UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________to_______________
Commission file Number 333-5862
NET LNNX, INC.
(Name of small business issuer in its charter)
Pennsylvania 23-1726390
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
324 Datura Street, Suite 303, West Palm Beach, FL 33401
Address of principal executive offices ) (Zip Code)
Issuer's telephone number, including area code (561) 659-1196
Securities registered pursuant to Section 12(b) of the Exchange
Act:
Title of each class Name of exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Exchange
Act:
Common Stock, no par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X_ No____
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this
form, and no disclosure will be contained, to the best of
registrant'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-K [ ]
State issuer's revenues for its most recent fiscal year.....$00.00
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the
price at which the common equity was sold, or the average bid and
asked prices of such common equity, as of a specified date within
the past 60 days. (See definition of affiliate in Rule 12b-2 of the
Exchange Act).
As of March 31, 1998, the aggregate market value of common stock,
no par value, held by non-affiliates was approximately $360,909
(880,268 shares at $0.41, which is an average of the bid and asked
price).
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practical
date................
As of March 31, 1998, there were 2,200,000 shares of
common stock, no par value, issued and outstanding.
<PAGE>
PART I
Item 1. Description of Business
(a) Business Development
The registrant was organized as Chester County Security Fund,
Inc. under the laws of Pennsylvania on April 15, 1968. Corporate
Investment Company ("CIC") purchased, as a wholly owned subsidiary,
the outstanding shares of the registrant and in 1986, CIC
distributed the outstanding stock of the registrant to its
shareholders as stock dividend on a one share for share basis.
Prior to 1996, the registrant was a holding company conducting
virtually no business operation, other than its efforts to seek
merger partners.
In January 1996, the registrant, in a stock for stock
exchange, acquired a majority interest in Communications/USA,
Inc.("Comm/USA"). Also, in February 1996, the registrant formed a
wholly owned subsidiary, TrueNet Corporation. These transactions,
as more fully described below, proved to have only limited success
for the registrant; therefore, the registrant disposed of its
interest in Comm/USA and TrueNet Corporation in January of 1997.
Other than maintaining its good standing status in the State of
Pennsylvania, and seeking prospective businesses or assets to
acquire, from the time of such dispositions to the date of this
Report, the Company has had no business operations.
In January 1996, the registrant entered into an agreement to
exchange approximately 83.5% of its no par value common stock for
approximately 60% of the common stock of Comm/USA. Comm/USA,
through its wholly owned subsidiary CommTel/USA, Inc., owned and
operated Voice-Tel franchises which comprised the West Coast of
Florida from Tampa Bay to Naples, and the East Coast of Florida
from Cocoa to Stuart. Voice-Tel is in the interactive voice
messaging industry and sells its products to both local customers
and national accounts. Voice -Tel is the largest interactive voice
messaging company in the United States, operating a digital
telecommunications network through independently owned franchises.
On January 31, 1997, the registrant's board of directors
approved purchase agreement dated January 17, 1997 between the
registrant and Palm Capital, Inc. ("Palm") to transfer to Palm
2,550,000 shares of Comm/USA, which represented One Hundred Percent
(100%) of the registrant's ownership interests of Comm/USA (the
"Transaction"). On May 23, 1997, a majority of the registrant's
shareholders approved the purchase agreement at the annual meeting
of shareholders.
The Transaction was negotiated at "arms length" and the
consideration paid represented a fair market value. Raul E.
Balsera ("Balsera") and Robert Feiman ("Feiman"), both officers and
shareholders of Palm, were both affiliate shareholders of the
registrant prior to the Transaction. Also, Balsera served as Chief
Financial Officer of the registrant and Comm/USA prior to the
Transaction. As consideration for the Comm/USA stock transfer, Palm
agreed to deliver to the registrant any and all of the Registrant's
stock held by Palm, Balsera and Feiman, plus any and all options or
other rights to the registrant's common stock, plus the sum of
$500,000, secured by 1,250,000 shares of Comm/USA common stock.
The consideration was payable as follows: (i) the sum of $25,000 in
<PAGE>
cash; and (ii) a 7% interest promissory note in the amount of
$475,000 with 12 monthly payments of $9,000 per month, 12 monthly
payments of $12,000 per month, and a balloon payment of the balance
due on March 1, 1999. Palm also agreed to the assumption of
Comm/USA's liabilities.
In January 1997, the registrant entered into a sale and
purchase agreement with The Banana Corporation, Inc. ("BCI") to
transfer to BCI One Hundred Percent (100%) of the common stock and
assets of the registrant's wholly owned subsidiary, TrueNet
Corporation ("TrueNet"), a Florida corporation. TrueNet operated
as an Internet service provider in West Palm Beach, FL. The
transaction was negotiated at "arms length" and the consideration
paid represented a fair market value.
As consideration for the TrueNet stock and asset transfer, BCI
transferred to the registrant Ten Percent (10%) (100,000 shares) of
BCI's common stock. In April 1997, pursuant to a separate
agreement, the registrant purchased Ten Percent (10%) (100,000)
shares of BCI's newly formed operating subsidiary, Banana Online,
Inc. at a price of $0.145 per share, and exchanged its interest of
100,000 shares of BCI for 100,000 shares of Banana Online, Inc. and
BCI's cancellation of the registrant's indebtedness.
On June 5, 1997, the registrant agreed to assign the Note
Payable to Harbor Town Holding Group I, Inc. (Harbor Town I"). The
assignment was made for the payment of the transfer to registrant
by Harbor Town of Two Million Fifty Eight Thousand Two Hundred and
Nine (2,058,209) shares of Harbor Town's capital stock, which on
May 23, 1997, pursuant to a shareholder and director's meeting, the
registrant was authorized to issue such Harbor Town I stock to
record shareholders of the registrant as a stock dividend on a one
share for share basis.
On May 19, 1997, the registrant agreed to assign its 200,000
shares of BCI to Harbor Town Holding Group II, Inc. ("Harbor Town
II"). The assignment was made for the payment of the transfer to
the registrant by Harbor Town II of Two Million Fifty Eight
Thousand Two Hundred and Nine (2,058,209) shares of Harbor Town
II's capital stock, which on May 23, 1997, pursuant to a
shareholder and director's meeting, the registrant was authorized
to issue such Harbor Town II stock to record shareholders of the
registrant as a stock dividend on a one share for share basis.
On June 6, 1997, the registrant and Harbor Town agreed that in
exchange for the registrant utilizing its resources to collect the
greatest amount of value for the Note Payable, Harbor Town would
suspend, and shall not effectuate the assignment of the Note
Payable to Harbor Town until such date that the registrant can
collect the greatest amount of value for the Note Payable, with
such value to be determined by the registrant. The registrant
continued to have full right of ownership in all Two Million Fifty
Eight Thousand Two Hundred and Nine (2,058,209) shares of Harbor
Town's capital stock, which at that time had been distributed to
the registrant's shareholders as a stock dividend.
Previous to June 1997, questionable circumstances arose with
respect to the Note Payable, Communications/USA, Inc., Palm
Capital, Inc. and the viability of continued payment on the Note
Payable and the possibility of its default, either in whole or in
part. Based on this, the registrant considered it likely that the
value of the Note Payable was in jeopardy and that certain action,
<PAGE>
including litigation, would be required and appropriate in order to
salvage the greatest amount of value for the Note Payable. At that
time, the underlying value of the Note Payable was approximately
$444,452.
On June 27, 1997 a representative of Palm Capital, Inc. and
Communications\USA, Inc. offered to pay Net Lnnx a lump sum payment
of $213.256.00 as payment in full on the Note Payable in exchange
for a release from liability for any additional payments under the
Note Payable. Upon advice of counsel, the registrant rejected the
offer as payment in full for the Note Payable.
On June 27, 1997, the registrant, filed suit against Palm,
Comm/USA, Feiman, Balsera and Gibbs and Runyan, P.A , a Florida
professional corporation ("Gibbs") in the Circuit Court of the
Fifteenth Judicial Circuit, Palm Beach County, Florida in
connection with the purchase agreement for which the Note
Receivable was issued.
The registrant commenced suit against the above-named
defendants collectively and/or individually alleging/seeking
Fraudulent Transfer; Fraud In The Inducement; Injunctive Relief
(pursuant to Florida's Fraudulent Conveyance Statute and common
law); Fraud In the Purchase Of Securities; Breach of Contract; and
Breach of Fiduciary Duty. Upon a motion to dismiss all counts
brought by the defendants, the court denied the motion as to all
counts except for the common law injunctive relief sought. The
court, however, sustained and refused to dismiss the registrant's
claim for injunctive relief based upon Florida's Fraudulent
Conveyance Statute. At a preliminary hearing, the court did not
grant preliminary injunctive relief. The lawsuit continued forward
through its discovery phase where the registrant sought
compensatory damages and punitive damages, in addition to any and
all other relief the court would grant. On December, 18, 1997 the
law suit was settled whereby the registrant would accept $100,000
in exchange for a release from liability of all defendants to the
law suit. Overall, the registrant was paid $190,000 on the Note
Payable . The final order was signed by the Court on January 5,
1998.
Pursuant to the Agreement dated June 6, 1997 between the
registrant and Harbor Town I, upon the termination of the
abovementioned litigation, the Note Receivable was to be
transferred from the registrant to Harbor Town I. The Note
Receivable constituted the consideration paid by the registrant for
Harbor Town I's stock. The transfer contemplated by the June 6,
1997 agreement described above was canceled pursuant to an
agreement dated November 6, 1997 between the registrant and Harbor
Town I. Consequently, the registrant continued to hold the Note
Receivable and receive the cash flow therefrom until the settlement
of the above described lawsuit.
On November 6, 1997, Harbor Town I entered into a subscription
agreement with an investor which required Harbor Town I to cancel
entirely the above described transfer of the Note Receivable. On
November 6, 1997, the transfer of the Note Receivable was canceled
in its entirety. The June 5, 1997 assignment of the Note Receivable
which served as consideration for the 2,058,209 shares of Harbor's
capital stock issued to the registrant was substituted for the
registrant canceling a $12,600 promissory note dated June 2, 1997
made by Harbor Town I to the registrant.
