UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 2, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-19616
UTOPIA MARKETING, INC.
(Name of small business issuer in its charter)
Florida 94-3060101
(State or other jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
312 Clematis Street, Suite 500, West Palm Beach, Florida, 33401
(Address of Principal Executive Offices, Zip Code)
Company's telephone number, including area code: (561) 835-9998
Securities registered pursuant to section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $0.001 Par Value
Indicate by check mark whether the Company (1) has filed all
reports required to be filed by Section 13 or 15(b) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Company was required to file such
reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes XX No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not 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-K or any amendment to this
Form 10-K. XX
Revenues for fiscal year ended January 2, 1999: $0
The aggregate market value of Utopia Marketing, Inc. Common
Stock, $0.001 par value, held by non-affiliates, computed by
reference to the price at which the stock was sold as of April 12,
1999: $1,045,879.
Number of shares of Common Stock of Utopia Marketing, Inc.
issued and outstanding as of April 12, 1999: 14,216,367
Documents Incorporated by Reference
None
<PAGE>
Table Of Contents
PART I
Page
Item 1. Business . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . 6
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . 6
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . 7
Item 6. Management's Discussion and Analysis
Financial Condition and Results of Operations. . . 8
Forward-Looking Information: Certain
Cautionary Statements . . . . . . . . . . . . . . 10
Item 7. Financial Statements and Supplementary Data . . . 16
Item 8. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure. . . . . . . . . . . . . . . . . . . . 30
PART III
Item 9. Directors and Executive Officers of the
Registrant. . . . . . . . . . . . . . . . . . . . 31
Item 10. Executive Compensation. . . . . . . . . . . . . . 33
Item 11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . 35
Item 12. Certain Relationships and Related Transactions. . 36
Item 13. Exhibits, Financial Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . 36
<PAGE>
PART I
ITEM 1. BUSINESS
Overview
Utopia Marketing, Inc., formerly known as Sam & Libby, Inc.
(the "Company"), was founded in October 1987, primarily for the
purpose of developing and commercializing footwear products. In
1991, the Company completed a public offering of its common stock.
On July 2, 1996, the Company entered into an agreement with Maxwell
Shoe Company Inc. ("Maxwell") pursuant to which the Company sold
its brand names, trademarks, trade names and certain other
intellectual property rights to Maxwell, and received approximately
$5.5 million. The Company has not conducted any revenue generating
business since the sale to Maxwell.
Since the sale to Maxwell, the Company's management has been
primarily involved in the investigation of new business opportunities
for the Company. During this time, management has investigated
possible acquisitions and mergers and explored various start-up
ventures. A number of developments during the fourth quarter of 1998
prompted the Company's Board of Directors to conclude in December 1998
that the Company should reenter the footwear business. The Board
determined that the devaluation of the national currency in Brazil
could allow the Company to obtain raw materials for its products at
favorable prices. The Company also received favorable indications of
interest from potential vendors of the proposed line of footwear
products to be produced by the Company. In addition, management has
located a manufacturer on terms that the board believes would be
favorable to the Company.
Strategy
The Company's long-term objective is to develop and
commercialize a leading brand of women's fashion footwear. The key
elements of it operating strategy are as follows:
* Develop and promote a recognizable brand name for its
footwear products. The Company believes that it can
develop its Naked Feet[TM] brand and generate broad
recognition in its target markets by participating in
trade shows, fashion shows and other industry events.
* Distribute Products through Selected National Retailers
and Independent Accounts. The Company intends to sell
its products through selected national retailers and
through independent retailers.
<PAGE> 3
* Maintain Flexibility in Manufacturing. The Company
initially intends to utilize third-party foreign
manufacturers for the manufacture of its products. The
Company believes that it can maintain a current inventory
by having its products developed in small lots.
* Conduct Product Testing. The Company intends to conduct
internally or engage third-parties to conduct product
testing for the Company. In addition, the Company
intends to participate in trade shows and preview its
product development ideas and designs with selected
national accounts.
Industry Overview
The fashionable footwear industry is highly competitive. The
Company's competitors include specialty shoe companies as well as
companies with diversified footwear product lines. The recent
substantial growth in the sales of fashionable footwear has
encouraged the entry of many new competitors and increased
competition from established companies. Most of these competitors,
including Kenneth Cole, Nine West, DKNY, Sketchers, Nike and Guess,
have significantly greater financial and other resources than the
Company. The Company believes effective advertising and marketing,
fashionable styling, high quality and value are the most important
competitive factors and intends to employ these elements as it
develops its products.
Design and Development
The Company is in the process of designing and developing a
new line of fashion footwear. The design process for a new product
typically begins about nine months before the start of the season
for such product. The major influences upon the design process
include the designer's impression of current worldwide lifestyle
and clothing trends and shoe fashions, as well as the history of a
particular shoe or fashion style in the target market. Other
factors include the availability of raw materials, the capabilities
of the factories that will manufacture the products and the target
retail cost of the product. The design process for new products is
conducted by third-party independent contractors on behalf of the
Company, with senior management being actively involved in the
analysis of fashion trends and the design process. The Company has
assembled an in-house design team to design the initial line of
products for the Company. The Company will attempt to minimize the
risks relating to changing fashion trends and product acceptance by
testing various styles before each selling season, evaluating trade
acceptance before commencing volume manufacture, and closely
monitoring retail sales trends after retail introduction.
Marketing and Promotion
The Company is currently promoting its initial line of Naked
Feet[TM] brand footwear products. The Company's strategy is to develop
an image and awareness of the Company's Naked Feet[TM] product brand.
The Company intends to advertise, market and promote its products
through a variety of means, including trade journal advertising and
product packaging. Senior management will be directly involved in
<PAGE> 4
shaping the Company's image and its advertising and promotional
activities. The Company will initially focus its efforts on
marketing its products only in the United States.
Manufacturing
The Company does not currently manufacture any products. The
Company anticipates that the manufacture of its products will be
conducted by third-party foreign manufacturers. The Company will
implement a quality control program to ensure that goods
bearing its trademarks meet the Company's standards. Because the
Company's products, when developed, will be manufactured by third-
parties, the Company will inspect prototypes of each product prior
to manufacture by such third-parties, inspect samples of its
products and, through its employees or sourcing agents, inspect the
final product prior to shipment to the Company's distributors or
customers.
A wide range of materials are expected to be used in the
domestic and offshore production of the Company's products. The
Company may from time to time experience significant manufacturing
delays caused by the unavailability of raw materials. Moreover,
the dependence on foreign manufacturers subjects the Company to
the general conditions and risks of doing business internationally,
including reduction in the availability of production capacity,
errors in complying with product specifications, insufficient
quality control, failure to meet production deadlines, and
increases in manufacturing costs. The Company can not predict
whether the conditions under which it plans to conduct business
abroad will remain favorable or whether any events will occur that
could adversely affect the availability of independent foreign
manufacturing on terms satisfactory to the Company.
Sales and Distribution
The Company does not currently distribute any products. The
Company is in discussions with an independent warehouse facility to
provide the Company with warehouse, distribution, inspection and
other services, which the Company will use after it has produced
inventories of its initial product line. The primary distribution
channel for the Company's products will be sales through national
and regional retailers, as well as independent specialty stores.
The Company does not currently intend to own or operate its own
retail stores.
Competition
The fashion footwear industry is highly competitive. The
Company will compete with a number of domestic and foreign
designers and manufacturers of footwear. Almost all of the
Company's competitors have significantly greater financial
resources than the Company, and many have full lines of product
offerings, will compete with the Company for manufacturing sources
and spend substantially more resources on product advertising than
the Company will be able to spend. Although the Company and its
management have experience in the footwear industry, the Company is
and will be perceived by the market as a new entrant to the
footwear industry. The Company's products will be marketed and
<PAGE> 5
sold to image conscious consumers and the failure by the Company to
accurately predict and target future trends or to maintain a
fashionable image could have a material adverse impact on its
ability to generate product sales or develop a recognizable brand
name. There can be no assurance that the Company will be able to
develop and market well-received products.
Intellectual Property
The Company does not currently own any trademarks or other
proprietary rights other than its Naked Feet[TM] brand name. The
Company is in the process of registering the Company's use of this
name with United States Patent and Trademark office. The Company
believes that trademarks and other proprietary rights are important
to its success and its competitive position. Accordingly, the
Company intends to devote substantial resources to the
establishment and protection of trademarks and other proprietary
rights. There can be no assurance that the actions taken by the
Company to establish and protect any trademarks or other
proprietary rights will be adequate to prevent imitation of its
products by others or to prevent others from seeking to block sales
of any products the Company may develop as violative of the
trademarks and proprietary rights of others. Moreover, no
assurance can be given that others will not assert rights in, or
ownership of, trademarks and other proprietary rights the Company
may establish or that the Company will be able to successfully
resolve such conflicts.
Employees & Contractors
The Company currently has seven (7) employees. Initially,
most of the Company's product development work and sales efforts
will be conducted by third-party contractors. The Company believes
its employee relations are good.
ITEM 2. PROPERTIES
The Company's executive office is located in West Palm Beach,
Florida, where the Company leases approximately 2,700 square feet
of office space. The Company believes that its facilities are
adequate for its current needs and that additional facilities can
be leased to meet future needs. The Company's executive offices
are located 312 Clematis Street, Suite 500, West Palm Beach,
Florida 33401, and its telephone number is (561) 835-9998.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings against the Company or
its properties, or to which the Company is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
<PAGE> 6
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is not listed on any stock
exchange. The Company's stock is traded over-the-counter under the
symbol "UTPM".
The following table sets forth the high and low closing sales
prices of the Company's Common Stock for the Company's 1998 and
1997 fiscal years ending January 2, 1999 and January 3, 1998,
respectively, as reported by the National Quotation Bureau, LLC.
Fiscal 1998 High Low
First Quarter $0.09 $0.01
Second Quarter $0.06 $0.01
Third Quarter $0.16 $0.01
Fourth Quarter $.1875 $0.01
Fiscal 1997 High Low
First Quarter $.1875 $0.02
Second Quarter $0.25 $0.05
Third Quarter $0.25 $0.01
Fourth Quarter $0.25 $0.01
At April 12, 1999, the Company had 1,029 shareholders of
record. The Company has no shares of any class of capital stock
outstanding other than its common stock. The Company has not paid
any cash dividends on its common stock since its inception, other
than distributions to Samuel L. Edelman, Louise B. Edelman and
Stuart L. Kreisler (the "Principal Shareholders") during the period
that the Company was an S Corporation and in connection with the
termination of the Company's status as an S Corporation in 1991.
The Company currently anticipates that any future earnings will be
retained for development of its business and does not anticipate
paying any dividends on its common stock in the foreseeable future.
<PAGE> 7
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Utopia Marketing, Inc., formerly known as Sam & Libby, Inc.
(the "Company") was founded in October 1987, primarily for the
purpose of developing and commercializing footwear products. In
1991, the Company completed a public offering of its common stock.
On July 2, 1996, the Company entered into an agreement with Maxwell
Shoe Company Inc. ("Maxwell") pursuant to which the Company sold
its brand names, trademarks, trade names and certain other
intellectual property rights to Maxwell, and received approximately
$5.5 million. The Company has not conducted any revenue generating
business since the sale to Maxwell.
Since the sale to Maxwell, the Company's management has been
primarily involved in the investigation of new business opportunities
for the Company. During this time, management has investigated possible
acquisitions and mergers and explored various start-up ventures.
A number of developments during the fourth quarter of 1998 prompted the
Company's Board of Directors to conclude in December 1998 that the
Company should reenter the footwear business.
Results of Operations
Years Ended January 2, 1999 and January 3, 1998
Revenues. Due to the lack of revenue-generating activities
during the year ended January 2, 1999, the Company's only revenue
was interest income of $122,542. Interest income was earned as a
result of the Company holding its funds in a money market account.
The Company's net revenue for the year ended January 3, 1998 was
$129,000, generated primarily by selling off the inventory
remaining after the sale of the trademarks and other intellectual
property. Income for the year ended January 3, 1998 was also
generated from interest earned on amounts due from a factoring and
financing agreement the Company entered in March 1994 (the "Factor").
The amount due from the Factor at January 3, 1998 was $2,389,270,
and was included by the Company in cash and cash equivalents.
Gross Profit. The Company earned no gross profit during the
year ended January 2, 1999, as the Company did not conduct any
operating business. Gross profit for the year ended January 3,
1998 was $71,000 generated primarily by the sale of remaining
merchandise inventory under the terms of the agreement with
Maxwell.
<PAGE> 8
Selling, General and Administrative Expenses. Selling, general
and administrative expenses decreased to $571,570 for the year
ended January 2, 1999 due to a decrease in operations as compared
to $966,000 for the year ended January 3, 1998.
The Company anticipates a substantial increase in selling,
general and administrative expenses during 1999 as a result of the
commencement of the design and development of a line of footwear. The
Company anticipates these expenses will be incurred as personnel is
increased, marketing and sales activities are begun and a variety
of promotional programs are undertaken in connection with the
development and sale of products. The Company also expects to incur
significant research and development expenses as the Company
attempts to develop and commercialize its new line of footwear
products.
