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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): December 9, 1998
ENHANCED SERVICES COMPANY, INC.
(Exact Name of Registrant as Specified in Charter)
Colorado 0-24256 76-0462973
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
3415 South Sepulveda Boulevard, Suite 500, Los Angeles, CA 90034
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code 310-397-3003
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Item 1. CHANGES IN CONTROL OF REGISTRANT.
Not applicable.
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 22, 1998, the Company announced that it had acquired
the ownership interests in Brands For Less, L.L.C. a privately held Connecticut
discount on-line shopping company.
Brands For Less, L.L.C. offers consumers a comprehensive
e-commerce solution that delivers in one location, access to over sixty (60) of
the world's online specialty retailers at discount prices across popular
consumer product categories trade-named "e-partments(TM)." Brands For Less,
L.L.C. is dedicated to simplifying Internet shopping for the consumer by
delivering an intuitive, informative, and efficient shopping experience that
brings together specialty retailers and brand names at a lower price in a
secure, private, and reliable Internet environment. Brands For Less, L.L.C.
currently offers over 1,500 brands, and over 200,000 products. This acquisition
solidifies the Company's position in the online shopping arena and will allow
the Company and Brands For Less, L.L.C. to benefit from the cost savings derived
through in-house advertising placement.
The transaction was undertaken pursuant to a Securities
Acquisition Agreement to which Enhanced Services Company, Inc., its wholly owned
newly formed subsidiary, BFL Acquisition Co., Inc. a Delaware Corporation
(collectively the "Company"); Brands For Less, L.L.C., a Delaware Limited
Liability Company ("BFL") and the members of BFL were the principal parties. In
the transaction effective December 9, 1998, as modified on December 15 and 21,
1998, the Company acquired all of the interests of the members of BFL, with 90%
of such interests delivered at the closing and the balance to be delivered or
otherwise transferred on or about February 1, 1999.
The total consideration for the transaction, as modified, is
approximately $35 million, including: (i) up to $6.50 million in cash to be paid
directly to the members (of which $1.6 million was paid and the balance is be
paid in February); (ii) a $25 million promissory note, the proceeds of which are
payable to the members of BFL in 2002, with interest at the rate of 10% per
annum, payable quarterly, commencing on March 31, 1999; (iii) $3 million to fund
BFL operations for the three months from November 15, 1998; and (iv) obligations
to pay investment banking and other fees and costs. The Company is being issued
interests in BFL for its advances. Netvest Capital Partners LP, a stockholder of
the Company, acquired 66,667 newly issued interests in BFL for the $200,000
advanced for BFL's operations prior to closing. The modifications provided the
Company with certain interim extensions and increased the amount to be paid to
the members. The obligations under the promissory note are secured by a pledge
of the assets and membership interests of BFL.
In February 1999, the members of BFL will be issued, on a pro
rata basis, Warrants to acquire 3.2 million shares of Company common stock and
have received a commitment from the Company to deliver, on or before December
31, 1999, Warrants to acquire 1.8 million additional shares of common stock or
substitute consideration. The Warrants are exercisable for a three year period,
commencing in February 2000, at an exercise price which is
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the lesser of $4 per share or the market price of the Company's common stock, on
the exercise date.
In connection with the transaction, BFL entered into a new
employment agreement with George Russell to serve as President and Chief
Executive Officer of BFL pursuant to which Mr. Russell receives, in addition to
salary and other executive benefits, incentive compensation and an option to
acquire 1 million shares of Company common stock at an exercise price of $1.50
per share of which 50% are expected to vest in February 1999, and 25% will vest
on each of December 1, 1999 and 2000.
The Company is funding the transaction through the issuance of
common stock and convertible securities and Warrants in private placements to
accredited investors and offshore institutions. As of the date hereof, $5.2
million for convertible securities has been funded and the Company has agreed to
issue Warrants to acquire up to 560,000 shares of Company common stock at an
exercise price of $1.00 per share, subject to certain market price adjustments
at the date of exercise.
Item 3. BANKRUPTCY OR RECEIVERSHIP.
Not applicable.
Item 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
Not applicable.
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Item 5. OTHER EVENTS.
Not applicable.
Item 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS.
Not applicable.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) and (b) The financial statements and pro forma financial
information required by this item to give effect to the BFL transaction will be
filed in accordance with Item 7(a)(4) within the time periods prescribed by such
item.
(c) Exhibits
2 SECURITIES ACQUISITION AGREEMENT, portions of
which have been redacted and marked by an
asterisk (*) to reflect portions of the
Securities Acquisitions Agreement for which
the Company is seeking confidential treatment.
99 Press release dated December 22, 1998.
Item 8. CHANGE IN FISCAL YEAR.
Not applicable
Item 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S.
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Enhanced Services Company, Inc.
Registrant
Date: December 28, 1998 By: /s/ Robert C. Smith
------------------------------------
Robert C. Smith, Treasurer (Chief
Financial Officer and Authorized
Signatory)
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EXHIBIT 2
SECURITIES ACQUISITION AGREEMENT
BY AND AMONG
THE MEMBERS OF
BRANDS FOR LESS, L.L.C., a Delaware Limited Liability Company,
BRANDS FOR LESS, L.L.C.,
GROWTH CAPITAL PARTNERS, INC., a Delaware Corporation
BFL Acquisition Co., Inc., a Delaware Corporation
AND
ENHANCED SERVICES COMPANY, INC., a Colorado Corporation
NOTE: Confidential Treatment is being requested on certain financial, economic
and industry provisions of this Exhibit. Therefore, portions of this Exhibit
have been redacted, as indicated by asterisks.
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SECURITIES ACQUISITION AGREEMENT
TABLE OF CONTENTS
<TABLE>
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PREAMBLE.....................................................................................1
ARTICLE I DEFINITIONS...................................................................1
ARTICLE II PURCHASE OF BFL INTERESTS.....................................................4
2.01 Purchase of BFL Interests.....................................................4
2.02 Purchase Consideration for the BFL Interests..................................4
2.03 Closings......................................................................4
2.04 Issuance of the Warrants.....................................................10
2.05 Adjustment to the Purchase Note(s)...........................................10
ARTICLE III REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE SELLING MEMBERS...........11
3.01 Organization.................................................................11
3.02 Power and Authority..........................................................11
3.03 No Conflict..................................................................11
3.04 Ownership of Shares..........................................................11
3.05 Private Placement............................................................12
3.06 Investment Representation....................................................12
3.07 Receipt of Information.......................................................12
3.08 Sophisticated Investor.......................................................12
3.09 Legends......................................................................13
3.10 BFL Operating Agreement; Waivers; Manager; Distribution......................14
3.11 Designation of Escrow Agent and Agent; Indemnification by SELLING
MEMBERS and Gunn.............................................................14
3.12 Disclosure...................................................................15
ARTICLE IV REPRESENTATIONS AND WARRANTIES WITH RESPECT TO BFL...........................15
4.01 Capital Structure............................................................15
4.02 Officers.....................................................................16
4.03 Financial Statements.........................................................16
4.04 Absence of Certain Changes...................................................16
4.05 Accounts Receivable; Accounts Payable; Loans and Other Liabilities...........16
4.06 No Litigation................................................................17
4.07 Cash Flow Projections........................................................17
</TABLE>
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<TABLE>
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4.08 Intangible Assets............................................................17
4.09 Material Contracts; Clients..................................................17
4.10 Employment Benefit Plans.....................................................17
4.11 Tax Returns..................................................................17
4.12 Properties...................................................................18
4.13 Employment Agreements........................................................18
4.14 BFL Operating Agreement; Waivers.............................................18
4.15 Disclosure...................................................................18
ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS OF ENHANCED AND BFLAC..............18
5.01 Organization.................................................................18
5.02 Corporate Power and Authority................................................19
5.03 No Conflict..................................................................19
5.04 Capital Structure............................................................19
5.05 Private Placement............................................................21
5.06 Investment Representation....................................................21
5.07 Receipt of Information.......................................................21
5.08 Sophisticated Investor.......................................................22
5.09 Securities and Exchange Commission Filings...................................22
5.10 George P. Russell............................................................22
5.11 No Further Representations and Warranties....................................22
5.12 Disclosure...................................................................22
ARTICLE VI COVENANTS OF BFL AND ENHANCED................................................22
6.01 Management of BFL Until the Final Closing....................................22
6.02 Management of BFL After the Final Closing....................................23
Listing of Enhanced Stock...........................................................25
ARTICLE VII BROKERAGE AND SIMILAR FEES...................................................25
7.01 Fee Agreements...............................................................25
7.02 No Other Fee Agreements......................................................26
ARTICLE VIII CONFIDENTIALITY..............................................................26
8.01 Confidentiality..............................................................26
8.02 Remedies.....................................................................27
ARTICLE IX MISCELLANEOUS PROVISIONS.....................................................27
9.01 Amendment and Waiver.........................................................27
9.02 Severability.................................................................27
9.03 Expenses.....................................................................27
9.04 Press Releases...............................................................27
</TABLE>
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<TABLE>
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9.05 Notices......................................................................27
9.06 Entire Agreement.............................................................29
9.07 Assignment...................................................................29
9.08 Third Parties................................................................29
9.09 Section and Other Headings...................................................29
9.10 Counterparts; Facsimile Signatures...........................................29
9.11 Governing Law................................................................29
9.12 Further Assurances...........................................................29
9.13 Survival of Representations and Warranties...................................29
9.14 Pronouns.....................................................................30
</TABLE>
EXHIBITS
Exhibit 2.01 BFL Interests Outstanding on November 25, 1998
Exhibit 202(b) Form of Purchase Note
Exhibit 202(d) Form of Warrant
Exhibit 2.03(g)(i) Funding Commitment Letter
Exhibit 3.10 BFL LLC Operating Agreement
Exhibit 4.02 Officers of BFL LLC
Exhibit 4.13 Employment Agreements of BFL LLC
Exhibit 4.04 Changes with respect to property, Assets, etc.
