perceived benefits may include facilitating debt financing or
improving the terms on which additional equity may be sought, providing
liquidity for the principals of the business, creating a means for providing
incentive stock options or similar benefits to key employees, providing
liquidity for all Stockholders and other factors.
In general, a business combination may be structured in the form of a
merger, consolidation, reorganization, joint venture, franchise, licensing
agreement or purchase of the stock or assets of an existing business. Certain
business combination transactions, such as a statutory merger, are complex to
negotiate and implement and require Stockholder approval from both parties to
the merger. On the other hand, the simplest form of business combination is
commonly known as a "reverse takeover." In a reverse takeover transaction, the
Stockholders of the privately-held company exchange their private company shares
for newly issued stock of the public company. As a result of the transaction,
the privately-held company becomes a wholly-owned subsidiary of the public
company and due to the large number of public company shares that are
customarily issued to Stockholders of the privately-held company, those
Stockholders end up with a controlling interest in the public company and are
then free to appoint their own slate of officers and directors.
There are several potential problems that arise in connection with a reverse
takeover. First, there may be large blocks of stock in the hands of individuals
who are eager to sell at any price, thereby making it difficult to support the
market during the period immediately after the reorganization. Second, in
addition to inheriting the Stockholders associated with the public company, the
stockholders of the private company will also inherit the business history of
the public company. Accordingly, a thorough due diligence investigation of the
public company and its principal Stockholders is essential to ensure that there
are
<PAGE>
no unreported liabilities or other legal problems.
In general, reverse takeovers are viewed with some skepticism by both the
financial community and the regulatory authorities until the reorganized company
has been active for a sufficient period of time to demonstrate credible
operating performance. Until this performance is demonstrated, it can be
difficult to raise additional money for a company that went public through a
reverse takeover transaction. Therefore, the reverse takeover strategy is most
appropriate in cases where the purpose for establishing a public trading market
is not related to a perceived short-term need for additional capital.
While the business combination transaction contemplated by the Revised Plan
may be structured as a merger or consolidation, Capston and Ms. Fonner believe
that the reverse takeover format will be most attractive to potential
acquisition targets. Accordingly, Capston is seeking prior Stockholder
authorization for a reverse takeover transaction that will involve the issuance
of an indeterminate number of shares of Common Stock to the owners of the Target
Company.
Although Capston, Ms. Fonner and their consultants have general business,
finance and acquisition experience, Stockholders should be aware that Capston,
Ms. Fonner and their consultants have limited experience in the area of shell
mergers and are not expected to have any significant experience in operating any
business that the Company might choose to acquire. Accordingly, the Company will
be required to retain outside professionals to assist it initially in assessing
the merits and risks of any proposed acquisition, negotiating the terms of any
business combination agreements and in operating any acquired business. No
assurance can be made that the Company will be able to obtain such assistance on
terms acceptable to the Company.
Summary Description of Revised Plan
At the date of this Proxy Statement, the Company has 3,476,370 shares of
Common Stock issued and outstanding. Since Capston and Ms. Fonner believe that
(i) the owners of a Target Company will ordinarily want to control at least 80%
of the Company's Common Stock upon the completion of a business combination
transaction, and (ii) an ultimate capitalization in the 3,000,000 to 7,000,000
share range is ideal for a small public company, Capston and Ms. Fonner believe
that it will be in the best interest of the Company and its Stockholders to
reduce the number of outstanding shares to approximately 300,000 shares by means
of a 1 for 12 reverse split. Capston and Ms. Fonner believe such action will
optimize the number of shares issued and outstanding after a business
combination transaction, result in a higher reported market price for the Common
Stock of the combined entity, and reduce the market volatility of the Common
Stock of the combined entity. These factors, in turn, are expected to enhance
the overall perception of the Common Stock among institutional investors and
brokerage firms and enhance the combined entity's ability to raise additional
equity capital. Accordingly, Capston and Ms. Fonner will ask the Stockholders to
approve a proposed reverse split of all issued and outstanding shares of Common
Stock in the ratio of 1 share of new Common Stock for each 12 shares presently
outstanding so that immediately thereafter the Company will have approximately
300,000 shares issued and outstanding.
No fractional shares will be issuable in conjunction with the proposed 1 for
12 reverse split and all calculations that would result in the issuance of a
fractional share will be rounded up to the next highest whole number. In
addition, no Stockholder who owned at least 100 shares of the Company's Common
Stock on both January 20, 1998, the original Record Date for the Meeting, and on
March 30, 1998, the final Record Date for the Meeting, will receive fewer than
100 shares as a result of the proposed 1 for 12 reverse split and all
calculations that would result in the issuance of fewer than 100 shares to such
a Stockholder will be rounded up to 100 shares.
Capston and Ms. Fonner have developed the rounding procedures described
above for the express purpose of maximizing the number
<PAGE>
of "round lot" stockholders, meaning stockholders who own 100 or more shares.
The underlying reasons for maximizing the number of round lot holders are as
follows. First, it will be difficult and expensive for a holder of fewer than
100 shares to sell his shares, particularly in the small-cap markets. Second, it
will be expensive for the Company to communicate with holders of fewer than 100
shares. Third, the Nasdaq market and other regional and national stock exchanges
require between 300 and 2,500 round lot stockholders as a condition precedent to
listing. Finally, if the Company were to effect a reverse split without using
the rounding procedures described above, there would be fewer than 200 round lot
holders of record, thereby making the Company less attractive to a potential
acquisition candidate. While the provisions relating to the rounding-up of stock
positions to a minimum of 100 shares will result in a disproportionate benefit
to the holders of more than 100 but fewer than 1,200 shares of Common Stock,
these provisions will also maximize the number of "round-lot" holders and
facilitate the subsequent efforts of a Target Company to obtain a Nasdaq or
Exchange listing. Therefore, Capston and Ms. Fonner believe that the rounding
procedures are reasonable under the circumstances.
THE REVERSE SPLIT PROCEDURES PROPOSED BY CAPSTON AND MS. FONNER DO NOT TREAT
ALL STOCKHOLDERS EQUALLY AND ARE INHERENTLY UNFAIR. WHILE THESE PROCEDURES ARE
INTENDED TO MAXIMIZE THE NUMBER OF "ROUND LOT" STOCKHOLDERS AND FACILITATE
FUTURE EFFORTS TO HAVE THE COMPANY'S COMMON STOCK LISTED FOR TRADING ON THE
NASDAQ SYSTEM OR AN APPROPRIATE REGIONAL OR NATIONAL STOCK EXCHANGE, THERE CAN
BE NO ASSURANCE THAT THE COMPANY WILL EVER QUALIFY FOR SUCH A LISTING. IF THE
COMPANY IS ABLE TO CONCLUDE A BUSINESS COMBINATION OF THE TYPE CONTEMPLATED BY
THE REVISED PLAN, STOCKHOLDERS WHO OWN FEWER THAN 1,200 SHARES OF STOCK WILL
RECEIVE A GREATER PER SHARE BENEFIT THAN STOCKHOLDERS WHO OWN MORE THAN 1,200
SHARES. NOTWITHSTANDING THE FOREGOING, CAPSTON AND MS. FONNER BELIEVE THAT THE
ADVANTAGES TO THE COMPANY OF HAVING A LARGE NUMBER OF "ROUND LOT" STOCKHOLDERS
JUSTIFIES THE INEQUITABLE AND DISPROPORTIONATE BENEFIT TO BE DERIVED BY THE
COMPANY'S SMALL STOCKHOLDERS AT THE EXPENSE OF THE COMPANY'S LARGE STOCKHOLDERS.
After reducing the number of outstanding shares to approximately 300,000,
the Revised Plan contemplates (i) the issuance of an equal number of additional
shares to Capston; (ii) the issuance of an indeterminate number of shares to the
owners of a Target Company (although it is anticipated that such persons will
ordinarily want to control at least 80% of the Company's Common Stock upon
completion of a business combination transaction); (iii) the payment of
third-party finders' fees of up to 5% of the number of shares issued to the
owners of the Target Company; and (iv) a change in the Company's name to one
selected by management of the Target Company.
The determination of the number of shares to be issued in connection with a
business combination transaction is not an exact science and entails a great
deal of subjective business judgment. In arriving at an optimal capital
structure for a business combination transaction, Capston and Ms. Fonner will
ordinarily evaluate the strengths, weaknesses and growth potential of the Target
Company against similarly situated publicly-held companies in the same market
segment. Based on this analysis, Capston and Ms. Fonner will then attempt to
estimate the stabilized market capitalization that the Target Company can expect
to achieve under reasonably foreseeable circumstances. This value will then be
risk weighted by an appropriate factor and used to determine the number of
shares that can be issued by the Company if the goal is to reach a target
stabilized stock price of $5 to $10 per share. In the case of a Target Company
that can only reasonably expect a stabilized market capitalization of $10
million to $15 million, the number of shares issuable to the owners of the
Target Company will be much smaller than would be the case if the Target Company
could reasonably expect a stabilized market capitalization of $50 million to $75
million, or more. In any event, Capston does not intend to enter into a
transaction where it expects the stabilized market price of the Common Stock to
be less than $5 per share. There can be no assurance, however, that Capston and
Ms. Fonner will be successful in meeting this performance
<PAGE>
benchmark, that its subjective business judgments will prove to be accurate or
that its estimate of the stabilized market capitalization that a Target Company
can expect to achieve will prove to be reasonable.
The following table reflects the potential ownership of the Existing
Stockholders, Capston, the Target Company and the Finders under several possible
business combination scenarios:
POTENTIAL DILUTION TABLE
<TABLE>
<CAPTION>
80% to 90% to 95% to
Target Co. Target Co. Target Co.
Stockholders Stockholders Stockholders
Shares Percent Shares Percent Shares Percent
<S> <C> <C> <C> <C> <C> <C>
Existing Stockholders (est.) 300,000 9.62% 300,000 4.82% 300,000 2.39%
Capston (est.) 300,000 9.62% 300,000 4.82% 300,000 2.39%
Target Company Stockholders 2,400,000 76.92% 5,400,000 86.75% 11,400,000 90.69%
Finders 120,000 3.85% 225,000 3.61% 570,000 4.53%
Total 3,120,000 100.00% 6,225,000 100.00% 12,570,000 100.00%
</TABLE>
The potential business combination scenarios set forth above are only
intended to serve as examples of the range of business combination transactions
will be permissible under the Revised Plan and it is possible that the final
terms of a business combination may fall outside of the range presented. Since
Capston and Ms. Fonner have not yet identified a Target Company, or commenced
any discussions or negotiations with the owners thereof, it is impossible to
predict the ultimate structure of a future business combination or to quantify
the final interest of the Existing Stockholders in the combined entity.
Notwithstanding the foregoing, Capston's interest in the combined entity will
remain approximately equal to the interest of the Existing Stockholders and such
interest may not be increased to the disadvantage of the Existing Stockholders.
Acquisition Opportunities
In implementing a business combination transaction, the Company may become a
party to a merger, consolidation, reorganization, joint venture, franchise or
licensing agreement with another corporation or entity. It may also purchase
stock or assets of an existing business. After the consummation of a business
combination transaction, it is likely that the existing Stockholders of the
Company will only own a small minority interest in the combined entity.
Moreover, in connection with the acquisition transaction, all of the Company's
officers and directors will ordinarily resign and be replaced by new officers
and directors without a vote of the existing Stockholders. Capston does not
intend to obtain the approval of the existing Stockholders prior to consummating
any acquisition or business combination other than a statutory merger that
requires a Stockholder vote. Capston and its officers, directors and consultants
do not intend to sell any shares held by them in connection with a business
combination transaction, although it is expected that they will subsequently
sell part or all of such shares in open-market transactions.
It is anticipated that any securities issued in a business combination
transaction will be issued in reliance on exemptions from registration under
applicable Federal and state securities laws. In some circumstances, however, as
a negotiated element of a business combination, the Company may agree to
register such securities either at the time the transaction is consummated or at
some specified time thereafter. The issuance of substantial additional
securities and their potential resale into any trading market that may develop
may have a depressive effect on such market. While the actual terms of a
transaction to which the Company may become a party cannot be predicted, it may
be expected that the parties to the business transaction will find it desirable
to avoid the creation of a taxable event and thereby structure the acquisition
in a so called "tax free" reorganization under Sections 368 or 351 of the
Internal Revenue Code of 1986, as amended (the "Code"). In order to obtain tax
free treatment under the Code, it will ordinarily be necessary for the owners of
the acquired business to own 80% or more of the
<PAGE>
voting stock of the surviving entity. In such event, the existing Stockholders
of the Company would retain less than 10% the outstanding shares of the combined
entity. See "Potential Dilution Table," above. The Company intends to structure
any business combination in such manner as to minimize Federal and state tax
consequences to the Company and any Target Company.
As part of the Company's investigation of potential business opportunities,
Capston and its officers, directors and consultants may meet personally with
management and key personnel, visit and inspect material facilities, obtain
independent analysis or verification of certain information provided, check the
references of management and key personnel, and take other reasonable
investigative measures, to the extent of the Company's limited resources and
Capston's limited expertise. The manner in which the Company participates in a
particular business opportunity will depend on the nature of the opportunity,
the respective needs and desires of the Company and other parties to the
proposed transaction, and the relative negotiating strength of the Company and
such other parties.
With respect to any business combination negotiations, Capston and Ms.