Liquidity and Capital Resources
The Company's primary source of liquidity for 1998 was funds
held in a money market account. Because the Company had been
engaged primarily in the investigation of new business
opportunities, the Company made no capital expenditures during its
fiscal year ended January 2, 1999. The Company expects 1999
capital expenditures to substantially increase as a result of the
Board's decision to attempt to develop and commercialize a line of
footwear.
The Company currently anticipates that it will require
additional capital to fund its working capital needs until it has
positive cash flows. During the start-up phase of the Company's
new operations, the Company's cash requirements will be substantial
and may exceed the amount of working capital available to the
Company. The amount of additional capital the Company will require
before it achieves positive cash flows will depend primarily on its
ability to design, develop and market products that are accepted by
the market and generate rapidly increasing levels of sales. The
Company's failure to design, develop and market well-received
products and other events, including the costs and timing of
establishing trademarks and other proprietary rights; the Company's
ability to manufacture products at an economically feasible cost;
the extent and terms of any collaborative manufacturing, marketing
or other arrangement; and changes in economic or competitive
conditions of the Company's planned business, could cause the Company
to require additional capital prior to achieving positive cash flows.
In the event that the Company must raise additional capital to fund
its working capital needs, it may seek to raise such capital through
loans or the issuance of debt or equity securities. To the extent the
Company raises additional capital by issuing equity securities or
obtaining borrowings convertible into equity, ownership dilution to
existing shareholders will result, and future investors may be
granted rights superior to those of existing shareholders. There
can be no assurance that any additional capital will be available
to the Company on acceptable terms, or at all.
<PAGE> 9
FORWARD-LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in this Report that are not
historical facts contain forward-looking information with respect
to the Company's plans, projections or future performance, the
occurrence of which involve certain risks and uncertainties that
could cause the Company's actual results or plans to differ
materially from those expected by the Company.
Early Stage of Development; Uncertainty of Future Profitability
The Company is in a development stage. With respect to its
newly planned operating business, the Company has generated no
revenues from product sales and does not expect to generate
significant revenue from product sales for at least the next 12
months. The Company intends to dedicate most of its financial
resources to the development of a new line of footwear and general
and administrative expenses. The Company expects to incur
significant operating losses for at least the next 12 months,
primarily due to the creation and expansion of a design and
development team and the establishment of a sales and marketing
organization. The Company's ability to achieve profitability will
depend, among other things, on its successfully completing
development of its products, establishing or sourcing
manufacturing, sales and marketing capabilities, achieving market
acceptance for its products and maintaining sufficient funds to
finance its activities. There can be no assurance that the Company
will be able to achieve profitability or that profitability, if
achieved, can be sustained.
Future Capital Needs; Uncertainty of Additional Funding
The Company will require substantial additional funds in order
to develop and commercialize its new line of footwear products and
until the Company achieves positive cash flows. The extent to
which the Company will be required to obtain additional funding
from third parties will primarily depend on the time required for
the Company to develop its new product line and the rate at which
the Company is able to generate sales of its products once they are
developed. The Company's capital requirements will depend on
several additional factors, including the problems, delays,
expenses and complications frequently encountered by companies in
a development stage; the progress of the Company's design and
development of products; the costs and timing of establishing
trademarks or other proprietary rights; the success of the
Company's sales and marketing programs; the extent and terms of any
manufacturing, marketing or other arrangements; and changes in
economic or competitive conditions of the Company's planned
business. Estimates about the adequacy of funding for the
Company's activities are based on certain assumptions, including
the assumption that development of the Company's products can be
conducted at projected costs and within projected time frames and
that the Company's product receives market acceptance.
To satisfy its capital requirements, the Company may seek to
raise funds in the public or private capital markets. The
Company's ability to raise additional funds in the public or
private markets will be adversely affected if the results of the
Company's ongoing or future attempts at development of a line of
footwear are not favorable or if any products developed are not
<PAGE> 10
well-received. The Company may seek additional funding through
corporate collaborations and other financing vehicles or from loans
or investments by its controlling shareholders. There can be no
assurance that any such funding will be available to the Company,
or if available, that it will be available on acceptable terms. If
adequate funds are not available, the Company will not be able to
complete the commercialization of any products that it may have
developed. As a result, the Company may be required to discontinue
its operations without obtaining any value for its products under
development, thereby eliminating shareholder equity, or the Company
could be forced to relinquish rights to some or all of its products
under development in return for an amount substantially less than
the Company expended to develop such products. If the Company is
successful in obtaining additional financing, the terms of the
financing may have the effect of diluting the holdings or
adversely affecting the rights of the holders of Common Stock.
Uncertainties Related to Product Development & Commercialization
Although the Company has not yet generated revenues from the
sale of its products, the Company has begun to develop its initial
line of products. There can be no assurance that the Company will
be able to profit from the development or manufacture of its
products as planned, or that the Company will be successful in
promoting such products to potential vendors. The Company does not
have an established brand name under which it will market any of
its products under development. The establishment of a
recognizable brand name that will enable the Company to
successfully commercialize its products under development generally
requires the expenditure of substantial financial resources for
advertising and promotional activities. The Company does not
currently have sufficient resources to conduct a national
advertising campaign or otherwise promote its products under
development on a widescale basis. As a result, the Company will be
required to promote its products and brand name through alternative
and creative promotional efforts. There can be no assurance that
the Company will be able to successfully promote its products or
brand name.
Uncertainties Related to Market Acceptance
If the Company develops a line of footwear, the Company's
ability to successfully commercialize its products will depend in
part on the acceptance of its products by vendors and retail
customers. The failure of vendors to purchase the Company's
products or the failure of retail customers to purchase the
Company's products would have a material adverse effect on the
Company. Unfavorable publicity concerning the Company or any of
the Company's products under development could have an adverse
effect on the Company's ability to achieve acceptance of its
products by vendors and retail customers and to commercialize its
products which could have a material adverse effect on the Company.
Limited Sales and Marketing Experience
The Company is in the process of establishing a sales and
marketing organization and is beginning to market it products
although the Company has not yet distributed or sold any products.
The Company intends to market its footwear line through its own
specialty sales force. Substantial resources will be required for
<PAGE> 11
the Company to establish its own sales force and promote the sale
of its foot products under development. There can be no assurance
that the Company will be able to establish an effective sales and
marketing organization or that the Company will be able to achieve
market acceptance. The Company's failure to establish an effective
marketing and sales force or its failure to expend the resources to
adequately promote any of its products under development could have
a material adverse effect on the Company.
Dependence on Key Personnel
The success of the Company will be largely dependent, in
particular, upon the services of Samuel L. Edelman, its President
and Chief Executive Officer. If Mr. Edelman is unable to provide
services to the Company for whatever reason, the business would be
adversely affected. Because Mr. Edelman is involved in all aspects
of the Company's business, there can be no assurance that a
suitable replacement could be found if he was unable to perform
services for the Company. As a consequence, the loss of Mr.
Edelman or other key personnel could have a material adverse effect
upon the Company's business, results of operations and financial
condition.
In addition, the Company's ability to market its products and
to achieve profitability will depend on its ability to attract and
retain highly talented design personnel. The Company will face
intense competition for personnel from other companies. There can
be no assurance that the Company will be successful in attracting
and retaining key personnel. The loss of key personnel, or the
inability to attract and retain the additional, highly-talented
employees required for the development of the Company's products,
could adversely affect the Company's results of operations and its
business.
Competition
Competition in the women's footwear industry is intense. The
growth in the sales of fashionable footwear has encouraged the
entry of many new competitors and increased competition from
established companies. The Company will compete with numerous
designers, brands and manufacturers of women's footwear, many of
which will have substantially greater financial, distribution,
marketing and other resources than the Company. The Company will
also have to compete for the limited shelf-space available for the
display of its products to the consumer. The principal elements of
competition in the footwear market include product style and color
selection, price, value, comfort, quality (both in material and
production), brand awareness, brand positioning, advertising,
marketing and distribution. The Company's business will depend on
its ability to stimulate and respond to changing consumer
preferences while remaining competitive in quality and price.
There can be no assurance that any products developed by the
Company will be able to compete successfully with the products of
its competitors.
<PAGE> 12
Intellectual Property
Establishment of trademarks and other proprietary rights is
important to the success of the Company and its competitive
position. Accordingly, the Company intends to devote substantial
resources to the establishment and protection of trademarks and
other proprietary rights. There can be no assurance that the
actions taken by the Company to establish and protect any
trademarks or other proprietary rights will be adequate to prevent
imitation of its products by others or to prevent others from
seeking to block sales of any products the Company may develop as
violative of the trademarks and proprietary rights of others.
Moreover, no assurance can be given that others will not assert
rights in, or ownership of, trademarks and other proprietary rights
the Company may establish or that the Company will be able to
successfully resolve such conflicts.
Fashion Industry Risks
The success of the Company will depend in significant part
upon its ability to anticipate and respond to women's product and
fashion trends as well as to anticipate, gauge and react to
changing consumer demands in a timely manner. There can be no
assurance that the Company's products will correspond to the
changes in taste and demand or that the Company will be able to
successfully market products which respond to such trends. If the
Company misjudges the market for its products, it may be faced with
significant excess inventories for some products and missed
opportunities with others which could have a material adverse
effect on the Company's business, results of operations and
financial condition.
The fashion footwear industry in which the Company intends to
operate is cyclical, with purchases tending to decline during
recessionary periods when disposable income is low. Purchases of
fashion footwear tend to decline during recessionary periods and
may also decline at other times. A recession in the national or
regional economies or uncertainties regarding future economic
prospects, among other things, could affect consumer spending
habits and have a material adverse effect on the Company's
business, results of operations and financial condition.
In recent years, the retail industry has experienced
consolidation and other ownership changes. In the future,
retailers in the United States and in foreign markets may
consolidate, undergo restructurings or reorganizations, or realign
their affiliations, any of which could decrease the number of
stores available to carry the Company's products or increase the
ownership concentration within the retail industry. There can be
no assurance as to the future effect of any such changes.
Inventory Management
If the Company is successful in developing and commercializing
a line of footwear, the Company's ability to manage its inventories
properly will be an important factor in its operations. Inventory
shortages can adversely affect the timing of shipments to customers
and diminish brand loyalty. Conversely, excess inventories can
result in increased interest costs as well as lower gross margins
due to the necessity of providing discounts to retailers. The
inability of the Company to effectively manage its inventory would
<PAGE> 13
have a material adverse effect on the Company's business, results
of operation and financial condition.
Reliance on Foreign or Unaffiliated Manufacturers
As is common in the footwear industry, the Company intends to
contract for the manufacture of many of its products through
foreign or other unaffiliated manufacturers. The Company will not
own or operate any manufacturing facilities and will therefore be
dependent upon independent third parties for the manufacture of all
its products. Risks inherent in foreign operations include work
stoppages, transportation delays and interruptions, changes in
social, political and economic conditions which could result in the
disruption of trade from the countries in which potential
manufacturers or suppliers are located, the imposition of
additional regulations relating to imports, the imposition of
additional duties, taxes and other charges on imports, significant
fluctuations of the value of the dollar against foreign currencies,
or restrictions on the transfer of funds, any of which could have
a material adverse effect on the Company's business, results of
operations and financial condition. Any products the Company
imports will also be subject to United States customs duties which
will comprise a material portion of the cost of merchandise. The
United States and the countries in which the Company's products are
produced or sold may, from time to time, impose new quotas, duties,
tariffs, or other restrictions, or may adversely adjust prevailing
quota, duty or tariff levels, any of which could have a material
adverse effect on the Company's business, results of operations and
financial condition. The inability of a manufacturer to ship
orders of the Company's products in a timely manner or to meet the
Company's quality standards could cause the Company to miss the
delivery date requirements of customers, which could result in
cancellation of orders, refusal to accept deliveries or a reduction
in purchase prices, any of which could have a material adverse
effect on the Company's business, results of operations and
financial condition.
OTC Bulletin Board Listing
The Company's Common Stock is traded in the non-Nasdaq over-
the-counter markets through the OTC Bulletin Board. There is
currently no active trading market for the Company's Common Stock.
There can be no assurance that an active trading market will
develop or be maintained. Trading of securities on the OTC
Bulletin Board is generally limited and is effected on a less
regular basis than that effected on other exchanges or quotation
systems (such as the Nasdaq Stock Market), and accordingly
investors who own or purchase securities of the Company will find
that the liquidity or transferability of the Company's securities
is limited. Additionally, a shareholder may find it more difficult
to dispose of, or obtain accurate quotations as to the market value
of the securities. There can be no assurance that the Company's
Common Stock will ever be included for trading on any stock
exchange or through any other quotation system (including, without
limitation, the Nasdaq Stock Market).