Exhibit 4.05 A/R, Accounts Payable, Loans, & Other Liabilities
Exhibit 4.06 Litigation
Exhibit 4.07 Cash Flow Projections and Assumptions
Exhibit 4.08 Intangible Assets
Exhibit 4.09 Material Contracts
Exhibit 4.10 Employee Benefit Plan
Exhibit 4.11 Tax Returns (Exceptions)
Exhibit 4.12 Real and Personal Property
Exhibit 5.04 Other Equity Commitments
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SECURITIES ACQUISITION AGREEMENT
PREAMBLE
This SECURITIES ACQUISITION AGREEMENT ("Agreement") dated December 3,
1998, but with certain deliveries to be made effective as of December 3, 1998,
is made by and among Enhanced Services Company, Inc., a Colorado corporation
("ENHANCED") with offices at 3415 South Sepulveda Blvd., Suite 500, Los Angeles,
CA 90034; BFL Acquisition Co., Inc. a Delaware Corporation ("BFLAC") with
offices at the same address as ENHANCED; Growth Capital Partners, Inc. ("GCP"),
with its offices at 520 Madison Avenue, New York, NY 10022; Philip D. Gunn, an
individual with an address c/o Growth Capital Partners, Inc., 520 Madison Ave.,
New York, NY 10022, who is to serve as agent for the SELLING MEMBERS ("Gunn" or
the "Agent"), Brands For Less, L.L.C., a Delaware Limited Liability Company
("BFL") with its principal office at 40 North Main Street, South Norwalk, CT
06854; and the members (the "SELLING MEMBERS") of BFL who have executed the
SELLING MEMBERS signature page of this Agreement.
WHEREAS, the SELLING MEMBERS desire to sell to BFLAC and BFLAC desires
to purchase all of the issued and outstanding BFL Interests held by parties
other than Netvest Capital Partners, LP ("Netvest") or ENHANCED; and
WHEREAS, if the Escrow Agent is holding at least ninety percent (90%) of
the BFL Interests, ENHANCED and BFLAC are prepared to proceed with the
transactions contemplated hereby;
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For purposes hereof, the following terms shall be used and defined as
follows:
"Agent" means Philip D. Gunn, as set forth in the Preamble to this
Agreement.
"BFL" means Brand For Less, L.L.C. as defined in the Preamble to this
Agreement.
"BFL Assets" means the assets that are subject to the Security
Agreement.
"BFL Current Interests" means the 66,667 BFL Interests issued to Netvest
in consideration for the $200,000 in advances provided to BFL prior to the date
hereof.
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"BFL Interests" means the membership interests held by all of the
members of BFL, whether at the First Closing, or any subsequent Closings and,
for the purposes of reference, includes the BFL Current Interests acquired by
Netvest, the BFL Interests acquired by BFLAC at the First Closing, Second
Closing or Third Closing. The BFL Interests outstanding on the date hereof are
as set forth on Exhibit 2.01 attached hereto.
"BFL Operating Agreement" means the BFL Limited Liability Company
Agreement dated as of November 1, 1997, as amended.
"BFLAC" means BFL Acquisition Co., Inc., a newly formed Delaware
corporation wholly owned by ENHANCED and organized to acquire the BFL Interests
and to enter into this Agreement and the transactions contemplated hereby.
"Closings", "First Closing", "Second Closing", "Third Closing", and
"Final Closing" have the meanings set out in Section 2.03. of this Agreement and
shall occur on the dates set forth in Article II of the Subscription Agreement.
"Distributions" means any dividends, return of capital or other amounts
distributed to Members in respect of their BFL Interests.
"ENHANCED" is the parent of the acquiring entity, BFLAC as defined in
the Preamble to this Agreement, and is the obligor with respect to the Warrant,
Warrant Substitution Agreement, Purchase Note and obligations to issue
securities under certain other Transaction Documents.
"Enhanced Stock" means the common stock of ENHANCED or any successor
entity whether currently outstanding, issuable on exercise of the Warrants, or
otherwise.
"Escrow Agent" means the law firm of Haythe & Curley, designated as
Escrow Agent under the Escrow Agreement of even date herewith.
"First Certificate", "Second Certificate", and "Third Certificate" shall
have the meanings set out in the Subscription Agreement.
"GCP" means Growth Capital Partners, Inc., as defined in the Preamble to
this Agreement, which entity is the current Manager of BFL.
"Gunn" means Philip D. Gunn, as set forth in the Preamble to this
Agreement.
"Interest Pledge Agreement" means that Interest Pledge Agreement between
the Agent, ENHANCED and BFLAC of even date herewith.
"McKinley" means McKinley Capital Partners, Limited.
"Members" means the owners of the BFL Interests as set out on Exhibit
2.01.
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"Monthly Funding" is used as defined in Section 6.02(c).
"Netvest" means Netvest Capital Partners, LP, as defined in the Preamble
to this Agreement.
"Purchase Consideration" has the meaning set out in Section 2.02.
"Purchase Note" and "Purchase Notes" means the non-negotiable secured
promissory note or series of notes in the aggregate principal amount of Twenty
Five Million Dollars ($25,000,000), to be delivered to the SELLING MEMBERS as
part of the Purchase Consideration, and to be collectively secured, until
maturity, by the BFL Interests and the BFL Assets.
"Security Agreement" means that Security Agreement by and between BFL
and the Agent of even date herewith.
"SELLING MEMBERS" means the Members of BFL who agree to sell and
transfer their BFL Interests to BFLAC and who have executed, or authorized the
execution of the SELLING MEMBERS Signature Page to this Agreement at or prior to
the Final Closing; provided, however, that such term shall in no event include
BFLAC, ENHANCED or Netvest.
"Subscription Agreement" means that Securities Subscription Agreement
between BFLAC and BFL of even date herewith.
"Transaction Documents" means collectively the Acquisition Agreement,
the Purchase Note, the Security Agreement, the Interest Pledge Agreement, UCC-1
Financing Statements, the Warrant Substitution Agreement and the Warrants.
"Warrant" or "Warrants" means the Warrant or Warrants to acquire three
million, two hundred thousand (3,200,000) shares of Enhanced Stock to be issued
by ENHANCED effective at the Final Closing, allocated pro rata to the Members
according to the BFL Interests and adjusted with respect to Members who are not
SELLING MEMBERS at or before the Final Closing, the form of which is to be
delivered at the First Closing to the Escrow Agent and thereafter delivered at
the Final Closing or on the Termination Date, to the Agent or to ENHANCED, as
specified by the Escrow Agreement.
"Warrant Substitution Agreement" means the letter agreement dated as of
December 3, 1998 and entered into to by ENHANCED and by Agent on behalf of the
SELLING MEMBERS, in order to assure compliance with certain NASDAQ Stock Market
Rules with respect to the issuance of securities, in which agreement ENHANCED
undertakes to obtain the necessary stockholder approvals to deliver an
additional one million, eight hundred thousand (1,800,000) Warrants by December
31, 1999, in the same tenor as the Warrant delivered hereunder or, if such
stockholder approval is not obtained, to deliver by December 31, 1999, *.
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ARTICLE II
PURCHASE OF BFL INTERESTS
2.01 Purchase of BFL Interests. In reliance on the representations and
warranties set forth herein, the SELLING MEMBERS hereby agree to sell to BFLAC,
and BFLAC hereby agrees to purchase from the SELLING MEMBERS, all of the BFL
Interests owned by the SELLING MEMBERS. Exhibit 2.01 hereto includes the names
and addresses of the Members that hold all of the BFL Interests that are issued
and outstanding as of the date hereof or which BFL is obligated to issue on the
date hereof, along with the number of BFL Interests held by them.
2.02 Purchase Consideration for the BFL Interests. ENHANCED shall pay
the full Purchase Consideration for the issued and outstanding BFL Interests
owned by the Members other than BFLAC or Netvest. The Purchase Consideration
shall consist of the following:
(a) A cash payment in the amount of One Million, Five Hundred Thousand
Dollars ($1,500,000) payable to the Agent for the SELLING MEMBERS at the First
Closing;
(b) The Purchase Note, in the form of Exhibit 2.02(b), in the amount of
Twenty Five Million Dollars ($25,000,000), which amount is subject to adjustment
pursuant to Section 2.05;
(c) A cash payment in the amount of Four Million, Seven Hundred and
Fifty Thousand Dollars ($4,750,000) payable to Gunn as Agent for the SELLING
MEMBERS at the Final Closing;
(d) The Warrants, in the form of Exhibit 2.02(d), to acquire up to three
million, two hundred thousand (3,200,000) shares of Enhanced Stock; and
(e) The obligations contained in the Warrant Substitution Agreement to
issue Warrants to acquire one million, eight hundred thousand (1,800,000)
additional shares of ENHANCED Stock or to deliver up to Five Million Dollars
($5,000,000) in additional cash on or before December 31, 1999.