<PAGE>
(b) Business of Issuer
The registrant is presently a holding company conducting
virtually no business operation, other than its efforts to seek
merger partners or acquisition candidates. As disclosed in the
registrant's press release dated November 11, 1997, the registrant
entered into a non-binding letter of intent for a reverse merger
with R.F. Scientific, Inc., an Orlando, Florida based corporation
("RFS"). RFS is a satellite communications company which
specializes in preparing and constructing satellite communications
vehicles for a wide variety of commercial broadcasters, private
networks and voice data users. The registrant has been actively
negotiating an agreement with RFS for the registrant to acquire all
of the outstanding shares of RFS pursuant to a reorganization
agreement. As of the date of this report; however, no definitive
binding reorganization agreement has been entered into between the
registrant and RFS, and since the letter of intent is non-binding,
no assurance can be made that any such agreement will be entered
into and that the RFS acquisition will occur.
The registrant encounters intense competition from other
entities having a business objective similar to that of the
registrant. Many of these entities are well-established and have
extensive experience in connection with identifying and effecting
business combinations directly or through affiliates. Many of these
competitors possess greater financial, marketing, technical,
personnel and other resources than the registrant and there can be
no assurances that the registrant will have the ability to compete
successfully. The registrant's financial resources are limited in
comparison to those of many of its competitors. This inherent
competitive limitation could compel the registrant to select
certain less attractive acquisition prospects. There can be no
assurances that such prospects will permit the registrant to meet
its stated business objectives. The registrant believes, however,
that the registrant's status as a reporting public entity could
give the registrant a competitive advantage over privately held
entities having a similar business objective to that of the
registrant in acquiring a business with significant growth
potential.
The registrant's present officers and directors are the
registrant's only employees who devote approximately 75% of their
time to the business of the registrant.
Item 2. Properties.
The executive and business office of the registrant consist
of office space located at 324 Datura Street, Suite 303, West Palm
Beach, FL 33401.
Item 3. Legal Proceedings.
No material legal proceedings are pending of which the
registrant is a party.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the registrant's
securities holders during the fourth quarter of the registrant's
fiscal year.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholders Matters.
(a) Market Information
The registrant's common stock has been traded on the
over-the-counter market since May 1989. The following table sets
forth the range of high and low bid quotations for each quarterly
period in the fiscal year ended December 31, 1997, and 1996 as
reported by over-the-counter market quotations. The quotations
reflect inter-dealer prices, without retail mark-up, mark down or
commission and may not represent actual transactions.
<TABLE>
<CAPTION>
High Low
Bid Asked Bid Asked
<S> <C> <C> <C> <C>
1996
1st Quarter $5.50 $6.75 $4.25 $5.50
2nd Quarter $10.00 $11.00 $4.00 $5.375
3rd Quarter $8.625 $9.50 $3.25 $5.00
4th Quarter $5.50 $6.75 $1.375 $1.875
1997
1st Quarter $1.50 $2.00 $0.50 $0.8125
2nd Quarter $0.8125 $1.25 $0.375 $0.5625
3rd Quarter $0.8125 $1.25 $0.25 $0.4375
4th Quarter $0.75 $1.125 $0.125 $0.4375
</TABLE>
(b) Holders
As of March 31, 1997, there were approximately 2,085 holders
of record of the registrant's common stock.
(c) Dividends
No cash dividends were declared or paid on the registrant's
common stock for the last two fiscal years. No restrictions limit
the registrant's ability to pay dividends on its common stock.
Recent Sales of Unregistered Securities
On December 31, 1996, the registrant entered into a stock
purchase agreement with R. H. Financial Services, Inc. ("RHF"),
and subsequently amended this agreement on January 31, 1997,
which, as amended, provided for the sale of 41,667 shares of the
registrant's common stock to RHF at approximately $0.60 per share
($25,000 in the aggregate). The net proceeds to the registrant for
the sale of said 41,667 shares, of which there were no offering
expenses, was $25,000. Ronald W. Hayes, Jr. ("Hayes"), who was
appointed president of the registrant on January 4, 1997, is the
president and controlling shareholder of RHF. No commissions were
paid, and no underwriting discounts were provided, by the
registrant in connection with the abovementioned transactions. The
<PAGE>
registrant relied upon section 4(2) of the Act to exempt the
transaction from the registration requirements of the Act. The per
share price of approximately $0.60 represented a 63% discount of
the low average high and low bid of the registrants's stock for the
fourth quarter of 1996, as reflected in the bulletin board quotes
of the over-the-counter trading market.
On each of March 26, 1997 and April 10, 1997, the registrant
sold 250,000 shares of common stock (500,000 in the aggregate) at
$0.40 per share pursuant to a private placement transaction. The
exemptions the registrant relied upon were Sections 4(2), 4(6) and
Regulation D of the Securities Act of 1933, as amended. The stock
was sold to an individual in the March transaction and to a
privately held limited liability partnership in the April
transaction. Both purchasers are accredited investors as that term
is defined in Regulation D. The net proceeds to the registrant
for the sale of said 500,000 shares, after offering expenses of
$1,000 were $199,000. No commissions were paid, and no
underwriting discounts were provided, by the registrant in
connection with the abovementioned transactions.
On October 17, 1997, the registrant issued 41,791 shares of
the registrant's common stock, valued at $10,740.28 to William R.
Colucci in exchange for the consulting services Mr. Colucci
provided to the registrant prior to becoming a director of the
registrant. These services consisted of assisting the registrant
in becoming a viable merger candidate to be merged with a
profitable ongoing concern and evaluating and analyzing various
merger partners for the registrant. The aforementioned valuation
of the registrant's common stock, no par value issued to Mr.
Colucci, was determined by averaging the $.0125 bid price of the
registrant's stock with the ask price of $0.5625 on the October 17,
1997 taken from the bulletin board quotes of the over-the-counter
trading market, and providing a discount of 25% as a result of the
share's "restricted" nature. No commissions were paid, and no
underwriting discounts were provided, by the registrant in
connection with the abovementioned transactions. The registrant
relied upon section 4(2) of the Act to exempt the transaction from
the registration requirements of the Act.
Item 6. Management's Discussion and Analysis or Plan of Operation.
(a) Plan of Operation
The registrant is presently a holding company conducting
virtually no business operation, other than its efforts to seek
merger partners or acquisition candidates. It presently receives no
cash flow from any source.
As disclosed in the registrant's press release dated November
11, 1997, the registrant entered into a non-binding letter of
intent for a reverse merger with R.F. Scientific, Inc., an Orlando,
Florida based corporation ("RFS"). RFS is a satellite
communications company which specializes in preparing and
constructing satellite communications vehicles for a wide variety
of commercial broadcasters, private networks and voice data users.
The registrant has been actively negotiating an agreement with RFS
for the registrant to acquire all of the outstanding shares of RFS
pursuant to a reorganization agreement. As of the date of this
report; however, no definitive binding reorganization agreement has
been entered into between the registrant and RFS, and since the
letter of intent is non-binding, no assurance can be made that any
<PAGE>
such agreement will be entered into and that the RFS acquisition
will occur.
In the event the RFS acquisition does not occur, the
registrant may not be in a position to meet its cash requirements
for the remainder of its fiscal year unless the registrant receives
an additional capital infusion. The registrant presently has no
binding commitments to obtain a capital infusion in a sufficient
amount, or any amount, to assist it in meeting it cash requirements
for the remainder of its fiscal year. The registrant can make no
assurances that such a sufficient capital infusion will occur, or
that if such a capital infusion does occur, that it will not be on
terms that could adversely affect the registrant or its
shareholders.
Item 7. Financial Statements
Financial Statements of Registrant are attached as Appendix
A (following Exhibits) and included as part of this Form 10-KSB
Report. A list of said Financial Statements is provided in
response to Item 13 of this Form 10-KSB Report.
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.
(a) Identity of directors and executive officers.
<TABLE>
<CAPTION>
Name Age Position Director Since
<S> <C> <C> <C>
Ronald W. Hayes, Jr. 31 chairman of board/
president/director January 1997
William R. Colucci 59 executive vice
president/director September 1997
</TABLE>
Each director is elected until the next Annual Meeting of
shareholders and until his successor is qualified.
(b) Business experience of directors and executive officers.
Ronald W. Hayes, Jr. has served as chairman of the board,
president and a director of the registrant since January 1997. He
is in charge of implementing the registrant's acquisition strategy.
Mr. Hayes is also presently the president of a privately held
management firm known as Harbor Town Management Group, Inc., a
Florida corporation, which provides investment banking and business
consulting services. From 1994 to 1997, Mr. Hayes served as
president and chairman of R. H. Financial Services, Inc. an
investment services company which provided investment banking,
brokerage and consulting services. Also, from 1994 to 1995 Mr.
Hayes served as a director of Action Products, Inc., a publicly
traded Nasdaq listed company. From 1991 to 1995, he was employed
as a stockbroker and office manager with Prudential Securities and
First Montauk Securities, Inc.
Mr. Colucci has served as the executive vice president and a
director of since September, 1997. His duties include assisting the
registrant in implementing its acquisition strategy. Mr. Colucci
is also presently a consultant with a privately held management
firm known as Harbor Town Management Group, Inc., a Florida
corporation, which provides investment banking and business
consulting services. From June 1996 to May 1997, Mr. Colucci served
as Chief Operating Officer and SEC Compliance officer for
Physicians Laser Services, Inc., a publicly traded Delaware
corporation. From April 1991 to May 1996, Mr. Colucci served as a
senior partner of Decision Dynamics, Inc., a private business and
real estate consulting firm.
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance.
To the best of registrant's knowledge, Ronald W. Hayes, an
officer, director and beneficial owner of more than 10% of the
registrant's common stock, failed to file required Form 4 in
September 1997. To the best of registrant's knowledge, no other
officer, director and/or beneficial owner of more than 10% of the
registrant's common stock, failed to file reports as required by
Section 16(a) of the Exchange Act during the most recent fiscal
year.
Item 10. Executive Compensation.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g) (h)
Other All
Name & Annual Restricted Securities Other
Position Year Salary($) Bonus($) Compen- Stock Underlying LTIP Compen-
sation Award(s) Options/ Payouts sation
($) ($) SARs(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ronald W.
Hayes, Jr.
Director
Chmn. of the
Board/Presi
dent 1997 275,000 (1) -0- -0- -0- 100,000 -0- 32,260(1)
shares
common
stock (2)
Ronald P.