<PAGE> 14
Penny Stock Regulation
The Company's securities are subject to the Securities and
Exchange Commission penny stock rules. Broker-dealer practices in
connection with transactions in "penny stocks" are regulated by
certain penny stock rules adopted by the Securities and Exchange
Commission. Penny stocks generally are equity securities with a
price of less than $5.00 (other than securities registered on
certain national securities exchanges or quoted on the NASDAQ
system). The penny stock rules require a broker-dealer, prior to
a transaction in a penny stock not otherwise exempt from the rules,
to deliver a standardized risk disclosure document that provides
information about penny stocks and the nature and level of risks in
the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the
transaction, and, if the broker-dealer is the sole market-maker,
the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market, and monthly account statements
showing the market value of each penny stock held in the customer's
account. In addition, broker-dealers who sell such securities to
persons other than established customers and accredited investors
(generally, those persons with assets in excess of $1,000,000 or
annual income exceeding $200,000, or $300,000 together with their
spouse), the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser's written agreement to the
transaction. Consequently, these requirements may have the effect
of reducing the level of trading activity, if any, in the secondary
market for a security that is subject to the penny stock rules.
Absence of Dividends
The Company anticipates that any earnings generated in the
foreseeable future will be retained to finance the continued
development, growth and expansion of its business and has no
current intention to pay cash dividends.
Control by Existing Shareholders
Samuel L. Edelman and Louise B. Edelman, the founders of the
Company, together own approximately 38% of the outstanding Common
Stock. Accordingly, these shareholders will likely be able to
control the outcome of shareholder votes, including votes
concerning the election of directors, the adoption or amendment of
provisions in the Company's Articles of Incorporation, and the
approval of mergers and other significant corporate transactions.
This level of concentrated ownership may have the effect of
delaying or preventing a change in the management or voting control
of the Company.
<PAGE> 15
ITEM 7. FINANCIAL STATEMENTS
Financial statements required by this item can be found at the
pages listed in the following index.
Page
Report of Independent Certified Public Accountants. . . . 17
Balance Sheet at January 2, 1999. . . . . . . . . . . . . 19
Statements of Operations for the year ended
January 2, 1999 and January 3, 1998 . . . . . . . . . . . 20
Statements of Stockholder's Equity for the period
December 28, 1996 to January 2, 1999. . . . . . . . . . . 21
Statements of Cash Flows for the year ended
January 2, 1999 and January 3, 1998 . . . . . . . . . . . 22
Notes to Financial Statements . . . . . . . . . . . . . . 23
<PAGE> 16
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Utopia Marketing, Inc.
We have audited the accompanying balance sheet of Utopia Marketing,
Inc., as of January 2, 1999, and the related statements of
operations, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We 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 disclosed 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 above present
fairly, in all material respects, the financial position of Utopia
Marketing, Inc. as of January 2, 1999, and the related statement of
operations, stockholders' equity, and cash flows for the year then
ended, in conformity with generally accepted accounting principles.
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
March 29, 1999
<PAGE> 17
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Utopia Marketing, Inc. (formerly Sam & Libby, Inc.)
We have audited the accompanying consolidated statements of income,
shareholders' equity, and cash flows for the year ended January 3,
1998 of Utopia Marketing, Inc. (formerly Sam & Libby, Inc.), and
subsidiaries. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements
based on our audits.
We conducted our 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 January 3, 1998 consolidated financial
statements referred to above present fairly, in all material
aspects, the results of operations and cash flows for the year
ended January 3, 1998 in conformity with generally accepted
accounting principles of Utopia Marketing, Inc. (formerly Sam &
Libby, Inc.).
MICHAEL, ADEST & BLUMENKRANTZ
New York, New York
March 31, 1998
<PAGE> 18
UTOPIA MARKETING, INC.
Balance Sheet
January 2, 1999
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalent $ 1,942
Prepaid expenses and other 68
Total current assets $ 2,010
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 40
Due to affiliate 46
Total current liabilities 86
Commitments, Contingencies, Subsequent Event
and Other Matters
Stockholders' Equity:
Preferred stock $.001 par value,
5,000,000 shares authorized; none
issued and outstanding
Common stock, $.001 par value,
45,000,000 shares authorized;
14,216,367 shares issued and
outstanding 14
Additional paid-in capital 32,947
Accumulated Deficit (31,037)
Total stockholders' equity 1,924
Total Liabilities and Stockholders' Equity $ 2,010
See notes to financial statements
<PAGE> 19
UTOPIA MARKETING, INC.
Statements of Operations
Years Ended January 2, 1999 and January 3, 1998
(In thousands except per share data)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenues: - 129
------ ------
Costs and Expenses:
Direct costs - 58
Selling, general and administrative 571 966
------ ------
571 1,024
------ ------
Loss from Operations (571) (895)
------ ------
Other Income:
Interest 122 109
------ ------
Net Loss $ (449) $ (786)
------ ------
Loss Per Common Share $(0.03) $(0.06)
------ ------
Weighted Average Shares Outstanding 14,216 13,866
------ ------
</TABLE>
See notes to financial statements
<PAGE> 20
UTOPIA MARKETING, INC.
Statements of Stockholder Equity
Years Ended January 2, 1999 and January 3, 1998
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional
Paid-In
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance, December 28, 1996 13,741 $ 14 $ 32,943 $(29,777) $ 3,180
Year Ended January 3, 1998:
Write-off of foreign subsidiary - - - ( 25) ( 25)
Issuance of common stock related
to exercise of employee stock
options 400 - 4 - 4
Issuance of common stock for
services 75 - - - -
Net loss - - - ( 786) ( 786)
------ ------ -------- -------- --------
Balance, January 3, 1998 14,216 14 32,947 (30,588) 2,373
Year Ended January 2, 1999
Net loss - - - ( 449) ( 449)
------ ------ -------- -------- --------
Balance, January 2, 1999 14,216 $ 14 $ 32,947 $(31,037) $ 1,924
====== ====== ======== ======== ========
</TABLE>
See notes to financial statements
<PAGE> 21
UTOPIA MARKETING, INC.
Statements of Cash Flows
Years Ended January 2, 1999 and January 3, 1998
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $( 449) $( 786)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Changes in operating assets and liabilities:
(Increase) decrease in
Accounts receivable 25 254
Merchandise inventories - 36
Due to/from factor - 107
Prepaid expense and other ( 54) 31
Increase (decrease) in:
Accounts payable and accrued liabilities 31 ( 102)
------- -------
Net cash provided (used) by operating
activities ( 447) ( 460)
------- -------
Cash Flows from Financing Activities
Repayment of long-term obligations - ( 7)
Proceeds from issuance of common stock - 4
------- -------
Net cash (used) provided by financing
activities - ( 3)
------- -------
Net Increase in Cash and Cash Equivalents ( 447) ( 463)
Cash and Cash Equivalents, Beginning 2,389 2,852
------- -------
Cash and Cash Equivalents, Ending $ 1,942 $ 2,389
------- -------
</TABLE>
See notes to financial statements
<PAGE> 22
UTOPIA MARKETING, INC.
Notes to Financial Statements
January 2, 1999 and January 3, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
In December 1998, the Company finalized plans to begin
designing, developing and marketing women's footwear under
the trademark NAKED/FEETTM. Up until that decision, the
Company was inactive following a sale in July 1996 of all
of the Company's trademarks, trade names, and intellectual
property. During early 1997, the Company disposed of all
merchandise inventories remaining from previous operations.
On June 16, 1998, Utopia Marketing, Inc., a Florida
corporation was incorporated as a wholly-owned subsidiary
of Utopia Marketing, Inc., a California corporation. On
July 30, 1998, an agreement and plan of merger was entered
into by the two companies, whereby the Florida corporation
was the surviving corporation. Each share of the
California corporation common stock was exchanged for one
share of the Florida corporation common stock, and the
California corporation ceased to exist.
The Company's Articles of Incorporation authorize the
Company to issue and have outstanding at any one time
45,000,000 shares of common stock with a par value of
$0.001 and 5,000,000 shares of preferred stock with a par
value of $0.001. The Board of Directors is authorized to
fix the rights, preferences, and privileges of the
preferred stock.
The Company has a 52/53 week fiscal year ending on the
Saturday closest to December 31 of each year.
The Company had three wholly-owned subsidiaries all of
which were liquidated during 1997.
All significant intercompany balances and transactions have
been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments
with original maturities of three months or less to be cash
equivalents.
<PAGE> 23
Concentration of Credit Risk
Financial instruments that potentially subject the Company
to concentrations of credit risk are cash and cash
equivalents.
From time to time during the year, the Company had deposits
in financial institutions in excess of the federally
insured limits. At December 31, 1998, the Company had
deposits in excess of federally insured limits of
approximately $1,935,000. The Company maintains its cash
with high quality financial institutions which the Company
believes limits these risks.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period.
Although these estimates are based on management's
knowledge of current events and actions it may undertake in
the future, they may ultimately differ from actual results.
Revenue Recognition
Revenue from the sale of merchandise and private label
commissions will be recognized upon shipment to the
customer, net of returns and allowances.
Stock-Based Compensation
The Company accounts for stock-based, compensation using
the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employee". Compensatory cost of stock options,
if any, is measured as the excess of the estimated market
price of the Company's common stock at the date of grant,
over the amount the recipient must pay to acquire the
common stock.
Statement or Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation, established
accounting and disclosure requirements using a fair-value-
based method of accounting for stock-based employee
compensation plans. The Company has elected to retain its
current method of accounting as described above, and has
adopted the disclosure requirements of SFAS No. 123.
<PAGE> 24
Advertising Costs
Advertising costs are expense as incurred. Advertising
costs incurred for the years ended January 2, 1999 and
January 3, 1998 are approximately $48,000 and $0,
respectively
Income Taxes
The Company accounts for its income taxes using SFAS No.
109. Accounting for Income Taxes, which requires the
recognition of deferred tax liabilities and assets for
expected future tax consequences of events that have been
included in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are
determined based on the difference between the financial
statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the
differences are expected to reverse.
Fair Value of Financial Instruments
The respective carrying value of certain on-balance-sheet
financial instruments approximated their fair value. These
instruments include cash and cash equivalents. Fair values
were assumed to approximate carrying values for these
financial instruments since they are short-term in nature
and their carrying amounts approximate fair values or they
are receivable or payable on demand.
Net Loss Per Common Share
In 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share",
which provided for the calculation of basic and diluted
earnings per share.
Basic net loss per share is computed by dividing income
available to common stockholders by the weighted average
number of common shares outstanding for the period.
Diluted earnings per share assumes exercising options and
warrants granted. Diluted net loss for fiscal years 1998
and 1997 is not presented, as the effect of the conversion
is anti-dilutive.
The weighted average number of common shares outstanding
(in thousands) during the years were as follows:
January 2, 1999 14,216
January 3, 1998 13,866
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board
issued SFAS No. 130, "Reporting Comprehensive Income" and
No. 131, "Disclosures About Segments of an Enterprise and
<PAGE> 25
Related Information." SFAS No. 130 establishes standards
for reporting and displaying comprehensive income, its
components, and accumulated balances. SFAS No. 131
establishes standards for the way that public companies
report information about operating segments in annual
financial statements and requires reporting of selected
information about operating segments in interim financial
statements issued to the public. Both SFAS No. 130 and
SFAS No. 131 are effective for periods beginning after
December 15, 1997. The Company adopted these new
accounting standards in 1998, and their adoption had no
effect on the Company's financial statements and
disclosures.
In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 requires companies
to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at
fair value. If certain conditions are met, a derivative
may be specifically designated as a hedge, the objective of
which is to match the timing of the gain or loss
recognition on the hedging derivative with the recognition
of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction.
For a derivative not designated as a hedging instrument,
the gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999.
Historically, the Company has not entered into derivatives
contracts to hedge existing risks or for speculative
purposes. Accordingly, the Company does not expect
adoptions of the new standard on January 1, 2000 to affect
its financial statements.
Reclassifications
Certain reclassifications have been made to the 1997
consolidated financial statements to conform to the 1998
presentation.
NOTE 2. LIQUIDITY
As discussed above, the Company is developing its first brand
in over two years. Management has significant experience in the
footwear industry and, in fact, up through July of 1996, the
Company operated in the footwear industry. Successful operations
in the future will depend on management's ability to secure
trade credit, short-term financing or equity financing to
allow the Company to achieve its business plan. The
eventual outcome and success of management's plans in this
regard cannot be ascertained with any degree of certainty.
<PAGE> 26
NOTE 3. INCOME TAXES
The following table reconciles the income tax provision
(benefit) at the U.S. Statutory rate to that in the
financial statements:
<TABLE>
<CAPTION>
1998 1997
(in thousands) (in thousands)
<S> <C> <C>
Federal benefit computed at 34% $( 154) $( 267)
State benefit, net of federal benefit ( 25) ( 47)
Valuation allowance 179 314
------- -------
Income tax provision (benefit) $ - $ -
======= =======
</TABLE>
The net tax effects of temporary differences between the
carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax
purposes are reflected in deferred income taxes.