Fonner will ordinarily focus on the percentage of the Company which the Target
Company's Stockholders would acquire in exchange for their ownership interest in
the Target Company. Depending upon, among other things, the Target Company's
assets and liabilities and the perceived future value of the combined entity's
securities, the Company's existing Stockholders will, in all likelihood, only
own a small minority interest in the combined entity upon completion of the
business combination transaction. Therefore, any business combination effected
by the Company can be expected to have a significant dilutive effect on the
percentage ownership of the Company's existing Stockholders.
Upon completion of a business combination transaction, there can be no
assurance that the combined entity will have sufficient funds to undertake any
significant business activities. Accordingly, the combined entity may be
required to either seek additional debt or equity financing or obtain funding
from third parties, in exchange for which the combined entity might be required
to issue substantial additional equity securities. There is no assurance that
the combined entity will be able to obtain additional financing on terms
acceptable to its management.
It is anticipated that the investigation of various business opportunities
and the negotiation, drafting and execution of the required business combination
agreements, disclosure documents and other instruments will require substantial
management time and attention and involve substantial costs for accountants,
attorneys and others. If a decision is made not to participate in a particular
business opportunity the costs incurred by the Company in connection with the
related investigation will not be recoverable. Furthermore, even if an agreement
is reached, the failure to finalize and close on that agreement may result in
the complete loss of the related costs incurred by the Company.
Combination Suitability Standards
Subject only to the fiduciary obligations imposed by the GCLD, Capston and
Ms. Fonner will have virtually unlimited discretion in screening and evaluating
potential business opportunities for the Company, and in negotiating the terms
of a business combination agreement on behalf of the Company. Stockholders
should be aware that the process of screening and evaluating potential business
opportunities and negotiating business combination agreements is highly
subjective and dependent, in large part, on the particular facts and
circumstances surrounding a specific business opportunity. Accordingly, Capston
and Ms. Fonner have not established specific and quantifiable combination
suitability standards. Notwithstanding the generality of the foregoing, Capston
and Ms. Fonner intend to focus their acquisition efforts on companies that have
sufficient assets, net worth and business history to qualify the combined
companies for listing on the Nasdaq Small Cap Market. In addition, Capston and
Ms. Fonner intend to use their best efforts to negotiate a business combination
structure that they believe will be likely to result in a stabilized market
<PAGE>
price of at least $5 per share for the stock of the combined companies. There
can be no assurance, however, that Capston and Ms. Fonner will be successful in
this regard or that their subjective business judgments will prove to be
accurate. These risks are compounded by the fact that Capston and Ms. Fonner do
not intend to seek an independent appraisal or a fairness opinion in connection
with any business combination transaction.
Nasdaq Listing Requirements
As noted above, reverse takeovers are viewed with some skepticism by both
the financial community and the regulatory authorities until the reorganized
company has been active for a sufficient period of time to demonstrate credible
operating performance. Since it can be difficult to raise additional money for a
company that went public through a reverse takeover transaction until
performance is demonstrated, Capston and Ms. Fonner believe the Company will be
most useful in cases where the purpose for establishing a public trading market
is not related to a perceived short-term need for additional capital.
In addition, Capston and Ms. Fonner believe the Company and its Stockholders
will be best served by accepting a relatively small interest in a large
transaction, as opposed to a relatively large interest in a small transaction.
The reasons for this belief are numerous. First, Capston and Ms. Fonner believe
that the ongoing costs and expenses associated with reporting under the Exchange
Act can be a significant burden for a small company. Second, Capston and Ms.
Fonner believe that larger established companies are more likely to prosper than
smaller early-stage companies. Finally, Capston and Ms. Fonner believe that a
relatively large business combination transaction will be required to satisfy
the minimum entry standards for the Nasdaq Stock Market and other Regional and
National Stock Exchanges. For example, the following table outlines the
newly-adopted Entry Standards for companies that wish to have their securities
listed in the Nasdaq Small Cap Market:
Entry Standards for
Nasdaq Small Cap Market
<TABLE>
<CAPTION>
<S> <C>
Net Tangible Assets (Total Asset less Total Liabilities and Goodwill) $4,000,000 or
Market Capitalization $50,000,000 or
Net Income (2 of last 3 years) $750,000
Total Assets N/A
Total Equity N/A
Public Float (Shares) 1,000,000
Market Value of Float $5,000,000
Bid Price $4.00
Market Makers 3
Round Lot Stockholders 300
Operating History (years) 1 or
Market Capitalization $50,000,000z
</TABLE>
Similarly, the following table outlines the newly-adopted Entry Standards
for companies that wish to have their securities listed in the Nasdaq National
Market System:
Entry Standards for
Nasdaq National Market System
<TABLE>
<CAPTION>
Alternative 1 Alternative 2 Alternative 3
<S> <C> <C> <C>
Net Tangible Assets $6,000,000 $18,000,000 N/A
Market Capitalization N/A N/A $75,000,000 or
Total Assets N/A N/A $75,000,000
and
Total Revenue N/A N/A $75,000,000
Pre-tax Earnings (2 of last 3 years) $1,000,000 N/A N/A
Public Float (shares) 1,100,000 1,100,000 1,100,000
Market Value of Float $8,000,000 $18,000,000 $20,000,000
Bid Price $5.00 $5.00 $5.00
Market Makers 3 3 4
Round Lot Stockholders 400 400 400
Operating History (years) N/A 2 N/A
</TABLE>
<PAGE>
Since the size of the Target Company acquired by the Company will, in large
part, determine the market where the securities of the combined entity will
qualify for listing, Capston intends to use all reasonable commercial efforts to
identify and negotiate with the largest possible business combination
candidates.
Exemption from Rule 419
As a reporting issuer under the Exchange Act, the Company's proposed
activities are not subject to SEC Rule 419 which was adopted to strengthen the
regulation of "blind pool" companies which Congress has found to have been
common vehicles for fraud and manipulation in the penny stock market. The
Company is not subject to Rule 419 because it is not offering stock to the
public in an offering registered under the Securities Act. Accordingly,
Stockholders are not entitled to the substantive protection provided by Rule
419.
Penny Stock Rules
Trading of the Company's Common Stock is presently governed by the SEC's
"Penny Stocks Rules" which apply to all Bulletin Board stocks that cost less
than $5.00 per share and are issued by companies having less than $5,000,000 in
net tangible assets. Although the Company may have more than $5,000,000 in net
tangible assets after the completion of a business combination transaction,
there is no assurance that the Company will ever be exempt from the Penny Stock
rules. The Penny Stock Rules impose substantial sales practice burdens and
requirements upon broker-dealers who sell such securities to persons other than
established customers and accredited investors. Before effecting transactions
covered by the Penny Stock rules, a broker-dealer must make a special
suitability determination for each purchaser and receive the purchaser's written
agreement to the transaction prior to the sale. Consequently, the Penny Stock
rules may affect the ability of broker-dealers to effect market transactions in
the stock of the combined entity and also may affect the ability of persons now
owning or subsequently acquiring the stock of the combined entity to resell such
securities in any trading market that may develop. Such factors may also have a
material adverse impact on the future market price of the Common Stock.
Fees to Capston and Others
No direct or indirect compensation has been paid or accrued to Capston, Ms.
Fonner or any of their employees, agents or affiliates to date and except as set
forth below, no direct or indirect compensation will be payable to Capston, Ms.
Fonner or any of their employees, agents or affiliates in the future.
Stock Issuance to Capston. Subject to Stockholder approval, the Company
intends file a Form S-8 Registration Statement under the Securities Act to
register approximately 300,000 shares of Common Stock that will be issuable to
Ms. Fonner and other persons designated by Capston as compensation for services
rendered in connection the development of the Plan, the Revised Plan and the
management of the Company pending completion of the business combination.
Therefore, if Capston and Ms. Fonner are successful in arranging a business
combination for the Company, approximately fifty percent (50%) of the net value
derived will vest in Ms. Fonner and other persons designated by Capston, and the
remaining fifty percent (50%) will inure to the benefit of the existing
Stockholders of the Company. To the extent that shares of Common Stock are
issued to Ms. Fonner or any other person who may be deemed to be an affiliate of
Capston, such shares will be treated as "control securities" under the
Securities Act and resales of such shares will be subject to the volume, manner
of sale and notice requirements of SEC Rule 144 for a period of 90 days after
the closing of a business combination transaction. THE ORIGINAL PLAN PROPOSED BY
CAPSTON AND MS. FONNER PROVIDED FOR THE ISSUANCE OF 200,000 SHARES TO PERSONS
DESIGNATED BY CAPSTON, RATHER THAN THE APPROXIMATELY 300,000 SHARES PROVIDED FOR
IN THE REVISED PLAN. THIS ASPECT OF THE REVISED PLAN WILL PROVIDE AN ADDITIONAL
BENEFIT TO CAPSTON AND MS. FONNER.
Acquisition Fees to Capston. Under the PMA, the Company will
<PAGE>
not be obligated to reimburse Capston for the out-of-pocket expenses incurred in
connection with the reinstatement of the Company's certificate of incorporation,
the preparation and filing of the Company's reports under the Exchange Act and
the investigation of business opportunities on behalf of the Company.
Notwithstanding the foregoing, Capston will ordinarily attempt to negotiate a
"merger and acquisition fee" or "non-accountable expense allowance" of up to
$250,000 that will be payable solely by the Target Company or other parties to a
business combination transaction. The amount of such fees and/or expense
allowances, if any, will be subject to direct negotiation between Capston and
the Target Company or such other parties. Accordingly, it is impossible to
predict whether such fees and/or expense allowances will be paid or to estimate
the potential amount of such payments. Neither the Company nor any of the
existing Stockholders will have any claim to or interest in any fees or expense
allowances that are paid to Capston by the owners of any business opportunity.
THE ORIGINAL PLAN PROPOSED BY CAPSTON DID NOT SPECIFICALLY PERMIT CAPSTON TO
NEGOTIATE FOR OR RECEIVE ANY MERGER AND ACQUISITION FEES OR NON-ACCOUNTABLE
EXPENSE ALLOWANCES. IT DID, HOWEVER, OBLIGATE THE COMPANY TO REIMBURSE CAPSTON
FOR ALL OUT-OF-POCKET EXPENSES INCURRED BY CAPSTON ON BEHALF OF THE COMPANY.
NEVERTHELESS, THIS ASPECT OF THE REVISED PLAN MAY PROVIDE AN ADDITIONAL BENEFIT
TO CAPSTON AND MS. FONNER THAT WAS NOT SPECIFICALLY CONTEMPLATED IN THE ORIGINAL
PLAN.
Finder's Fees. As is customary in the industry, the Company may pay a
finder's fee to unrelated third parties who introduce the Company to a suitable
acquisition prospect. If any such fee is paid, it will be approved by the
Company's Board of Directors and will be in accordance with the standards
discussed herein. Finder's fees in business combination transactions are
customarily between 2% and 5% of the total transaction value, based upon various
factors. If the Revised Plan is approved by Stockholders, Capston and Ms. Fonner
intend to offer a graduated finders' fee schedule to unrelated third party
finders who introduce the Company to a suitable acquisition prospect. Under the
formula proposed by Capston and Ms. Fonner, the finders will receive up to 2% of
the total transaction value on transactions of $2 million or less; 3% of the
total transaction value on transactions of $2 million to $4 million; 4% of the
total transaction value on transactions of $4 million to $6 million; and 5% of
the total transaction value on transactions of more than $6 million. Since the
Company does not have sufficient financial resources to pay such a finder's fee
in cash, it is anticipated that any finder's fees will be paid with shares of
the Company's Common Stock which will ordinarily be registered under the
Securities Act prior to issuance. Notwithstanding the foregoing, no finder's
fees will be paid to Capston, Ms. Fonner or any of their employees, agents or
affiliates without the prior consent of the Stockholders. THE ORIGINAL PLAN
PROPOSED BY CAPSTON PROVIDED FOR THE PAYMENT OF GRADUATED FINDERS FEES THAT
DECREASED AS THE TOTAL TRANSACTION VALUE INCREASED. THIS ASPECT OF THE REVISED
PLAN WILL PROVIDE AN ADDITIONAL BENEFIT TO THE FINDERS WHO INTRODUCE THE COMPANY
TO A SUITABLE ACQUISITION CANDIDATE.
Other Stock Issuances. Certain attorneys and other advisors who will be
retained to represent the Company or a Target Company in connection with a
business combination transaction may agree to accept shares of the Company's
Common Stock as full or partial payment for professional fees associated with
services rendered to the Company or the Target Company. Such shares, if any,
will ordinarily be registered under the Securities Act prior to issuance. If
shares of the Company's Common Stock are used to pay professional fees, the
level of dilution incurred by the existing Stockholders will be increased. THE
ORIGINAL PLAN PROPOSED BY CAPSTON DID NOT SPECIFICALLY PROVIDE FOR THE PAYMENT
OF LEGAL AND OTHER PROFESSIONAL FEES WITH STOCK OF THE COMPANY.
RISK FACTORS
The Revised Plan proposed by Capston involves a high degree of risk.
Stockholders should carefully consider the following factors, among others,
before executing the Proxy Card enclosed herewith.