Perella
Director
Exec. V.P. 1997 175,000(3) -0- -0- -0- 100,000(3) -0- -0-
shares
common
stock
</TABLE>
Notes to table:
(1) During 1997, Ronald W. Hayes, Jr. was granted 250,000 and
100,000 (350,000 in the aggregate) shares of common stock of the
registrant as compensation for serving as the registrant's
chairman of the board of directors and president. The per share
closing market price of the registrants common stock on (i)
January 31, 1997, the date of grant of 250,000 shares to Mr. Hayes
was $0.875 and (ii) April 24, 1997, the date of grant of 100,000
shares to Mr. Hayes was $0.5625. During 1997, Mr. Hayes was also
compensated in the amount of $32,260, which was paid in the form
of 36,869 shares of common stock of the registrant, pursuant to an
employment contract entered into between Mr. Hayes and the
registrant in 1996 whereby Mr. Hayes served as a consultant to the
registrant, but which was never fully paid upon.
(2) As part of his compensation for serving as a director of
the registrant, on January 31, 1997, Ronald W. Hayes, Jr. was
awarded options to purchase 100,000 shares of the registrant's
common stock at a price of $0.875 per share exercisable, in whole
or in part, at any time on or before January 31,1999. The per
share closing market price of the registrants common stock on
January 31, 1997 was $0.875.
(3) During 1997, Ronald P. Perella was granted 200,000 shares
of common stock of the registrant as compensation for his serving
as the registrant's executive vice president. The per share
<PAGE>
closing market price of the registrant's common stock on January
31, 1997, the date of the grant of 200,000 shares to Mr. Perella,
was $0.875. In October 1997, Mr. Perella resigned as an officer
and director of the registrant.
(4) As part of his compensation for serving as a director of
the registrant, on January 31, 1997, Ronald P. Perella was awarded
options to purchase 100,000 shares of the registrant's common
stock at a price of $0.875 per share exercisable, in whole or in
part, at any time on or before January 31,1999. The per share
closing market price of the registrant's common stock on January
31, 1997 was $0.875.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Individual Grants
____________________________________________________________________________
(a) (b) (c) (d) (e)
% of Total
Number of Options/
Securities SARs
Underlying Granted to
Options/ Employees Exercise or
SARs in Fiscal Base Price Expiration
Name Granted Year ($/Sh) Date
<S> <C> <C> <C> <C>
Ronald W.
Hayes, Jr.
Director
Chmn of the
Board/Presi
dent 100,000(1) 25% .0875 1/31/99
Ronald P.
Perella
Director
Exec. V.P. 100,000(2) 25% .0875 1/31/99
</TABLE>
Notes to table:
(1) As part of his compensation for serving as a director of
the registrant, on January 31, 1997, Ronald W. Hayes, Jr. was
awarded options to purchase 100,000 shares of the registrant's
common stock at a price of $0.875 per share exercisable, in whole
or in part, at any time on or before January 31,1999. The per
share closing market price of the registrants common stock on
January 31, 1997 was $0.875.
(2) As part of his compensation for serving as a director of
the registrant, on January 31, 1997, Ronald P. Perella was awarded
options to purchase 100,000 shares of the registrant's common
stock at a price of $0.875 per share exercisable, in whole or in
part, at any time on or before January 31,1999. The per share
closing market price of the registrant's common stock on January
31, 1997 was $0.875.
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Options/SAR Values
(a) (b) (c) (d) (e)
Number of Value of
Securities Unexercised
Underlying In-The-Money
Unexpired Options/
Options/ SARs SARs at FY-
at FY-End (#) End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Ronald W.
Hayes, Jr.
Director
Chmn of the
Board/Presi
dent(1) ----- ---- 100,000 ----
Exercisable
Ronald P.
Perella
Director
Exec.
V.P.(1) ----- ---- 100,000 ----
Exercisable
</TABLE>
Notes to table:
(1) No options were exercised by the named executive officers
during 1997. Also, no unexercised options of the named executive
officers were in-the-money as of December 31, 1997.
Compensation of Directors
Each person who served as a director of the registrant during
1997 was awarded options to purchase 100,000 shares of the
registrant's common stock at a price per share equal to the per
share closing market price of the registrant's common stock on the
date of such grant. Also, directors are compensated up to $500
for travel expenses in the event a director is traveling outside
of South Florida and is required to return to South Florida to
attend an emergency director's meeting.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
(a) The names, addresses, amount and nature of beneficial
ownership and percent of such ownership of persons known to the
registrant to be beneficial owner of more than five percent (5%)
of any class of Registrant's voting securities as of the date
hereof are as follows:
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Title of Class Name and Address Amount and Nature Percent of Class
of Beneficial Owner Of Beneficial Owner
<S> <C> <C> <C>
common Robert & Cyndee 309,714 shares (D) 14.1%
Hackney, JTWROS
4119 Lakespur Circle
S., Palm Beach
Gardens, FL 33410
common Ronald W. Hayes, Jr. 614,714 shares (D,I) 27.9%
1090 Powell Dr.,
Singer Island, FL
33404 (2)
common Ronald P. Perella 205,000 shares (D) 9.3%
162 N.E. Twylite
Terrace Stuart, FL
34983 (3)
common Louis E. Selman 250,000 shares (D) 11.4%
19575 Trails End
Terrace, Jupiter, FL
33458
common JRKR Family 250,000 shares (D) 11.4%
Partners, Ltd.
6616 Celeste Avenue,
Las Vegas, NV 89107
_____________________________________________________________________________
</TABLE>
(1) All shares of common stock are subject to a voting trust
agreement which remains in effect until December 31, 1998. This
agreement provides that R H Financial Services, Inc., a Florida
corporation wholly owned by Ronald W. Hayes, Jr., the registrant's
president, possess all rights, including the right to vote all
shares, whatsoever, in connection with the shares, other than the
right to receive dividends payable on such shares.
(2) Includes the right to vote, through R H Financial Services,
Inc., 309, 714 shares of common stock owned by Robert and Cyndee
Hackney, JTWROS.
(3) Includes the right to purchase up to 50,000 shares of the
registrant's common stock at any date prior to January 31, 1999.
(b) The names, addresses, amount and nature of beneficial
ownership and percent of such ownership of officers and directors
of the registrant to be beneficial owner of the registrant's
voting securities are as follows:
<TABLE>
<CAPTION>
(1) (2) (3) (4)
Title of Class Name and Address Amount and Nature Percent of Class
of Beneficial Owner Of Beneficial Owner
<S> <C> <C> <C>
common Ronald W. Hayes, Jr., shares (D,I) 27.9%
director, president 614,714
1090 Powell Dr.,
Singer Island, FL
33404 (1)
common William R. Colucci, 91,791 shares (D) 4.2%
director, executive
vice president, 601 N.
Ocean Blvd., Apt. #
304, Boca Raton, FL
333432 (2)
common All officers and 706,505 shares (D,I) 32.1%
directors as a group
(1)(2)
___________________________________________________________________________
</TABLE>
(1) Includes Ronald W. Hayes, Jr. right to vote, through R H
Financial Services, Inc., 309,714 shares of common stock owned by
Robert and Cyndee Hackney, JTWROS.
(2) Includes the right to purchase up to 50,000 shares of the
registrant's common stock at any date prior to November 25, 1999.
As disclosed in Part I Item 1 of this report, on November 11,
1997, the registrant entered into a non-binding letter of intent
for a reverse merger with R.F. Scientific, Inc., an Orlando,
Florida based corporation ("RFS"). The registrant has been
actively negotiating an agreement with RFS for the registrant to
acquire all of the outstanding shares of RFS pursuant to a
reorganization agreement. As of the date of this report;
however, no definitive binding reorganization agreement has been
entered into between the registrant and RFS, and no definitive
terms regarding a change in control of the registrant have been
agreed upon. In the event a binding reorganization agreement is
entered into between the registrant and RFS, a change in control
of the registrant may occur.
Item 12. Certain Relationships and Related Transactions.
In January 1996, the registrant entered into an agreement to
exchange approximately 83.5% of its no par value common stock for
approximately 60% of the common stock of Communications/USA, Inc.
<PAGE>
("Comm/USA"). On January 31, 1997, the registrant's board of
directors approved purchase agreement dated January 17, 1997
between the registrant and Palm Capital, Inc. ("Palm") to transfer
to Palm 2,550,000 shares of Comm/USA, which represented One
Hundred Percent (100%) of the registrant's ownership interests of
Comm/USA (the "Transaction"). On May 23, 1997, a majority of the
registrant's shareholders approved the purchase agreement at the
annual meeting of shareholders.
The Transaction was negotiated at "arms length" and the
consideration paid represented a fair market value. Raul E.
Balsera ("Balsera") and Robert Feiman ("Feiman"), both officers
and shareholders of Palm, were both affiliate shareholders of the
registrant prior to the Transaction. Also, Balsera served as
Chief Financial Officer of the registrant and Comm/USA prior to
the Transaction. As consideration for the Comm/USA stock transfer,
Palm agreed to deliver to the registrant any and all of the
registrant's stock held by Palm, Balsera and Feiman, plus any and
all options or other rights to the registrant's common stock, plus
the sum of $500,000, secured by 1,250,000 shares of Comm/USA
common stock. The consideration was payable as follows: (i) the
sum of $25,000 in cash; and (ii) a 7% interest promissory note in
the amount of $475,000 with 12 monthly payments of $9,000 per
month, 12 monthly payments of $12,000 per month, and a balloon
payment of the balance due on March 1, 1999. Palm also agreed to
the assumption of Comm/USA's liabilities.
On December 31, 1996, the registrant entered into a Stock
Purchase Agreement ("Agreement") with R. H. Financial Services,
Inc. ("RHF") to sell 500,000 shares of newly issued common stock
of the registrant, or approximately 25.6% of the then issued and
outstanding common stock of the registrant. Simultaneously, RHF
executed a Voting Trust Agreement (the "Voting Trust Agreement")
with Robert C. Hackney, giving RHF the right to vote an additional
314,000 shares of the registrant's common stock for a period of
two years. As a result of the above, RHF controlled the voting
rights to approximately 41.7% of the then issued and outstanding
common stock of the registrant. On January 4, 1997, Ronald W.
Hayes, Jr. ('Hayes"), President of RHF was appointed President of
the registrant.