Significant components of the Company's deferred tax assets
as of January 2, 1999 and January 3, 1998 are as follows,
respectively:
<TABLE>
<CAPTION>
1998 1997
(in thousands) (in thousands)
<S> <C> <C>
Benefit of net operating loss
carryforwards $ 8,700 $ 8,521
Less valuation allowance 8,700 8,521
------- -------
Net deferred tax asset $ - $ -
======= =======
</TABLE>
At January 2, 1999, the Company had a net operating loss
carryforward for federal income tax purposes of
approximately $23,480,000, which is available to offset
future federal taxable income, if any, through 2018.
As of January 2, 1999, sufficient uncertainty exists
regarding the realizability of the full amount of the net
operating loss carryforward and accordingly, a valuation of
$8,700,000 has been established.
The valuation allowance for deferred tax assets as of
January 2, 1999 and January 3, 1998 was $8,700,000 and
$8,521,000, respectively. The net change in valuation
allowance for the years ended January 2, 1999 and
January 3, 1998 was an increase of $179,000 and a decrease
of $712,000, respectively.
<PAGE> 27
NOTE 4. COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS
Stock Option Plan
In September 1991, the Board of Directors approved the 1991
Stock Option Plan (the "1991 Plan"), which allows for the
grant of incentive stock options (as defined in Section 422
of the Internal Revenue Code) to employees and nonstatutory
stock options to both employees and outside Directors. The
Board of Directors has reserved 1,500,000 shares of common
stock for issuance under the 1991 Plan. Stock options
intended to qualify as incentive stock options under
Section 422 of the Internal Revenue Code are granted to
employees at prices not less than the fair market value of
the common stock on the date of grant. The 1991 Plan
permits and the Company has granted, from time to time,
non-statutory stock options as exercise prices less than
the fair market value of the common stock on the date of
grant. The 1991 Plan specifies that the Company's outside
Directors are to receive a stock option grant of 5,000
shares on the date first elected to the Board and an
additional 5,000 shares each year thereafter. Such options
are granted at the fair market value of the common stock on
the date of grant, vested over four years, and are
exercisable only while the outside Director remains a
Director.
The 1991 Plan also permits the Company to grant rights to
purchase common stock at a price which is least 50% of the
fair market value of the common stock on the date of grant.
The offer of a right must be accepted within six months of
its grant by the execution of a restricted stock purchase
agreement between the Company and the offeree and the
payment of the purchase price of the shares. Activity for
the 1991 Plan for years ended January 3, 1998 and
January 2, 1999 was as follows:
<TABLE>
<CAPTION>
Shares Prices
<S> <C> <C>
Outstanding, December 28, 1996 594,500 $.25-$22.25
Options exercised (480,000) $.01-$.25
Options canceled (194,500) $.01-$.25
Outstanding, January 3, 1998
Options granted 150,000 $.10
Outstanding, January 2, 1999 150,000 $.10
</TABLE>
Employment Agreements
During 1998, the Company entered into an employment
agreement, which expires on January 1, 2001. The agreement
provides, among other things, for an annual salary of
approximately $80,000, 150,000 stock options, which vest
50,000 per year beginning June 1999, expense
reimbursements, a bonus up to 10% of salary based on annual
sales of the Company in fiscal year 1999 and 2000,
severance pay, and a covenant not to compete.
<PAGE> 28
Independent Agent Agreements
In March 1999, the Company entered into four independent
agent agreements in connection with the sale of its
products. These non-exclusive agreements which are for a
term of up to two years with an option to renew, provide,
among other things, for a draw against commissions earned,
commissions of up to 5% and options to purchase up to
300,000 shares of Company common stock for $.35 per share.
Operating Leases
The Company has entered into an agreement to lease its
facilities from January 1, 1999 until March 31, 2002, which
requires monthly payments of approximately $5,000. In
addition, the Company is responsible for all taxes,
insurance, maintenance and utilities relating to the
facilities.
In March 1999, the Company entered into an agreement to
lease certain office equipment.
Minimum future lease payments on these leases are as
follows:
Year Ending:
January 1, 2000 $ 35,000
December 30, 2000 68,000
December 29, 2001 71,000
January 4, 2002 17,000
--------
Total $191,000
========
Rent expense was approximately $11,000 and $14,000 for the
year ended January 2, 1999 and January 3, 1998,
respectively.
Other Commitments
In March 1999, the Company purchased a new computer
software program, Footworks, at a cost of approximately
$50,000. This software is specifically designed for the
footwear distribution business.
The Company anticipates distribution of its fall line in
certain retail stores in August 1999. Customer purchase-
orders from retailers, to date, total approximately
$675,000. The Company has placed several purchase orders
totaling approximately $1,513,000, with manufacturers in
Brazil and Italy for footwear production.
<PAGE> 29
Due to Affiliate
An affiliated company has advanced certain operating costs
and expenses incurred by the Company. Subsequent to year
end, the total amount owed to this affiliate, approximately
$46,000, was paid in full.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Effective as of March 15, 1999, the Board of Directors of
Utopia Marketing, Inc. (the "Company") determined that Michael,
Adest & Blumenkrantz (the "Former Accountant") would not continue
to serve as the Company's independent public accounting firm.
Effective as of such date, the Board of Directors also engaged
Rachlin, Cohen & Holtz to audit the Company's financial statements
for the fiscal year ended January 2, 1999 and to serve as the
Company's independent public accounting firm for its next fiscal
year.
The Former Accountant's report on the financial statements
of the Company for the fiscal year ended January 3, 1998 did not
contain an adverse opinion or a disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope, or accounting
principles. During the Company's fiscal year ended January 2,
1999, and during the period January 3, 1999 through March 15, 1999,
there were no disagreements between the Company and its Former
Accountant on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure
which, if not resolved to the satisfaction of the Former
Accountant, would have caused the Former Accountant to refer to the
subject matter of the disagreement in connection with the report.
During the Company's fiscal year ended January 2, 1999, and during
the period January 3, 1999 through March 15, 1999: (i) the Former
Accountant did not advise the Company of the lack of internal
controls necessary to develop reliable financial statements; (ii)
the Former Accountant did not advise the Company that it could no
longer rely on representations of the Company's management or that
it was unwilling be associated with the financial statements
prepared by the Company's management; (iii) the Former Accountant
did not advise the Company of the need to significantly expand the
scope of its audit or of the existence of information that if
further investigated could materially impact the fairness or
reliability of audited reports or financial statements or cause the
accountant to be unable to rely on management's representation; and
(iv) the Former Accountant did not advise the Company of
information that, in the opinion of the Former Accountant,
materially impacted the fairness or reliability of a previously
issued audit report or underlying financial statement.
<PAGE> 30
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and
their ages as of January 2, 1999, are as follows:
Name Age Position
Samuel L. Edelman 46 Chairman of the Board,
President and Chief
Executive Officer
Louise B. Edelman 45 Director, Executive
Vice-President of
Corporate Development
and Secretary
Joel Solomon 52 Director
Bruce Oberfest 52 Director
Joe Wascura 51 Chief Financial Officer
Samuel L. Edelman, a co-founder of the Company, has since
the Company's inception served as the Chairman of the Board,
President and Chief Executive Officer of the Company. From April
1983 to July 1987, Mr. Edelman served as the President of the
Esprit Footwear Division of Esprit De Corp., an apparel and
footwear company ("Esprit"). Prior to April 1983, Mr. Edelman
occupied various executive positions, including Executive Vice
President of Kenneth Cole Productions, a footwear company.
Louise B. Edelman, a co-founder of the Company, served as
Senior Vice President -- Image from the Company's founding until
the second quarter of 1992. At the time, Ms. Edelman was promoted
to Executive Vice President -- Corporate Development. Prior to
October 1987, Ms. Edelman held various positions, including
National Sales Manager for Esprit Kids Shoes, Director of Public
Relations for Calvin Klein Ltd., a fashion company, and Senior
Fashion Editor of Seventeen, Mademoiselle and Harper's Bazaar
magazines. Ms. Edelman has served as a Director of the Company
since its founding.
Joel Solomon has served as a director of the Company since
March 20, 1998. For more than five years prior to 1996 Mr. Solomon
was the President, a director and principal shareholder of San
Francisco Shoe Works, Inc., an importer of lady's and children's
footwear and accessories to the United States for Esprit Shoes &
Accessories Far East, Ltd., of which he was a managing director for
more than five years.
Bruce Oberfest has been a Certified Public Accountant and
principal owner of the accounting and consulting firm of Bruce D.
Oberfest & Associates for more than the past five years. Mr.
Oberfest was elected as a director of the Company on October 6,
1997.
<PAGE> 31
Joe Wascura has served as the Company's Chief Financial
Officer since January 1, 1999. Prior to joining the Company, Mr.
Wascura served as Chief Financial Officer and a director of A.
Marinelli Shoes and Accessories from 1994 through 1998. Prior to
1994, Mr. Wascura served as the Chief Financial Officer of Unisa
Holding Company.
With the exception of Sam Edelman and Libby Edelman, who
are married to each other, there is no family relationship among
directors or executive officers of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the
"Exchange Act") requires the Company's directors and executive
officers, and persons who beneficially own more than ten percent of
a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission (the "Commission") initial
reports of beneficial ownership and reports of changes in
beneficial ownership of the Company's Common Stock. The rules
promulgated by the Commission under Section 16(a) of the Exchange
Act require those persons to furnish the Company with copies of all
reports filed with the Commission pursuant to Section 16(a).
Based solely upon a review of Forms 3, Forms 4, and Forms
5 during the year ended January 2, 1999, all directors, executive
officers and greater-than-ten-percent beneficial owners have filed
with the Commission on a timely basis all reports required to be
filed under Section 16(a) of the Exchange Act.
<PAGE> 32
ITEM 10. EXECUTIVE COMPENSATION
The following table summarizes the compensation during the fiscal
years ended January 2, 1999; January 3, 1998 and December 28, 1996, earned by
the Company's Chief Executive Officer.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long Term Compensation
Awards Payouts
Other Securities All
Annual Restricted Underlying Other
Name & Annual Compen- Stock Options/ LTIP Compen-
Principal Position Year Salary($)(1) Bonus($) sation($) Award(s)($) SARs(#) Payouts($) sation($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Samuel L. Edelman
President & CEO 1998 0 - - - - - -
1997 0 - - - - - -
1996 $198,077 - - - - - -
</TABLE>
(1) Mr. Edelman has not received a salary since 1996 in connection with his
efforts on behalf of the Company. The Company anticipates that Mr. Edelman
will receive a salary retroactive to January 3, 1999, but the amount of such
salary has not yet been determined by the Board of Directors.
Compensation of Directors
The Company is authorized to compensate each non-employee director
$10,000 per year and $500 for attendance at each meeting of the Board of
Directors. The Company reimburses all directors for out-of-pocket expenses
incurred in connection with attending meetings of the Board of Directors.
Each outside director of the Company is entitled to receive an option to
purchase 5,000 shares of Common Stock upon election to the Board and an
option to purchase 5,000 shares on each director's anniversary date.
Employment Agreements
The Company has no employment agreements with any of its executive
officers.
Stock Option Plan
In September 1991, the Board of Directors approved the 1991 Stock
Option Plan (the "1991 Plan"), which allows for the grant of incentive stock
options (as defined in Section 422 of the Internal Revenue Code) to employees
and nonstatutory stock options to both employees and outside Directors. The
Board of Directors has reserved 1,500,000 shares of common stock for issuance
under the 1991 Plan. Stock options intended to qualify as incentive stock
options under Section 422 of the Internal Revenue Code are granted to
employees at prices not less than the fair market value of the common stock
on the date of grant. The 1991 Plan permits and the Company has granted,
from time to time, non-statutory stock options as exercise prices less than
the fair market value of the common stock on the date of grant. The 1991
<PAGE> 33
Plan specifies that the Company's outside Directors are to receive a stock
option grant of 5,000 shares on the date first elected to the Board and an
additional 5,000 shares each year thereafter. Such options are granted at
the fair market value of the common stock on the date of grant, vested over
four years, and are exercisable only while the outside Director remains a
Director. The 1991 Plan also permits the Company to grant rights to purchase
common stock at a price which is least 50% of the fair market value of the
common stock on the date of grant. The offer of a right must be accepted
within six months of its grant by the execution of a restricted stock
purchase agreement between the Company and the offeree and the payment of the
purchase price of the shares.
<PAGE> 34
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of shares of the Company's common stock as of January 2,
1999 by: (i) each director of the Company; (ii) each executive officer of the
Company; (iii) each person that is known by the Company to beneficially own
more than 5% of the outstanding shares of the Company's capital stock; and
(iv) all directors and executive officers of the Company as a group. Except
as noted, the shareholders named below have sole voting and investment power
with respect to the shares shown as beneficially owned by them, and have the
same address as the Company.