To the extent that less than all of the issued and outstanding BFL Interests
owned by Members other than Netvest or BFLAC are tendered for sale to BFLAC, the
Purchase Consideration shall be reduced on a pro rata basis.
2.03 Closings. The closings ("Closings") of the transactions
contemplated hereby and by the Escrow Agreement shall take place at the offices
of Haythe & Curley located at 237 Park Avenue, New York, NY 10017-3142 at 9:00
am EST on the dates specified below in this Section 2.03 or in Article II of the
Subscription Agreement.
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(a) At or prior to the date hereof (the "First Closing"), BFL and the
SELLING MEMBERS shall deliver the following to the Escrow Agent in accordance
with the Escrow Agreement:
(i) Certificates for BFL Interests representing at least
ninety percent (90%) of the outstanding BFL Interests
held by the SELLING MEMBERS (as set out in Exhibit 2.01
hereof), free of all claims, liens and encumbrances
whatsoever;
(ii) The First, Second and Third Certificates totaling *
BFL Interests, as set forth in Article II of the
Subscription Agreement, registered in the name of BFLAC;
(iii) Certificates representing the BFL Current Interests; and
(iv) The form of legal opinion of Haythe & Curley.
(b) At or prior to the First Closing, ENHANCED or BFLAC, as the case may
be, shall deliver the following to the Escrow Agent to be held and/or disbursed
in accordance with the Escrow Agreement:
(i) The executed Purchase Note;
(ii) The Form of Warrants;
(iii) The executed Warrant Substitution Agreement;
(iv) The executed but undated Interest Pledge Agreement;
(v) The executed but undated Security Agreement;
(vi) The executed Employment Agreement for George P. Russell;
(vii) Such other documents, consents, instruments and
certificates, including the form of legal opinion of
Brand Farrar & Buxbaum LLP, as the parties may
reasonably request; and
(viii) Signature pages for the BFL Operating Agreement signed
by Netvest and BFLAC to evidence their status as
Members.
(c) At the First Closing, ENHANCED, Netvest, BFL, the Escrow Agent, the
Agent on behalf of the SELLING MEMBERS, BFLAC and GCP shall each take the
actions and make the deliveries specified in accordance with the Escrow
Agreement.
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(d) At the Second Closing, the following actions shall be taken in
accordance with the Escrow Agreement:
(i) ENHANCED or BFLAC shall confirm in writing to the Escrow
Agent that it is prepared * in immediately available
federal funds to BFL;
(ii) ENHANCED, BFLAC and BFL shall have executed and
delivered updated Certificates of Representations and
Warranties to the other parties, it being understood
that representations made as of a specified date shall
continue to be made as of such date; and
(iii) If the items listed in Section 2.03(d)(i) and (ii) shall
have been delivered, the Second Closing shall occur *
the Escrow Agent shall deliver to BFLAC the Second
Certificate.
(e) At the Third Closing, the following actions shall be taken in
accordance with the Escrow Agreement:
(i) ENHANCED or BFLAC shall confirm in writing to the Escrow
Agent that it is prepared * immediately available
federal funds to BFL;
(ii) ENHANCED, BFLAC and BFL shall have executed and
delivered updated Certificates of Representations and
Warranties to the other parties, it being understood
that representations made as of a specified date shall
continue to be made as of such date; and
(iii) If the items listed in Section 2.03(e)(i) and (ii) shall
have been delivered, the Third Closing shall occur * and
the Escrow Agent shall deliver to BFLAC the Third
Certificate.
(f) If the Second or Third Closings shall not have occurred on or before
*:
(i) *
(ii) *
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(iii) *
(iv) *
(v) *
(vi) *
(g) Subject to any extensions of the Final Closing under Section 2.03(j)
below, at or prior to February 1, 1999 * actions shall be taken in accordance
with the Escrow Agreement:
(i) ENHANCED shall deliver the *;
(ii) ENHANCED and BFLAC shall have confirmed in writing *
they are prepared to deliver or have delivered to Gunn,
as agent for the SELLING MEMBERS, *;
(iii) ENHANCED shall have delivered to Gunn written
confirmation *;
(iv) ENHANCED, BFLAC, BFL and the SELLING MEMBERS shall have
delivered and executed updated Certificates of
Representations and Warranties to the other parties;
(v) Haythe & Curley and Brand Farrar & Buxbaum LLP shall
have delivered their legal opinions to the Escrow Agent;
and
(vi) Gunn shall have received a legal opinion of counsel
reasonably satisfactory to Gunn as to the Security
Agreement in similar form and
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substance to the opinion provided by Brand Farrar &
Buxbaum LLP as provided for herein.
(h) If the parties have each delivered the items set out in Section
2.03(g) above, the Final Closing shall occur and the following, as set out in
more detail in the Escrow Agreement, shall be delivered;
(i) *
(ii) *
(iii) *
(iv) *
(v) *
(vi) *
(vii) *
(viii) *
(i) If * shall not have occurred on or before February 1, 1999 (or such
later date to which the Final Closing may be extended in accordance with this
Agreement), then the following actions shall be taken by the Escrow Agent on the
business day after such date:
(i) *
(ii) *
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(iii) *
(iv) *
(v) *
(vi) *
(vii) *
(j) ENHANCED may, in its sole discretion, extend *.
(k) *.
(l) *.
(m) In the event that less than one hundred percent (100%) of the BFL
Interests held by the SELLING MEMBERS are delivered at the Final Closing, the
Purchase Consideration will be reduced, it being understood that BFL has
represented that it will deliver one hundred percent (100%) of the BFL Interests
and that ENHANCED and BFLAC have the option to adjust the
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Purchase Consideration if less than one hundred percent (100%) of the BFL
Interests are delivered and, in any event, BFLAC and ENHANCED shall have a right
to eliminate the remaining BFL Interests by a merger or other transaction as
approved prior to the Final Closing by Members representing at least ninety
percent (90%) of the BFL Interests.
2.04 Issuance of the Warrants.
(a) As of the date of this Agreement, ENHANCED does not have sufficient
authorized but unissued shares to issue the minimum number of shares of Enhanced
Stock if all of the Warrants were to be exercised. The parties hereto
acknowledge that ENHANCED is seeking approval at its Annual Stockholder's
Meeting, which is expected to be held in December 1998, of a proposal to
increase its authorized share capital. If the proposal is approved, then
ENHANCED will have available, and will reserve, sufficient unissued shares of
Enhanced Stock to issue the Enhanced Stock on the exercise of the Warrants. *.
(b) The Warrant Substitution Agreement is being delivered to Gunn, as
agent for the SELLING MEMBERS, at the Final Closing, and in accordance with its
terms ENHANCED will obtain the necessary stockholder approvals to issue to the
Agent by December 31, 1999 Warrants to acquire one million, eight hundred
thousand (1,800,000) shares of Enhanced Stock, or, if such stockholder approval
is not obtained or if ENHANCED so elects, Five Million Dollars ($5,000,000) in
cash.
2.05 Adjustment to the Purchase Note(s). In addition to the adjustment
under Section 2.03(m), the amount of the Purchase Note shall be reduced (pro
rata in the case of multiple Purchase Notes) by (i) the amount of any sales, use
or other taxes imposed on BFL solely as a result of the sale of the BFL
Interests by the SELLING MEMBERS; (ii) by the amount of Distributions made by
BFL to the SELLING MEMBERS after the First Closing which are not paid over to
ENHANCED by the SELLING MEMBERS in accordance with the provisions of Section
3.10(iii) below; (iii) by the amount that the accounts payable, loans and other
liabilities of BFL at December 3, 1998 exceed the amount reflected on Exhibit
4.05; (iv) by the amount that the accounts receivable of BFL at December 3, 1998
are less than the amounts reflected on Exhibit 4.05, and (v) pro rata to the
extent that one hundred percent (100%) of the BFL Interests are not delivered by
BFL to BFLAC.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
WITH RESPECT TO THE SELLING MEMBERS
Each SELLING MEMBER, including Gunn, individually, and as a SELLING
MEMBER of BFL hereby represents and warrants to ENHANCED, with respect to itself
and its BFL Interests, as follows:
3.01 Organization. To the extent that a SELLING MEMBER is a corporation,
a limited liability corporation or a partnership, it is duly organized, validly
existing and in good standing under the laws of the State in which it is
organized and has the requisite power and authority to own, lease and operate
its properties and to carry on its business in the manner now being conducted
and is duly qualified or licensed to do business as a foreign corporation or
partnership, in good standing in any jurisdictions in which the ownership of its
property or the conduct of its business requires such qualification, except such
jurisdictions in which its failure to be so qualified or licensed will have no
material adverse effect on its business or properties.
3.02 Power and Authority. Each SELLING MEMBER has the full power and
authority to execute and deliver this Agreement, to transfer its respective BFL
Interests to BFLAC and to perform its other obligations under this Agreement. To
the extent that a SELLING MEMBER is a corporation or partnership, the execution,
delivery and performance of this Agreement by such SELLING MEMBER has been
authorized by all necessary corporate or partnership actions required by law,
its Certificate of Incorporation or Partnership Agreement, or otherwise required
to be taken to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement is a valid
and binding agreement of the SELLING MEMBER, enforceable in accordance with its
terms, except to the extent such enforceability may be subject to limitations of
public policy under federal and state securities laws.