<PAGE>
Special note regarding forward-looking statements. Certain statements
contained or incorporated by reference in this Proxy Statement, including
without limitation, statements containing the words "believes," "anticipates,"
"expects" and words of similar import, constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, Capston or Ms. Fonner to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Certain of these factors are discussed in more
detail elsewhere in this Proxy Statement. Given these uncertainties,
stockholders are cautioned not to place undue reliance on such forward-looking
statements. The Company, Capston and Ms. Fonner disclaim any obligation to
update any such factors or to publicly announce the result of any revisions to
any of the forward-looking statements contained herein to reflect future events
or developments.
Arbitrary and Inequitable Reverse Split Procedures. THE REVERSE SPLIT
PROCEDURES PROPOSED BY CAPSTON AND MS. FONNER DO NOT TREAT ALL STOCKHOLDERS
EQUALLY AND ARE INHERENTLY UNFAIR. WHILE THESE PROCEDURES ARE INTENDED TO
MAXIMIZE THE NUMBER OF "ROUND LOT" STOCKHOLDERS AND FACILITATE FUTURE EFFORTS TO
HAVE THE COMPANY'S COMMON STOCK LISTED FOR TRADING ON THE NASDAQ SYSTEM OR AN
APPROPRIATE REGIONAL OR NATIONAL STOCK EXCHANGE, THERE CAN BE NO ASSURANCE THAT
THE COMPANY WILL EVER QUALIFY FOR SUCH A LISTING. IF THE COMPANY IS ABLE TO
CONCLUDE A BUSINESS COMBINATION OF THE TYPE CONTEMPLATED BY THE REVISED PLAN,
STOCKHOLDERS WHO OWN FEWER THAN 1,200 SHARES OF STOCK WILL RECEIVE A GREATER PER
SHARE BENEFIT THAN STOCKHOLDERS WHO OWN MORE THAN 1,200 SHARES. NOTWITHSTANDING
THE FOREGOING, CAPSTON AND MS. FONNER BELIEVE THAT THE ADVANTAGES TO THE COMPANY
OF HAVING A LARGE NUMBER OF "ROUND LOT" STOCKHOLDERS JUSTIFIES THE INEQUITABLE
AND DISPROPORTIONATE BENEFIT TO BE DERIVED BY THE COMPANY'S SMALL STOCKHOLDERS
AT THE EXPENSE OF THE COMPANY'S LARGE STOCKHOLDERS.
Increased Compensation to Capston. THE ECONOMIC BENEFITS TO BE DERIVED BY
CAPSTON AND MS. FONNER UNDER THE REVISED PLAN ARE SIGNIFICANTLY GREATER THAN THE
ECONOMIC BENEFITS PROVIDED FOR IN THE ORIGINAL PLAN. FIRST, CAPSTON AND MS.
FONNER JOINTLY WILL RECEIVE A TOTAL OF 300,000 SHARES OF COMMON STOCK INSTEAD OF
THE 200,000 SHARES PROVIDED FOR IN THE ORIGINAL PLAN. SECOND, CAPSTON AND MS.
FONNER WILL BE AUTHORIZED TO NEGOTIATE AND RETAIN AN ACQUISITION FEE OR
NON-ACCOUNTABLE EXPENSE ALLOWANCE OF UP TO $250,000 THAT WILL BE PAYABLE SOLELY
BY THE TARGET COMPANY OR OTHER PARTIES TO A BUSINESS COMBINATION TRANSACTION AND
NEITHER THE COMPANY NOR ANY OF THE EXISTING STOCKHOLDERS WILL HAVE ANY CLAIM TO
OR INTEREST IN ANY FEES OR EXPENSE ALLOWANCES THAT ARE PAID TO CAPSTON AND MS.
FONNER BY THE OWNERS OF ANY BUSINESS OPPORTUNITY. WHILE CAPSTON AND MS. FONNER
BELIEVE THAT THE INCREASED LEVELS OF COMPENSATION ARE JUSTIFIED UNDER THE
CIRCUMSTANCES, ANY ADDITIONAL ECONOMIC BENEFIT DERIVED BY CAPSTON AND MS. FONNER
WILL REDUCE THE POTENTIAL ECONOMIC BENEFIT TO THE EXISTING STOCKHOLDERS.
No Specific Acquisition Plans. The Company intends to engage as soon as is
reasonably possible, in the search for and evaluation of potential acquisition
opportunities, but it will not engage in the business of investing, reinvesting,
owning, holding, or trading securities. While Capston is actively evaluating
potential acquisitions for the Company, none of the potential transactions are
probable at the date of this proxy statement. Capston and Ms. Fonner have made
no specific acquisition plans and no specific industry or area of business has
been selected for investment. There is no assurance Capston, Ms. Fonner and
their consultants will possess the experience and skills necessary to make an
informed judgment about any business or industry that may be chosen.
Accordingly, the nature of the Revised Plan involves an extremely high degree of
risk and the Common Stock is not a suitable investment for anyone who cannot
afford the loss of his entire investment.
Blind Pool. Since Capston and Ms. Fonner have not identified, or taken any
steps toward the acquisition of, any specific
<PAGE>
operating business, ownership of the Common Stock involves an extremely high
degree of risk. The Company's proposed business is, in fact, a Blind Pool over
which the Stockholders will have no meaningful control. It is anticipated that
under most circumstances Stockholders will not be afforded the opportunity to
evaluate the merits of a proposed business combination transaction. Therefore,
Stockholders must rely upon Capston and Ms. Fonner to identify an acquisition
target and negotiate the terms of a business combination transaction. If Capston
and Ms. Fonner are successful in their efforts to identify an acquisition target
and negotiate the terms of a business combination transaction, Stockholders will
not ordinarily be afforded the opportunity to vote or otherwise grant or
withhold consent to the proposed transaction. Moreover, in the event that a
business combination transaction is effected in the form of a "reverse takeover"
Stockholders and prospective investors will not receive full Exchange Act
disclosure relating to the business and financial affairs of the target company
until Webcor files its Annual Report on Form 10-K for the year of the business
combination transaction. Accordingly, Stockholders must rely upon the abilities
of Capston, Ms. Fonner and their consultants. Notwithstanding the foregoing, the
Company will be required to file a Current Report on Form 8-K to disclose
limited information concerning the acquisition within 15 days after the closing
of the acquisition. While the technical requirements of Form 8-K will ordinarily
allow the Company to file financial information on the acquired company up to 60
days after the date of its initial report on Form 8-K Capston does not intend to
close any business combination transaction until the financial information
required by Form 8-K is available for filing with the SEC.
Limited Assets of the Company. As of the date of this Proxy Statement, the
Company has no material assets and it is not anticipated that the Company will
acquire any substantial assets other than the assets of a Target Company. Any
business activity the Company may eventually undertake will require substantial
capital. Since the Company does not know which type of business it will acquire
or the capital requirements for such business, there can be no representations
respecting the future capital needs of the Company.
Potential Need for Additional Financing. No cash compensation has been paid
or accrued to Capston, Ms. Fonner or any of their employees, agents or
affiliates to date. Under the PMA, the Company will not be obligated to
reimburse Capston for the out-of-pocket expenses incurred in connection with the
reinstatement of the Company's certificate of incorporation, the preparation and
filing of the Company's reports under the Exchange Act and the investigation of
business opportunities on behalf of the Company. There is no assurance that
Capston will have sufficient resources to advance all required expenses and if
Capston's resources are insufficient, the Company may be required to seek
additional capital. No assurance can be given that the Company will be able to
obtain additional capital or, that any funds will be available on terms
acceptable to the Company.
Intense Competition. The Company is and will continue to be an insignificant
participant in the business of seeking business opportunities. A large number of
established and well-financed entities, including venture capital firms, have
recently increased their acquisition activities, especially among companies
active in high technology fields. Nearly all such entities have significantly
greater financial resources, technical expertise and managerial capabilities
than the Company and, consequently, the Company will be at a competitive
disadvantage in identifying suitable acquisition candidates and concluding a
business combination transaction.
Dependence on Part-Time Management. The Company has no employees and the
Company's success will be largely dependent on the decisions made by Capston,
Ms. Fonner and their consultants, none of whom will devote their full time to
the affairs of the Company.
Experience of Capston. Although Capston, Ms. Fonner and their consultants
have general business, finance and acquisition experience, Stockholders should
be aware that Capston, Ms. Fonner
<PAGE>
and their consultants are not expected to have any significant experience in
operating any business that the Company might choose to acquire. Accordingly,
the Company will be required to retain outside professionals to assist it
initially in assessing the merits and risks of any proposed acquisition and
thereafter in operating any acquired business. No assurance can be made that the
Company will be able to obtain such assistance on terms acceptable to the
Company.
No Assurance of Acquisition of Operating Entity. Although the Company
proposes to combine with an existing, privately held business which may or may
not be profitable but which is believed to have significant growth potential
(irrespective of the industry in which such company engages) and although
Capston and Ms. Fonner have received inquires from several companies seeking to
combine with publicly held "shells", neither Capston nor Ms. Fonner have
solicited any proposals regarding the Company's potential combination with
another business. There are no assurances that Capston, Ms. Fonner and their
consultants will be able to locate a suitable combination partner or that a
combination can be structured on terms acceptable to the Company.
Bankruptcy Law Considerations. The Company filed a voluntary petition under
Chapter 11 of the Bankruptcy Act on February 1, 1989 which was subsequently
converted to a case under Chapter 7 on October 1, 1990 and closed November 13,
1996. While this Bankruptcy proceeding resulted in the sale of all corporate
assets and the use of the proceeds therefrom to pay corporate liabilities, it
did not formally "discharge" the unpaid balance of the Company's debts. While
Capston and Ms. Fonner believe that legal actions to enforce unpaid obligations
of the Company are now barred by statutes of limitation which require that suits
to enforce obligations be instituted within a specified period of time, the
existence of the prior bankruptcy will make the "due diligence" process more
complex and may make it more difficult for Capston to negotiate a business
combination transaction on favorable terms.
Control of Combination Procedure by Capston and Ms. Fonner. A combination of
the Company with another entity may be structured as a merger or consolidation
or involve the direct issuance of the Company's Common Stock in exchange for the
Target Company's stock or assets. The Corporation Law of Delaware requires the
affirmative vote of the holders of at least a majority of the outstanding shares
of a Delaware corporation's capital stock to approve a merger or consolidation,
except in certain situations in which no vote of the Stockholders is necessary.
Since Stockholder approval is not required in connection with the issuance of
stock in exchange for stock or assets, it is anticipated that Capston and Ms.
Fonner will have complete control over the Company's combination policies and
procedures. Capston and Ms. Fonner do not intend to seek a fairness opinion in
connection with any business combination transaction.
Dilution Resulting from Combination. It is anticipated that any entity which
satisfies the Capston's combination suitability standards will possess assets
and other indicia of value substantially greater than those of the Company.
Consequently, any business combination will almost certainly result in a
substantial dilution in the percentage ownership and voting power of the
Company's existing Stockholders in the combined entity. In the aggregate, the
Company's existing Stockholders will probably own a small minority percentage of
the combined entity's voting securities, with a concomitant reduction in their
power to elect directors and otherwise to influence management policies. See
"Potential Dilution Table."
Likely Change in Control. The successful completion of a business
combination will likely result in a change of control resulting from the
issuance of a large number of shares of the Company's authorized and unissued
Common Stock. Any such change in control is also likely to result in the
resignation or removal of the Company's current Officers and Directors. In such
an event, no assurance can be given as to the experience or qualifications of
successor management in the operation of the business, assets or property of the
combined entity, although it is likely that successor management will have
greater experience
<PAGE>
in the business of the combined entity than Capston, Ms. Fonner and their
consultants.
No Market Research. The Company has neither conducted nor have others made
available to it results of market research concerning the availability of
potential business opportunities. Therefore, Capston and Ms. Fonner can offer no
assurances that market demand exists for a business combination of the type
contemplated by the Revised Plan. Capston and Ms. Fonner have not identified any
particular industry or specific business within an industry for evaluation by
the Company. There is no assurance the Company will be able to acquire a
business opportunity on favorable terms.
Lack of Diversification. In the event that Capston and Ms. Fonner are
successful in identifying and evaluating a suitable Target Company, the Company
will in all likelihood be required to issue shares of its Common Stock in a
business combination transaction. Since the issuance of additional Common Stock
will result in a dilution of the ownership interest of the Company's existing
Stockholders, it is unlikely the Company will be capable of negotiating more
than one business combination transaction. Consequently, the Company's lack of
diversification may subject it to economic fluctuation within a particular
industry in which the Target Company conducts business.
Potential Conflicts of Interest. Ms. Fonner presently serves as the sole
director of Arnox Corporation and Bio-Response, Inc. Each of these companies is
a publicly-held shell that has been reactivated by Capston and Ms. Fonner within
the preceding 18 months pursuant to a plan of reorganization that is similar to
the Revised Plan described in this Proxy Statement. In addition, Capston and Ms.
Fonner have filed a substantially identical proxy statement for Marci
International Imports, Inc. and anticipates that the meeting of Marci's
stockholders will be conducted on the same date and at the same place the
meeting of Webcor's stockholders, although such meetings will be held at
different times. Moreover, Capston and Ms. Fonner intend to file substantially
identical proxy statements for up to 12 additional companies within the next 12
months. All of these activities may be competitive with the proposed business
activities of the Company. Since the principal business of Capston and Ms.