<TABLE>
<CAPTION>
Number of Shares Percent
Name and Address of Beneficial Owner Beneficially Owned of Class
<S> <C> <C>
Samuel L. Edelman (1) 5,459,482 38%
Louise B. Edelman (2) 5,459,482 38%
Joel Solomon 710,000 4.9%
Bruce Oberfest _ _
Joe Wascura _ -
Lane International Trading, Inc. 1,358,608 9.6%
31284 San Antonio Street
Hayward, CA 94544
Braha Industries, Inc. 1,339,260 9.4%
1 East 33rd Street
New York, NY 10016
Stuart Kreisler 1,165,500 8%
All Directors and Executive
Officers as a Group (5 persons) 6,169,482 43%
</TABLE>
(1) Includes 2,538,250 shares owned by Louise B. Edelman over which Mr.
Edelman shares control, and 400,160 shares owned by Mr. Edelman's
relatives.
(2) Includes 2,521,072 shares owned by Samuel L. Edelman over which Ms.
Edelman shares control, and 400,160 shares owned by Ms. Edelman's
relatives.
<PAGE> 35
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) The Financial Statements filed as part of this report are listed
separately in the Index to Financial Statements beginning on page 16 of
this report.
(2) The following exhibits are filed herewith:
Exhibit
Number Description
3.1 Articles of Incorporation of the Company
3.2 By-Laws of the Company
4.1 See Exhibits 3.1 and 3.2 for provisions of the Articles
of Incorporation and Bylaws of the Company defining the
rights of holders of Common Stock of the Company
10.1 1991 Stock Option Plan.
23.1 Consent of Rachlin Cohen & Holtz LLP
23.2 Consent of Michael Adest & Blumenkrantz
24 Power of Attorney (Included on Signature Page)
27 Financial Data Schedule
(b) The Company did not file any Reports on Form 8-K during its last
fiscal quarter.
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(b) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
UTOPIA MARKETING, INC.
Date: April 16, 1999 By:/s/Samuel L. Edelman
Samuel L. Edelman
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Samuel L. Edelman and Joel Solomon
and each of them, his true and lawful attorney-in-fact and agents, with
full power of substitution and resubstitution for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
to this Report on Form 10-KSB, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact or his
substitute or substitutes, any lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the date indicated.
Signatures Title Date
/s/Samuel L. Edelman Chairman of the Board, President
Samuel L. Edelman and Chief Executive Officer
(Principal Executive and
Financial Officer) April 16, 1999
/s/Louise B. Edelman Executive Vice-President, Corporate
Louise B. Edelman Development and Secretary April 16, 1999
/s/Vance Kistler Principal Accounting Officer April 16, 1999
Vance Kistler
/s/Joel Solomon Director April 16, 1999
Joel Solomon
/s/Bruce Oberfest Director April 16, 1999
Bruce Oberfest
<PAGE> 37
EXHIBIT INDEX
Exhibit
Number Description
3.1 Articles of Incorporation of the Company
3.2 By-Laws of the Company.
10.1 1991 Stock Option Plan.
23.1 Consent of Rachlin Cohen & Holtz LLP
23.2 Consent of Michael Adest & Blumenkrantz
27 Financial Data Schedule
<PAGE> 38
ARTICLES OF INCORPORATION
OF
UTOPIA MARKETING, INC.
The undersigned, acting as incorporator of UTOPIA MARKETING,
INC. under the Florida Business Corporation Act, adopts the
following Articles of Incorporation.
ARTICLE I.
The name and street address of this corporation are UTOPIA
MARKETING, INC., 301 Climatis, Suite 205, West Palm Beach, Florida
33401.
ARTICLE II.
The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the laws
of the United States and Florida other than the banking business,
the trust company business or the practice of a profession
permitted to be incorporated by the State of Florida.
ARTICLE III.
This corporation is authorized to issue two classes of shares
to be designated respectively common Stock, par value $0.001 per
share, and Preferred Stock, par value $0.001 per share. The total
number of shares of Common Stock which this corporation shall have
authority to issue shall be 45,000,000 and the total number of
shares of Preferred Stock which this corporation shall have the
authority to issue shall be 5,000,000.
The Preferred Stock may be issued from time to time in one or
more series pursuant to a resolution or resolutions providing for
such issue duly adopted by the Board of Directors (authority to do
so being hereby expressly vested in the Board). The Board of
Directors is further authorized to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed upon
any wholly unissued series of Preferred Stock and to fix the number
of shares of any series of Preferred Stock and the designation of
any such series of Preferred Stock. The Board of Directors, within
the limits and restrictions stated in any resolution or resolutions
of the Board of Directors originally fixing the number of shares
constituting any series, may increase or decrease (but not below
the number of shares in any such series then outstanding) the
number of shares of any series subsequent to the issue of shares of
that series.
<PAGE> 1
ARTICLE IV.
1.Limitation of Directors' Liability. The liability of the
directors of the corporation for monetary damages shall be
eliminated to the fullest extent permissible under Florida law.
2.Indemnification of Corporate Agents. The corporation is
authorized to indemnify the directors and officers of the
corporation to the fullest extent permissible under Florida law.
3.Repeal or Modification. Any repeal or modification of
the foregoing provisions of this Article IV by the shareholders of
the corporation shall not adversely affect any right or protection
of a director of the corporation existing at the time of such
repeal or modification.
ARTICLE V.
The name and street address of the incorporator are Samuel L.
Edelman, 301 Climatis, Suite 205, West Palm Beach, Florida 33401.
The undersigned incorporator for the purpose of forming a
corporation under the laws of the State of Florida, has executed
these Articles of Incorporation this 15th day of June, 1998.
Samuel L. Edelman, Sole
Incorporator
<PAGE> 2
CERTIFICATE DESIGNATING PLACE OF BUSINESS OR DOMICILE
FOR THE SERVICE OF PROCESS WITHIN THIS STATE, NAMING
AGENT UPON WHOM PROCESS MAY BE SERVED.
Pursuant to Chapter 48.091, Florida Statutes, the following is
submitted:
That UTOPIA MARKETING, INC. desiring to organize under the
laws of the State of Florida with its initial registered office, as
indicated in the Articles of Incorporation, at 701 Brickell Ave.,
Suite 3000, Miami, Florida 33131 has named Intrastate Registered
Agent Corporation as its agent to accept service of process within
this state.
ACKNOWLEDGMENT:
Having been named to accept service of process for the
corporation named above, at the place designated in this
certificate, the undersigned agrees to act in that capacity, to
comply with the provisions of the Florida Business Corporation Act,
and is familiar with, and accepts, the obligations of that
position.
Dated this 15th day of June, 1998.
INTRASTATE REGISTERED AGENT
CORPORATION
By:
Steven H. Hagen, Vice President
BYLAWS
OF
UTOPIA MARKETING, INC.
ARTICLE I. MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the
shareholders of the Corporation for the election of directors and
the transaction of other business shall be held during the month of
April each year and on the date and at the time and place that the
board of directors determines. If any annual meeting is not held,
by oversight or otherwise, a special meeting shall be held as soon
as practical, and any business transacted or election held at that
meeting shall be as valid as if transacted or held at the annual
meeting.
Section 2. Special Meetings. Special meetings of the
shareholders for any purpose shall be held when called by the
president or the board of directors, or when demanded in writing by
the holders of not less than ten percent (unless a greater
percentage not to exceed fifty percent is required by the articles
of incorporation) of all the shares entitled to vote at the
meeting. Such demand must be delivered to the Corporation's
secretary. A meeting demanded by shareholders shall be called for
a date not less than ten nor more than sixty days after the request
is made, unless the shareholders requesting the meeting designate
a later date. The secretary shall issue the call for the meeting,
unless the president, the board of directors, or shareholders
requesting the meeting designate another person to do so. The
shareholders at a special meeting may transact only business that
is related to the purposes stated in the notice of the special
meeting.
Section 3. Place. Meetings of shareholders may be held
either within or outside the State of Florida.
Section 4. Notice. A written notice of each meeting of
shareholders, stating the place, day, and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered to each shareholder of
record entitled to vote at the meeting, not less than ten nor more
than sixty days before the date set for the meeting, either
personally or by first-class mail, by or at the direction of the
president, the secretary, or the officer or other persons calling
the meeting. If mailed, the notice shall be considered delivered
when it is deposited in the United States mail, postage prepaid,
addressed to the shareholder at his address as it appears on the
records of the Corporation.
Section 5. Waivers of Notice. Whenever any notice is
required to be given to any shareholder of the Corporation under
these bylaws, the articles of incorporation, or the Florida
Business Corporation Act, a written waiver of notice, signed
anytime by the person entitled to notice shall be equivalent to
giving notice. Attendance by a shareholder entitled to vote at a
meeting, in person or by proxy, shall constitute a waiver of
(a) notice of the meeting, except when the shareholder attends a
meeting solely for the purpose, expressed at the beginning of the
meeting, of objecting to the transaction of any business because
the meeting is not lawfully called or convened, and (b) an
<PAGE>
objection to consideration of a particular matter at the meeting
that is not within the purpose of the meeting unless the sharehold-
ers object to considering the matter when it is presented.
Section 6. Record Date. For the purpose of determining
the shareholders for any purpose, the board of directors may either
require the stock transfer books to be closed for up to seventy
days or fix a record date, which shall be not more than seventy
days before the date on which the action requiring the determina-
tion is to be taken. However, a record date shall not precede the
date upon which the resolution fixing the record date is adopted.
If the transfer books are not closed and no record date is set by
the board of directors, the record date shall be determined as
follows: For determining shareholders entitled to demand a special
meeting, the record date is the date the first such demand is
delivered to the Corporation; For determining shareholders entitled
to a share dividend, the record date is the date the board of
directors authorizes the dividend; If no prior action is required
by the board of directors pursuant to the Florida Business
Corporation Act, the record date for determining shareholders
entitled to take action without a meeting is the date the first
signed written consent is delivered to the Corporation; If prior
action is required by the board of directors pursuant to the
Florida Business Corporation Act, the record date for determining
shareholders entitled to take action without a meeting is at the
close of business on the day that the board of directors adopts a
resolution taking such prior action; and For determining sharehold-
ers entitled to notice of and to vote at an annual or special
shareholders meeting the record date is as of the close of business
on the day before the first notice is delivered to the sharehold-
ers. When a determination of the shareholders entitled to vote at
any meeting has been made, that determination shall apply to any
adjournment of the meeting, unless the board of directors fixes a
new record date. The board of directors shall fix a new record
date if the meeting is adjourned to a date more than 120 days after
the date fixed for the original meeting.
Section 7. Shareholder's List for Meeting. A complete
alphabetical list of the names of the shareholders entitled to
receive notice of and to vote at the meeting shall be prepared by
the secretary or other authorized agent having charge of the stock
transfer book. The list shall be arranged by voting group and
include each shareholder's address, and the number, series, and
class of shares held. The list must be made available at least ten
days before and throughout each meeting of shareholders, or such
shorter time as exists between the record date and the meeting.
The list must be made available at the Corporation's principal
office, registered agent's office, transfer agent's office or at a
place identified in the meeting notice in the city where the
meeting will be held. Any shareholder, his agent or attorney, upon
written demand and at his own expense may inspect the list during
regular business hours. The list shall be available at the meeting
and any shareholder, his agent or attorney is entitled to inspect
the list at any time during the meeting or its adjournment.
If the requirements of this section have not been
substantially complied with, the meeting, on the demand of any
shareholder in person or by proxy, shall be adjourned until the
requirements of this section are met. If no demand for adjournment
is made, failure to comply with the requirements of this section
<PAGE> 2
does not affect the validity of any action taken at the meeting.
Section 8. Shareholder Quorum and Voting. A majority of
the shares entitled to vote, represented in person (whether by
conference or telephone) or by proxy, constitutes a quorum at a
meeting of shareholders. If a quorum is present, the affirmative
vote of a majority of the shares entitled to vote on the matter is
the act of the shareholders unless otherwise provided by law. A
shareholder may vote either in person or by proxy executed in
writing by the shareholder or his duly authorized attorney-in-fact.
After a quorum has been established at a shareholders' meeting, a
withdrawal of shareholders that reduces the number of shareholders
entitled to vote at the meeting below the number required for a
quorum does not affect the validity of an adjournment of the
meeting or an action taken at the meeting prior to the sharehold
ers' withdrawal. Presence at a meeting for the purposes of
determining a quorum and voting may be in person (which shall
include presence by electronic means such as video conferencing,
telephone or any other electronic media wherein all shareholders
participating may simultaneously hear each other) or by proxy.
Authorized but unissued shares including those redeemed
or otherwise reacquired by the corporation, and shares of stock of
this Corporation owned by another corporation the majority of the
voting stock of which is owned or controlled by this Corporation,
directly or indirectly, at any meeting shall not be counted in
determining the total number of outstanding shares at any time.