3.03 No Conflict. Neither the execution and delivery of this Agreement
nor the consummation by a SELLING MEMBER of the transactions contemplated hereby
will, to the extent applicable, (a) conflict with or result in a breach of any
provision of its Certificate of Incorporation, Bylaws or Partnership Agreement,
(b) result in a default (or give rise to any right of termination, cancellation
or acceleration) under any of the terms, conditions or provisions of or any
other material note, bond, mortgage, indenture, franchise, license, permit or
agreement or other instrument or obligation to which the SELLING MEMBER is a
party or by which the SELLING MEMBER is bound or to which any of the assets of
the SELLING MEMBER is subject, (c) violate any statute or law or any judgment,
decree, order, writ, injunction, regulation or rule applicable to the SELLING
MEMBER, or (d) result in or require the creation of any material lien with
respect to any assets of the SELLING MEMBER.
3.04 Ownership of Shares. The SELLING MEMBER owns beneficially and of
record, free and clear of any claims, liens or encumbrances, the BFL Interests
set out in Exhibit 2.01.
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3.05 Private Placement. The SELLING MEMBERS acknowledge that the
Warrants and the shares of Enhanced Stock to be issued upon an exercise of the
Warrants have not been registered under the United States Securities Act of 1933
(the "1933 Act") or registered or qualified under any state securities laws on
the grounds that such Warrants and shares of Enhanced Stock are being issued in
a transaction exempt from the registration requirements of the 1933 Act and the
registration or qualification requirements of applicable state securities laws,
and that the Warrants and shares of Enhanced Stock must be held indefinitely
unless such Warrants and shares of Enhanced Stock are subsequently registered
under the 1933 Act and qualified or registered under applicable state securities
laws or an exemption from registration and qualification is available, and that,
except as otherwise provided in this Agreement, the Warrants and the shares of
Enhanced Stock cannot be transferred. ENHANCED has agreed to provide certain
registration rights to the holders of the Warrants, as set out in the Warrants.
3.06 Investment Representation. The SELLING MEMBERS are acquiring the
Warrants and shares of Enhanced Stock issuable upon exercise thereof, and the
Purchase Note, as principal for their own account and not with a view to, or for
sale in connection with, any distribution thereof, nor with any present
intention of selling or otherwise disposing of the same.
3.07 Receipt of Information. The SELLING MEMBERS and their
representatives have received and reviewed this Agreement all Exhibits hereto
and all other documents and materials ENHANCED has provided to Gunn, as the
Agent of the SELLING MEMBERS, in connection with the transactions contemplated
by this Agreement. The SELLING MEMBERS and their representatives have had an
opportunity to review all documents and other materials requested of ENHANCED
and have been given an opportunity to ask such questions of ENHANCED concerning
the business, operations, financial condition, assets and liabilities of
ENHANCED and such other relevant matters as they have deemed necessary or
desirable and have been given all such information as they have requested, in
order to make an independent evaluation of the merits and risks of the
acceptance of the Purchase Note and the investment in the ENHANCED Warrants as
contemplated herein.
3.08 Sophisticated Investor. With respect to their rights under the
Warrant, the Warrant Substitution Agreement and the Purchase Note, each SELLING
MEMBER hereby represents and warrants that he, she or it is an "Accredited
Investor" as defined in Regulation D promulgated under the Securities Act of
1933, as amended, because such SELLING MEMBER is so qualified pursuant to one or
more of Section 3.08(a) through (e) and pursuant to Section 3.08(f) the
following categories:
(a) The SELLING MEMBER is a natural person and has a net worth, either
alone or with his or her spouse, in excess of One Million Dollars ($1,000,000).
(b) The SELLING MEMBER is a natural person and had individual income in
excess of Two Hundred Thousand Dollars ($200,000) (or joint income in excess of
Three Hundred Thousand Dollars ($300,000) including income of a spouse) during
each of the previous two (2)
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calendar years and expects to have individual income in excess of such amount
during the current calendar year.
(c) The SELLING MEMBER is an authorized signatory for a partnership,
trust, corporation or other entity with a net worth of more than Five Million
Dollars ($5,000,000), or of which all the equity owners are Accredited
Investors.
(d) The transaction is being undertaken by the SELLING MEMBER through an
employee benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974 ("ERISA") that either (i) has its investment decisions made
by a plan fiduciary, as defined in Section 3(21) of ERISA, which is a bank,
savings and loan association, insurance company or a registered investment
advisor, (ii) has total assets in excess of Five Million Dollars ($5,000,000) or
(iii) if a self-directed plan, with its investment decisions made solely by
Accredited Investors as described herein (please check either (a), (b) or (c)
above with respect to Accredited Investors making investment decisions for
self-directed plans).
(e) The SELLING MEMBER is a executive officer of BFL; or
(f) The SELLING MEMBER has the ability to evaluate the risks and
merits of the investment and thus is able to protect his, her or
its interests as a result of:
(i) his, her or its business or financial experience;
(ii) the business or financial experience of his, her or its
professional advisors who are unaffiliated with and who
are not compensated by BFL either directly or
indirectly; and/or
(iii) his, her or its pre-existing business relationship with
BFL or its officers or controlling persons.
3.09 Legends. The SELLING MEMBERS acknowledge that each certificate or
other document evidencing the Warrants, and the shares of Enhanced Stock issued
upon the exercise of one or more Warrants (unless registered in accordance with
the provisions of the Warrants), shall be endorsed with the legends set forth
below:
(a) "THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH
AN AVAILABLE EXEMPTION FROM REGISTRATION. ENHANCED MAY REFUSE TO
AUTHORIZE ANY TRANSFER OF THE SHARES IN RELIANCE ON AN EXEMPTION
FROM REGISTRATION UNTIL IT HAS RECEIVED AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
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(b) If required by the authorities of any State in connection with the
issuance or sale of the Warrants or the Enhanced Stock issuable upon the
exercise thereof, the legend required by such State authority.
3.10 BFL Operating Agreement; Waivers; Manager; Distribution. A true and
complete executed copy of the BFL Operating Agreement, as amended to date, is
attached hereto as Exhibit 3.10. There have been no amendments or modifications
to the Operating Agreement other than as supplied to ENHANCED and there are no
understandings with respect to the matters therein which are not fully reflected
in the BFL Operating Agreement. By executing this Agreement, each SELLING MEMBER
(i) waives any and all rights of first refusal or other purchase rights such
SELLING MEMBER may have under Article IX of the BFL Operating Agreement; (ii)
agrees after the Final Closing and so long as no Event of Default shall have
occurred and be continuing under the Purchase Note, to the appointment of
ENHANCED as the sole Manager of BFL and to execute such documents as may be
required to effectuate such appointments; (iii) agrees that effective from
November 25, 1998 that the SELLING MEMBER shall have no right to receive any
distributions from BFL, notwithstanding the provisions of Section 6.1 of the BFL
Operating Agreement; and (iv) agrees that any distributions received by such
SELLING MEMBER on or after November 25, 1998 (other than the pro rata portion of
the Purchase Consideration) shall be held in trust and paid promptly over to
ENHANCED and (v) agrees to a merger of BFL upon completion of the Final Closing
with an entity wholly owned by ENHANCED so that BFL thereby becomes wholly owned
directly or indirectly by ENHANCED. Furthermore, by executing this Agreement,
GCP, in its capacity as Manager under the BFL Operating Agreement, consents to
the transfer by the SELLING MEMBERS (including GCP, in its capacity as a Member)
of their BFL Interests to BFLAC.
3.11 Designation of Escrow Agent and Agent; Indemnification by SELLING
MEMBERS and Gunn. By executing this Agreement, each SELLING MEMBER irrevocably:
(i) agrees to the appointment of the law firm of Haythe & Curley as Escrow
Agent; (ii) agrees to the designation of Gunn as agent of the SELLING MEMBERS as
contemplated hereby; (iii) consents to the payment by ENHANCED and the Escrow
Agent to Gunn, as agent, of the Purchase Consideration, the cash portions of
which shall be promptly disbursed to the SELLING MEMBERS net of expenses or
reserves to be paid or funded by or on behalf of the SELLING MEMBERS; and (iv)
hereby assigns to BFLAC the certificates for the BFL Interests of such SELLING
MEMBER to BFLAC. In addition, each SELLING MEMBER, by the execution and delivery
of this Agreement, acknowledges that delivery to Gunn, as agent for such SELLING
MEMBERS ("Deliveries"), by ENHANCED or BFLAC, as the case may be, of any
portions of the Purchase Consideration, or any other items to be delivered
pursuant to the Transaction Documents, shall constitute delivery to each of the
SELLING MEMBERS and that upon such delivery no such SELLING MEMBER shall have
any further rights or recourse against ENHANCED or BFLAC, or any of their agents
or representatives with respect to any failure to make such Deliveries,
including any acts or omissions by Gunn to make the Deliveries to the SELLING
MEMBERS. In furtherance thereof, Gunn and each of the SELLING MEMBERS, as to
itself, hereby agrees to (i) indemnify and hold harmless ENHANCED, BFLAC and
their respective officers, directors, employees, agents, counsel and other
representatives ("Indemnified Parties") from and against any and all claims,
demands, losses, judgments and liabilities
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(including liabilities for penalties) of whatsoever kind or nature with respect
to a failure to make such Deliveries to any such SELLING MEMBERS, and (ii)
reimburse the Indemnified Parties for all reasonable costs and expenses,
including reasonable attorney's fees, in each case arising out of or resulting
from any claims asserted by a SELLING MEMBER with respect thereto so long as
such Deliveries have been made to Agent in accordance herewith.