Fonner involves the restructuring of defunct public companies as public shells
for the purpose of effecting business combination transactions with suitable
operating companies,as possible conflicts of interest may arise or may appear to
exist in respect to the possible diversion of corporate opportunities to other
entities with which they are or may become associated. No assurance can be given
that any such potential conflicts of interest will not cause the Company to lose
potential opportunities. October 15, 1996 there was a closing ask of $.10, with
no closing bid. Even though the Company's stock has been continuously listed on
the over NASD's Electronic Bulletin Board, there was no significant market
activity. Although since the updating of the Company's records and last proxy,
trading activity has been light, sporadic and irregular. On February 9, 1998,
according to Bloomberg there were four market makers with the highest closing
$.06 bid and highest asking bid of $.42 asked.
No Assurance of Public Market. According to National Quotation Bureau,
there was no significant market activity in the Company's stock since June, 1989
with the bid on October 15, 1996 there was a closing ask of .10, with no closing
bid. Even though the Company's stock has been continuously listed on the over
NASD's Electronic Bulletin Board, there was no significant market activity.
Since the updating of the Company's records and last proxy, trading activity has
been light, sporadic and irregular. On February 9, 1998, according to Bloomberg
there were four market makers with the highest closing $.06 bid and highest
asking bid of $.42.
There can be no assurance that an active and liquid trading market for the
Company's Common Stock will develop if Capston is able to successfully implement
the Revised Plan and conclude a business acquisition transaction with a Target
Company,. Even if a trading market does in fact develop for the Common Stock,
there is a possibility that it will not be sustained and Stockholders
<PAGE>
may have difficulty in selling their Common Stock in the future at any price.
Possible Issuance of Additional Shares. If the Revised Plan is approved by
the Stockholders, the Company's Certificate of Incorporation will authorize the
issuance of 25,000,000 shares of Common Stock and 5,000,000 shares of Preferred
Stock. Any Preferred Stock that is subsequently issued by the Company may be
subject to conversion into Common Stock on terms approved by the Board of
Directors. If the Revised Plan is approved by the Stockholders, approximately
98% of the Company's authorized shares of Common Stock will be available for
acquisition of a business opportunity, future financing activities, and other
corporate purposes. The Revised Plan specifically contemplates the issuance of
shares of Common Stock to unrelated third parties in connection with a business
combination transaction. Moreover, after completion of a business combination,
the Board of Directors of the combined companies will have the power to issue
additional shares of Common Stock without Stockholder approval. Although the
Company currently has no commitments, contracts or intentions to issue any
additional shares, Stockholders should be aware that any such issuance may
result in a reduction of the book value or market price, if any, of the
outstanding shares of Common Stock. If the Company issues additional shares,
such issuances will also cause a reduction in the proportionate ownership and
voting power of all other Stockholders. Further, any new issuance of shares of
Common Stock may result in a change of control of the Company. If any
acquisition resulted in a change of control, there can be no assurance as to the
experience or qualifications of those new persons involved in either the
management of the Company or of the business being acquired. In that event,
future operations of the Company and the payment of dividends, if any, would be
wholly dependent upon such persons.
No Dividends. The Company has not paid any dividends upon its Common Stock,
and by reason of its present financial status and its contemplated financial
requirements, does not contemplate paying any dividends in the foreseeable
future.
Penny Stock Rules. Trading of the Company's Common Stock is presently
governed by the SEC's "Penny Stocks Rules" which apply to all Bulletin Board
stocks that cost less than $5.00 per share and are issued by companies having
less than $5,000,000 in net tangible assets. Although the Company may have more
than $5,000,000 in net tangible assets after the completion of a business
combination transaction, there is no assurance that the Company will ever be
exempt from the Penny Stock rules. The Penny Stock Rules impose substantial
sales practice burdens and requirements upon broker-dealers who sell such
securities to persons other than established customers and accredited investors.
Before effecting transactions covered by the Penny Stock rules, a broker-dealer
must make a special suitability determination for each purchaser and receive the
purchaser's written agreement to the transaction prior to the sale.
Consequently, the Penny Stock rules may affect the ability of broker-dealers to
effect market transactions in the stock of the combined entity and also may
affect the ability of persons now owning or subsequently acquiring the stock of
the combined entity to resell such securities in any trading market that may
develop. Such factors may also have a material adverse impact on the future
market price of the Common Stock.
PROPOSAL ONE
RATIFICATION OF REINSTATEMENT, AND SEC FILINGS
Acting in its capacity as the beneficial owner of 5,000 shares of the
Company's Common Stock, and without first receiving any consent, approval or
authorization of any former officer or director of the Company, or any other
Stockholder, Capston effected a reinstatement of the Company's Certificate of
Incorporation on December 26, 1996. After restoring the Company's Certificate of
Incorporation, Capston retained the firm of Want & Ender, P.C. to prepare an
audited balance sheet of the Company and the related statements of operations,
changes in Shareholders equity (deficit), and cash flows at the close of
bankruptcy, November 13, 1996. Capston then filed with the SEC an omnibus
<PAGE>
Annual Report on Form 10-K for the fiscal years, March 31, ended 1989 through
1996 and has subsequently filed on behalf of the Company all reports required to
be filed under the Exchange Act. In addition, Capston has prepared this Proxy
Statement for distribution to the Shareholders. In connection therewith, Capston
advanced all of the costs and expenses associated with the preparation of
audited financial statements for the Company, together with all of the filing
fees due to the SEC. As a result of these actions, the Company has been brought
current with respect to its reporting obligations under the Exchange Act and is
once again in compliance with applicable SEC regulations with respect to
reporting.
The foregoing actions have been taken by Capston, acting in its capacity as
a stockholder, and Ms. Fonner, acting in her capacity as the sole officer and
director of Capston, for the sole purpose of calling and holding a meeting of
the Company's stockholders in conformity with the requirements of Section 312(h)
of the GCLD. Capston and Ms. Fonner have not assumed general authority to act on
behalf of the Company and have taken no corporate actions that are not required
by statute, rule or regulatory authority to be taken prior to the Meeting. As a
result of these actions, Capston and Ms. Fonner have voluntarily assumed
statutory liability under the GCLD and the Exchange Act and, accordingly, must
at all times comply with the obligations imposed thereby. These obligations
include, among others, the duty to act in a manner that is in or not opposed to
the best interest of the stockholders, to file with the SEC the periodic and
other reports required under Section 12 of the Exchange Act and to make timely,
full and fair disclosure of all material facts. In the event a Quorum is not
present at the meeting, or the stockholders reject the Revised Plan, then
Capston and Ms. Fonner intend to withdraw the Certificate of Renewal, Revival,
Extension and Restoration of the Company's Certificate of Incorporation, file
with the SEC a Current Report on Form 8-K describing the results of the Meeting
and take no further action on behalf of the Company, thereby restoring the
status quo as it existed prior to the original filing of the Certificate of
Renewal, Revival, Extension and Restoration of the Company's Certificate of
Incorporation.
Except as set forth above, Capston has taken no action and exercised no
powers on behalf of the Company. The foregoing actions have been taken by
Capston solely for the purpose of calling a Special Meeting of the Shareholders
for the purposes set forth herein and insuring that the Special Meeting is
called and held in full compliance with the requirements of Delaware law, the
Exchange Act and applicable SEC rules and regulations.
This proposal is not intended to constitute a ratification of any or all
actions Capston and Ms. Fonner may have taken with respect to the Company to
date and the Stockholders are only being asked to ratify the actions of Capston
and Ms. Fonner in (i) effecting a renewal, revival and restoration of the
Company's Certificate of Incorporation and (ii) filing the reports and other
documents necessary to bring the Company current with respect to its reporting
obligations under the Exchange Act.
If the ratification proposal is adopted by the requisite stockholder vote,
the ratification would limit the rights of the Company and its shareholders to
commence or maintain legal actions against Capston or Ms. Fonner with respect to
the ratified actions. The proposal would not, however, reduce, limit or
eliminate Capston and Ms. Fonner's liabilities and responsibilities under the
GCLD or the federal securities laws.
Shareholders Entitled to Vote and Vote Required.
The affirmative vote of the holders of a majority of all shares of Common
Stock represented and voting at the Meeting, in person or by proxy, will be
required to ratify Capston's actions in restoring the Company's Certificate of
Incorporation and filing the Company's required reports with the SEC. Only
shares voted "FOR" or "AGAINST" the proposal will be treated as Votes Cast.
Accordingly, abstentions and broker non-votes will be counted for purposes of
determining the presence or absence of a Quorum for the transaction of business,
but will not be counted for purposes of determining the number of Votes Cast
with respect
<PAGE>
to this proposal.
CAPSTON ASKS ALL SHAREHOLDERS TO APPROVE THE PROPOSED RATIFICATION OF
CAPSTON'S ACTIONS. THE PROXY ENCLOSED HEREWITH WILL BE VOTED FOR THE PROPOSAL
UNLESS THE STOCKHOLDER VOTES AGAINST THE PROPOSAL OR ABSTAINS FROM VOTING. SINCE
CAPSTON AND MS. FONNER HAVE PROPOSED THE PLAN AS AN INTEGRATED WHOLE, CAPSTON
MAY ELECT TO ABANDON THE PLAN IN ITS ENTIRETY IF ALL ELEMENTS OF THE PLAN ARE
NOT APPROVED BY THE SHAREHOLDERS.
PROPOSAL TWO
AMENDMENT OF BY-LAWS
Due to personal liability issues and the unavailability of insurance, small
public companies frequently encounter significant difficulties in recruiting
third parties to serve as members of their board of directors. These
difficulties are compounded in the case of the Company because (i) the prior
actions of Capston and Ms. Fonner were taken without first receiving any
consent, approval or authorization of any former officer or director of the
Company, (ii) the Company is a reporting issuer that has no assets, ongoing
business or immediate business prospects, and (iii) the ultimate success of the
Company's business plan will depend on the abilities of Capston and Ms. Fonner
to identify a suitable combination target and negotiate an acceptable
combination agreement. Under these circumstances, Capston and Ms. Fonner do not
believe they would be able to recruit additional persons to serve as members of
the Company's board of directors pending the completion of a business
combination transaction. Since Capston and Ms. Fonner are unable to propose a
slate of three individuals to serve as directors of the Company directors
pending the completion of a business combination transaction, the Revised Plan
contemplates the election of Sally A. Fonner, the president of Capston, to serve
as the sole member of the Company's Board of Directors until the 1999 annual
Meeting of the Shareholders, or until the election and qualification of a
successor board of directors. Since the Company's By-laws presently require a
minimum of three directors, rather than the single director proposed under the
Plan, it will be necessary to amend ARTICLE II, Section 2. of the Company's
Bylaws to read as follows:
Section 1. Number and Election of Directors. The total number of directors
constituting the entire Board of Directors shall be not less than one (1)
nor more than nine (9), with the then-authorized number of directors being
fixed from time to time solely by or pursuant to a resolution passed by the
Board of Directors, provided, however, that the total number of directors
shall be not less than three (3) during any period when the total
stockholders' equity in the corporation exceeds $100,000. At any time when
the Board of Directors consists of three (3) or more members, the Board of
Directors shall be divided into three classes, designated Class I, Class II,
and Class III. Each class shall consist, as nearly as may be possible, of
one-third of the total number of directors. Initially, Class I directors
shall be elected for a one-year term, Class II directors for a two-year term
and Class III directors for a three-year term. Thereafter, Directors shall
be elected to serve for a term of three years and until their successors are
elected and qualified. A majority of the Directors shall constitute a quorum
for the transaction of business. All resolutions adopted and all business
transacted by the Board of Directors shall require the affirmative vote of a
majority of the Directors present at the meeting.
Shareholders Entitled to Vote and Vote Required.
The affirmative vote of the holders of a majority of all shares of Common
Stock represented and voting at the Meeting, in person or by proxy, will be
required to approve the proposed amendment to the Company's by-laws. Only shares
voted "FOR" or "AGAINST" the proposal will be treated as Votes Cast.
Accordingly, abstentions and broker non-votes will be counted for purposes of
determining the presence or absence of a Quorum for
<PAGE>
the transaction of business, but will not be counted for purposes of determining
the number of Votes Cast with respect to this proposal.
CAPSTON ASKS ALL SHAREHOLDERS TO APPROVE THE PROPOSED AMENDMENT TO THE
COMPANY'S BY-LAWS. THE PROXY ENCLOSED HEREWITH WILL BE VOTED FOR THE PROPOSED
AMENDMENT UNLESS THE STOCKHOLDER VOTES AGAINST THE PROPOSAL OR ABSTAINS FROM
VOTING. SINCE CAPSTON AND MS. FONNER HAVE PROPOSED THE PLAN AS AN INTEGRATED
WHOLE, CAPSTON MAY ELECT TO ABANDON THE PLAN IN ITS ENTIRETY IF ALL ELEMENTS OF
THE PLAN ARE NOT APPROVED BY THE SHAREHOLDERS.
PROPOSAL THREE
ELECTION OF SOLE DIRECTOR
Since a full 50% quorum of the Stockholders was not present in person or by
proxy at the original meeting, there are questions as to whether Sally A. Fonner
has been duly elected as the sole director of the Company. Accordingly, it will
be necessary to appoint at least one person to serve as a director of the
Company, subject to the provisions of the by-laws of the Company, until the next
Annual Meeting of the Stockholders, and until the election and qualification of
a successor board of directors. Capston's sole nominee for membership on the
Board of Directors is Ms. Sally A. Fonner, the sole Stockholder and president of
Capston. A brief account of Ms. Fonner's business experience and education
follows:
Ms. Sally A. Fonner, age 48, has been an independently employed business
consultant for most of the past fifteen years. She graduated from Stephens
University in 1969 with a Bachelor of Arts Degree in Social Systems. After a
stint in the private sector, Ms. Fonner returned to further her education and
obtained her MBA Degree from the Executive Program of the University of Illinois
in 1979. In many of her assignments as a business consultant, she is frequently
engaged in dealings which involve financiers and large monetary transactions.