The chairman of the board, the president, any vice president, the
secretary, and the treasurer of a corporate shareholder are
presumed to possess, in that order, authority to vote shares
standing in the name of a corporate shareholder, absent a bylaw or
other instrument of the corporate shareholder designating some
other officer, agent, or proxy to vote the shares. Shares held by
an administrator, executor, guardian, or conservator may be voted
by him without a transfer of the shares into his name. A trustee
may vote shares standing in his name, but no trustee may vote
shares that are not transferred into his name. If he is authorized
to do so by an appropriate order of the court by which he was
appointed, a receiver may vote shares standing in his name or held
by or under his control, without transferring the shares into his
name. A shareholder whose shares are pledged may vote the shares
until the shares have been transferred into the name of the
pledgee, and thereafter the pledgee or his nominee shall be
entitled to vote the shares unless the instrument creating the
pledge provides otherwise.
ARTICLE II. DIRECTORS
Section 1. Function. The business of this Corporation
shall be managed and its corporate powers exercised by the board of
directors.
Section 2. Number. The Corporation shall have four (4)
directors initially. The number of directors may be increased or
diminished from time to time by action of the board of directors or
shareholders, but no decrease shall have the effect of shortening
the term of any incumbent director, unless the shareholders remove
the director.
<PAGE> 3
Section 3. Qualification. Each member of the board of
directors must be a natural person who is eighteen years of age or
older. A director need not be a resident of Florida or a share-
holder of the Corporation.
Section 4. Election and Term. The persons named in the
articles of incorporation as members of the initial board of
directors shall hold office until the first annual meeting of
shareholders and until their successors have been elected and
qualified or until their earlier resignation, removal from office,
or death. At the first annual meeting of shareholders and at each
annual meeting thereafter the shareholders shall elect directors to
hold office until the next succeeding annual meeting. Each
director shall hold office for the term for which he is elected and
until his successor is elected and qualifies or until his earlier
resignation, removal from office, or death.
Section 5. Compensation. The board of directors has
authority to fix the compensation of the directors, as directors
and as officers.
Section 6. Duties of Directors. A director shall
perform his duties as a director, including his duties as a member
of any committee of the board upon which he serves, in good faith,
in a manner he reasonably believes to be in the best interests of
the Corporation.
Section 7. Presumption of Assent. A director of the
Corporation who is present at a meeting of the board of directors
or a committee of the board of directors when corporate action is
taken is presumed to have assented to the action unless he votes
against it or expressly abstains from voting on the action taken,
or, he objects at the beginning of the meeting to the holding of
the meeting or transacting specific business at the meeting.
Section 8. Vacancies. Unless filled by the share-
holders, any vacancy occurring in the board of directors, including
any vacancy created because of an increase in the number of direc-
tors, may be filled by the affirmative vote of a majority of the
remaining directors, even if the number of remaining directors does
not constitute a quorum of the board of directors. A director
elected to fill a vacancy shall hold office only until the next
election of directors by the shareholders.
Section 9. Removal or Resignation of Directors. At a
meeting of shareholders called for that purpose, the shareholders,
by a vote of the holders of a majority of the shares entitled to
vote at an election of directors, may remove any director, or the
entire board of directors, with or without cause, and fill any
vacancy or vacancies created by the removal.
A director may resign at any time by delivering written
notice to the board of directors or its chairman or the corpora-
tion. A resignation is effective when the notice is delivered
unless the notice specifies later effective date. If a resignation
is made effective at a later date, the board of directors may fill
the pending vacancy before the effective date if the board of
directors provided that the successor does not take office until
the effective date.
<PAGE> 4
Section 10. Quorum and Voting. A majority of the board
of directors constitutes a quorum for the transaction of business.
The act of the majority of the directors at a meeting at which a
quorum is present (whether by telephone or conference) is the act
of the board of directors. Presence at a meeting for the purposes
of determining a quorum and voting shall be in person (which shall
include presence by electronic means such as video conferencing,
telephone or any other electronic media wherein all directors
participating may simultaneously hear each other).
Section 11. Place of Meetings. Regular and special
meetings by the board of directors may be held within or outside
the State of Florida.
Section 12. Regular Meetings. A regular meeting of the
board of directors shall be held without notice, other than this
bylaw, immediately after and at the same place as the annual
meeting of shareholders. The board of directors may provide, by
resolution, the time and place for the holding of additional
regular meetings without notice other than the resolution.
Section 13. Special Meetings. Special meetings of the
board of directors may be called by or at the request of the
president or any directors.
Section 14. Notice of Meetings. Written notice of the
time and place of special meetings of the board of directors shall
be given to each director by either personal delivery or by first
class United States mail, telegram, or cablegram at least two days
before the meeting. Notice of a meeting of the board of directors
need not be given to any director who signs a waiver of notice
either before or after the meeting. Attendance of a director at a
meeting constitutes a waiver of notice of the meeting and all
objections to the time and place of the meeting, or the manner in
which it has been called or convened, except when the director
states, at the beginning of the meeting, or promptly upon arrival
at the meeting, any objection to the transaction of business
because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular
or special meeting of the board of directors need be specified in
the notice or waiver of notice of the meeting.
A majority of the directors present, whether or not a
quorum exists, may adjourn any meeting of the board of directors to
another time and place. Notice of any adjourned meeting shall be
given to the directors who were not present at the time of the
adjournment and, unless the time and place of the adjourned meeting
are announced at the time of the adjournment, to the other directors.
ARTICLE III. OFFICERS
Section 1. Officers. The officers of the Corporation
shall consist of a president and may include a secretary, and a
treasurer, one or more vice presidents, one or more assistant
secretaries, and one or more assistant treasurers. The officers
shall be elected initially by the board of directors at the
organizational meeting of board of directors and thereafter at the
<PAGE> 5
first meeting of the board following the annual meeting of the
shareholders in each year. The board from time to time may elect
or appoint other officers, assistant officers, and agents, who
shall have the authority and perform the duties prescribed by the
board. An elected or duly appointed officer may, in turn, appoint
one or more officers or assistant officers, unless the board of
directors disapproves or rejects the appointment. All officers
shall hold office until their successors have been appointed and
have qualified or until their earlier resignation, removal from
office, or death. One person may simultaneously hold any two or
more offices. The failure to elect a president, secretary, or
treasurer shall not affect the existence of the Corporation.
Section 2. President. The president, subject to the
directions of the board of directors, is responsible for the
general and active management of the business and affairs of the
Corporation, has the power to sign certificates of stock, bonds,
deeds, and contracts for the Corporation, and shall preside at all
meetings of the shareholders.
Section 3. Vice Presidents. Each vice president has the
power to sign bonds, deeds, and contracts for the Corporation and
shall have the other powers and perform the other duties prescribed
by the board of directors or the president. Unless the board
otherwise provides, if the president is absent or unable to act,
the vice president who has served in that capacity for the longest
time and who is present and able to act shall perform all the
duties and may exercise any of the powers of the president. Any
vice president may sign, with the secretary or assistant secretary,
certificates for stock of the Corporation.
Section 4. Secretary. The secretary shall have the
power to sign contracts and other instruments for the Corporation
and shall (a) keep the minutes of the proceedings of the sharehold-
ers and the board of directors in one or more books provided for
that purpose, (b) see that all notices are duly given in accordance
with the provisions of these bylaws or as required by law,
(c) maintain custody of the corporate records and the corporate
seal, attest the signatures of officers who execute documents on
behalf of the Corporation, authenticate records of the Corporation,
and assure that the seal is affixed to all documents of which
execution on behalf of the Corporation under its seal is duly
authorized, (d) keep a register of the post office address of each
shareholder that shall be furnished to the secretary by the
shareholder, (e) sign with the president, or a vice president,
certificates for shares of stock of the Corporation, the issuance
of which have been authorized by resolution of the board of
directors, (f) have general charge of the stock transfer books of
the Corporation, and (g) in general perform all duties incident to
the office of secretary and other duties as from time to time may
be prescribed by the president or the board of directors.
Section 5. Treasurer. The treasurer shall (a) have
charge and custody of and be responsible for all funds and
securities of the Corporation, (b) receive and give receipts for
monies due and payable to the Corporation from any source whatsoev-
er, and deposit monies in the name of the Corporation in the banks,
trust companies, or other depositaries as shall be selected by the
board of directors, and (c) in general perform all the duties
incident to the office of treasurer and other duties as from time
to time may be assigned to him by the president or the board of
<PAGE> 6
directors. If required by the board of directors, the treasurer
shall give a bond for the faithful discharge of his duties in the
sum and with the surety or sureties that the board of directors
determines.
Section 6. Removal of Officers. An officer or agent
elected or appointed by the board of directors or appointed by
another officer may be removed by the board whenever in its
judgment the removal of the officer or agent will serve the best
interests of the Corporation. Any officer or assistant officer, if
appointed by another officer, may likewise be removed by such
officer. Removal shall be without prejudice to any contract rights
of the person removed. The appointment of any person as an
officer, agent, or employee of the Corporation does not create any
contract rights. The board of directors may fill a vacancy,
however occurring, in any office.
An officer may resign at any time by delivering notice to
the corporation. A resignation is effective when the notice is
delivered unless the notice specifies a later effective date. If
a resignation is made effective at a later date, its board of
directors may fill the pending vacancy before the effective date if
the board of directors provides that the successor does not take
office until the effective date. An officer's resignation does not
affect the officer's contract rights, if any, with the corporation.
Section 7. Salaries. The board of directors from time
to time shall fix the salaries of the officers, and no officer
shall be prevented from receiving his salary merely because he is
also a director of the Corporation.
ARTICLE IV. INDEMNIFICATION
Any person, his heirs, or personal representative, made,
or threatened to be made, a party to any threatened, pending, or
completed action or proceeding, whether civil, criminal, adminis-
trative, or investigative, because he is or was a director,
officer, employee, or agent of this Corporation or serves or served
any other corporation or other enterprise in any capacity at the
request of this Corporation, shall be indemnified by this Corpora-
tion, and this Corporation may advance his related expenses to the
full extent permitted by Florida law. In discharging his duty, any
director, officer, employee, or agent, when acting in good faith,
may rely upon information, opinions, reports, or statements,
including financial statements and other financial data, in each
case prepared or presented by (1) one or more officers or employees
of the Corporation whom the director, officer, employee, or agent
reasonably believes to be reliable and competent in the matters
presented, (2) counsel, public accountants, or other persons as to
matters that the director, officer, employee, or agent believes to
be within that person's professional or expert competence, or
(3) in the case of a director, a committee of the board of
directors upon which he does not serve, duly designated according
to law, as to matters within its designated authority, if the
director reasonably believes that the committee is competent. The
foregoing right of indemnification or reimbursement shall not be
exclusive of other rights to which the person, his heirs, or
personal representatives may be entitled. The Corporation may,
<PAGE> 7
upon the affirmative vote of a majority of its board of directors,
purchase insurance for the purpose of indemnifying these persons.
The insurance may be for the benefit of all directors, officers, or
employees.
ARTICLE V. STOCK CERTIFICATES
Section 1. Issuance. Shares may but need not be
represented by certificates. The board of directors may authorize
the issuance of some or all of the shares of the Corporation of any
or all of its classes or series without certificates. If certifi-
cates are to be issued, the share must first be fully paid.
Section 2. Form. Certificates evidencing shares in this
Corporation shall be signed by the president or a vice president
and the secretary, assistant secretary or any other officer
authorized by the board of directors, and may be sealed with the
seal of this Corporation or a facsimile of the seal. Unless the
Corporation's stock is registered pursuant to every applicable
securities law, each certificate shall bear an appropriate legend
restricting the transfer of the shares evidenced by that certifi-
cate.
Section 3. Lost, Stolen, or Destroyed Certificates. The
Corporation may issue a new certificate in the place of any
certificate previously issued if the shareholder of record (a)
makes proof in affidavit form that the certificate has been lost,
destroyed, or wrongfully taken, (b) requests the issue of a new
certificate before the Corporation has notice that the certificate
has been acquired by the purchaser for value in good faith and
without notice of any adverse claim, (c) if requested by the
Corporation, gives bond in the form that the Corporation directs,
to indemnify the Corporation, the transfer agent, and the registrar
against any claim that may be made concerning the alleged loss,
destruction, or theft of a certificate, and (d) satisfies any other
reasonable requirements imposed by the Corporation.
Section 4. Restrictive Legend. Every certificate
evidencing shares that are restricted as to sale, disposition, or
other transfer shall bear a legend summarizing the restriction or
stating that the Corporation will furnish to any shareholder, upon
request and without charge, a full statement of the restriction.
ARTICLE VI. DIVIDENDS
The board of directors from time to time may declare, and
the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law.
<PAGE> 8
ARTICLE VII. SEAL
The corporate seal shall have the name of the Corporation
and the word "seal" inscribed on it, and may be a facsimile,
engraved, printed, or an impression seal.
ARTICLE VIII. AMENDMENT
These bylaws may be repealed or amended, and additional
bylaws may be adopted, by either a vote of a majority of the full
board of directors or by vote of the holders of a majority of the
issued and outstanding shares entitled to vote, but the board of
directors may not amend or repeal any bylaw adopted by the
shareholders if the shareholders specifically provide that the
bylaw is not subject to amendment or repeal by the directors. In
order to be effective, any amendment approved hereby must be in
writing and attached to these Bylaws.