The Agreement required RHF to pay consideration totaling
$300,000, with $25,000 payable at closing on December 31, 1996
(the "Closing Date"), $25,000 payable on January 14, 1997 with the
remaining consideration to be paid pursuant to a promissory note
(the "Note") with $50,000 payable on January 31, 1997, and $50,000
payable on each of March 31, June 30, September 30 and December
31, 1997.
RHF made the initial payment of $25,000 due on the December
31, 1996 closing date and made no other payments pursuant to the
Agreement as of the date of this report.
On January 31, 1997, the registrant's board of directors
("Board") unanimously decided that the Agreement and the Note
underlying the Agreement ought to be reformed as a result of a
number of unforeseen and unknown facts and events discovered by
RHF and the registrant subsequent to the Closing Date.
On March 10, 1997, the Board unanimously adopted a plan
submitted by Hayes to restructure the Agreement and Note as
follows: (i) in exchange for RHF returning 458,333 shares to the
registrant, the registrant shall cancel the entire Note and reform
the Agreement to reflect a sale of 41,667 shares of the
registrant's stock to RHF in exchange for the $25,000 RHF paid on
the Closing Date; and (ii) no late payment penalties shall be
charged by the registrant against RHF with respect to the $25,000
payable on January 14, 1997 and $50,000 payable on January 31,
1997, of which neither were paid. The Voting Trust Agreement
remains in full force and effect.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(3)(i)(1) Articles of Incorporation (incorporated by
reference to Registrant's Form 10-K
Report for the year ended December 31, 1983,
Exhibit (3)(A), File No. 0-6553).
(3)(i)(2) Amendment No. 1 to Articles of Incorporation.
(3)(i)(3) Amendment No. 2 to Articles of Incorporation.
(3)(ii)(1) Bylaws (incorporated by reference to
Registrant's Form 10-K report for the
year ended December 31, 1983, Exhibit (3) (B),
File No. 0-6503).
(3)(ii)(2) Amendment No. 1 to Bylaws.
(2)(ii)(3) Amendment No. 2 to Bylaws.
(9) Voting Trust Agreement (incorporated by
reference to Registrant's Form 10-KSB report for
the year ended December 31, 1996, Exhibit (9),
File No. 333-5862
(10)(i)(1) The Stock Purchase Agreement between the
Registrant and RHF (incorporated
by reference to the Registrant's Form 8-K filed
1/10/97).
(i)(2) Sale and Purchase Agreement Between the
Registrant and The Banana Corporation
(incorporated by reference to the Registrant's
Form 8-K filed 2/14/97).
(i)(3) Purchase Agreement Between the Registrant and
Palm Capital (incorporated by reference to the
Registrant's Form 8-K filed 2/14/97).
(i)(4) Addendum To Stock Purchase Agreement between
the Registrant and RHF (incorporated by
reference to the Registrant's Form 8-K/A filed
3/24/97).
(i)(5) Cancellation of Instrument (incorporated by
reference to the Registrant's Form
8-K/A filed 3/24/97).
(ii)(1) 1997 Restricted Stock Plan.
(ii)(2) William R. Colucci 1997 Restricted Stock
Plan Option Agreement.
(iii)(3) Frederick A. Hall 1997 Restricted Stock Plan
Option Agreement.
(iv)(4) Ronald W. Hayes, Jr. 1997 Restricted Stock
Plan Option Agreement.
(v)(5) Ronald P. Perella 1997 Restricted Stock Plan
Option Agreement.
(11) Earnings per share (See Appendix A)
(b) Reports on Form 8-K.
During the last quarter of the year
ended December 31, 1997, no reports on Form
8-K were filed by registrant.
(c) Financial Data Schedule.
<PAGE>
Appendix A
Financial Statements.
The following Audited Financial Statements of Registrant
are filed as part of this Form 10-KSB Report:
1. Consolidated Balance Sheet as of December 31, 1997 and
1996.
2. Consolidated Statement of Operation for the Years ended
December 31, 1997, 1996 and 1995.
3. Consolidated Statement of Statement of Shareholder's
Equity for the Years ended December 31, 1997, 1996 and
1995.
4. Consolidated Statement of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.
5. Notes to Consolidated Financial Statements
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized:
NET LNNX, INC.
By:/S/ Ronald W. Hayes, Jr.
Ronald W. Hayes, Jr., President
Date: April 2, 1998
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
By: /S/Ronald W. Hayes, Jr.
Ronald W. Hayes, Jr., President
By:/S/ William R. Colucci
William R. Colucci, Executive Vice
President
Date: April 2, 1998
Independent Auditor's Report
The Board of Directors and Shareholders
Net Lnnx, Inc.
West Palm Beach, Florida
We have audited the accompanying consolidated balance sheet of
Net Lnnx, Inc. as of December 31, 1997, and the related
consolidated statements of operations, shareholders' equity, and
cash flows for the years ended December 31, 1997 and 1996. 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 conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first
paragraph present fairly, in all material respects, the
consolidated financial position of Net Lnnx, Inc. as of December
31, 1997, the results of its consolidated operations and cash
flows for years ended December 31, 1997 and 1996 in conformity
with generally accepted accounting principles.
March 20, 1998
Boynton Beach, Florida
<PAGE>
NET LNNX, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1997
ASSETS
Current assets:
Cash and cash equivalents $ 33,171
Loan receivables - related parties 10,500
Loan receivable - Palm Capital 50,000
Prepaid expenses 1,550
Total current assets 95,221
Property and equipment (net) 7,405
$ 102,626
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 24,731
Stockholders' equity:
Preferred stock - no par value,
5,000,000 shares authorized,
no shares issued or outstanding
Common stock - no par value,
20,000,000 authorized,
2,200,000 issued and outstanding 1,000
Additional paid-in capital 1,687,936
Retained deficit (1,611,041)
Total stockholders' equity 77,895
$ 102,626
The accompanying notes are an integral part of these financial
statements.
-2-
<PAGE>
NET LNNX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Operating revenues $ - $ -
Operating expenses 735,077 376,848
(735,077) (376,848)
Other income:
Installment sale income 8,388 -
Interest income 27,985 -
36,373 -
Operating loss from continuing
operations ( 698,704) ( 376,848)
Discontinued operations:
Loss from operations of
discontinued operations ( 665) ( 33,429)
Loss from disposal of
discontinued operations ( 457,559) ( 45,000)
( 458,234) ( 78,429)
Net loss $(1,156,928) $( 445,277)
Basic loss per share:
Loss from continuing
operations $( 0.33) $( 0.28)
Loss from discontinued
operations $( 0.00) $( 0.03)
Loss from disposal of
discontinued operations $( 0.22) $( 0.03)
Net basic loss per share $( 0.55) $( 0.34)
Number of shares used in
earnings per common share
computation 2,108,945 1,330,099
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-3-
<PAGE>
NET LNNX, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-In Earnings
Shares Amount Capital (Deficit) Total
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 3,300,000 $ 1,000 - $ 1,164 $ 2,164
Reverse 1 for 20 spilt of stock (3,135,000)
Exchange stock for a 55% interest
In subsidiary 942,959 267,910 267,910
Common stock issued for stock 60,000 205,000 205,000
Common stock exchanged for
professional fees 251,095 203,375 203,375
Common stock exchanged for
Subsidiary's debt 53,572 220,000 220,000
Net loss - - - ( 455,277) ( 455,277)
Balance at December 31, 1996 1,472,626 1,000 896,285 ( 454,113) 443,172
Common stock issued for cash 500,000 200,000 200,000
Common stock exchanged for
professional fees 227,374 591,651 591,651
Net loss - - - ( 1,156,928) ( 1,156,928)
Balance at December 31, 1997 2,200,000 $ 1,000 $ 1,687,936 $(1,611,041) $ 77,895
</TABLE>
The accompanying notes are an integral part of these financial
statements.
-4-
<PAGE>
NET LNNX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $(1,156,928) $ (455,277)
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Depreciation 3,376 1,660
Professional fees
exchanged for common stock 591,651 203,375
Subsidiary's debt exchanged for
common stock 220,000
Acquisition of subsidiary 267,910
Net assets of discontinued
operations 450,400 (450,400)
Changes in operating assets
and liabilities:
Loans receivable - related
parties (10,500)
Loan receivable - Palm
Capital (50,000)
Prepaid expenses (1,550)
Accounts payable (18,866) 36,866
Accrued expenses 2,187 4,544
Net cash used for operating
activities (190,230) (171,322)
Cash provided by investing activities
Acquisition of equipment (1,643) (10,798)
Proceeds from issuance of common stock 200,000 205,000
Net cash provided by
investing activities 198,357 194,202
Net increase in cash 8,127 22,880
Cash, beginning of year 25,044 2,164
Cash, end of year $ 33,171 $ 25,044
</TABLE>
Supplemental disclosure: none
The accompanying notes are an integral part of these financial
statements.
-5-
<PAGE>
NET LNNX, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Purpose - Net Lnnx, Inc. (the "Company") was
organized as Chester County Security Fund, Inc. ("Chester")
December 31, 1988 under the laws of Pennsylvania as a wholly
owned subsidiary of Corporate Investment Company ("CIC"). On
May 5, 1989, CIC distributed the outstanding stock of Chester to
its shareholders as a one-share stock for stock dividend.
Chester was a holding company conducting virtually no operations
other than its efforts to seek merger partners.
In January, 1996, the Company in a stock for stock exchange,
acquired a majority interest in Communications/USA, Inc. The
Company also formed a wholly owned subsidiary, TrueNet, Inc.
After the Company acquired and formed its subsidiaries, it
changed its name to Net Lnnx, Inc. and had a 1 for 20 reverse
stock split.
Basis of Presentation - The accompanying financial statements
for 1997 are not consolidated as all subsidiaries were disposed
of during 1997. In prior years, the financial statements
included the accounts of the Company and all of its
subsidiaries. All significant intercompany accounts and
transactions were eliminated.
Cash and Cash Equivalents - Represents actual balances in
banks or invested in liquid short-term investments with
maturities of three months or less when purchased. All of the
balances are owned by the Company and are not encumbered in any
manner.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Management believes that the estimates
utilized in preparing its financial statements are reasonable
and prudent. Actual results could differ from those estimates.
Property and Equipment - Property and equipment are recorded
at cost. The equipment is depreciated over its estimated useful
life. Repairs and maintenance are expensed.