3.12 Disclosure. No representation or warranty by the SELLING MEMBERS in
this Agreement, nor any statement, record, schedule or certificate furnished or
to be furnished to ENHANCED or BFLAC pursuant hereto or in connection herewith
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make statements contained herein
or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO BFL
As an inducement to ENHANCED to enter into this Agreement, BFL, in
addition to the representations and warranties by the SELLING MEMBERS in Article
III hereof, hereby represents and warrants, as of the date of this Agreement
unless otherwise noted, to ENHANCED as follows:
4.01 Capital Structure.
(a) The authorized capital of BFL consists of seven million, one hundred
and fifty-one thousand, eight hundred and sixty-three (7,151,863) BFL Interests,
all of which are of one (1) class of which six million, one hundred and five
thousand eight hundred and sixty-three (6,105,863) BFL Interests are issued and
outstanding, and one million, forty-six thousand (1,046,000) BFL Interests are
reserved for issuance upon the exercise of outstanding options, Warrants or
other arrangements, no BFL Interests are held in treasury. Exhibit 2.01
correctly sets forth the details of the outstanding equity interests of BFL and
the owners thereof. The BFL Interest entitles each holder to one vote for each
BFL Interest held. Except as set out on Exhibit 2.01, as of the date of this
Agreement, there are no outstanding options, warrants or other rights,
subscriptions, options, calls, rights, warrants, convertible securities,
unsatisfied preemptive rights or other agreements or commitments of any
character obligating BFL to issue (or reserve for issuance) or to transfer or
sell any BFL Interests. BFL acknowledges that it is obligated to deliver ninety
percent (90%) of the BFL Interests at the First Closing and one hundred percent
(100%) of the BFL Interests at the Final Closing and that an adjustment will be
made to the Purchase Consideration for all BFL Interests not delivered by the
SELLING MEMBERS, such adjustment to be pro rata as set forth in Section 2.03(m).
(b) BFL agrees that prior to the Final Closing it will not directly or
indirectly solicit or seek offers to purchase any of the BFL Interests or
substantially all of its assets, or conduct any discussions or due diligence
reviews whatsoever with any other party in anticipation of, or with a view to
the receipt in the future of, such offers. BFL further agrees that prior to the
Final Closing it will comply in all respects with the covenants in Article VI.
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4.02 Officers. BFL is a Manager managed limited liability company, and
GCP is the current Manager of BFL. GCP shall resign as Manager as of the date of
the Final Closing. The current officers of BFL are set forth on Exhibit 4.02,
and each of them is currently holding office in accordance with the provisions
of the BFL Operating Agreement and, as applicable, the Employment Contracts
specified in Exhibit 4.13.
4.03 Financial Statements. BFL has not prepared financial statements
since the date it was formed. BFL and the SELLING MEMBERS hereby consent to
having ENHANCED undertake, as promptly as feasible, to have audited financial
statements of BFL prepared for the years ended December 31, 1997 and 1998, at
the expense of ENHANCED.
4.04 Absence of Certain Changes. Since September 24, 1998, except as set
forth on Exhibit 4.04, BFL has not:
(a) Permitted or allowed any of its property or assets (real, personal
or mixed, tangible or intangible) to be subjected to any material mortgage,
pledge, lien, security interest, encumbrance, restriction or change of any kind,
except for liens for current taxes not yet due and which are reflected in the
Financial Statements;
(b) Canceled any material debts or waived any material claims or rights;
(c) Sold, transferred or otherwise disposed of a material portion of any
of its properties or assets (real, personal or mixed, tangible or intangible),
except in the ordinary course of business and consistent with past practice;
(d) Issued any BFL Interests or other capital or declared, paid or set
aside for payment any dividend or other distribution in respect to any BFL
Interests or capital or redeemed, purchased or otherwise acquired, directly or
indirectly, any BFL Interests or other securities of BFL, except as set forth on
Exhibit 4.01;
(e) Made any change in any method of accounting or accounting practice;
(f) Paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets (real, personal or mixed, tangible or
intangible) to, or entered into any agreement or arrangement with, any of its
officers or directors or any affiliate of any of its officers or directors; or
(g) Agreed, whether in writing or otherwise, to take any action
described in this Section 4.04.
4.05 Accounts Receivable; Accounts Payable; Loans and Other Liabilities.
To the best of BFL's knowledge, Exhibit 4.05 sets forth with aging thereof, as
of October 15, 1998, the accounts receivable, accounts payable and loans,
whether secured or unsecured, of BFL, as well as all other liabilities of BFL or
for which BFL is responsible for payment.
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4.06 No Litigation. Except as set out in Exhibit 4.06, there is no
litigation or proceeding pending or, to the best of the knowledge of BFL or its
officers, threatened against BFL or any of its assets or properties. To the
extent that after the date hereof BFL shall become aware that such claims or
litigation shall be initiated or threatened with respect to this transaction or
any actions of BFL, it shall promptly advise ENHANCED and BFLAC thereof.
4.07 Cash Flow Projections. Exhibit 4.07 sets forth a summarized
proforma cash flow projection, and assumptions, for BFL for the two (2) year
period commencing as of November 1, 1998.
4.08 Intangible Assets. Exhibit 4.08 sets forth an accurate and complete
list of all patents, copyrights, trademarks, trade names, trademark
registrations, service names, service marks, domain names, licenses, formulas
and applications therefor owned by BFL or its subsidiaries or used or required
by BFL in the operation of its business, title to each of which is, except as
set forth in Exhibit 4.08, held by BFL free and clear of all adverse claims,
liens, security agreements, restrictions or other encumbrances. Except as set
forth in Exhibit 4.08, BFL owns or possesses adequate licenses or other rights
to use all patents, trademarks, trade names, service marks, domain names, trade
secrets or other intangible property rights and know-how necessary to entitle
BFL to conduct its business as presently being conducted. There is no
infringement action, lawsuit, claim, or complaint or any written notice to BFL
which asserts that BFL's operations violate or infringe the rights or the trade
names, trademarks, trademark registrations, service names, service marks, domain
names or copyrights of any other person, and BFL is not in any way making use of
any confidential information or trade secrets of any person, except with the
consent of such person. Except as set forth in Exhibit 4.08, BFL has taken
reasonable steps to protect its proprietary information and is the lawful owner
of the proprietary information free and clear of any claim of any third party.
BFL's proprietary rights are adequate for the conduct of its business
substantially as now conducted without known conflict with any rights of others.
BFL will provide to ENHANCED upon ENHANCED's request a copy of all filings,
registrations and other documents relating to any of the foregoing franchises,
patents, copyrights, trademarks, trade names, trademark registrations, service
names, service marks, domain names, licenses, formulas and applications.
4.09 Material Contracts; Clients. Exhibit 4.09 sets forth all contracts
of BFL, in effect on the date hereof, which require annual payments, in cash or
in kind, with a value of more than Fifty Thousand Dollars ($50,000), and the
status of the same at the date hereof, together with a list of all clients, web
sites and advertisers as of the date of this Agreement.
4.10 Employment Benefit Plans. Exhibit 4.10 sets forth a description of
the BFL plans subject to the provisions of ERISA. Except as set forth on Exhibit
4.10, BFL has not incurred any liability to the Pension Benefit Guaranty
Corporation or a plan under Title IV of ERISA and no "prohibited transaction" or
"reportable event" (as such terms are defined in ERISA) has occurred with
respect to any plan.
4.11 Tax Returns. Except as set forth on Exhibit 4.11, BFL has filed all
federal, state and other tax returns required to be filed, and all taxes,
assessments and other governmental
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charges due from BFL have been fully paid. BFL has established on its books
reserves adequate for the payment of all federal, state and other tax
liabilities applicable to its operation and its status as a limited liability
company.
4.12 Properties. BFL has good and marketable title to, or in the case of
leased property has valid leasehold interests in, all real and personal property
and assets (whether tangible or intangible) reflected on Exhibit 4.12, except
for property and assets sold in the ordinary course of business since September
24, 1998. Except as set forth in Exhibit 4.12, none of such properties or assets
(whether real or personal) is subject to any liens.
4.13 Employment Agreements. Exhibit 4.13 hereto contains a list of the
existing employment agreements and other agreements with employees to which BFL
is obligated as of the date hereof. Copies of all such agreements (collectively
the "Employment Agreements") have been delivered to ENHANCED. There have been no
amendments or modifications to the Employment Agreements other than as supplied
to ENHANCED and there are no obligations with respect to the matters therein
which are not fully reflected in the Employment Agreements.
4.14 BFL Operating Agreement; Waivers. A true and complete executed copy
of the BFL Operating Agreement, as amended to date, is attached hereto as
Exhibit 3.10. There have been no amendments or modifications to the BFL
Operating Agreement other than as supplied to ENHANCED, and there are no
understandings with respect to the matters therein which are not fully reflected
in the BFL Operating Agreement. By executing this Agreement, BFL waives any and
all rights of first refusal or other purchase rights it may have under Article
IX of the BFL Operating Agreement.