SAM & LIBBY, INC.
1991 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option
Plan are:
o to attract and retain the best available personnel for
positions of substantial responsibility,
o to provide additional incentive to Employees, Consultants
and Outside Directors, and
o to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at
the time of grant. Stock Purchase Rights may also be granted under
the Plan. The Plan also provides for automatic grants of
Nonstatutory Stock Options to Outside Directors.
2. Definitions. As used herein, the following definitions
shall apply:
(a) "Administrator" means the Board or any of its
Committees as shall be administering the Plan, in accordance with
Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements
relating to the administration of stock option plans under state
corporate and securities laws and the Code.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means a Committee appointed by the Board
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the
Company.
(g) "Company" means Sam & Libby, Inc., a California
corporation.
(h) "Consultant" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services
and who is compensated for such services, provided that the term
"Consultant" shall not include Directors who are paid only a
director's fee by the Company or who are not compensated by the
Company for their services as Directors.
<PAGE>
(i) "Continuous Status as an Employee Consultant of
Director" means that the employment, consulting or Outside Director
relationship is not interrupted or terminated by the Company, any
Parent or Subsidiary. Continuous Status as an Employee, Consultant
or Director shall not be considered interrupted in the case of: (i)
any leave of absence approved by the Board, including sick leave,
military leave, or any other personal leave: provided, however,
that for purposes of Incentive Stock options, any such leave may
not exceed ninety (90) days, unless reemployment upon the
expiration of such leave is guaranteed by contract (including
certain Company policies) or statute; or (ii) transfers between
locations of the Company or between the Company, its Parent, its
Subsidiaries or its successor.
(j) "Director" means a member of the Board.
(k) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of
the Company. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(n) "Fair Market Value" means, as of any date, the value
of Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system, including
without limitation the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotation
("NASDAQ") System, the Fair Market Value of a Share of Common Stock
shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or
exchange (or the exchange with the greatest volume of trading in
Common Stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ
System (but not on the National Market System thereof) or is
regularly quoted by a recognized securities dealer but selling
prices are not reported, the Fair Market Value of a Share of Common
Stock shall be the mean between the high bid and high asked prices
for the Common Stock on the last market trading day prior to the
day of determination, as reported in the Wall Street Journal or
such other source as the Administrator deems reliable;
<PAGE> 2
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value shall be determined in good
faith by the Administrator.
(o) "Incentive Stock Option" means an option intended to
qualify as an incentive stock option within the meaning of Section
422 of the Code and the regulations promulgated thereunder.
(p) "Nonstatutory Stock Option" means an Option not
intended to qualify as an Incentive Stock Option.
(q) "Notice of Grant" means a written notice evidencing
certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option
Agreement.
(r) "Officer" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and
the rules and regulations promulgated thereunder.
(s) "Option" means a stock option granted pursuant to
the Plan.
(t) "Option Agreement" means a written agreement between
the Company and an Optionee evidencing the terms and conditions of
an individual Option grant. The Option Agreement is subject to the
terms and conditions of the Plan.
(u) "Optioned Stock" means the Common Stock subject to
an option or Stock Purchase Right.
(v) "Optionee" means an Employee or Consultant who holds
an outstanding Option or Stock Purchase Right.
(w) "Outside Director" shall mean a member of the Board
of Directors of the Company who is not an Employee or a Consultant.
(x) "Parent" means a "parent corporation", whether now
or hereafter existing, as defined in Section 424(e) of the Code.
(y) "Plan" means this Sam & Libby 1991 Stock Option
Plan.
(z) "Restricted Stock" means shares of Common Stock
acquired pursuant to a grant of Stock Purchase Rights under Section
11 below.
(aa) "Restricted Stock Purchase Agreement" means a
written agreement between the Company and the optionee evidencing
the terms and restrictions applying to stock purchased under a
Stock Purchase Right. The Restricted Stock Purchase Agreement is
subject to the terms and conditions of the Plan and the Notice of
Grant.
<PAGE> 3
(bb) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or
any successor to Rule 16b-3, as in effect when discretion is being
exercised with respect to the Plan.
(cc) "Share" means a share of the Common Stock, as
adjusted in accordance with Section 13 of the Plan.
(dd) "Stock Purchase Right" means the right to purchase
Common Stock pursuant to Section 11 of the Plan, as evidenced by a
Notice of Grant.
(ee) "Subsidiary" means a "subsidiary corporation",
whether now or hereafter existing, as defined in Section 424(f) of
the Code.
3. Stock Subject to the Plan. Subject to the provisions of
Section 13 of the Plan, the maximum aggregate number of Shares
which may be optioned and sold under the Plan is 500,000 Shares of
Common Stock. The Shares may be authorized, but unissued, or
reacquired Common Stock. However, should the Company reacquire
Shares which were issued pursuant to the exercise of an Option or
Stock Purchase Right, such Shares shall not become available for
future grant under the Plan.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, the
unpurchased Shares which were subject thereto shall become
available for future grant under the Plan (unless the Plan has
terminated).
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. If permitted
by Rule 16b-3, the Plan may be administered by different bodies
with respect to Directors, Officers who are not Directors, and
Employees who are neither Directors nor Officers.
(ii) Administration With Respect to Directors and
Officers Subject to Section 16(b). With respect to Option or Stock
Purchase Right grants made to Employees who are also Officers or
Directors subject to Section 16(b) of the Exchange Act, the Plan
shall be administered by (A) the Board, if the Board may administer
the Plan in compliance with the rules governing a plan intended to
qualify as a discretionary plan under Rule 16b-3, or (8) a
Committee designated by the Board to administer the Plan, which
Committee shall be constituted to comply with the rules governing
a plan intended to qualify as a discretionary plan under Rule
16b-3. Once appointed, such Committee shall continue to serve in
its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of the Committee and
<PAGE> 4
appoint additional members, remove members (with or without cause)
and substitute new members, fill vacancies (however caused), and
remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the rules
governing a plan intended to qualify as a discretionary plan under
Rule 16b-3.
(iii) Administration With Respect to Other
Persons. With respect to Option or Stock Purchase Right grants made
to Employees or Consultants who are neither Directors nor Officers
of the Company, the Plan shall be administered by (A) the Board or
(B) a Committee designated by the Board, which Committee shall be
constituted to satisfy Applicable Laws. Once appointed, such
Committee shall serve in its designated capacity until otherwise
directed by the Board. The Board may increase the size of the
Committee and appoint additional members, remove members (with or
without cause) and substitute new members, fill vacancies (however
caused), and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by
Applicable Laws.
(b) Powers of the Administrator. Subject to the
provisions of the Plan, and in the case of a Committee, subject to
the specific duties delegated by the Board to such Committee, the
Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the
Common Stock, in accordance with Section 2(n) of the Plan;
(ii) to select the Consultants and Employees to
whom Options and Stock Purchase Rights may be granted hereunder;
(iii) to determine whether and to what extent
options and Stock Purchase Rights or any combination thereof, are
granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each Option and Stock Purchase Right granted
hereunder;
(v) to approve forms of agreement for use under
the Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted
hereunder. Such terms and conditions may include, but are not
limited to, the exercise price, the time or times when Options or
Stock Purchase Rights may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of
Common Stock relating thereto, based in each case on such factors
as the Administrator, in its sole discretion, shall determine;
<PAGE> 5
(vii) to determine whether, to what extent and
under what circumstances Common Stock and other amounts payable
with respect to an award under this Plan shall be deferred either
automatically or at the election of the participant (including
providing for and determining the amount (if any) of any deemed
earnings on any deferred amount during any deferral period);
(viii) to reduce the exercise price of any Option
or Stock Purchase Right to the then current Fair Market Value if
the Fair Market Value of the Common Stock covered by such Option or
Stock Purchase Right shall have declined since the date the Option
was granted;
(ix) to construe and interpret the terms of the
Plan;
(x) to prescribe, amend and rescind rules and
regulations relating to the Plan;
(xi) to modify or amend each option or Stock
Purchase Right (subject to Section 15(c) of the Plan);
(xii) to authorize any person to execute on behalf
of the Company any instrument required to effect the grant of an
Option or Stock Purchase Right previously granted by the
Administrator;
(xiii) to determine the terms and restrictions
applicable to Options and Stock Purchase Rights and any Restricted
Stock; and
(xiv) to make all other determinations deemed
necessary or advisable for administering the Plan.
(c) Effect of Administrator's Decision. The
Administrator's decisions, determinations and interpretations shall
be final and binding on all Optionees and any other holders of
options or Stock Purchase Rights.
5. Eligibility.
(a) Options may be granted to Employees, Consultants and
outside Directors provided that (i) Incentive Stock Options may
only be granted to Employees and (ii) options may only be granted
to Outside Directors in accordance with the provisions of Section
5(b) hereof. Each Option shall be designated in the written option
agreement as either an Incentive Stock option or a Nonstatutory
Stock Option. Subject to Section 5(b) with respect to Outside
Directors, an Employee, Consultant or outside Director who has been
<PAGE> 6
granted an option may, if such Employee, Consultant or Outside
Director is otherwise eligible, be granted additional Option(s).
(b) The provisions set forth in this Section 5(b) shall
not be amended more than once every six months, other than to
comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder. All
grants of Options to Outside Directors under this Plan shall be
automatic and non-discretionary and shall be made strictly in
accordance with the following provisions:
(i) No person shall have any discretion to
select which Outside Directors shall be granted Options or to
determine the number of shares to be covered by options granted to
Outside Directors; provided, however, that nothing in this Plan
shall be construed to prevent an Outside Director from declining to
receive an Option under this Plan.
(ii) On the date first elected to the Board of
Director and on such date each year thereafter during the term of
this Plan, each Outside Director shall automatically receive an
option to purchase 5,000 Shares.
(iii) The terms of an option granted pursuant to
this Section 5(b) shall be as follows:
(A) the term of the Option shall be five
(5) years;
(B) except as provided in Section 10 of
this Plan, the Option shall be exercisable only while the Outside
Director remains a director;
(C) the exercise price per share of
Common Stock shall be 100% of the Fair Market Value on the date of
grant of the option;
(D) the Option shall become exercisable
in installments cumulatively with respect to twenty-five percent
(25%) of the optioned Stock one year after the date of grant and as
to an additional twenty-five percent (25%) of the Optioned Stock
each year thereafter, so that one hundred percent (100%) of the
Optioned Stock shall be exercisable four years after the date of
grant; provided, however, that in no event shall any Option be
exercisable prior to obtaining shareholder approval of the Plan.
6. Limitations.
(a) Each Option shall be designated in the Notice of
Grant as either an Incentive Stock option or a Nonstatutory Stock
Option. However, notwithstanding such designations, to the extent
that the aggregate Fair Market Value:
<PAGE> 7
(i) of Shares subject to an Optionee's incentive
stock options granted by the Company, any Parent or
Subsidiary, which (ii) become exercisable for the first time
during any calendar year (under all plans of the Company or
any Parent or Subsidiary)
exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 6(a),
incentive stock options shall be taken into account in the order in
which they were granted, and the Fair Market Value of the Shares
shall be determined as of the time of grant.
(b) Neither the Plan nor any Option or Stock Purchase
Right shall confer upon an Optionee any right with respect to
continuing the Optionee's employment or consulting relationship
with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such
employment or consulting relationship at any time, with or without
cause.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan
shall become effective upon the earlier to occur of its adoption by
the Board or its approval by the shareholders of the Company as
described in Section 19 of the Plan. It shall continue in effect
for a term of ten (10) years unless terminated earlier under
Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated
in the Notice of Grant; provided, however, that in the case of an
Incentive Stock Option, the term shall be ten (10) years from the
date of grant or such shorter term as may be provided in the Notice
of Grant. However, in the case of an Incentive Stock option granted
to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent
or Subsidiary, the term of the Incentive Stock Option shall be five
(5) years from the date of grant or such shorter term as may be
provided in the Notice of Grant.
9. Option Exercise Price and ConsideratiOn.
(a) Exercise Price. The per share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be
determined by the Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the
time the Incentive Stock Option is granted, owns stock representing
more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per Share
<PAGE> 8
exercise price shall be no less than 110% of the Fair Market Value
per Share on the date of grant.
(B) granted to any Employee, the per
Share exercise price shall be no less than 100% of the Fair Market
Value per Share on the date of grant.
(ii) In the case of a NonstatUtOry Stock Option,
the per Share exercise price shall be no less than 50% of the Fair
Market Value per Share on the date of grant.
(b) Waiting Period and Exercise Dates. At the time an
Option is granted, the Administrator shall fix the period within
which the Option may be exercised and shall determine any
conditions which must be satisfied before the Option may be
exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service
period.