Fair Value of Financial Instruments - The fair value of the
Company's financial instruments such as accounts receivable and
accounts payable approximate their carrying value.
Compensated Absences - Compensated absences have not been
accrued, as they cannot be reasonably estimated.
Stock-Based Compensation - The Company accounts for
stock-based awards using the intrinsic value method in
accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25").
Accordingly, no compensation cost has been recognized for its
stock options. The Company provides additional pro forma
disclosures as required under Statement of Financial Accounting
Standard, No. 123, "Accounting for Stock-Based Compensation"
("FAS 123").
-6-
<PAGE>
NET LNNX, INC.
NOTES TO FINANCIAL STATEMENTS
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes - The Company accounts for income taxes on an
asset and liability approach to financial accounting. Deferred
income tax assets and liabilities are computed annually for
temporary differences between the financial statement and tax
bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
Loss per Share - The Company has adopted Financial Accounting
Standards No. 128, "Earnings per Share" ("FAS 128"), effective
October 1, 1997. FAS 128 requires presentation of earnings or
loss per share on basic and diluted earnings per share. The
company has potentially dilutive shares, however, because the
Company has a loss, the shares are deemed anti-dilutive and only
basic loss per share is presented. Loss per share is computed
by dividing net income by the weighted average number of shares
outstanding during the period. Restatement of the prior period
for this pronouncement had no effect on the loss per share
amounts.
2.DISPOSITION OF OPERATIONS
Communications/USA, Inc. - On January 31, 1997, the
shareholders of the Company approved a Purchase Agreement dated
January 17, 1997 with Palm Capital, Inc. ("Palm") to sell to
Palm all of the Company's investment in Communications/USA, Inc.
("CUSA") (the "Transaction").
As consideration for the CUSA sale, Palm agreed to deliver to
the Company all of the Company's stock, options, and other
rights to the Company's common stock held by Palm and its
shareholders, plus the sum of $500,000, secured by 1,250,000
shares of CUSA's common stock. The $500,000 was payable in cash
of $25,000 and a promissory note of $475,000 with interest at
7%. Palm also agreed to the assumption of CUSA's liabilities.
During 1997, Palm sold all its CUSA stock. The Company filed a
suit against Palm to collect the note that was in default. On
January 26, 1998, the litigation was settled for $190,000. The
Company charged to loss from disposal of discontinued operations
$408,959 and $45,000 in 1997 and 1996, respectively. The loss
for 1997 consisted of the write-down of the assets and other
expenses.
TrueNet, Inc. - On January 31, 1997, the Company entered into
a sale and purchase agreement with Banana Corporation, Inc.
("BCI") to sell to BCI 100% of the common stock and assets of
the Company's wholly owned subsidiary, TrueNet. As
consideration, BCI transferred to the Company 10% (100,000
shares) of BCI's common stock. In May 1997, BCI declared
bankruptcy. The Company charged to loss from disposal of
discontinued operations $48,600 in 1997.
-7-
<PAGE>
NET LNNX, INC.
NOTES TO FINANCIAL STATEMENTS
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
1997 1996
Computer Equipment $ 7,441 $ 5,798
Office furniture and fixtures 5,000 5,000
12,441 10,798
Less accumulated depreciation 5,036 1,660
$ 7,405 $ 9,138
Depreciation expense for the 1997 and 1996 was $3,376 and $1,660
respectively.
4.CHANGES IN STOCKHOLDER'S EQUITY
In 1997, the Company exchanged stock for various professional
fees and services. The value of the services was set by the
market value that its common stock was trading at the time of
the exchanges ranging from $ .125 to $ .875 per share.
In 1996, 60,000 shares of common stock were issued for $205,000
in cash from an officer and director. Services valued at
$203,375 were exchanged for 251,095 shares of stock valued at
the market value of stock at the time of issue ranging from $
.875 to $ 3.20 per share. Debt of the subsidiary was exchanged
for 53,572 shares of stock, which was the value of the debt of
$220,000.
5.STOCK OPTION PLAN
On January 20, 1997, the Company adopted a Restricted Stock
Plan, known as the 1997 Restricted Stock Plan ("the Plan").
Officers and directors of the Company and related corporations
may be granted nonqualified options to purchase up to 500,000
shares of the common stock of the Company. The Plan terminates
January 20, 2006 unless extended by the Company. The exercise
price of the nonqualified options granted under the Plan shall
in no event be less than the lesser of (1) the book value per
share of common stock as of the end of the fiscal year of the
Company immediately preceding the date of such grant, or (2) 50
percent of the fair market value per share of common stock on
the date of such grant.
-8-
<PAGE>
NET LNNX, INC.
NOTES TO FINANCIAL STATEMENTS
5.STOCK OPTION PLAN (continued)
A summary of the stock option activity for 1997 under the
current plan is as follows:
<TABLE>
<CAPTION>
Option Price Per Share
Stock Weighted
Options Range Average
<S> <C> <C> <C>
Balance at January 1, 1997
Granted 400,000 $ 0.200 to $ 0.875 $ 0.706
Exercised - - - -
Cancelled - - - -
Balance at December 31, 1997 400,000 $ 0.200 to $ 0.875 $ 0.706
</TABLE>
In accordance with APB 25 and related interpretations, no
compensation expense has been recognized for its stock based
compensation. Possible compensation cost for the Company's
stock options has been determined based upon the fair value at
the grant date consistent with the Black-Scholes methodology
prescribed under FASB 123. The Company did not recognize
compensation expense because the market price of the shares had
decreased to the point the shares do not generated expense under
the Black-Scholes formula.
The fair value of these options was estimated at the date of
grant with a Black-Scholes option pricing model using a dividend
yield of 0%, estimated volatility of 0%, a risk-free interest
rate of 6.42%, and an expected life of ten (10) years.
6. INCOME TAXES
The Company has had no taxable income for the years ended
December 31, 1997, 1996, and 1995, and as a result, has recorded
no tax expense. The Company recorded deferred tax assets
resulting from net operating losses of $606,743 and $171,931 in
1997 and 1996, respectively less a valuation allowance of the
same amount for each year. The Company had available net
operating loss carry forwards of approximately $1,612,400 that
expire as follows: $200 in 2010, $455,300 in 2011 and $1,156,900
in 2012.
7. SUBSEQUENT EVENT
In January of 1998, the Company redeemed 175,000 stock options,
which had been granted but not exercised. The redeemed price
was $ .20 for a total of $35,000 which will be recorded as
compensation in 1998.
-9-
<PAGE>
NET LNNX, INC.
NOTES TO FINANCIAL STATEMENTS
8. CONTINUING OPERATIONS
The accompanying financial statements have been presented in
accordance with generally accepted accounting principles, which
assume the continuity of the Company as a going concern. The
Company has no operations but continues to incur expenses. With
the settlement of lawsuits, the Company has cash to operate for
the near future, however, its ability to continue is dependent
on obtaining a merger partner. The Company has entered into
negotiations, but no agreement has been signed as of the date of
this financial statement.
-10-
THIS IS A TRUE COPY
THE ORIGINAL SIGNED
DOCUMENT FILED WITH
THE DEPARTMENT OF STATE
Microfilm Number________ Filed with the Department of
State on Jan 04 1996
Entity Number 64409 /s/
Secretary of the Commonwealth
ARTICLES OF AMENDMENT - DOMESTIC BUSINESS CORPORATION
DBCB: 15-1915 (REV 89)
In compliance with the requirements of 15 Pa.C.S. Section 1915
(relating to articles of amendment), the undersigned business
corporation, desiring to amend its Articles, hereby states that:
1. The named of the corporation is: Chester County Security Fund,
Inc.
2. The (a) address of this corporation's current registered office
in this Commonwealth or (b) commercial registered office provider
and the county of venue is (the Department is hereby authorized to
correct the following address to conform to the records of the
Department):
(a) 310 Building 2, 100 Matsonford Rd., Radnor, PA 19087 Delaware
County
Number and Street City State Zip County
(b)
Name of Commercial Registered Office Provider
For a corporation represented by a commercial registered office
provider, the county in (b) shall be deemed the county in which the
corporation is located for venue and official publication purposes.
3. The statute by or under which is was incorporated is:
Pennsylvania Business Corporation Law of May 5, 1993, P.L. 364, as
amended.
4. The original date of its incorporation is: April, 1968
5. (Check, and if appropriate complete, one of the following):
X The amendment shall be effective upon filing of these
Articles of Amendment in the Department of State
__ The amendment shall be effective on:______________
6. (Check one of the following):
__ The amendment was adopted by the shareholders pursuant
to 15 Pa.C.S. Section 1914 (a) and (b).
X The amendment was adopted by the board of directors
pursuant to 15 Pa.C.S. Section 1914(c).
7. (Check, and if appropriate complete, one of the following):
X The amendment adopted by the corporation, set forth in
full is as follows:
RESOLVED, that the Articles of Incorporation be amended, in part,
to read as follows:
The name of the corporation shall be NET LNNX, INC.
JAN-4 96
PA Dept. Of State
<PAGE>
8. (Check if the amendment restates the Articles):
__ The restated Articles of Incorporation supersede the
original Articles and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused
these Articles of Amendment to be signed by a duly authorized
officer thereof this 3rd day of January, 1996.
Chester County Security Fund, Inc.
(NET LNNX, INC.)
(Name of corporation)
BY:/s/
(Signature)
President
TITLE
Microfilm Number________ Filed with the Department of
State on
Entity Number 64409
Secretary of the Commonwealth
ARTICLES OF AMENDMENT - DOMESTIC BUSINESS CORPORATION
DBCB: 15-1915 (REV 89)
In compliance with the requirements of 15 Pa.C.S. Section 1915
(relating to articles of amendment), the undersigned business
corporation, desiring to amend its Articles, hereby states that:
1. The named of the corporation is: Chester County Security Fund,
Inc.
2. The (a) address of this corporation's current registered office
in this Commonwealth or (b) commercial registered office provider
and the county of venue is (the Department is hereby authorized to
correct the following address to conform to the records of the
Department):
(a) 310 Building 2, 100 Matsonford Rd., Radnor, PA 19087 Delaware
County
Number and Street City State Zip County
(b)
Name of Commercial Registered Office Provider
For a corporation represented by a commercial registered office
provider, the county in (b) shall be deemed the county in which the
corporation is located for venue and official publication purposes.