Ms. Fonner has been engaged for the last two years in the complex area of
financing rehabilitation providers. Ms. Fonner presently serves as the sole
director of Arnox Corporation and Bio-Response, Inc. Each of these companies is
a publicly-held shell that has been reactivated by Capston and Ms. Fonner within
the preceding 18 months pursuant to a plan of reorganization that is similar to
the Revised Plan described in this Proxy Statement. In addition, Capston and Ms.
Fonner have filed a substantially identical proxy statement for Marci
International Imports, Inc. and anticipates that the meeting of Marci's
stockholders will be conducted on the same date and at the same place the
meeting of Webcor's stockholders, although such meetings will be held at
different times. While Capston is actively negotiating proposed business
combination agreements for Arnox and Bio-Response, and evaluating potential
acquisitions for Marci and Webcor none of the proposed transactions has closed
at the date of this Proxy Statement, none of the potential transactions are
probable at the date of this proxy statement and there can be no assurance that
one or more of these companies will not ultimately compete with the Company for
a business opportunity.
Board and Committee Activity, Structure and Compensation. Ms. Fonner will
receive no compensation for serving as the sole director of the Company,
although she will likely be allocated a substantial portion of the Compensation
Shares provided for in the Revised Plan. After the completion of a business
combination transaction, directors who are not salaried employees of the Company
will likely receive a cash stipend for attending meetings of the Board, together
with reimbursement for expenses incurred in connection with attending each such
meeting. The Company does not currently have any standing committees; however,
it is expected that the Board will likely designate an Executive Committee, a
Compensation Committee and an Audit Committee after the completion of a business
combination transaction.
Stockholders Entitled to Vote and Vote Required.
Directors will be elected by a plurality of the votes cast by the holders of
all shares of Common Stock entitled to vote at the
<PAGE>
Meeting. Only shares voted "FOR" or "AGAINST" Ms. Fonner will be treated as
Votes Cast. Accordingly, abstentions and broker non-votes will be counted for
purposes of determining the presence or absence of a Quorum for the transaction
of business, but will not be counted for purposes of determining the number of
Votes Cast with respect to this proposal.
CAPSTON ASKS ALL STOCKHOLDERS TO VOTE FOR THE ELECTION OF MS. FONNER TO
SERVE AS THE SOLE DIRECTOR OF THE COMPANY UNTIL THE 1998 ANNUAL MEETING OF
STOCKHOLDERS. THE PROXY ENCLOSED HEREWITH WILL BE VOTED FOR MS. FONNER UNLESS
THE STOCKHOLDER VOTES AGAINST MS. FONNER OR ABSTAINS FROM VOTING. SINCE CAPSTON
AND MS. FONNER HAVE PROPOSED THE REVISED PLAN AS AN INTEGRATED WHOLE, CAPSTON
MAY ELECT TO ABANDON THE REVISED PLAN IN ITS ENTIRETY IF ALL ELEMENTS OF THE
REVISED PLAN ARE NOT APPROVED BY THE STOCKHOLDERS.
PROPOSAL FOUR
AMENDMENTS TO CERTIFICATE OF INCORPORATION
4(a) Proposed Reverse Split
At the date of this Proxy Statement, the Company has an aggregate of
3,476,370 shares of Common Stock issued and outstanding. Since (i) Capston and
Ms. Fonner believe that the owners of a suitable target company will ordinarily
want to control at least 80% of the Company's Common Stock upon the completion
of a business combination transaction, and (ii) Capston and Ms. Fonner believe
an ultimate capitalization in the 2,500,000 to 5,000,000 share range is
appropriate for a small public company, Capston and Ms. Fonner believe that it
will be in the best interest of the Company and its Stockholders to reduce the
number of outstanding shares to approximately 300,000 shares by means of a 1 for
12 reverse split. Capston and Ms. Fonner believe such action will optimize the
number of shares issued and outstanding after a business combination
transaction, result in a higher reported market price for the Common Stock of
the combined companies, and reduce the market volatility of the Common Stock of
the combined companies. These changes, in turn, are expected to enhance the
overall perception of the Common Stock among institutional investors and larger
brokerage firms. These goals, if achieved, are expected to enhance the Company's
ability to raise additional equity capital, and attract new market makers and
institutional Stockholders.
No fractional shares shall be issuable in conjunction with the proposed 1
for 12 reverse split and all calculations that would result in the issuance of
fractional shares will be rounded up to the next highest whole number. In
addition, no Stockholder who owned at least 100 shares of the Company's Common
Stock on both January 20, 1998, the original Record Date for the Meeting, and on
March 30, 1998, the final Record Date for the Meeting, shall receive fewer than
100 shares as a result of the proposed 1 for 12 reverse split and all
calculations that would result in the issuance of fewer than 100 shares to a
Stockholder will be rounded up to 100 shares. The following table illustrates
the effect of the rounding procedures at various levels of stock ownership and
the disproportionate benefit to be derived by holders of fewer than 1,200
shares.
<TABLE>
<CAPTION>
Original Stock Stock Ownership After Reverse Split Net Benefit Effective
Ownership Without Rounding With Rounding From Rounding Reverse Split
<S> <C> <C> <C> <C>
12,000 1,000 1,000 - 1:12
1,200 100 100 - 1:12
900 75 100 25 1:9
600 50 100 50 1:6
300 25 100 75 1:3
100 9 100 91 1:1
</TABLE>
Capston and Ms. Fonner have developed the rounding procedures described
above for the express purpose of maximizing the number of "round lot"
stockholders, meaning stockholders who own 100 or more shares. The underlying
reasons for maximizing the number of round lot holders are as follows. First, it
will be difficult and expensive for a holder of fewer than 100 shares to sell
his
<PAGE>
shares, particularly in the small-cap markets. Second, it will be expensive for
the Company to communicate with holders of fewer than 100 shares. Third, the
Nasdaq market and other regional and national stock exchanges require between
300 and 2,500 round lot stockholders as a condition precedent to listing.
Finally, if the Company were to effect a reverse split without using the
rounding procedures described above, there would be fewer than 200 round lot
holders of record, thereby making the Company significantly less attractive to a
potential acquisition candidate. While the provisions relating to the
rounding-up of stock positions to a minimum of 100 shares will result in a
disproportionate benefit to the holders of more than 100 but fewer than 1,200
shares of Common Stock, these provisions will also maximize the number of
"round-lot" holders and facilitate the subsequent efforts of a Target Company to
obtain a Nasdaq or Exchange listing. Therefore, Capston and Ms. Fonner believe
that the rounding procedures are reasonable under the circumstances.
THE REVERSE SPLIT PROCEDURES PROPOSED BY CAPSTON AND MS. FONNER DO NOT TREAT
ALL STOCKHOLDERS EQUALLY AND ARE INHERENTLY UNFAIR. WHILE THESE PROCEDURES ARE
INTENDED TO MAXIMIZE THE NUMBER OF "ROUND LOT" STOCKHOLDERS AND FACILITATE
FUTURE EFFORTS TO HAVE THE COMPANY'S COMMON STOCK LISTED FOR TRADING ON THE
NASDAQ SYSTEM OR AN APPROPRIATE REGIONAL OR NATIONAL STOCK EXCHANGE, THERE CAN
BE NO ASSURANCE THAT THE COMPANY WILL EVER QUALIFY FOR SUCH A LISTING. IF THE
COMPANY IS ABLE TO CONCLUDE A BUSINESS COMBINATION OF THE TYPE CONTEMPLATED BY
THE REVISED PLAN, STOCKHOLDERS WHO OWN FEWER THAN 1,200 SHARES OF STOCK WILL
RECEIVE A GREATER PER SHARE BENEFIT THAN STOCKHOLDERS WHO OWN MORE THAN 1,200
SHARES. NOTWITHSTANDING THE FOREGOING, CAPSTON AND MS. FONNER BELIEVE THAT THE
ADVANTAGES TO THE COMPANY OF HAVING A LARGE NUMBER OF "ROUND LOT" STOCKHOLDERS
JUSTIFIES THE INEQUITABLE AND DISPROPORTIONATE BENEFIT TO BE DERIVED BY THE
COMPANY'S SMALL STOCKHOLDERS AT THE EXPENSE OF THE COMPANY'S LARGE STOCKHOLDERS.
Capston and Ms. Fonner believe that the proposed reverse split will be
beneficial to the Company by significantly reducing the number of issued and
outstanding shares of Common Stock, reducing the expected level of price
volatility, and otherwise stabilizing the anticipated market price of the Common
Stock. Capston also believes the proposed reverse split would increase the
Company's posture and relative worth of its shares in the eyes of the investment
community, although there is a risk that the market may not adjust the price of
the Company's Common Stock by the ratio of a reverse split. Capston is aware of
instances where only modest price appreciation per share has resulted from a
reverse stock split. Trading in the Common Stock thereafter will be at prices
determined by supply and demand and prevailing market conditions, which will not
necessarily result in the Common Stock of the Company maintaining a market price
in proportion to the reverse split effected.
The Common Stock is currently registered under Section 12(g) of the Exchange
Act, and as a result, the Company is subject to the periodic reporting and other
requirements of the Act. The proposed reverse split will not effect the
registration of the Common Stock under the Exchange Act, and the Company has no
present intention of terminating its registration under the Exchange Act in
order to become a "private" company.
Other than the decrease in the total shares to be outstanding, no
substantive changes are being made in the rights of the holders of Common Stock.
Accordingly, upon the effective date of the reverse split, each holder of record
of new shares would be entitled to one vote for each new share held at each
meeting of the Stockholders in respect to any matter on which Stockholders have
the right to vote. Stockholders have no cumulative voting rights, nor will they
have the preemptive right to purchase any additional shares of Common Stock.
Holders would be entitled to receive, when and as declared by the Company's
Board of Directors, out of earnings and surplus legally available therefor, any
dividends payable either in cash, in property or in shares of the capital stock
of the Company.
As soon as practical after the effective date of a reverse split, the
Company will mail letters of transmittal to each
<PAGE>
holder of record of a stock certificate or certificates which represents issued
shares of Common Stock outstanding on the effective date. The letter of
transmittal will contain instructions for the surrender of such certificate or
certificates to the Company's transfer agent in exchange for the certificates
representing the number of whole shares of new Common Stock into which the
shares of Common Stock have been converted as a result of a reverse split. No
payment will be made or new certificate issued to a Stockholder until he has
surrendered his outstanding certificates together with the letter of transmittal
to the Company's transfer agent.
4(b)&(c) Increase in Authorized Common and Preferred Stock
The authorized capitalization of the Company is presently fixed at
20,000,000 shares of Common Stock, of which 3,476,370 shares are presently
issued and outstanding, and 1,000,000 shares of Preferred Stock, of which no
shares are presently issued and outstanding. Accordingly, there are
approximately 16,523,630 authorized shares of Common Stock and 1,000,000 shares
of Preferred Stock that are both unissued and not reserved for future issuance.
After giving pro forma effect to the proposed 1 for 12 reverse split and the
compensation share issuance described above, there would be approximately
600,000 shares of Common Stock issued and outstanding and approximately
19,400,000 authorized shares of Common Stock and 1,000,000 shares of Preferred
Stock that are both unissued and not reserved for future issuance.
Capston and Ms. Fonner believe that the Company is likely to need
substantial additional financing in the future, although the amount and timing
of the Company's future financing requirements is not presently ascertainable,
Capston and Ms. Fonner believe that an increase in the authorized capitalization
of the Company is desirable to facilitate the Company's future financing
activities. Accordingly, Capston proposes to increase the authorized Common
Stock of the Company from 20,000,000 shares of $.01 par value Common Stock to
25,000,000 shares, and to increase the authorized Preferred Stock of the Company
from 1,000,000 shares of $.01 par value Preferred Stock to 5,000,000 shares.
Under this proposal, the relative rights and limitations of the holders of
Preferred and Common Stock would remain unchanged.
The proposed capital structure of the Company has been recommended by
Capston and Ms. Fonner to increase the general desirability of the Company to a
private entity. In addition, the proposed new shares could also be used for
general corporate purposes, such as future stock dividends or stock splits.
The issuance of additional shares of Common Stock may, among other things,
have a dilutive effect on earnings per share and on the equity and voting power
of existing holders of Common Stock. Until the Board determines the specific
rights, preferences and limitations of any future series of Preferred Stock, the
actual effect on the holders of Common Stock of the issuance of such shares
cannot be ascertained. However, such effects might include restrictions on
dividends on the Common Stock if dividends on the Preferred Stock are in
arrears, dilution of the voting power of the holders of Common Stock to the
extent that any series of Preferred Stock has voting rights, and reduction of
amounts available on liquidation of the Company as a result of any liquidation
preference granted to the holders of any series of Preferred Stock.