4.15 Disclosure. No representation or warranty by BFL in this Agreement,
nor any statement, record, schedule or certificate furnished or to be furnished
to ENHANCED pursuant hereto or in connection herewith contains or will contain,
when made, any untrue statement of a material fact, or omits or will omit, when
made, to state a material fact necessary to make statements contained herein or
therein not misleading.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS OF ENHANCED AND BFLAC
ENHANCED and BFLAC each represents, warrants and covenants to the
SELLING MEMBERS as follows:
5.01 Organization . ENHANCED is a corporation duly organized, validly
existing and in good standing under the laws of Colorado and has the requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business in the manner now being conducted in Colorado and in any
other jurisdictions in which the ownership of its property or the conduct of its
business requires such qualification, except such jurisdictions in which its
failure to be so qualified or licensed will have no material adverse effect on
its business or properties. BFLAC is a corporation duly organized on November
24, 1998, is validly existing
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and in good standing under the laws of Delaware and has the requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business in the manner now being conducted in Delaware and in any other
jurisdictions in which the ownership of its property or the conduct of its
business requires such qualification, except such jurisdictions in which its
failure to be so qualified or licensed will have no material adverse effect on
its business or properties.
5.02 Corporate Power and Authority. ENHANCED and BFLAC each have the
full corporate power and authority, as applicable, to execute and deliver this
Agreement and the Transaction Documents, issue the Purchase Notes and Warrants
and to perform their other respective obligations under this Agreement and the
other Transaction Documents. The execution, delivery and performance of this
Agreement and the other Transaction Documents by ENHANCED and BFLAC have been
authorized by all necessary corporate actions required by law, by the ENHANCED
Articles of Incorporation and Bylaws (collectively the "ENHANCED Constituent
Documents" ) and by the BFLAC Articles of Incorporation and Bylaws (collectively
the "BFLAC Constituent Documents") or otherwise required to be taken to
authorize the execution and delivery of this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby. This Agreement and the other Transaction Documents are valid and
binding agreements, and this Agreement and the other Transaction Documents of
ENHANCED and BFLAC are enforceable in accordance with their terms, except to the
extent such enforceability may be subject to limitations of public policy under
federal and state securities laws.
5.03 No Conflict. Neither the execution and delivery of this Agreement
nor the consummation by ENHANCED or BFLAC of the transactions contemplated
hereby will (a) conflict with or result in a breach of any provision of the
ENHANCED or BFLAC Constituent Documents; (b) result in a default (or give rise
to any right of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of any material note, bond, mortgage, indenture,
franchise, license, permit or agreement or other instrument or obligation to
which ENHANCED or BFLAC is a party or by which ENHANCED or BFLAC is bound or to
which any of their respective assets are subject; (c) violate any statute or law
or any judgment, decree, order, writ, injunction, regulation or rule applicable
to ENHANCED or BFLAC; or (d) result in or require the creation of any material
lien with respect to any assets of ENHANCED or BFLAC.
5.04 Capital Structure. The authorized capital stock of BFLAC consists
of 1,000,000 shares of which seven hundred thousand (700,000) are shares of
common stock, par value $.001 per share ("BFLAC Stock") and three hundred
thousand (300,000) of which are preferred shares, to be issued on such terms and
in such series as may be designated by the Board of Directors of BFLAC.
Currently there are one thousand (1,000) shares of BFLAC outstanding, all of
which are held by ENHANCED. The authorized capital stock of ENHANCED currently
consists of twenty million (20,000,000) shares of capital stock of which fifteen
million (15,000,000) are shares of common stock, par value $.001 per share
("Enhanced Stock") and five million (5,000,000) are preferred shares to be
issued on such terms and in such series as may be
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designated by the Board of Directors of ENHANCED. As of November 12, 1998, the
currently outstanding capital of ENHANCED was:
(a) Common Stock. Four million, four hundred and six thousand one
hundred and eighteen (4,406,118) shares are issued and outstanding and two
million, six hundred and sixty-eight thousand, seven hundred and ninety
(2,668,790) shares were reserved for issuance on exercise of outstanding options
and warrants as of November 12, 1998;
(b) 8.6% Preferred. 8.6% Cumulative Preferred Stock ("8.6% Preferred")
of which fifteen thousand (15,000) shares are authorized and four thousand
(4,000) shares are outstanding on the date hereof and are in the process of
being converted to eight hundred thousand (800,000) shares of Enhanced Stock.
(c) 1998 Preferred. The 1998 Preferred Stock consisting of 1,000,000
shares, par value Three Dollars ($3.00), issued to Netvest Capital Partners LP,
a Delaware limited partnership, in transactions implemented on March 6, 1998,
which shares are convertible into five million, five hundred and forty-three
thousand, six hundred (5,543,600) shares of Enhanced Stock solely at the option
of ENHANCED after receipt of stockholder approval at the ENHANCED Annual Meeting
of Stockholders convened in accordance with the NASDAQ Rules and the
requirements of the Securities & Exchange Commission (the "SEC");
(d) 1998(B) Preferred. The 1998(B) Preferred Stock consisting of five
hundred and twenty thousand (520,000) shares issued to ZULU-tek, Inc. in
connection with the transactions implemented on September 9, 1998 and which
shares shall be converted into five hundred and twenty thousand (520,000) of
Enhanced Stock, subject to adjustment in the event of any stock splits, stock
dividend, reclassifications or other capital transactions, as applicable, after
receipt of stockholder approval at the ENHANCED Annual Meeting of Stockholders
and there is an effective SEC registration statement allowing for the
distribution of the ENHANCED Stock to the stockholders of ZULU-tek;
(e) 1998(C) Preferred. The 1998(C) Preferred Stock consisting of fifteen
thousand (15,000) shares, stated value One Thousand Dollars ($1,000) per share,
which shall be exchanged on a share for share basis for the outstanding ZULU-tek
Series C Preferred Stock held by Softbank Holdings, Inc., OzEmail,Limited, and
certain individuals in connection with the liquidation of ZULU-tek, subject to
adjustment in the event of any stock splits, stock dividend, reclassifications
or other capital transactions, as applicable, and subject to such terms and
conditions as shall be negotiated with the holders and reflected in the proxy
materials for the ENHANCED Annual Meeting of Stockholders; and
(f) Investor Preferred. The Investor Preferred Stock ("Investor
Preferred") consisting of up to one hundred thousand (100,000) shares, stated
value Fifty Dollars ($50) per share, to be issued on or prior to December 31,
1998 and to be convertible into Enhanced Stock on the basis of one hundred (100)
shares of Enhanced Stock for each share of Investor Preferred, subject to
adjustment in the event of any stock splits, stock dividend, reclassifications
or other capital transactions, as applicable. To the extent required by the
NASDAQ Rules, the Investor Preferred
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will be convertible only after receipt of stockholder approval at the ENHANCED
Annual Meeting of Stockholders (including approval of an increase in the number
of authorized shares). If requested by the holders, ENHANCED will file a
registration statement with the SEC covering the resale of the Enhanced Stock to
be issued upon the conversion of the Investor Preferred.
(g) Equity Commitments. The Enhanced Stock entitles each holder to one
(1) vote for each share held. In addition to the outstanding capital stock, as
of November 12, 1998, ENHANCED had commitments to issue two million, seventy-one
thousand, two hundred and fifty-one (2,071,251) options and warrants, all of
which are convertible, if exercised, into common stock on a one-for-one basis.
Except for options, warrants and restricted securities which may be issued in
connection with consulting or employment arrangements (including George P.
Russell's Employment Agreement with BFL dated December 1, 1998) whether or not
covered under the Amended and Restated Incentive Stock Plan of ENHANCED, or in
financing or other corporate transactions which are currently in various stages
of negotiation and may not be implemented, as of the date hereof, there are no
other outstanding options, warrants or other rights, subscriptions, options,
calls, rights, warrants, convertible securities, unsatisfied preemptive rights
or other agreements or commitments of any character obligating ENHANCED to issue
(or reserve for issuance) or to transfer or sell any shares of its capital stock
of any class. No other classes of preferred shares have been designated or
issued and, except upon any exercise of outstanding options and warrants, no
additional shares of the capital stock of ENHANCED will be issued or reserved
for issuance at or prior to the Closing.
5.05 Private Placement. BFLAC acknowledges that BFL Interests to be
acquired hereunder have not been registered under the 1933 Act or registered or
qualified under any state securities laws on the grounds that such BFL Interests
are being issued in a transaction exempt from the registration requirements of
the 1933 Act and the registration or qualification requirements of applicable
state securities laws, and that the BFL Interests must be held indefinitely
unless such BFL Interests are subsequently registered under the 1933 Act and
qualified or registered under applicable state securities laws or an exemption
from registration and qualification is available, and that, except as otherwise
provided in this Agreement, the BFL Interests cannot be transferred.
5.06 Investment Representation. BFLAC is acquiring the BFL Interests as
principal for its own account and not with a view to, or for sale in connection
with, any distribution thereof, nor with any present intention of selling or
otherwise disposing of the same.
5.07 Receipt of Information. BFLAC and its representatives have received
and reviewed this Agreement, all Exhibits hereto and all other documents and
materials which BFL has provided to it in connection with the transactions
contemplated by this Agreement. BFLAC and its respective representatives have
had an opportunity to review all documents and other materials requested of BFL
and have been given an opportunity to ask such questions of BFL concerning the
BFL Interests to be acquired hereunder, and the business, operations, financial
condition, assets and liabilities of BFL and such other relevant matters as they
have deemed necessary or desirable and have been given all such information as
they have requested, in order
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<PAGE> 26
to make an independent evaluation of the merits and risks of the investment in
the BFL Interests contemplated herein.