3. The statute by or under which is was incorporated is:
Pennsylvania Business Corporation Law of May 5, 1993, P.L. 364, as
amended.
4. The original date of its incorporation is: April 15, 1968
5. (Check, and if appropriate complete, one of the following):
X The amendment shall be effective upon filing of these
Articles of Amendment in the Department of State
__ The amendment shall be effective on:______________
6. (Check one of the following):
X The amendment was adopted by the shareholders pursuant
to 15 Pa.C.S. Section 1914 (a) and (b).
__ The amendment was adopted by the board of directors
pursuant to 15 Pa.C.S. Section 1914(c).
7. (Check, and if appropriate complete, one of the following):
__ The amendment adopted by the corporation, set forth in
full is as follows:
RESOLVED, that the Articles of Incorporation be amended, in part,
to read as follows:
The aggregate number of shares which the Corporation shall have
authority to issue is 20,000,000 shares of no par value Common
Stock.
JAN 29 96
PA Dept. Of State
<PAGE>
The Corporation shall also be authorized to issue and have
outstanding at any one time five million (5,000,000) shares of
Preferred Stock, no par value.
The Preferred Stock may be issued from time to time with such
designations, face values, dividends, voting preferences, coversion
rights, cumulative, relative, participating, optional or other
rights, qualifications, limitations or restrictions thereof as
shall be stated and expressed in the resolutions or resolutions
providing for the issuance of such Preferred Stock as adopted by
the Board of Directors pursuant to the authority given in this
paragraph.
8. (Check if the amendment restates the Articles):
__ The restated Articles of Incorporation supersede the
original Articles and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused
these Articles of Amendment to be signed by a duly authorized
officer thereof this 26 day of January, 1996.
NET LNNX, INC. f/k/a Chester County
Security Fund, Inc.
(Name of corporation)
BY:/s/
(Signature)
President
TITLE
NET LNNX BY-LAWS
AMENDMENT NUMBER 1
January 26, 1996
The first sentence of Paragraph 1 of Article IV- Directors is
deleted and hereby replaced with the following:
ARTICLE IV - DIRECTORS
1.The business of this corporation shall be managed by its
Board of Directors, one in number, who needs not be a resident of
this Commonwealth or shareholders in the corporation.
C:\DMBPAFiles\Client.files\NETLNNX\SEC\9710KSBEx\BLAWAMD1.wpd
NET LNNX BY-LAWS
AMENDMENT NUMBER 2
January 31, 1997
The first sentence of Paragraph 1 of Article IV- Directors,
previously amended on January 26, 1996, is hereby deleted and
replaced with the following:
ARTICLE IV - DIRECTORS
1.The business of this corporation shall be managed by its
Board of Directors, which shall consist of at least one in number,
but no more than five, who need not be residents of this
Commonwealth or shareholders in the corporation.
C:\DMBPAFiles\Client.files\NETLNNX\SEC\9710KSBEx\BLAWAMD2.wpd
1997 RESTRICTED STOCK PLAN
1. Purpose. This 1997 Restricted Stock Plan (the "Plan")
is intended to provide incentives: (a) to the officers and
directors of NET LNNX, Inc. (the "Company"), its parent (if any)
and any present or future subsidiaries of the Company
(collectively, "Related Corporations") by providing them with
opportunities to purchase stock in the Company pursuant to options
("Non-Qualified Option" or "Non-Qualified Options") granted
hereunder which do not qualify as "incentive stock options"
("ISOs") under Section 422(b) of the Internal Revenue Code of 1986
(the "Code"); (b) to directors and officers of the Company and
Related Corporations by providing them with awards of stock in the
Company ("Awards"); and (c) to directors and officers of the
Company and Related Corporations by providing them with
opportunities to make direct purchases of stock in the Company
("Purchases"). Non-Qualified Options are referred to hereafter
individually as an "Option" and collectively as "Options".
Options, Awards, and authorizations to make Purchases are referred
to hereafter collectively as "Stock Rights". As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and
"subsidiary corporation" respectively, as those terms are defined
in Section 425 of the Code.
2. Administration of the Plan.
A. The Plan shall be administered by either (i) the Board of
Directors of the Company (the "Board"); or (ii) a Stock
Plan Committee (the "Committee"), appointed by the Board,
pursuant to the requirements of paragraph 2.D. herein.
Subject to paragraph 2.D. herein and the terms of the
Plan, the Committee, if so appointed, shall have the
authority to (i) determine (from among the class of
individuals and entities eligible under paragraph 3 to
receive Non-Qualified Options and Awards and to make
Purchases) to whom Non-Qualified Options, Awards and
authorizations to make Purchases may be granted; (ii)
determine the time or times at which Options or Awards
may be granted or Purchases made; (iii) determine the
option price of shares subject to each Option, which
price shall not be less than the minimum price specified
in paragraph 6, and the purchase price of shares subject
to each Purchases; (iv) determine (subject to paragraph
7) the time or times when each Option shall become
exercisable and the duration of the exercise period; (v)
determine whether restrictions such as repurchase options
are to be imposed on shares subject to Options, Awards
and Purchases and the nature of such restrictions, if
any, and (vi) interpret the Plan and prescribe and
rescind rules and regulations relating to it. All
references in this Plan to the Committee shall mean the
Board if no Committee has been appointed. If the
Committee determines to issue a Non-Qualified Option, it
shall take whatever actions it deems necessary, under
Section 422A of the Code and the regulations promulgated
thereunder, to ensure that such Option is not treated as
an ISO. The interpretation and construction by the
Committee of any provisions of the Plan or of any Stock
Right granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to
time adopt such rules and regulations for carrying out
the Plan as it may deem best. No member of the Board or
the Committee shall be liable for any action or
determination made in good faith with respect to the Plan
or any Stock Right granted under it.
<PAGE>
B. The Committee may select one of its members as its
chairman, and shall hold meetings at such time and places
it may determine. Acts by a majority of the Committee,
or actions reduced to or approved in writing by a
majority of the members of the Committee, shall be the
valid acts of the Committee. From time to time the Board
may increase the size of the Committee and appoint
additional members thereof, remove members (with or
without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all
members of the Committee and thereafter directly
administer the Plan.
C. Stock Rights may be granted to members of the Board in
accordance with paragraph 2.D. herein and the provisions
of this Plan applicable to other eligible persons.
Members of the Board who are either (i) eligible for
Stock Rights pursuant to the Plan or (ii) have been
granted Stock Rights may vote on any matters affecting
the administration of the Plan or the grant of any Stock
Rights pursuant to the Plan.
D. Each transaction, i.e. each grant of Stock Rights to any
eligible participant under the Plan who is an officer or
director of the Company, (i) shall be approved in
advance to the granting of such right, by either the full
Board or the Committee of the Board which shall be
composed solely of two or more Non-Employee Directors;
(ii) shall be approved in advance to the granting of such
right, or ratified no later than the next annual meeting
of shareholders, by the affirmative votes of the holders
of a majority of the securities of the issuer present, or
represented, and entitled to vote at a meeting duly held
in accordance with the applicable laws of the state or
other jurisdiction in which the Company is incorporated;
or the written consent of the holders of a majority of
the securities of the issuer entitled to vote; or (iii)
shall be held by the officer or director for a period of
six months following the date of such acquisition,
provided that with respect to Options, if at least six
months elapse from the date of acquisition/grant of the
Options to the date of disposition of the Options (other
than upon exercise or conversion) or its underlying
equity security. A Non-Employee Director is a director
who is not, at the time of such grant an officer of the
Company or any Related Corporation, or otherwise employed
by the Company or any Related Corporation; does not
receive compensation, either directly or indirectly, from
the Corporation or any Related Corporation, for services
rendered as a consultant or in any capacity other than a
director, except for an amount that does not exceed the
dollar amount for which disclosure is required pursuant
to Item 404(a) of Regulation S-K promulgated under the
Securities Act of 1933, as amended; does not possess an
interest in any other transaction for which disclosure
would be required pursuant to Item 404(a) of Regulation
S-K; and is not engaged in a business relationship for
which disclosure would be required pursuant to Item
404(b) of Regulation S-K.
3. Eligible Employees and Others. Non-Qualified Options,
Awards and authorizations to make Purchases may be granted to any
director (whether or not an employee) or officer of the Company or
any Related Corporation. The Committee may take into consideration
a recipient's individual circumstances in determining whether to
grant a Non-Qualified Option or an authorization to make a
Purchase. Granting of any Stock Rights to any individual or entity
shall neither entitle that individual or entity to, nor disqualify
him from, participation in any other grant of Stock Rights.
<PAGE>
4. Stock. The stock subject to Options, Awards and
Purchases shall be authorized but unissued shares of Common Stock
of the Company, no par value (the "Common Stock"), or shares of
Common Stock reacquired by the Company in any manner. The
aggregate number of shares which may be issued pursuant to the Plan
is 500,000, subject to adjustment as provided in paragraph 13. Any
such shares may be issued as Non-Qualified Options or Awards, or to
persons or entities making Purchases, so long as the number of
shares issued does not exceed such number, as adjusted. If any
Option granted under the Plan shall expire or terminate for any
reason without having been exercised in full or shall cease for any
reason to be exercisable in whole or in part, or if the Company
shall reacquire any unvested shares issued pursuant to Awards or
Purchases, the unpurchased shares subject to such Options and any
unvested shares so reacquired by the Company shall again be
available for grants of Stock Rights under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted
under the Plan at any time after January 20, 1997 and prior to
January 20, 2006. Any Stock Right issued pursuant to subsection
(iii) of paragraph 2.D. shall be held for the period of time
described in that subsection. The date of grant of a Stock Right
under the Plan will be the date specified by the Committee at the
time it grants the Stock Right; provided, however, that such date
shall not be prior to the date on which the Committee acts to
approve the grant. Awards and the price of Purchases shall be at
fair market value as determined by the Board of Directors.
6. Minimum Option Price.
A. The price per share specified in the agreement relating
to each Non-Qualified Option granted under the Plan shall
in no event be less than the lesser of (i) the book value
per share of Common Stock as of the end of the fiscal
year of the Company immediately preceding the date of
such grant, or (ii) 50 percent of the fair market value
per share of Common Stock on the date of such grant.