There are no current plans or arrangements relating to the issuance of any
additional shares of Common or Preferred Stock proposed to be authorized. In
addition, the Company has no present intention to issue shares of Common or
Preferred Stock to any person in connection with any acquisition of assets,
merger, business combination, exchange of securities or other similar
transaction. The terms of any future offering of Common or Preferred Stock will
be largely dependent on market conditions and other factors existing at the time
of issuance and sale.
If this proposal is approved by the Stockholders, the Board will be
authorized to issue additional Common and/or Preferred Stock, from time to time,
within the limits authorized by the
<PAGE>
proposal without further Stockholder action, except as may otherwise be provided
by law or the Certificate of Incorporation as to holders of Preferred Stock.
Such additional shares may be issued for cash, property or services, or any
combination thereof, and at such price as the Board deems reasonable under the
circumstances. The increase in authorized shares of Common Stock and Preferred
Stock has not been proposed for an anti-takeover-related purpose and the Board
and management have no knowledge of any current efforts to obtain control of the
Company or to effect large accumulations of the Company's stock. Nevertheless,
the issuance of additional shares by the Company may potentially have an
anti-takeover effect by making it more difficult to obtain Stockholder approval
of various actions, such as a merger or removal of management.
4(d) Authorization of Name Change
In connection with a business combination transaction, it is almost certain
that management of the Target Company will require the Company to change its
name to one selected by the Board of Directors or Stockholders of the Target
Company. Since it is also almost certain that the Stockholders of the Target
Company will possess sufficient voting power to cause the Company to change its
name after the acquisition, Capston and Ms. Fonner are seeking prior Stockholder
authorization for a change in the Company's name that is (i) a negotiated
element of a business combination transaction of the type contemplated by the
Revised Plan, and (ii) communicated to all Stockholders of the Company as soon
as possible following the consummation of the Revised Plan.
Stockholders Entitled to Vote and Vote Required.
Authorization of Reverse Split. The affirmative vote of the holders of a
majority of all shares of Common Stock represented at the Meeting, in person or
by proxy, will be required to approve the proposed 1 for 12 reverse split and
Stockholders have no right under Delaware law or the Certificate of
Incorporation to dissent from a reverse split. All shares voted "FOR," "AGAINST"
or "ABSTAIN" with respect to the proposal will be treated as Votes Cast. As a
result, shares voted "ABSTAIN" will be treated as votes "AGAINST" the proposal.
Broker non-votes will be counted for purposes of determining the presence or
absence of a Quorum for the transaction of business, but will not be counted for
purposes of determining the number of Votes Cast with respect to this proposal.
Increase in Common Stock. The affirmative vote of the holders of a majority
of all shares of Common Stock represented and voting in person or by proxy at
the Meeting will be required to approve the proposed increase in the Company's
authorized Common Stock from 20,000,000 shares to 25,000,000 shares. All shares
voted "FOR," "AGAINST" or "ABSTAIN" with respect to the proposal will be treated
as Votes Cast. As a result, shares voted "ABSTAIN" will be treated as votes
"AGAINST" the proposal. Broker non-votes will be counted for purposes of
determining the presence or absence of a Quorum for the transaction of business,
but will not be counted for purposes of determining the number of Votes Cast
with respect to this proposal.
Increase in Preferred Stock. The affirmative vote of the holders of a
majority of all shares of Common Stock represented and voting in person or by
proxy at the Meeting will be required to approve the proposed increase in the
Company's authorized Preferred Stock from 1,000,000 shares to 5,000,000 shares.
All shares voted "FOR," "AGAINST" or "ABSTAIN" with respect to the proposal will
be treated as Votes Cast. As a result, shares voted "ABSTAIN" will be treated as
votes "AGAINST" the proposal. Broker non-votes will be counted for purposes of
determining the presence or absence of a Quorum for the transaction of business,
but will not be counted for purposes of determining the number of Votes Cast
with respect to this proposal.
Authorization of Name Change. The affirmative vote of the holders of a
majority of all shares of Common Stock represented and voting at the Meeting, in
person or by proxy is required to authorize an amendment to the Company's
Certificate of Incorporation to effect a Change in the Company's name that is
<PAGE>
(i) a negotiated element of a business combination transaction of the type
contemplated by the Revised Plan, and (ii) communicated to all Stockholders of
the Company as soon as possible following the consummation of the Revised Plan.
All shares voted "FOR," "AGAINST" or "ABSTAIN" with respect to the proposal will
be treated as Votes Cast. As a result, shares voted "ABSTAIN" will be treated as
votes "AGAINST" the proposal. Broker non-votes will be counted for purposes of
determining the presence or absence of a Quorum for the transaction of business,
but will not be counted for purposes of determining the number of Votes Cast
with respect to this proposal.
CAPSTON ASKS ALL STOCKHOLDERS TO APPROVE EACH OF THE PROPOSED AMENDMENTS TO
THE CERTIFICATE OF INCORPORATION. THE PROXY ENCLOSED HEREWITH WILL BE VOTED FOR
EACH PROPOSAL UNLESS THE STOCKHOLDER VOTES AGAINST A PROPOSAL OR ABSTAINS FROM
VOTING. SINCE CAPSTON AND MS. FONNER HAVE PROPOSED THE REVISED PLAN AS AN
INTEGRATED WHOLE, CAPSTON MAY ELECT TO ABANDON THE REVISED PLAN IN ITS ENTIRETY
IF ALL ELEMENTS OF THE REVISED PLAN ARE NOT APPROVED BY THE STOCKHOLDERS.
PROPOSAL FIVE
COMPENSATION SHARE ISSUANCE
As part of the Revised Plan, Capston proposes to issue approximately 300,000
shares of Common Stock ("Compensation Shares") to Ms. Fonner and other
individuals designated by Capston as compensation for services rendered in
connection with the development of the Plan, the Revised Plan and the management
of the Company pending completion of the business combination. The actual number
of Compensation Shares to be issued to Capston's designees will equal the lesser
of 300,000, or 100% of the number of shares held by the Existing Stockholders
after completion of the reverse split described elsewhere herein. The purpose of
this proposed grant of Compensation Shares is to increase the personal stake of
Ms. Fonner and other individuals designated by Capston in the Company since the
Company's long-term business objectives will be wholly-dependent upon their
efforts, expertise and abilities. THE ORIGINAL PLAN PROVIDED FOR THE ISSUANCE OF
200,000 SHARES TO PERSONS DESIGNATED BY CAPSTON, RATHER THAN THE APPROXIMATELY
300,000 SHARES PROVIDED FOR IN THE REVISED PLAN. THIS ASPECT OF THE REVISED PLAN
WILL PROVIDE AN ADDITIONAL BENEFIT TO CAPSTON AND MS. FONNER.
Subject to Stockholder approval of the Compensation Share issuance, the
Company intends to file a Registration Statement on Form S-8 to register the
Compensation Shares under the Securities Act. Thereafter, the Compensation
Shares will be issued from time to time to Ms. Fonner and other individuals
designated by Capston who have materially participated in the implementation of
the Revised Plan. Such shares will not, however, be issued to finders or for
services rendered in a capital raising transaction. If Capston and Ms. Fonner
are successful in arranging a business combination for the Company,
approximately fifty percent (50%) of the net value derived by the Company's
Stockholders will vest in Ms. Fonner and other individuals designated by Capston
and the remaining fifty percent (50%) will inure to the benefit of the existing
Stockholders of the Company. To the extent that shares of Common Stock are
issued to Ms. Fonner or any other person who may be deemed to be an affiliate of
Capston, such shares will be treated as "control securities" under the
Securities Act and resales of such shares will be subject to the volume, manner
of sale and notice requirements of SEC Rule 144 for a period of 90 days after
the closing of a business combination transaction.
Ms. Fonner and the other individuals designated by Capston will recognize
income for federal tax purposes at the time the Compensation Shares are issued.
In general, the amount of ordinary income recognized will equal the fair market
value of the Compensation Shares on the date of grant. Thereafter, gain or loss
(if any) from a disposition of Compensation Shares will generally constitute
short or long-term capital gain or loss. The Company will be entitled to a tax
deduction at the time the grantee recognizes ordinary income on the Compensation
Shares.
Stockholders Entitled to Vote and Vote Required.
<PAGE>
The affirmative vote of the holders of a majority of all shares of Common
Stock represented and voting at the Meeting, in person or by proxy, will be
required to approve the proposed issuance of approximately 300,000 compensation
shares to Ms. Fonner and other persons designated by Capston. Only shares voted
"FOR" or "AGAINST" the proposal will be treated as Votes Cast. Accordingly,
abstentions and broker non-votes will be counted for purposes of determining the
presence or absence of a Quorum for the transaction of business, but will not be
counted for purposes of determining the number of Votes Cast with respect to
this proposal.
CAPSTON ASKS ALL STOCKHOLDERS TO APPROVE THE PROPOSED ISSUANCE OF
APPROXIMATELY 300,000 COMPENSATION SHARES. THE PROXY ENCLOSED HEREWITH WILL BE
VOTED FOR THE PROPOSED ISSUANCE OF APPROXIMATELY 300,000 COMPENSATION SHARES
UNLESS THE STOCKHOLDER VOTES AGAINST THE PROPOSAL OR ABSTAINS FROM VOTING. SINCE
CAPSTON AND MS. FONNER HAVE PROPOSED THE REVISED PLAN AS AN INTEGRATED WHOLE,
CAPSTON MAY ELECT TO ABANDON THE REVISED PLAN IN ITS ENTIRETY IF ALL ELEMENTS OF
THE REVISED PLAN ARE NOT APPROVED BY THE STOCKHOLDERS.
PROPOSAL SIX
AUTHORIZATION OF FINDERS' FEES
As is customary in the industry, the Revised Plan contemplates the payment
of finders' fees to unrelated third parties who introduce the Company to a
suitable Target Company. If any such fees are paid, they will be approved by the
Company's Board of Directors and will be in conformity with the standards
discussed below.
Finder's fees in business combination transactions are customarily between
2% and 5% of the total transaction value, based upon various factors. If the
Revised Plan is approved by Stockholders, Capston and Ms. Fonner intend to offer
a graduated finders' fee schedule to unrelated third party finders who introduce
the Company to a suitable acquisition prospect. Under the formula proposed by
Capston and Ms. Fonner, the finders may receive up to 2% of the total
transaction value on transactions of $2 million or less; 3% of the total
transaction value on transactions of $2 million to $4 million; 4% of the total
transaction value on transactions of $4 million to $6 million; and 5% of the
total transaction value on transactions of more than $6 million. Since the
Company does not have sufficient financial resources to pay such a finder's fee
in cash, it is anticipated that any finder's fees will be paid with shares of
the Company's Common Stock which may be registered under the Securities Act
prior to issuance. Notwithstanding the foregoing, no finder's fees will be paid
to Capston, Ms. Fonner or any of their employees, agents or affiliates without
the prior consent of the Stockholders. THE ORIGINAL PLAN PROPOSED BY CAPSTON
PROVIDED FOR THE PAYMENT OF GRADUATED FINDERS FEES THAT DECREASED AS THE TOTAL
TRANSACTION VALUE INCREASED. THIS ASPECT OF THE REVISED PLAN WILL PROVIDE AN
ADDITIONAL BENEFIT TO THE FINDERS WHO INTRODUCE THE COMPANY TO A SUITABLE
ACQUISITION CANDIDATE.
Stockholders Entitled to Vote and Vote Required.
The affirmative vote of the holders of a majority of all shares of Common
Stock represented and voting at the Meeting, in person or by proxy, will be
required to approve the proposed finder's fee formula. Only shares voted "FOR"
or "AGAINST" the proposal will be treated as Votes Cast. Accordingly,
abstentions and broker non-votes will be counted for purposes of determining the
presence or absence of a Quorum for the transaction of business, but will not be
counted for purposes of determining the number of Votes Cast with respect to
this proposal.
CAPSTON ASKS ALL STOCKHOLDERS TO APPROVE THE PROPOSED FINDERS' FEE FORMULA.
THE PROXY ENCLOSED HEREWITH WILL BE VOTED FOR THE PROPOSED FINDERS' FEE FORMULA
UNLESS THE STOCKHOLDER VOTES AGAINST THE PROPOSAL OR ABSTAINS FROM VOTING. SINCE
CAPSTON AND MS. FONNER HAVE PROPOSED THE REVISED PLAN AS AN INTEGRATED WHOLE,
CAPSTON MAY ELECT TO ABANDON THE REVISED PLAN IN ITS ENTIRETY IF ALL ELEMENTS OF
THE REVISED PLAN ARE NOT APPROVED BY
<PAGE>
THE STOCKHOLDERS.
PROPOSAL SEVEN
AUTHORIZATION OF STOCK ISSUANCE
In general, a business acquisition may be structured in the form of a
merger, consolidation, reorganization, joint venture, franchise, licensing
agreement or purchase of the stock or assets of an existing business. Certain
business combination transactions, such as a statutory merger, are complex to
negotiate and implement and require Stockholder approval from both parties to
the merger. On the other hand, the simplest form of business combination is
commonly known as a reverse takeover. In a reverse takeover transaction, the
Stockholders of the privately-held company exchange their private company shares
for newly issued stock of the public company. As a result of the transaction,
the privately-held company becomes a wholly-owned subsidiary of the public
company and due to the large number of public company shares that are
customarily issued to Stockholders of the privately-held company, those
Stockholders end up with a controlling interest in the public company and are
then free to appoint their own slate of officers and directors.