(c) Form of Consideration. The Administrator shall
determine the acceptable form of consideration for exercising an
option, including the method of payment. In the case of an
Incentive Stock Option, the Administrator shall determine the
acceptable form of consideration at the time of grant. Such
consideration may consist of:
(i) cash:
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the
optionee for more than six months on the date of surrender, and (B)
have a Fair Market Value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said Option
shall be exercised;
(v) delivery of a properly executed exercise
notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds
required to pay the exercise price;
(vi) any combination of the foregoing methods of
payment; or
(vii) such other consideration and method of
payment for the issuance of Shares to the extent permitted by
Applicable Laws .
<PAGE> 9
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
option granted hereunder shall be exercisable according to the
terms of the Plan and at such times and under such conditions as
determined by the Administrator and set forth in the Option
Agreement.
An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company
receives: (i) written notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option,
and (ii) full payment for the Shares with respect to which the
Option is exercised. Full payment may consist of any consideration
and method of payment authorized by the AdministratOr and permitted
by the Option Agreement and the Plan. Shares issued upon exercise
of an option shall be issued in the name of the optionee or, if
requested by the Optionee, in the name of the optionee and his or
her spouse. Until the stock certificate evidencing such Shares is
issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no
right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue
(or cause to be issued) such stock certificate promptly after the
Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 13 of
the Plan.
Exercising an Option in any manner shall decrease
the member of Shares thereafter available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to
which the Option is exercised.
(b) Termination of Employment or Consulting
Relationship. In the event that an optionee's Continuous Status as
an Employee, Consultant or Outside Director terminates (other than
upon the Optionee's death or Disability), the optionee may exercise
his or her Option, but only within such period of time as is
determined by the Administrator, and only to the extent that the
Optionee was entitled to exercise it at the date of termination
(but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). In the case of an
Incentive Stock Option, the Administrator shall determine such
period of time (in no event to exceed ninety (90) days from the
date of termination) when the Option is granted. If, at the date of
termination, the Optionee is not entitled to exercise his or her
entire Option, the Shares covered by the unexercisable portion of
the option shall revert to the Plan. If, after termination, the
<PAGE> 10
Optionee does not exercise his or her option within the time
specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. In the event that an
Optionee's Continuous Status as an Employee, Consultant or Outside
Director terminates as a result of the optionee's Disability, the
Optionee may exercise his or her Option at any time within twelve
(12) months from the date of such termination, but only to the
extent that the Optionee was entitled to exercise it at the date of
such termination (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant). If, at
the date of termination, the Optionee is not entitled to exercise
his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option
within the time specified herein, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an
Optionee, the Option may be exercised at any time within twelve
(12) months following the date of death (but in no event later than
the expiration of the term of such option as set forth in the
Notice of Grant), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or
inheritance, but only to the extent that the optionee was entitled
to exercise the Option at the date of death. If, at the time of
death, the Optionee was not entitled to exercise his or her entire
Option, the Shares covered by the unexercisable portion of the
Option shall revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise the Option by
bequest or inheritance does not exercise the option within the time
specified herein, the Option shall terminate, and the Shares
covered by such Option shall immediately revert to the Plan.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be
issued either alone, in addition to, or in tandem with other awards
granted under the Plan and/or cash awards made outside of the Plan.
After the Administrator determines that it will offer Stock
Purchase Rights under the Plan, it shall advise the offeree in
writing, by means of a Notice of Grant, of the terms, conditions
and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to
be paid (which price shall not be less than 50% of the Fair Market
Value of the Shares as of the date of the offer), and the time
within which the offeree must accept such offer, which shall in no
event exceed six (6) months from the date upon which the
Administrator made the determination to grant the Stock Purchase
Right. The offer shall be accepted by execution of a Restricted
<PAGE> 11
Stock Purchase Agreement in the form determined by the
Administrator.
(b) Repurchase Option. Unless the Administrator
determines otherwise, the Restricted Stock Purchase Agreement shall
grant the Company a repurchase option exercisable upon the
voluntary or involuntary termination of the purchaser's employment
with the Company for any reason including death or Disability). The
purchase price for Shares repurchased pursuant to the Restricted
Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of
the purchaser to the Company. The repurchase option shall lapse at
a rate determined by the Administrator.
(c) Other Provisions. The Restricted Stock Purchase
Agreement shall contain such other terms, provisions and conditions
not inconsistent with the Plan as may be determined by the Admin-
istrator in its sole discretion. In addition, the provisions of
Restricted Stock Purchase Agreements need not be the same with
respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase
Right is exercised, the purchaser shall have the rights equivalent
to those of a shareholder, and shall be a shareholder when his or
her purchase is entered upon the records of the duly authorized
transfer agent of the Company. No adjustment will be made for a
dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in
Section 13 of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights.
An Option or Stock Purchase Right may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and
may be exercised, during the lifetime of the optionee, only by the
Optionee.
13. Adjustments Upon Changes in Capitalization, Dissolution,
Merger, Asset Sale or Change of Control.
(a) Changes in Capitalization. Subject to any required
action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option and Stock Purchase
Right, and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options
or Stock Purchase Rights have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option
or Stock Purchase Right, as well as the price per share of Common
Stock covered by each such outstanding option or Stock Purchase
Right, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend,
<PAGE> 12
combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt
of consideration." Such adjustment shall be made by the board,
whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, to the extent
that an Option or Stock Purchase Right has not been previously
exercised, it will terminate immediately prior to the consummation
of such proposed action. The Board may, in the exercise of its sole
discretion in such instances, declare that any Option or Stock
Purchase Right shall terminate as of a date fixed by the Board and
give each Optionee the right to exercise his or her Option or Stock
Purchase Right as to all or any part of the optioned Stock,
including Shares as to which the Option or Stock Purchase Right
would not otherwise be exercisable.
(c) Merger or Asset Sale. Subject to the provisions of
paragraph (d) hereof, in the event of a merger of the Company with
or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding option and Stock
Purchase Right shall be assumed or an equivalent option or right
shall be substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the
successor corporation does not agree to assume the Option or Stock
Purchase Right or to substitute an equivalent option or right, the
Administrator shall, in lieu of such assumption or substitution,
provide for the Optionee to have the right to exercise the Option
or Stock Purchase Right as to all of the optioned Stock, including
Shares as to which it would not otherwise be exercisable. If the
Administrator makes an Option or Stock Purchase Right fully
exercisable in lieu of assumption or substitution in the event of
a merger or sale of assets, the Administrator shall notify the
Optionee that the Option or Stock Purchase Right shall be fully
exercisable for a period of fifteen (15) days from the date of such
notice, and the Option or Stock Purchase Right will terminate upon
the expiration of such period. For the purposes of this paragraph,
the option or Stock Purchase Right shall be considered assumed if,
following the merger or sale of assets, the option or right confers
the right to purchase, for each Share of Optioned Stock subject to
the option or Stock Purchase Right immediately prior to the merger
or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by
<PAGE> 13
holders of Common Stock for each Share held on the effective date
of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of
a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets was not
solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation
and the participant, provide for the consideration to be received
upon the exercise of the Option or Stock Purchase Right, for each
Share of Optioned Stock subject to the Option or Stock Purchase
Right, to be solely common stock of the successor corporation or
its Parent equal in Fair Market Value to the per share
consideration received by holders of Common Stock in the merger or
sale of assets.
(d) Chance of Control. In the event of a "Change in
Control" of the Company, as defined in paragraph (e) below, any or
all or none of the following acceleration and valuation provisions
shall apply, as the Board, in its discretion, shall determine prior
to such Change of Control:
(i) Any Options and Stock Purchase Rights
outstanding as of the date such Change in Control is determined to
have occurred that are not yet exercisable and vested on such date
shall become fully exercisable and vested;
(ii) To the extent that they are exercisable and
vested, all outstanding Options and Stock Purchase Rights, unless
otherwise determined by the Board at or after grant, shall be
terminated in exchange for a cash payment at the Change in Control
Price, reduced by the exercise price applicable to such Options or
Stock Purchase Rights. These cash proceeds shall be paid to the
optionee or, in the event of death of an Optionee prior to payment,
to the estate of the Optionee or to a person who acquired the right
to exercise the Option or Stock Purchase Right by bequest or
inheritance.
(e) Definition of "Change in Control". For purposes of
this Section 13, a "Change in Control" means the happening of any
of the following:
(i) When any "person," as such term is used in
Sections 13(d) and 14(d) of the Exchange Act (other than the
Company, a Subsidiary or a Company employee benefit plan, including
any trustee of such plan acting as trustee) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting
power of the Company's then outstanding securities; or
(ii) The occurrence of a transaction requiring
shareholder approval, and involving the sale of all or
<PAGE> 14
substantially all of the assets of the Company or the merger of the
Company with or into another corporation.
(f) Change in Control Price. For purposes of this
Section 13, "Change in Control Price" shall be, as determined by
the Board, (i) the highest closing sale price of a Share of Common
Stock as reported by the NASDAQ National Market System and as
appearing in the Wall Street Journal (or, in the event the Common
Stock is listed on a stock exchange, the highest closing price as
reported in the Wall Street Journal or such other source of
composite quotations as the Board deems reliable), at any time
within the 60 day period immediately preceding the date of
determination of the Change in Control Price by the Board (the
"60-Day Period"), or (ii) the highest price paid or offered, as
determined by the Board, in any bona fide transaction or bona fide
offer related to the Change in Control of the Company, at any time
within the 60-Day Period, or (iii) some lower price as the Board,
in its discretion, determines to be a reasonable estimate of the
fair market value of a share of Common Stock.
14. Date of Grant. The date of grant of an Option or Stock
Purchase Right shall be, for all purposes, the date on which the
Administrator makes the determination granting such Option or Stock
Purchase Right, or such other later date as is determined by the
Administrator. Notice of the determination shall be provided to
each Optionee within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain
shareholder approval of any Plan amendment to the extent necessary
and desirable to comply with Rule 16b-3 or with Section 422 of the
Code (or any successor rule or statute or other applicable law,
rule or regulation, including the requirements of any exchange or
quotation system on which the Common Stock is listed or quoted).
Such shareholder approval, if required, shall be obtained in such
a manner and to such a degree as is required by the applicable law,
rule or regulation.
(c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the
rights of any Optionee, unless mutually agreed otherwise between
the Optionee and the Administrator, which agreement must be in
writing and signed by the Optionee and the Company.
<PAGE> 15
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right
unless the exercise of such Option or Stock Purchase Right and the
issuance and delivery of such Shares shall comply with all relevant
provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act, the rules and
regulations promulgated thereunder, Applicable Laws, and the
requirements of any stock exchange or quotation system upon which
the Shares may then be listed or quoted, and shall be further
subject to the approval of counsel for the Company with respect to
such compliance.
(b) Investment Representations. As a condition to the
exercise of an option or Stock Purchase Right, the Company may
require the person exercising such Option or Stock Purchase Right
to represent and warrant at the time of any such exercise that the
Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is
required.
17. Liability of Company.
(a) Inability to Obtain Authority. The inability of the
Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of
the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned
Stock covered by an Option or Stock Purchase Right exceeds, as of
the date of grant, the number of Shares which may be issued under
the Plan without additional shareholder approval, such Option or
Stock Purchase shall be void with respect to such excess Optioned
Stock, unless shareholder approval of an amendment sufficiently
increasing the number of Shares subject to the Plan is timely
obtained in accordance with Section 15(b) of the Plan.
18. Reservation of Shares. The Company, during the term of
this Plan, will at all times reserve and keep available such number
of Shares as shall be sufficient to satisfy the requirements of the
Plan.
19. Shareholder Approval. Continuance of the Plan shall be
subject to approval by the shareholders of the Company within
twelve (12) months before or after the date the Plan is adopted.
Such shareholder approval shall be obtained in the manner and to
the degree required under applicable federal and state law.
<PAGE> 16
20. Information to Optionees. The Company shall provide each
Optionee, while such Optionee has one or more Options or Stock
Purchase Rights outstanding, with copies of all annual reports and
other information which are provided to all shareholders of the
Company. The Company shall not be required to provide such
information if the issuance of Options or Stock Purchase Rights
under the Plan is limited to key employees whose duties in
connection with the Company assure their access to equivalent
information.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference of our report dated
March 29, 1999, relating to the financial statements of Utopia Marketing,
Inc. appearing in such company's Annual Report on Form 10-KSB for the year
ended January 2, 1999.
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
April 16, 1999
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference of our report dated
March 31, 1998, relating to the financial statements of Utopia Marketing,
Inc. appearing in such company's Annual Report on Form 10-KSB for the year
ended January 2, 1999.
MICHAEL ADEST & BLUMENKRANTZ
New York, New York
April 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Financial Statements included in the Company's Form 10-KSB for the year ended
January 2, 1999 and is qualified in its entirety by reference to such Financial
Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JAN-02-1999
<CASH> 1,942
<SECURITIES> 0
<RECEIVABLES> 68
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,010
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,010
<CURRENT-LIABILITIES> 86
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 1,910
<TOTAL-LIABILITY-AND-EQUITY> 2,010
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 571
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (122)
<INCOME-PRETAX> (449)
<INCOME-TAX> 0
<INCOME-CONTINUING> (449)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (449)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