B. INTENTIONALLY LEFT BLANK.
C. INTENTIONALLY LEFT BLANK.
D. If, at the time an Option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market
value" shall be determined as of the last business day
for which the prices or quotes discussed in this sentence
are available prior to the date such Option is granted
and shall mean (i) the average (on that date) of the high
and low prices of the Common Stock on the principal
national securities exchange on which the Common Stock
is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported
sale price (on that date) of the Common Stock on the
NASDAQ National Market List, if the Common Stock is not
then traded on a national securities exchange; or (iii)
the closing bid price (or average of bid prices) last
quoted (on that date) by an established quotation service
for over-the-counter securities, if the Common Stock is
not reported on the NASDAQ National Market List.
However, if the Common Stock is not publicly traded at
the time an Option is granted under the Plan, "fair
market value" shall be deemed by the Committee after
taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale
and offer prices of the Common Stock in private
transactions negotiated at arm's length.
<PAGE>
7. Option Duration.Each Option shall expire on the date
specified by the Committee, but not more than five years and one
day from the date of grant in the case of Non-Qualified Options.
8. Exercise of Option. Subject to the provisions of
paragraphs 11 and 12, each Option granted under the Plan shall be
exercisable as follows:
A. The Option shall either be fully exercisable on the date
of grant or shall become exercisable thereafter in such
installments as the Committee may specify.
B. Once an installment becomes exercisable it shall remain
exercisable until expiration or termination of the
Option, unless otherwise specified by the Committee.
C. Each Option or installment may be exercised at any time
or from time to time, in whole or in part, for up to the
total number of shares with respect to which it is
then exercisable.
D. The Committee shall have the right to accelerate the date
of exercise of any installment of any Option.
E. With respect to any Options granted to any officer or
director of the Company pursuant to subsection (iii) of
paragraph 2.D. herein, at least six months shall elapse
from the date of the acquisition/grant of the Option to
the date of disposition of the Option (other than upon
exercise or conversion) or its underlying equity
security.
9. INTENTIONALLY LEFT BLANK.
10. INTENTIONALLY LEFT BLANK.
11. Assignability. All Stock Rights shall be freely
transferable subject to the limitations imposed by subsection (iii)
of paragraph 2.D. herein, if applicable.
12. Terms and Conditions of Options. Options shall be
evidenced by instruments (which need not be identical) in such
forms as the Committee may from time to time approve. Such
instruments shall conform to the terms and conditions set forth in
paragraphs 6 through 11 hereof and may contain such other
provisions as the Committee deems advisable which are not
inconsistent with the Plan, including restrictions applicable to
shares of Common Stock issuable upon exercise of Options. In
granting any Non-Qualified Option, the Committee may specify that
such Non-Qualified Option shall be subject to termination and
cancellation provisions as the Committee may determine. The
Committee may from time to time confer authority and responsibility
on one or more of its own members and/or one or more officers of
the Company to execute and deliver such instruments. The proper
officers of the Company are authorized and directed to take any and
all action necessary or advisable from time to time to carry out
the terms of such instruments.
<PAGE>
13. Adjustments. Upon the occurrence of any of the following
events, an optionee's rights with respect to Options granted to him
hereunder shall be adjusted as hereinafter provided, unless
otherwise specifically provided in the written agreement between
the optionee and the Company relating to such Option:
A. If the shares of Common Stock shall be subdivided or
combined into a greater or small number of shares of it
the Company shall issue any shares of Common Stock as a
stock dividend on its outstanding Common Stock, the
number of shares of Common Stock deliverable upon the
exercise of Options shall be appropriately increased or
decreased proportionately, and appropriate adjustments
shall be made in the purchase price per share to reflect
such subdivision, combination or stock dividend.
B. If the Company is to be consolidated with or acquired by
another entity in a merger, sale of all or substantially
all of the Company's assets or otherwise (an
"Acquisition"), the Committee or the Board of Directors
of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to
outstanding Options, either (i) make appropriate
provision for the continuation of such Options by
substituting on an equitable basis for the shares then
subject to such Options the consideration payable with
respect to the outstanding shares of Common Stock in
connection with the Acquisition; or (ii) upon written
notice to the optionees, provided that all Options must
be exercised, to the extent then exercisable, within a
specified number of days of the date of such notice, at
the end of which period the Options shall terminate; or
(iii) terminate all Options in exchange for a cash
payment equal to the excess of the fair market value of
the shares subject to such Options (to the extent then
exercisable) over the exercise price thereof.
C. In the event of a recapitalization or reorganization of
the Company (other than a transaction described in
subparagraph B above) pursuant to which securities of the
Company or of another corporation are issued with respect
to the outstanding shares of Common Stock, an optionee
upon exercising an Option shall be entitled to receive
for the purchase price paid upon such exercise the
securities he would have received if he had exercised his
Option prior to such recapitalization or reorganization.
D. INTENTIONALLY LEFT BLANK.
E. In the event of the proposed dissolution or liquidating
of the Company, each Option will terminate immediately
prior to the consummation of such proposed action or at
such other time and subject to such other conditions as
shall be determined by the Committee.
F. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares subject to
Options. No adjustments shall be made for dividends paid
in cash or in property other than securities of the
Company.
<PAGE>
G. No fractional shares shall be issued under the Plan and
the optionee shall receive from the Company cash in lieu
of such fractional shares.
H. Upon the happening of any of the foregoing events
described in subparagraphs A, B, and C above, the class
and aggregate number of shares set forth in paragraph 6
hereof that are subject to Stock Rights which previously
have been or subsequently may be granted under the Plan
shall also be appropriately adjusted to reflect the
events described in such subparagraphs. The Committee or
the Successor Board shall determine the specific
adjustments to be made under this paragraph 13 and,
subject to paragraph 2, its determination shall be
conclusive.
If any person or entity owning restricted Common Stock
obtained by exercise or a Stock Right made hereunder receives
shares of securities or cash in connection with a corporate
transaction described in subparagraphs A, B, or C above as a result
of owning such restricted Common Stock, such shares or securities
or cash shall be subject to all of the conditions and restrictions
applicable to the restricted Common Stock with respect to which
such shares or securities or cash were issued, unless otherwise
determined by the Committee or the Successor Board.
14. Means of Exercising Stock Rights. A Stock Right (or
any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal office address.
Such notice shall identify the Stock Right being exercised and
specify the number of shares to which such Stock Right is being
exercised, accompanied by full payment of the purchase price
therefor either (a) in United States dollars in cash or by check,
or (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the
date of the exercise to the cash exercise price of the Stock Right,
or (c) at the discretion of the Committee, by delivery of the
grantee's personal recourse note bearing interest payable not less
than annually at no less than 100% of the lowest applicable Federal
rate, as defined in Section 1274 (d) of the Code, or (a), (b), and
(c) above. The holder of a Stock Right shall not have the rights
of a shareholder with respect to the shares covered by his Stock
Right until the date of issuance of a stock certificate to him for
such shares. Except as expressly provided above in paragraph 13
with respect to changes in capitalization and stock dividends, no
adjustment shall be made for dividends or similar rights for which
the record date is before the date such stock certificate is
issued.
15. Term and Amendment of Plan. This Plan was adopted by
the Board on January 20, 1997. The Plan shall expire on January 20,
2006 (except as to Options outstanding on that date). The Board
may terminate or amend the Plan in any respect at any time, except
that (ii) the expiration date of the Plan may not be extended and
(ii) the terms and conditions of any Stock Rights previously
granted pursuant to this Plan shall not be altered.
16. INTENTIONALLY LEFT BLANK.
17. Application of Funds. The proceeds received by the
Company from the sale of shares pursuant to Options granted and
Purchases authorized under the Plan shall be used for general
corporate purposes.
<PAGE>
18. Governmental Regulation. The Company's obligation to
sell and deliver shares of the Common Stock under this Plan is
subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
19. Withholding of Additional Income Taxes. Upon the
exercise of a Non-Qualified Option, the grant of an Award, the
making of a Purchase of Common Stock for less than its fair market
value, the making of a Disqualifying Disposition (as defined in
paragraph 20) or the vesting of restricted Common Stock acquired on
the exercise of a Stock Right hereunder, the Company, in accordance
with Section 3402(a) of the Code, may require the optionee, Award
recipient or purchaser to pay additional withholding taxes in
respect of the amount that is considered compensation includible in
such person's gross income. The Committee in its discretion may
condition (i) the exercise of an Option, (ii) the grant of an
Award, (iii) the making of a Purchase of Common Stock for less than
its fair market value, or (iv) the vesting of restricted Common
Stock acquired by exercising a Stock Right on the grantee's payment
of such additional withholding taxes.
20. INTENTIONALLY LEFT BLANK.
21. Governing Law: Construction. The validity and
construction of the Plan and the instruments evidencing Stock
Rights shall be governed by the laws of the Commonwealth of
Pennsylvania. In construing this Plan, the singular shall include
the plural and the masculine general shall include the feminine and
neuter, unless the context otherwise requires.
NON-STATUTORY STOCK OPTION AGREEMENT PURSUANT
TO THE NET LNNX, INC. 1997 RESTRICTED STOCK PLAN
THIS AGREEMENT is made as of November 25, 1997, between Net
Lnnx, Inc., a Pennsylvania corporation (the "Company"), and William
R. Colucci (the "Optionee").
THE PARTIES AGREE AS FOLLOWS:
1. Option Grant. The Company hereby grants to the Optionee
an option (the "Option") to purchase the number of shares of the
Company's common stock (the "Shares"), for an exercise price per
share (the "Option Price") and based upon a Vesting Schedule, all
as set forth below:
Shares under option: 100,000
Option Price per Share: $0.6875
Vesting Schedule*: January 1, 1998 - 25,000 shares
April 1, 1998 - 25,000 shares
July 1, 1998 - 25,000 shares
October 1, 1998 - 25,000 shares
*In the event the Company or any of its Related Companies
consummates a merger, acquisition, reorganization or any other
business combination with another unrelated person or entity, upon
the closing date of such business combination, all 100,000 options
will immediately vest and will become exercisable at any time
subsequent to the closing date of such business combination.
The Option will be subject to all of the terms and conditions
set forth herein and in the Company's 1997 Restricted Stock Plan
(the "Option Plan"), a copy of which is attached hereto and
incorporated by reference. The Option granted hereunder will be a
nonstatutory or nonqualified option for tax purposes.