By using an existing public company, a privately-held company that wants to
establish a public market for its stock can start with an existing Stockholder
base. In addition, there will frequently be several brokers who are interested
in the newly reorganized company because they have stock remaining in their
customer's accounts.
There are several potential problems that arise in connection with a reverse
takeover. First, there may be large blocks of stock in the hands of individuals
who are eager to sell at any price, thereby making it difficult to support the
market during the period immediately after the reorganization. Second, in
addition to inheriting the Stockholders and brokers associated with the public
company, the Stockholders of the private company will also inherit the business
history of the public company. Accordingly, a thorough due diligence
investigation of the public company and its principal Stockholders is essential
to ensure that there are no unreported liabilities or other legal problems.
In general, reverse takeovers are viewed with some skepticism by both the
financial community and the regulatory authorities until the reorganized company
has been active for a sufficient period of time to demonstrate credible
operating performance. Until this performance is demonstrated, it can be
difficult to raise additional money for a company that went public through a
reverse takeover transaction. Therefore, the reverse takeover strategy is most
appropriate in cases where the purpose for establishing a public trading market
is not related to a perceived short-term need for additional capital.
While the business combination transaction contemplated by the Revised Plan
may be structured as a merger or consolidation, Capston and Ms. Fonner believe
that the reverse takeover format will be most attractive to potential
acquisition targets. Accordingly, Capston is seeking prior Stockholder
authorization for a reverse takeover transaction that will involve the issuance
of an indeterminate number of shares of Common Stock to the owners of the Target
Company.
The following table reflects the potential ownership of the Existing
Stockholders, Capston, the Target Company and the Finders under several possible
business acquisition scenarios:
<PAGE>
POTENTIAL DILUTION TABLE
<TABLE>
<CAPTION>
80% to 90% to 95% to
Target Co. Target Co. Target Co.
Stockholders Stockholders Stockholders
Shares Percent Shares Percent Shares Percent
<S> <C> <C> <C> <C> <C> <C>
Existing Stockholders (est.) 300,000 9.62% 300,000 4.82% 300,000 2.39%
Capston (est.) 300,000 9.62% 300,000 4.82% 300,000 2.39%
Target Company Stockholders 2,400,000 76.92% 5,400,000 86.75% 11,400,000 90.69%
Finders 120,000 3.85% 225,000 3.61% 570,000 4.53%
Total 3,120,000 100.00% 6,225,000 100.00% 12,570,000 100.00%
</TABLE>
The potential business acquisition scenarios set forth above are only
intended to serve as examples of the range of business acquisition transactions
will be permissible under the Revised Plan and it is possible that the final
terms of a business acquisition may fall outside of the range presented. Since
Capston and Ms. Fonner have not yet identified a Target Company, or commenced
any discussions or negotiations with the owners thereof, it is impossible to
predict the ultimate structure of a future business acquisition or to quantify
the final interest of the Existing Stockholders in the combined entity.
Notwithstanding the foregoing, Capston's interest in the combined entity will
remain approximately equal to the interest of the Existing Stockholders and such
interest may not be increased to the disadvantage of the Existing Stockholders.
Stockholders Entitled to Vote and Vote Required.
The affirmative vote of the holders of a majority of all shares of Common
Stock represented and voting at the Meeting, in person or by proxy, will be
required to authorize the issuance of an indeterminate number of shares of
Common Stock to unrelated third parties in connection with a business
acquisition transaction of the type contemplated by the Revised Plan. Only
shares voted "FOR" or "AGAINST" the proposal will be treated as Votes Cast.
Accordingly, abstentions and broker non-votes will be counted for purposes of
determining the presence or absence of a Quorum for the transaction of business,
but will not be counted for purposes of determining the number of Votes Cast
with respect to this proposal.
CAPSTON ASKS ALL STOCKHOLDERS TO APPROVE THE PROPOSED BUSINESS COMBINATION
FORMAT. THE PROXY ENCLOSED HEREWITH WILL BE VOTED IN FAVOR OF THE BUSINESS
COMBINATION FORMAT UNLESS THE STOCKHOLDER VOTES AGAINST THE PROPOSAL OR ABSTAINS
FROM VOTING. SINCE CAPSTON AND MS. FONNER HAVE PROPOSED THE REVISED PLAN AS AN
INTEGRATED WHOLE, CAPSTON MAY ELECT TO ABANDON THE REVISED PLAN IN ITS ENTIRETY
IF ALL ELEMENTS OF THE REVISED PLAN ARE NOT APPROVED BY THE STOCKHOLDERS.
PROPOSAL EIGHT
PROPOSED INCENTIVE STOCK PLAN
As part of the Revised Plan, Capston and Ms. Fonner propose to adopt an
Incentive Stock Plan (the "Incentive Stock Plan") for the benefit of the
employees that will be employed by the Company after the completion of a
business acquisition of the type contemplated by the Plan. Capston, Ms. Fonner
and their employees, agents and affiliates will not be eligible for incentive
awards under the proposed Incentive Stock Plan. A copy of the proposed Incentive
Stock Plan appears as an Exhibit to this proxy statement and is incorporated
herein by this reference. The following summary is qualified in its entirety by
reference to the text of such plan.
The proposed Incentive Stock Plan provides for the grant of (i)
non-qualified stock options, (ii) incentive stock options, (iii) shares of
restricted stock, (iv) shares of phantom stock and (v) stock bonuses
(collectively, "Incentive Awards'). In addition, the Incentive Stock Plan
permits the grant of cash bonuses payable when a participant is required to
recognize income for federal income tax purposes in connection with the vesting
of shares of restricted stock or the grant of a stock bonus. Full-time employees
of the Company and its subsidiaries,
<PAGE>
including officers and employee directors, will be eligible to participate in
the Incentive Stock Plan.
The proposed Incentive Stock Plan will be administered by a Compensation
Committee of the Board of Directors (the "Committee"), which will consist of two
or more directors, each of whom shall be a "disinterested person" within the
meaning of Rule 16b-3(c)(2)promulgated under Section 16 of the Exchange Act. The
Committee will determine which employees receive grants of Incentive Awards, the
type of Incentive Awards and bonuses granted and the number of shares subject to
each Incentive Award. The Incentive Stock Plan does not prescribe any specific
factors to be considered by the Committee in determining who is to receive
Incentive Awards and the amount of such awards.
The proposed Incentive Stock Plan will permit the grant of incentive equity
awards covering a presently indeterminate number of shares of Common Stock. If
the proposed Incentive Stock Plan is approved by the Stockholders, the total
number of shares available for future grant will be calculated immediately after
the closing of a business acquisition transaction and equal 10% of the total
number of shares of Common Stock outstanding on that date.
Capston and Ms. Fonner believe that the adoption and approval of the
proposed Incentive Stock Plan will make the Company more attractive to a
potential business combination candidate and that the proposed Incentive Stock
Plan will allow the Company to emphasize equity-based compensation in
structuring compensation packages for its future employees. Capston and Ms.
Fonner believe that an emphasis on equity-based compensation will yield the
greatest benefit for the shareholders, as the employee's compensation will be
directly dependent on the return on shareholders' investments.
The class of persons who will be eligible to receive awards under the
proposed Incentive Stock Plan is limited to full-time employees of the Company
and its subsidiaries. On the date hereof, the Company has no employees who are
eligible to receive awards under the proposed Incentive Stock Plan and it is not
anticipated that any employees will become eligible for awards until after the
completion of a business combination transaction. Beyond the requirement that
all participants be full-time employees of the Company and its subsidiaries, the
Committee will have absolute discretion in selecting the persons to whom awards
will be granted and the terms of such awards.
Subject to the terms of the Incentive Stock Plan, the Committee will also
determine the prices, expiration dates and other material features of the
Incentive Awards granted under the Plan. The Committee may, in its absolute
discretion, (i) accelerate the date on which an option granted under the
Incentive Stock Plan becomes exercisable, (ii) accelerate the date on which a
share of restricted stock or phantom stock vests and waive any conditions
imposed by the Committee on the vesting of a share of restricted stock and (iii)
grant Incentive Awards to a participant on the condition that the participant
surrender to the Company for cancellation such other Incentive Awards
(including, without limitation, Incentive Awards with higher exercise prices) as
the Committee specifies.
The Committee will have the authority to interpret and construe any
provision of the Incentive Stock Plan and to adopt such rules and regulations
for administering the Incentive Stock Plan as it deems necessary. All decisions
and determinations of the Committee are final and binding on all parties. The
Company will indemnify each member of the Committee against any cost, expenses
or liability arising out of any action, omission or determination relating to
the Incentive Stock Plan, unless such action, omission or determination was
taken or made in bad faith and without reasonable belief that it was in the best
interest of the Company.
The Board may at any time amend the Incentive Stock Plan in any respect;
provided, that without the approval of the Company's shareholders, no amendment
may (i) increase the number of shares of Common Stock that may be issued under
the Incentive Stock
<PAGE>
Plan, (ii) materially increase the benefits accruing to individuals holding
Incentive Awards, or (iii) materially modify the requirements as to eligibility
for participation in the Incentive Stock Plan. A summary of the most significant
features of the Incentive Awards and the tax consequences to recipients thereof
follows.
Non-Qualified and Incentive Stock Options. The exercise price of each
incentive stock option ("ISO") granted under the Incentive Stock Plan is the
fair market value (as defined) of a share of Common Stock of the Company on the
date on which such ISO is granted. The exercise price of each non-qualified
stock option("NQO") granted under the Incentive Stock Plan will be determined by
the Committee. NQOs and ISOs are referred to herein as `Options." Except in
certain limited cases regarding grants of ISOs, each ISO and NQO is exercisable
for a period not to exceed ten years. For each Option, the Committee will
establish (i) the term of each Option and (ii) the time or period of time in
which the Option will vest. The exercise price shall be paid in cash or, subject
to the approval of the Committee, in shares of Common Stock valued at their fair
market value on the date of exercise.
Except in the event of the death or disability (as defined) of an optionee
or the termination of the employment of an optionee for cause (as defined),
Options are exercisable only while an optionee is employed by the Company or
within one month after such employment has terminated to the extent that such
Options were exercisable on the last day of employment. In the event of the
death or disability of an optionee, Options are exercisable within one year
after such death or disability to the extent that such Options were exercisable
on the last day of employment. In the event of the termination of the employment
of an optionee for cause, all Options held by such optionee terminate
immediately. Options are not transferable other than by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations order.
Upon a change in control of the Company (a "Change in Control"), all Options
become immediately exercisable. The Incentive Stock Plan defines Change in
Control to mean (i) a "change in control" as that term is defined in the federal
securities laws, (ii) the acquisition by any person, after the effective date of
the Incentive Stock Plan, of 20% or more of the shares of voting securities of
the Company, (iii) certain changes in the composition of the Board as a result
of a contested election for positions on the Board or (iv) any other event which
the Committee determines to constitute a change in control of the Company.
An optionee will not recognize any income for federal tax purposes at the
time an NQO is granted, nor will the Company be entitled to a deduction at that
time. However, when any part of an NQO is exercised, the optionee will recognize
ordinary income in an amount equal to the difference between the exercise price
of the NQO and the fair market value of the shares received, and the Company
will recognize a tax deduction in the same amount.
A participant will not recognize any income at the time an ISO is granted,
nor upon a qualified exercise of an ISO. If a participant does not dispose of
the shares acquired by exercise of an ISO within two years after the grant of
the ISO and one year after the exercise of the ISO, the exercise is qualified
and the gain or loss (if any) on a subsequent sale will be a long-term capital
gain or loss. Such gain or loss is the sum of the sales proceeds less the
exercise price for the stock sold. The Company is not entitled to a tax
deduction as the result of the grant or qualified exercise of an ISO.
Restricted Stock. A grant of shares of restricted stock represents the
promise of the Company to issue shares of Common Stock of the Company on a
predetermined date (the "Issue Date") to a participant, provided the participant
is continuously employed by the Company until the Issue Date. Vesting of the
shares occurs on a second predetermined date (the "Vesting Date") if the
participant has been continuously employed by the Company until that date. Prior
to the Vesting Date, the shares are not transferable by the participant and are
subject to a substantial
<PAGE>
risk of forfeiture. The Committee may, at the time shares of restricted stock
are granted, impose additional conditions to the vesting of the shares, such as,
for example, the achievement of specified performance goals. Vesting of some
portion, or all, of the shares of restricted stock may occur upon the
termination of the employment of a participant other than for cause, prior to
the Vesting Date. If vesting does not occur, shares of restricted stock are
forfeited. Upon the occurrence of a Change in Control, all shares of restricted
stock which have not vested or been forfeited will vest automatically.
A participant will not recognize any income for federal tax purposes at the
time shares of restricted stock are granted or issued, nor will the Company be
entitled to a tax deduction at that time. However, when either the transfer
restriction or the forfeiture risk lapses, such as upon vesting, the participant
will recognize ordinary income in an amount equal to the fair market value of
the shares of restricted stock on the date on which they vest. If, however, a
participant files an appropriate election under Section 83 (b) of the Internal
Revenue Code of 1986 with the IRS within 30 days of the Issue Date of the
restricted stock, the participant will be deemed to have received ordinary
income in an amount equal to the fair market value of the shares of restricted
stock on the date on which they are issued (the `Election'). Gain or loss (if
any) from a disposition of restricted stock after the participant recognizes any
ordinary income (whether by vesting or an Election) will generally constitute
short- or long-term capital gain or loss. The Company will be entitled to a tax
deduction at the time the participant recognizes ordinary income on the
restricted stock, whether by vesting or an Election.