5.08 Sophisticated Investor. BFLAC has the capacity to protect its own
interests in connection with this transaction.
5.09 Securities and Exchange Commission Filings. ENHANCED has filed all
reports on Forms 10-KSB and 10-QSB through the quarter ending August 31, 1998,
the end of its third fiscal quarter for the current fiscal year ending November
30, 1998. The Board of Directors intends to change the fiscal year end to
December 31, commencing in the current year. In addition, during 1998 ENHANCED
has filed reports on Form 8-K, all of which are available in electronic format.
Such filings are correct and complete in all material respects and provide
current information with respect to ENHANCED, except that as of the date hereof
ENHANCED has not yet filed a Report on Form 8-K with respect to the decision by
NASDAQ to delist its securities.
5.10 George P. Russell. BFLAC and ENHANCED agree that George P. Russell
shall be designated as the Chief Executive Officer of BFL at the First Closing,
in accordance with his Employment Agreement.
5.11 No Further Representations and Warranties. BFL and the SELLING
MEMBERS each acknowledge that no other representations or warranties have been
made to or relied upon by them by ENHANCED or BFLAC, except as set out in this
Agreement.
5.12 Disclosure. No representation or warranty by ENHANCED or BFLAC in
this Agreement, nor any statement, record, schedule or certificate furnished or
to be furnished to ENHANCED or BFLAC pursuant hereto or in connection herewith
contains or will contain, when made, any untrue statement of a material fact, or
omits or will omit, when made, to state a material fact necessary to make
statements contained herein or therein not misleading.
ARTICLE VI
COVENANTS OF BFL AND ENHANCED
6.01 Management of BFL Until the Final Closing. Until the Final Closing,
GCP shall continue as the Manager of BFL. During that period, BFL shall continue
to operate in the ordinary course in the same manner as operated through the
date hereof, except as follows:
(a) Budget. BFL and ENHANCED shall prepare monthly budgets for
operations which shall allocate *
22
<PAGE> 27
*.
(b) Management Meetings. Management meetings (arranged at the
convenience of the parties by person or by telephonic conference) shall take
place on a weekly basis, *, shall participate.
(c) Excess Amounts. Any expenditures of BFL which are not reflected in
the monthly budget or approved at the weekly meetings, which are not in the
ordinary course of business consistent with prior practice, and which require a
cash payment or commitment of more than *.
(d) ENHANCED Payments * shall be used, as needed, to cover monthly
budget requirements of BFL, after taking into account all cash flow amounts
received by BFL and, *.
(e) BFL Revenues. Effective * shall be applied and used as set forth in
this Section 6.01, and there shall be no Distributions whatsoever to any Members
or payments to any third parties (except as reflected in the budget or approved
at the weekly meetings as provided in Section 6.01(c)) without the prior
approval of *.
(f) Commitments. Except as reflected in the budget or approved at the
weekly meetings, *.
(g) Reports. Each of the persons designated to participate in the weekly
budget meetings, and Robert C. Smith and any other designee of ENHANCED shall be
entitled to receive full and complete access to all financial information and
data with respect to BFL and its operations.
6.02 Management of BFL After the Final Closing. Effective at the Final
Closing, ENHANCED and, at ENHANCED's option, BFLAC or its designee shall become
the Manager of BFL and shall be entitled to operate and oversee the business and
affairs of BFL in such
23
<PAGE> 28
manner as it may elect, *:
(a) ENHANCED shall be subject to each of its obligations under the
Purchase Notes;
(b) BFL shall be operated and retained as a separate legal entity and
profit center with separate financial reporting, on an internal basis, but such
limitation shall not preclude ENHANCED from reorganizing the legal form of BFL,
from reporting operating results on a consolidated basis with ENHANCED or any
subsidiary of ENHANCED, from expanding the business focus and operations
undertaken through BFL or from utilizing the BFL technology, operating systems
or operating assets so long as appropriate internal charges and credits are
reported through BFL from the use thereof ("Inter-company Amounts") and so long
as the Inter-company Amounts are not used to increase or decrease the net BFL
Reserves as defined below;
(c) ENHANCED shall contribute to BFL for use in funding BFL advertising
or other operations, a minimum equity infusion in cash of at least * aggregated
contributions (and with no charge to BFL for any return thereon) except as
follows:
(i) *
(ii) *
(iii) *
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<PAGE> 29
*
(iv) *
(d) ENHANCED may provide to BFL, and *, on-line advertising and other
services, on the same basis as provided to a third party, and in any event BFL
agrees that at least * of the on-line advertising budget *, all of which amounts
shall be reflected in the BFL operations on the same basis as third party
charges *; and
(e) ENHANCED shall not establish or cause any subsidiaries of BFL to be
established unless such entities also are in the business of the sale and
distribution of products through internet commerce and are or can be included in
the "shopping cart" concept being developed through BFL.
6.03 Listing of Enhanced Stock. The parties acknowledge that, as of the
date hereof, Enhanced Stock has been subjected to a delisting from the SmallCap
Market of the NASDAQ Stock Market. ENHANCED has undertaken to appeal the
decision and to otherwise effectuate the listing of the Enhanced Stock. *.
ARTICLE VII
BROKERAGE AND SIMILAR FEES
7.01 Fee Agreements. The parties acknowledge that ENHANCED has entered
into an agreement with McKinley for McKinley to represent the concerns of BFL
and the SELLING MEMBERS in this transaction, which agreement requires the
payment of certain fees and commissions with respect to the transactions
contemplated hereby. ENHANCED shall be solely responsible for funding all
amounts due to McKinley. The SELLING MEMBERS shall be
25
<PAGE> 30
responsible for payment of all compensation due to *. Except for the obligations
to McKinley and *, BFL and, to the best of BFL's knowledge, the SELLING MEMBERS
have not entered into any other agreements with, or retained or otherwise
authorized, any investment banker, individual, broker, finder, consultant or
other intermediary to act for or on their behalf in a manner which would entitle
such person to any payment of any broker's or finder's fees or other payments or
commissions in connection with any transactions contemplated hereby. BFL and the
SELLING MEMBERS agree to indemnify and hold ENHANCED and its officers,
directors, employees and agents harmless against any such commissions, fees or
other compensation claimed by any party other than McKinley based on an
agreement of such party with BFL or the SELLING MEMBERS or any of them.
7.02 No Other Fee Agreements. ENHANCED hereby represents and warrants
that, except as provided in Section 7.01 above, it has not entered into any
other agreements with or retained or otherwise authorized, any investment
banker, individual, broker, finder, consultant or other intermediary to act for
or on its behalf in a manner which would entitle such person to any payment of
any broker's or finder's fees or other payments or commissions in connection any
transactions contemplated hereby. ENHANCED agrees to indemnify and hold BFL and
the SELLING MEMBERS and BFL's officers, directors, employees and agents harmless
against any such commissions, fees or other compensation found to be due on
account of any such agreements.
ARTICLE VIII
CONFIDENTIALITY
8.01 Confidentiality. From the date hereof and continuing until November
1, 2003, each party will hold in confidence all information obtained or
delivered by a party hereto and their representatives and designated in writing
by the person providing the same as "Confidential Information", subject to the
disclosure or use of such information as may be required in order for the
parties to perform their respective due diligence and other obligations
hereunder. This obligation of confidentiality shall not extend to any
information which is shown to have previously been (i) known to the party
receiving it, (ii) is generally known to others engaged in the trade or business
of the party receiving it, (iii) is part of public knowledge or literature, or
(iv) was lawfully received from a third party or shall be required to be
disclosed pursuant to applicable law or the rules of a stock exchange (including
NASDAQ) on which such party's securities may be listed. Without limiting the
generality of the foregoing, it is understood and agreed that certain
information disclosed by either ENHANCED, BFLAC or BFL to the other or their
respective representatives may constitute "material inside information" that has
not previously been disclosed to the public generally. The parties acknowledge
their understanding of the restrictions on the use of such information imposed
by Federal and State securities laws, and agree to comply and cause their
representatives to comply with such restrictions. In no event shall the
Confidential Information received by either party be used for its own commercial
or financial advantage. Each party shall take all steps necessary to insure
compliance with the requirements of this Section 8.01 by all persons having
access to the Confidential Information, including any person retained to provide
advice relating to the transactions contemplated hereby.
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Should the transactions not be consummated, all copies of Confidential
Information, in whatever form, shall be returned to the originator by each party
and its representatives.
8.02 Remedies. The parties hereto acknowledge and agree that the breach
of this Article VIII will result in serious and irreparable damage and that it
would be extremely burdensome and difficult, if not impossible, to determine the
scope and extent of damages suffered by reason of a breach of this Article VIII.
Accordingly, the parties hereto agree that all remedies at law or in equity
shall be available to enforce the terms of this Article VIII and to recover
damages of whatever kind and amount permitted by law for breach hereof.
Notwithstanding anything to the contrary contained herein, no party hereto shall
be deemed to have violated or breached this Article VIII if such party provides
a copy of, or discloses information contained in, this Agreement in connection
with obtaining any waiver, consent, or approval, or undertaking registration or
filing required or contemplated by this Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.01 Amendment and Waiver. This Agreement shall not be altered or
amended except by a written instrument executed by the parties hereto. Any
waiver of any term, covenant, agreement or condition contained in this Agreement
shall not be deemed a waiver of any other term, covenant, agreement or
condition, and any waiver of any default in such term, covenant, agreement or
condition shall not be deemed a waiver of any later default thereof or of any
default of any other term, covenant, agreement or condition.