2. Stockholder Rights. No rights or privileges of a
stockholder in the Company are conferred by reason of the granting
of the Option. Optionee will not become a stockholder in the
Company with respect to the Shares unless and until the Option has
b een properly exercised and the Option Price fully paid as to the
portion of the Option exercised.
3. Termination. Subject to earlier termination as provided
in the Option Plan, this Option will expire, unless previously
exercised in full, on November 25, 1999.
4. Terms of the Option Plan. The Optionee understands that
the Option Plan includes important terms and conditions that apply
to this Option. Those terms include (without limitation):
important conditions to the right of the Optionee to exercise the
Option; and important restrictions on the ability of the Optionee
to transfer the Option or to transfer Shares received upon exercise
of the Option; The Optionee acknowledges that he or she has read
the Option Plan, agrees to be bound by its terms, and makes each of
the representations required to be made by the Optionee under it.
5. Miscellaneous. This Agreement (together with the Option
Plan) sets forth the complete agreement of the parties concerning
the subject matter hereof, superseding all prior agreements,
negotiations and understandings. This Agreement will be governed
by the substantive law of the State of Pennsylvania, and may be
executed in counterparts.
<PAGE>
The parties hereby have entered into this Agreement as of the
date set forth above.
NET LNNX, INC.
__________________
By: Ronald W. Hayes, Jr.
Director, President
"Optionee"
__________________
William R. Colucci
Address:
______________________________
______________________________
______________________________
Attachments:(1) Spousal Consent
(2) 1997 Restricted Stock Plan
<PAGE>
SPOUSAL CONSENT
The undersigned is the spouse of the Optionee referred to in
the attached Non-Statutory Stock Option Agreement (the
"Agreement"). The undersigned acknowledges that he or she:
(1) has received, reviewed and understands the terms of the
Agreement (including its attachments);
(2) consents to the Agreement, and agrees to be bound by its
terms to the extent that he or she now has or may obtain any
interest in the Option or Shares covered by the Agreement; and
(3) understands that the Company is relying upon this consent
in entering into the Agreement and in not taking further steps to
protect its interests.
Date: November 25, 1997
Signature:________________________
Name:__________________________
NON-STATUTORY STOCK OPTION AGREEMENT PURSUANT
TO THE NET LNNX, INC. 1997 RESTRICTED STOCK PLAN
THIS AGREEMENT is made as of January 31, 1997, between Net
Lnnx, Inc., a Pennsylvania corporation (the "Company"), and
Frederick A. Hall (the "Optionee").
THE PARTIES AGREE AS FOLLOWS:
1. Option Grant. The Company hereby grants to the Optionee
an option (the "Option") to purchase the number of shares of the
Company's common stock (the "Shares"), for an exercise price per
share (the "Option Price") and based upon a Grant Date, all as set
forth below:
Shares under option: 100,000
Option Price per Share: $0.875
Grant Date: January 31, 1997
The Option will be subject to all of the terms and conditions
set forth herein and in the Company's 1997 Restricted Stock Plan
(the "Option Plan"), a copy of which is attached hereto and
incorporated by reference. The Option granted hereunder will be a
nonstatutory or nonqualified option for tax purposes.
2. Stockholder Rights. No rights or privileges of a
stockholder in the Company are conferred by reason of the granting
of the Option. Optionee will not become a stockholder in the
Company with respect to the Shares unless and until the Option has
been properly exercised and the Option Price fully paid as to the
portion of the Option exercised.
3. Termination. Subject to earlier termination as provided
in the Option Plan, this Option will expire, unless previously
exercised in full, on January 31, 1999.
4. Terms of the Option Plan. The Optionee understands that
the Option Plan includes important terms and conditions that apply
to this Option. Those terms include (without limitation):
important conditions to the right of the Optionee to exercise the
Option; and important restrictions on the ability of the Optionee
to transfer the Option or to transfer Shares received upon exercise
of the Option; The Optionee acknowledges that he or she has read
the Option Plan, agrees to be bound by its terms, and makes each of
the representations required to be made by the Optionee under it.
5. Miscellaneous. This Agreement (together with the Option
Plan) sets forth the complete agreement of the parties concerning
the subject matter hereof, superseding all prior agreements,
negotiations and understandings. This Agreement will be governed
by the substantive law of the State of Pennsylvania, and may be
executed in counterparts.
<PAGE>
The parties hereby have entered into this Agreement as of the
date set forth above.
NET LNNX, INC.
__________________
By: Ronald W. Hayes, Jr.
Director, President
"Optionee"
__________________
Frederick A. Hall
Address:
______________________________
______________________________
______________________________
Attachments:(1) 1997 Restricted Stock Plan
NON-STATUTORY STOCK OPTION AGREEMENT PURSUANT
TO THE NET LNNX, INC. 1997 RESTRICTED STOCK PLAN
THIS AGREEMENT is made as of January 31, 1997, between Net
Lnnx, Inc., a Pennsylvania corporation (the "Company"), and Ronald
W. Hayes, Jr. (the "Optionee").
THE PARTIES AGREE AS FOLLOWS:
1. Option Grant. The Company hereby grants to the Optionee
an option (the "Option") to purchase the number of shares of the
Company's common stock (the "Shares"), for an exercise price per
share (the "Option Price") and based upon a Grant Date, all as set
forth below:
Shares under option: 100,000
Option Price per Share: $0.875
Grant Date: January 31, 1997
The Option will be subject to all of the terms and conditions
set forth herein and in the Company's 1997 Restricted Stock Plan
(the "Option Plan"), a copy of which is attached hereto and
incorporated by reference. The Option granted hereunder will be a
nonstatutory or nonqualified option for tax purposes.
2. Stockholder Rights. No rights or privileges of a
stockholder in the Company are conferred by reason of the granting
of the Option. Optionee will not become a stockholder in the
Company with respect to the Shares unless and until the Option has
been properly exercised and the Option Price fully paid as to the
portion of the Option exercised.
3. Termination. Subject to earlier termination as provided
in the Option Plan, this Option will expire, unless previously
exercised in full, on January 31, 1999.
4. Terms of the Option Plan. The Optionee understands that
the Option Plan includes important terms and conditions that apply
to this Option. Those terms include (without limitation):
important conditions to the right of the Optionee to exercise the
Option; and important restrictions on the ability of the Optionee
to transfer the Option or to transfer Shares received upon exercise
of the Option; The Optionee acknowledges that he or she has read
the Option Plan, agrees to be bound by its terms, and makes each of
the representations required to be made by the Optionee under it.
5. Miscellaneous. This Agreement (together with the Option
Plan) sets forth the complete agreement of the parties concerning
the subject matter hereof, superseding all prior agreements,
negotiations and understandings. This Agreement will be governed
by the substantive law of the State of Pennsylvania, and may be
executed in counterparts.
<PAGE>
The parties hereby have entered into this Agreement as of the
date set forth above.
NET LNNX, INC.
__________________
By: Ronald P. Perella,
Director, Executive
Vice President
"Optionee"
__________________
Ronald W. Hayes, Jr.
Address:
______________________________
______________________________
______________________________
Attachments:(1) 1997 Restricted Stock Plan
NON-STATUTORY STOCK OPTION AGREEMENT PURSUANT
TO THE NET LNNX, INC. 1997 RESTRICTED STOCK PLAN
THIS AGREEMENT is made as of January 31, 1997, between Net
Lnnx, Inc., a Pennsylvania corporation (the "Company"), and Ronald
P. Perella (the "Optionee").
THE PARTIES AGREE AS FOLLOWS:
1. Option Grant. The Company hereby grants to the Optionee
an option (the "Option") to purchase the number of shares of the
Company's common stock (the "Shares"), for an exercise price per
share (the "Option Price") and based upon a Grant Date, all as set
forth below:
Shares under option: 100,000
Option Price per Share: $0.875
Grant Date: January 31, 1997
The Option will be subject to all of the terms and conditions
set forth herein and in the Company's 1997 Restricted Stock Plan
(the "Option Plan"), a copy of which is attached hereto and
incorporated by reference. The Option granted hereunder will be a
nonstatutory or nonqualified option for tax purposes.
2. Stockholder Rights. No rights or privileges of a
stockholder in the Company are conferred by reason of the granting
of the Option. Optionee will not become a stockholder in the
Company with respect to the Shares unless and until the Option has
been properly exercised and the Option Price fully paid as to the
portion of the Option exercised.
3. Termination. Subject to earlier termination as provided
in the Option Plan, this Option will expire, unless previously
exercised in full, on January 31, 1999.
4. Terms of the Option Plan. The Optionee understands that
the Option Plan includes important terms and conditions that apply
to this Option. Those terms include (without limitation):
important conditions to the right of the Optionee to exercise the
Option; and important restrictions on the ability of the Optionee
to transfer the Option or to transfer Shares received upon exercise
of the Option; The Optionee acknowledges that he or she has read
the Option Plan, agrees to be bound by its terms, and makes each of
the representations required to be made by the Optionee under it.
5. Miscellaneous. This Agreement (together with the Option
Plan) sets forth the complete agreement of the parties concerning
the subject matter hereof, superseding all prior agreements,
negotiations and understandings. This Agreement will be governed
by the substantive law of the State of Pennsylvania, and may be
executed in counterparts.
<PAGE>
The parties hereby have entered into this Agreement as of the
date set forth above.
NET LNNX, INC.
By: __________________
Ronald W. Hayes, Jr.
Director, President
"Optionee"
__________________
Ronald P. Perella
Address:
______________________________
______________________________
______________________________
Attachments:(1) Spousal Consent
(2) 1997 Restricted Stock Plan
<PAGE>
SPOUSAL CONSENT
The undersigned is the spouse of the Optionee referred to in
the attached Non-Statutory Stock Option Agreement (the
"Agreement"). The undersigned acknowledges that he or she:
(1) has received, reviewed and understands the terms of the
Agreement (including its attachments);
(2) consents to the Agreement, and agrees to be bound by its
terms to the extent that he or she now has or may obtain any
interest in the Option or Shares covered by the Agreement; and
(3) understands that the Company is relying upon this consent
in entering into the Agreement and in not taking further steps to
protect its interests.
Date: January 31, 1997
Signature:________________________
Name:_____________________________
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