Phantom Stock. A share of phantom stock represents the right to receive the
economic equivalent of a grant of restricted stock. Shares of phantom stock are
subject to the same vesting requirements as are shares of restricted stock. Upon
vesting of a share of phantom stock, the holder is entitled to receive cash in
an amount equal to the sum of (i) the fair market value of a share of Common
Stock as determined on the vesting date and (ii) the aggregate amount of cash
dividends paid in respect of a share of Common Stock during the period
commencing on the date of grant, and ending on the vesting date. The cash
payment for phantom stock is treated the same as a cash bonus for federal income
tax purposes and creates a deduction to the Company when paid. In addition, the
value of a share of phantom stock (whether or not vested) is paid immediately
upon the occurrence of a Change in Control of the Company. The Committee may not
grant any cash bonus in connection with the grant of shares of phantom stock.
Stock and Cash Bonuses. Bonuses payable in stock may be granted by the
Committee and may be payable at such times and subject to such conditions as the
Committee determines. Upon the receipt of a stock bonus, a participant will
recognize ordinary income for federal tax purposes in an amount equal to the
fair market value of the stock at the time it is received. The Committee may
grant, in connection with a grant of shares of restricted stock, a cash "tax'
bonus, payable when an employee is required to recognize income for federal
income tax purposes with respect to such shares. The tax bonus may not be
greater than the value of the shares of restricted stock at the time the income
is required to be recognized. Any such bonus will result in ordinary income to
the employee and a deduction to the Company. The grant of a cash bonus shall not
reduce the number of shares of Common Stock with respect to which Options,
shares of restricted stock, shares of phantom stock or stock bonuses may be
granted pursuant to the Incentive Stock Plan.
In General. If any outstanding Option expires, terminates or is canceled for
any reason, the shares of Common Stock subject to the unexercised portion of
such Option shall again be available for grants under the Incentive Stock Plan.
If any shares of restricted stock or phantom stock, or any shares of Common
Stock granted as a stock bonus are forfeited or canceled for any reason, such
shares shall again be available for grants under the Incentive Stock Plan.
Shares of Common Stock issued as a stock bonus or on the exercise of options or
on the vesting of a grant
<PAGE>
of restricted stock are not available for future issuance under the Incentive
Stock Plan.
The Incentive Stock Plan provides for an adjustment in the number of shares
of Common Stock available to be issued under the Incentive Stock Plan, the
number of shares subject to Incentive Awards, and the exercise prices of Options
upon a change in the capitalization of the Company, a stock dividend or spat, a
merger or combination of shares and certain other similar events. The Incentive
Stock Plan also provides for the termination of Incentive Awards upon the
occurrence of certain corporate events.
The Incentive Stock Plan provides that participants may elect to satisfy
certain federal income tax withholding requirements by remitting cash to the
Company. In addition, the Incentive Stock Plan provides that, at the election of
a participant, an unrelated broker-dealer acting on behalf of the participant
may exercise Options granted to the participant and immediately sell the shares
acquired on account of the exercise to raise funds to pay the exercise price of
the Option and the amount of any withholding tax which may be due on account of
the exercise.
Shareholders Entitled to Vote and Vote Required for Approval.
The affirmative vote of the holders of a majority of all shares of Common
Stock represented and voting at the Meeting, in person or by proxy, will be
required to approve the proposed Incentive Stock Plan. Only shares voted "FOR"
or "AGAINST" the proposal will be treated as Votes Cast. Accordingly,
abstentions and broker non-votes will be counted for purposes of determining the
presence or absence of a Quorum for the transaction of business, but will not be
counted for purposes of determining the number of Votes Cast with respect to
this proposal.
CAPSTON ASKS ALL SHAREHOLDERS TO APPROVE THE PROPOSED INCENTIVE STOCK PLAN.
THE PROXY ENCLOSED HEREWITH WILL BE VOTED IN FAVOR OF THE PROPOSED INCENTIVE
STOCK PLAN UNLESS THE STOCKHOLDER VOTES AGAINST THE PROPOSAL OR ABSTAINS FROM
VOTING. SINCE CAPSTON AND MS. FONNER HAVE PROPOSED THE PLAN AS AN INTEGRATED
WHOLE, CAPSTON MAY ELECT TO ABANDON THE PLAN IN ITS ENTIRETY IF ALL ELEMENTS OF
THE PLAN ARE NOT APPROVED BY THE SHAREHOLDERS.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
According to the records of American Stock Transfer & Trust Company, the
transfer agent for the Company's Common Stock there were 3,476,370 shares of the
Company's Common Stock issued and outstanding on December 31, 1997. The
following table presents certain information regarding the beneficial ownership
of the Company's common stock by (i)each person known by the Capston to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii)each of
the Company's directors, and (iii) all directors and officers as a group.
Name of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
Victor Reichenstein 985,507 27.00%
866 United Nations Plaza
Suite 307
New York, New Your 10017
Sally A. Fonner (1) 5,000 0.00%
1612 N. Osceola Avenue
Clearwater, Fl 33755
All Directors And Officers
As A Group 5,000 0.00%
(1) The shares attributed to Ms. Fonner are beneficially owned by Capston
Incorporated, a Delaware corporation solely owned and controlled by Ms.
Fonner.
The above information, with the exception of information
<PAGE>
relating to the stock ownership of Ms. Fonner, is taken the records of American
Stock Transfer & Trust Company, the transfer agent for the Company's Common
Stock. The transfer agent, Capston and Ms. Fonner have no information which
would indicate this information is not accurate. Capston and Ms. Fonner believe
that each of the above-named individuals has sole investment and voting power
with regard to the securities listed opposite his name.
ADDITIONAL INFORMATION
Additional materials enclosed herewith include (i) a copy of the Company's
Annual Report on Form 10-K for the year ended March 31, 1997 as filed with the
Securities and Exchange Commission, (ii) a copy of the proposed Project
Management Agreement between Capston and the Company, and (iii) a copy of the
proposed Incentive Stock Plan. The Form 10-K, the proposed Project Management
Agreement and the proposed Incentive Stock Plan are incorporated herein by this
reference and all disclosures herein are qualified in their entirety by
reference to such documents.
The Company's 1998 Annual Meeting has been tentatively scheduled for
December 15, 1998. Any shareholder who wishes to submit a proposal to be
included in the proxy statement and form of proxy relating to the 1998 annual
meeting will be required to submit such proposals to the Company on or before
August 15, 1998.
This solicitation is being conducted by Capston on behalf the Company. The
cost of soliciting proxies will be advanced by Capston at its sole cost, risk
and expense and the Company will have no duty to reimburse Capston for any
expenses incurred on behalf of the Company. The cost of this solicitation
including legal, accounting, printing, mailing and other miscellaneous expenses
are estimated at $20,000. To date, Capston's out-of-pocket expenses have been
approximately $30,000. There is no known opposition to the solicitation. In
addition to solicitations by mail, directors, officers and regular employees of
Capston may solicit proxies by telephone, telegram, fax or personnel
solicitation. Brokers, nominees, fiduciaries and other custodians will be
instructed to forward soliciting material to the beneficial owners of shares
held of record by them, and such custodians will be reimbursed for their
expenses.
The persons designated as proxies to vote shares at the Meeting intend to
exercise their judgment in voting such shares on other matters that may properly
come before the Meeting. Capston and Ms. Fonner do not expect that any matters
other than those referred to in this Proxy Statement will be presented for
action at the Meeting.
<PAGE>
PROXY WEBCOR ELECTRONICS, INC. PROXY
This Proxy is Solicited by Capston Network Co. for the
Special Meeting of Stockholders to be Held on June 19, 1998 at
1;00 p.m.
The undersigned hereby appoints Michael Weber and Yanie Dubouchage, and each
of them, either one of whom may act without joinder of the other, each with full
power of substitution and ratification, attorneys and proxies of the undersigned
to vote all shares of common stock of the Company WEBCOR ELECTRONICS, INC. which
the undersigned is entitled to vote at a special meeting of Stockholders to be
held on June 19, 1998 at 1:00 p.m., in a posted room at the Tampa Airport
Mariott of Tampa, Florida, and at any and all adjournments thereof:
1. PROPOSED RATIFICATION OF REINSTATEMENT AND SEC FILINGS. To ratify and affirm
all actions of Capston Network Co. ("Capston") in (i) effecting a renewal,
revival and restoration of the Company's Certificate of Incorporation; and
(ii) filing the reports and other documents necessary to bring the Company
current with respect to its reporting obligations under the Securities
Exchange Act of 1934;
|_| FOR |_| AGAINST |_| ABSTAIN |_| BROKER NON-VOTE
2. PROPOSED AMENDMENT OF BY-LAWS. To approve the proposed amendment to ARTICLE
II, Section 2. of the Company's By-laws to permit a single-member Board of
Directors until such time as the total Stockholders' equity of the Company
the business combination;
|_| FOR |_| AGAINST |_| ABSTAIN |_| BROKER NON-VOTE
3. PROPOSED ELECTION OF SOLE DIRECTOR. To elect Sally A. Fonner to serve as the
sole member of the Board of Directors until the 1999 annual Meeting of
Stockholders, or until her successor is elected and qualified;
|_| FOR |_| AGAINST |_| ABSTAIN |_| BROKER NON-VOTE
4. PROPOSED AMENDMENTS TO ARTICLES OF INCORPORATION.
(a) PROPOSED REVERSE SPLIT. To effect a reverse split of all issued and
outstanding shares of Common Stock in the ratio of one (1) share of new
Common Stock for each 12 shares presently outstanding so that immediately
thereafter the Company will have approximately 300,000 shares of Common
Stock issued and outstanding;
|_| FOR |_| AGAINST |_| ABSTAIN |_| BROKER NON-VOTE
(b) PROPOSED INCREASE IN COMMON STOCK. To increase the authorized Common
Stock of the Company to 25,000,000 shares;
|_| FOR |_| AGAINST |_| ABSTAIN |_| BROKER NON-VOTE
(c) PROPOSED INCREASE IN PREFERRED STOCK To increase the authorized Preferred
Stock of the Company to 5,000,000 shares;
|_| FOR |_| AGAINST |_| ABSTAIN |_| BROKER NON-VOTE
(d) PROPOSED NAME CHANGE AUTHORIZATION. To authorize the Board of Directors
to change the Company's name without additional Stockholder approval in
connection with a business combination transaction of the type
contemplated by the Revised Plan;
|_| FOR |_| AGAINST |_| ABSTAIN |_| BROKER NON-VOTE
5. PROPOSED COMPENSATION SHARE ISSUANCE. To approve the issuance
of approximately 300,000 shares of Common Stock to Ms. Fonner and other
persons designated by Capston as compensation for services rendered in
connection with the development of the Plan, the Revised Plan and the
management of the Company pending completion of the business combination;
|_| FOR |_| AGAINST |_| ABSTAIN |_| BROKER NON-VOTE
6. PROPOSED AUTHORIZATION OF FINDERS' FEES. To authorize the
Board of Directors to pay an in-kind Finder's Fee to
unrelated third party finders who introduce the Company to a
suitable acquisition prospect;
|_| FOR |_| AGAINST |_| ABSTAIN |_| BROKER NON-VOTE
7. PROPOSED AUTHORIZATION OF STOCK ISSUANCE. To authorize the
<PAGE>
Board of Directors to issue an indeterminate number of shares of Common Stock
to unrelated third parties, all without prior Stockholder approval, in
connection with a business combination of the type contemplated by the
Revised Plan;
|_| FOR |_| AGAINST |_| ABSTAIN |_| BROKER NON-VOTE
8. PROPOSED INCENTIVE STOCK PLAN. To approve the proposed Incentive Stock Plan
which will permit the grant of incentive equity awards to eligible employees
of the Company.
|_| FOR |_| AGAINST |_| ABSTAIN |_| BROKER NON-VOTE
9. IN their discretion upon such other matters which may properly come before
the meeting and any adjournment thereof.
|_| FOR |_| AGAINST |_| ABSTAIN |_| BROKER NON-VOTE
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN. UNLESS OTHERWISE SPECIFIED, THE SHARES WILL BE
VOTED FOR THE DIRECTOR NOMINEE AND FOR ALL PROPOSALS.
The undersigned hereby revokes any Proxy previously given in respect of the
Annual Meeting.
Dated: _____________________, 1998
---------------------------------------
Signature of Stockholder(s)
Note: Signature should agree with the name on stock certificate asprinted
thereon. Executors, administrators and other fiduciaries should so indicate when
signing.
___ I Plan to personally attend the Special Meeting of the
Stockholders
PLEASE DATE, SIGN AND RETURN THIS PROXY TO CAPSTON
IN THE ENCLOSED ENVELOPE. THANK YOU.
WANT & ENDER, C.P.A., P.C.,
Certified Public Accountants
Martin Ender, C.P.A.
Stanley Z. Want, C.P.A., C.F.P.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Dear Sirs:
We consent to the incorporation by reference in the Registration Statement
Form S-8 of our report dated September 3, 1999 with respect to the consolidated
financial statements of eNote.com, Inc. included in eNote.com, Inc.'s Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1999.
/s/
-----------------------------
Martin Ender, C.P.A.
Want & Ender, C.P.A., P.C.,
September 9, 1999
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