9.02 Severability. In the event that any one or more of the provisions
of this Agreement shall be invalid, illegal or unenforceable, all other
provisions hereof shall be given effect separately therefrom and shall not be
affected thereby.
9.03 Expenses. Except as otherwise provided herein, the parties hereto
shall be responsible for their own fees and expenses incurred in connection with
this Agreement. BFLAC shall pay the fees and expenses of counsel to BFL.
9.04 Press Releases. All press releases or other public communications
relating to this Agreement or the transactions contemplated hereby will require
the prior approval of BFL and ENHANCED, unless counsel has advised either party
that such release or other public communication must immediately be issued and
the issuing party has not been able, despite its good faith efforts, to secure
the prior approval of the other party. Except as required by law or the
applicable securities regulations, the parties will use their best efforts to
maintain as confidential the Purchase Consideration and other economic terms of
the transaction and to seek confidential treatment with respect to filings of
this Agreement and any Exhibits hereto.
9.05 Notices. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be delivered by
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<PAGE> 32
personal delivery, by overnight courier or by registered or certified mail,
postage prepaid, to the parties as follows:
If to ENHANCED: Enhanced Services Company, Inc.
3415 South Sepulveda Avenue, Suite 500
Los Angeles, CA 90034
Attention: President
with a copy to: Brand Farrar & Buxbaum LLP
515 South Flower Street, Suite 3500
Los Angeles, California 90071
Attention: Margaret G. Graf, Esq.
If to BFLAC: BFL Acquisition Co., Inc.
3415 South Sepulveda Avenue, Suite 500
Los Angeles, CA 90034
Attention: President
with a copy to: Brand Farrar & Buxbaum LLP
515 South Flower Street, Suite 3500
Los Angeles, California 90071
Attention: Margaret G. Graf, Esq.
If to BFL: Brands For Less, L.L.C.
40 North Main Street
South Norwalk, CT 06854
Attention: George P. Russell
with a copy to: Haythe & Curley
237 Park Avenue
New York, NY 10071-3142
Attention: John J. Butler, Esq.
If to the SELLING
MEMBERS: Philip D. Gunn
c/o Growth Capital Partners Inc.
520 Madison Avenue
New York, NY 10022
If to the Escrow
Agent: Haythe & Curley
237 Park Avenue
New York, NY 10071-3142
Attention: John J. Butler, Esq.
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or to such other address as any party shall have specified by notice in writing
to the others in accordance with the terms of this Section 9.05. All notices
shall be effective upon delivery. Rejection or other refusal to accept delivery
of notice or the inability to deliver because of change of address as to which
no notice was given hereunder shall be deemed to be receipt of the notice sent.
9.06 Entire Agreement. This Agreement and the Exhibits hereto constitute
the entire agreement among the parties hereto with respect to the subject matter
hereof.
9.07 Assignment. This Agreement and all of the provisions hereof shall
be binding and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any party
without the prior written consent of the other parties.
9.08 Third Parties. Nothing herein expressed or implied is intended or
shall be construed to confer upon or give to any person other than the parties
hereto and their successors or assigns any rights or remedies under or by reason
of this Agreement.
9.09 Section and Other Headings. The Section and other headings
contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
9.10 Counterparts; Facsimile Signatures. This Agreement may be executed
in two (2) or more counterparts, each of which shall be deemed to be an original
and all of which together shall be deemed to be one (1) and the same instrument.
The parties hereto further agree that a facsimile signature may be relied upon
and treated with the same force and effect as an original signature. This
Agreement shall become effective, as of the effective date first written above,
when each party hereto shall have received a counterpart hereof signed by each
other party hereto.
9.11 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California without regard to its
conflicts of laws doctrines.
9.12 Further Assurances. Each of the parties hereto agrees that it will,
whenever and as often as it shall be reasonably requested so to do by another
party hereto, execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, any and all further instruments as may be necessary
or expedient in order to consummate the transactions provided for in this
Agreement, and do any and all further acts and things as may be necessary or
expedient in order to carry out the purpose and intent of this Agreement.
9.13 Survival of Representations and Warranties. Except as otherwise
specifically provided herein or in the other Transaction Documents, the
respective representations and warranties of the parties hereto shall expire at
the Final Closing and shall thereafter terminate and
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<PAGE> 34
be of no further force or effect except as they relate to written claims made by
a party hereto to any other party hereto prior to such expiration.
9.14 Pronouns. All pronouns and any variations thereof shall be deemed
to refer to masculine, feminine, neuter, singular or plural, except where the
context of the Agreement clearly indicates otherwise.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
BFL ACQUISITION CO., INC.
By: /s/ JUSTIN WALKER
-------------------------------
Name: Justin Walker
Title: President
ENHANCED SERVICES COMPANY, INC.
By: /s/ JUSTIN WALKER
-------------------------------
Name: Justin Walker
Title: General Counsel and Vice President
BRANDS FOR LESS, L.L.C.
By: Growth Capital Partners, Inc.
Its: Manager
By: /s/ PHILIP D. GUNN
-------------------------------
Philip D. Gunn
Its:
------------------------------
/s/ PHILIP D. GUNN
- ----------------------------------
Philip D. Gunn,
Agent for the SELLING MEMBERS
SOLELY WITH RESPECT TO SECTIONS 3.10, 3.11, 4.02 AND 7.01
GROWTH CAPITAL PARTNERS, INC. (IN ITS CAPACITY AS MANAGER OF BFL)
By: /s/ PHILIP D. GUNN
-------------------------------
Name: Philip D. Gunn
Its:
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<PAGE> 1
EXHIBIT 99
TUESDAY DECEMBER 22, 10:36 AM EASTERN TIME
COMPANY PRESS RELEASE
SOURCE: Enhanced Services Company, Inc.
ENHANCED SERVICES ACQUIRES
'BRANDSFORLESS.COM' FOR $35 MILLION
ONLINE SHOPPING SERVICE LATEST ADDITION TO INTERNET ROLL-UP STRATEGY
LOS ANGELES, Calif., Dec. 22 /PRNewswire/ -- Enhanced Services Company, Inc.
(OTC: ESVS news; ESVS) and Zulu-tek Inc. (OTC-Bulletin Board: ZULU - news)
announced jointly today that ESVS has acquired privately held BrandsForLess.com,
based in South Norwalk, CT, a pioneer and industry leader in e-commerce, for $35
million. BrandsForLess.com operates an online department store featuring over 60
departments or "e-partments(TM)." The company also develops and administers
various e-commerce stores appearing under the brand names of numerous portal and
destination sites.
"BrandsForLess.com has forged numerous strategic relationships with some of the
most popular names on the Internet to position itself as a leading e-commerce
solution for online shopping. Their success is largely the result of addressing
what consumer studies have indicated to be missing within the online shopping
environment -- convenience, simplicity and reliability at a discount," stated
Rob Chmiel, COO of Enhanced Services.
"This acquisition is a logical extension of our strategy to acquire companies
that have a proven track record and expertise of driving revenue through the
Internet. BrandsForLess.com has successfully utilized a unique combination of
proprietary technology, consumer marketing and strategic relationships to create
a highly profitable e-commerce system, exceeding the needs of the consumer,
merchant and the distribution channel. We see tremendous synergies by combining
this successful business model with the advertising and technological strength
of Enhanced Services, with the vast market potential of brand-name discount
shopping on the Internet," Chmiel added.
George Russell, BrandsForLess' President and CEO, said, "We believe that the
opportunity to join forces with the Enhanced team represents an ideal situation
for both entities. BrandsForLess.com overcomes the major barriers to making
money faced by most websites today. Enhanced Services brings to the table rapid
access to thousands of potential distributors of BrandsForLess.com's e-commerce
package."
<PAGE> 2
BrandsForLess.com is dedicated to simplifying Internet shopping for the consumer
and providing a "turnkey" e-commerce solution for merchants and portal sites.
Online shoppers can now find, select and purchase products across multiple
categories as they would do in a physical shopping environment. The Company
delivers an intuitive, simplified, and efficient shopping experience that brings
together the world's best specialty retailers and well-known brand names at a
discounted price in a secure, private, and reliable Internet environment.
BrandsForLess.com currently offers over 1,500 brands, and over 500,000 products
with the same service and a 100% satisfaction guarantee shoppers expect from
upscale department stores. BrandsForLess.com also develops and administers
various "virtual" department stores licensed under the names of major portal and
destination sites such as DejaNews.Com and CNN.com. Destination or portal sites
can develop a significant e-commerce revenue stream by installing the
BrandsForLess department store on their site or as its entire e-commerce
solution.
Enhanced Services, its combination with Zulu-tek and its pending acquisitions,
represent the convergence under one umbrella of diverse services focused
specifically on the Internet as a communications and transaction medium creating
a new specialty in the e-commerce arena. The combined enterprise is focused on
attaining a unique, forerunning position as it answers the full range of
business demands that result from a skyrocketing commercial reliance on the
Internet.
Website Information: www.zulumedia.com and www.brandsforless.com
SOURCE: Enhanced Services Company, Inc.
