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 1, 2000
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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.
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(Name of small business issuer in its charter)
Florida 94-3060101
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(State or other jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
312 Clematis Street, Suite 500, West Palm Beach, Florida, 33401
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(Address of Principal Executive Offices, Zip Code)
Company's telephone number, including area code: (561) 835-9998
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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 x No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B 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-KSB or
any amendment to this Form 10-KSB. __x_
Revenues for fiscal year ended January 1, 2000: $2,070,000
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 11, 2000: $1,564,277.
Number of shares of Common Stock of Utopia Marketing, Inc. issued and
outstanding as of April 11, 2000: 15,216,367
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Documents Incorporated by Reference
None
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Table Of Contents
Page
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PART I
Item 1. Business....................................................... 2
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 the registrant's common equity and
related stockholder matters.................................... 7
Item 6. Management's discussion and analysis of financial
condition and results of operations............................ 8
Forward-looking information: certain cautionary statements..... 10
Item 7. Financial statements........................................... 17
Item 8. Changes in and disagreements with accountants on
accounting and financial disclosure............................ 33
PART III
Item 9. Directors and executive officers............................... 34
Item 10. Executive compensation......................................... 36
Item 11. Security ownership of certain beneficial owners
and management............................................... 39
Item 12. Certain relationships and related transactions................. 40
Item 13. Exhibits, financial statement schedules, and
reports on form 8-k.......................................... 41
Signatures............................................................. 43
<PAGE>
PART I
ITEM 1. BUSINESS
Utopia Marketing, Inc., formerly known as Sam & Libby,
Inc., was incorporated in Florida in October 1987, primarily for
the purpose of developing and commercializing footwear products.
In 1991, we completed a public offering of our common stock. On
July 2, 1996, we entered into an agreement with Maxwell Shoe
Company Inc. ("Maxwell") pursuant to which we sold our brand
names, trademarks, trade names and certain other intellectual
property rights to Maxwell, and received approximately $5.5
million. The sale of our trade names and intellectual property
to Maxwell effectively terminated our then current operating
business. Since the sale of our trade names and intellectual
property to Maxwell, our management had been primarily involved
in the investigation of new business opportunities. During this
time, management had investigated possible acquisitions and
mergers and explored various start up ventures. From July 1996
until December 1998, we did not engage in any revenue generating
business activities.
A number of developments during the fourth quarter of 1998
prompted our Board of Directors to conclude that we should
reenter the footwear business. In January 1999, we commenced
the design and commercialization of a new line of fashion
footwear under the Naked Feet[TM] brand.
On October 6, 1999, we completed the purchase of certain
assets, including certain trademarks, of Ipanema Shoe
Corporation pursuant to the terms of an Asset Purchase Agreement
dated as of October 5, 1999. Under the Asset Purchase
Agreement, we acquired rights to the Ipanema brand name.
Industry Overview
The fashionable footwear industry is highly competitive.
Our 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 us. We believe effective advertising and
marketing, fashionable styling, high quality and value are the
most important competitive factors and we intend to employ these
elements as we develop our products.
Acquisition of Assets of Ipanema
On October 6, 1999, we completed the purchase of certain
assets, including certain trademarks, of Ipanema pursuant to the
terms of an Asset Purchase Agreement dated as of October 5,
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1999. As the purchase price for the assets, we issued
1,000,000 shares of our common stock and we issued a
subordinated convertible promissory note in the principal amount
of $500,000 due on October 5, 2002. In connection with the
acquisition, we entered into a Collection Services Agreement
with Ipanema and its parent company, Sumitomo Corporation of
America, pursuant to which we are providing services for the
collection of certain accounts receivables owned by Ipanema. As
compensation for the collection services provided by us under
the Collection Services Agreement, we receive 30% of all
accounts receivables collected under the Collection Services
Agreement.
Strategy
Our long-term objective is to develop and commercialize
leading brands of women's fashion footwear. The key elements of
our operating strategy are as follows:
* Develop and promote recognizable brand names for our
footwear products. We believe that we can continue to
develop our Naked Feet[TM] and Ipanema[R] brands and
generate broad recognition in our target markets by
participating in trade shows, fashion shows and other
industry events.
* Distribute Products through Selected National
Retailers and Independent Accounts. We sell our
products through selected national retailers and
through independent retailers. Our Naked Feet[TM] brand
is sold primarily through high-end or exclusive
retailers and our Ipanema[R] brand is sold primarily
through higher volume retailers.
* Maintain Flexibility in Manufacturing. We utilize
third-party foreign manufacturers for the manufacture
of our products. We believe that we can maintain a
current inventory by having our products developed in
small lots.
* Continually Update our Product Designs. We design all
of our products internally. Our management is
actively involved in the product design process and is
continually identifying leading fashion trends to
incorporate into our product designs. We engage
third-parties to conduct product testing for us and we
participate in trade shows and preview our product
development ideas and designs with selected national
accounts.
Design and Development
We are constantly engaged in the process of updating the
designs of our lines of fashion footwear. The design process
for a new product typically begins about nine months before the
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start of the season for the 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.
We currently design all of our products internally. Our
senior management is actively involved in the analysis of
fashion trends and the design process. We 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. From time to time we preview our new
product designs at trade shows and similar events, and we permit
some of our national retail accounts the opportunity to view
product designs prior to ordering our products.
Marketing and Promotion
We are currently promoting our Naked Feet[TM] and Ipanema[R]
brands of footwear products. Our strategy is to develop an
image and awareness of our product brands. We advertise, market
and promote our products through a variety of means, including
trade journal advertising, product packaging and cooperative
advertising. Senior management is directly involved in shaping
our image and our advertising and promotional activities. We
currently are focusing our efforts on marketing our products
only in the United States.
Our products are sold through independent sales
representatives who generally spend all of their business
efforts selling our products to national and independent
retailers. Currently, two sales representatives sell our
Naked Feet[TM] brand of footwear products and two sales
representatives sell our Ipanema[R] brand of footwear products.
Our Naked Feet[TM] brand is generally promoted to and sold by
higher-end retailers and our Ipanema[R] brand is generally
promoted to and sold by higher volume retailers whose customers
are more price sensitive.
Manufacturing
We do not currently manufacture any products. All of our
products are manufactured by third-party foreign manufacturers.
We have implemented a quality control program to ensure that
goods bearing our trademarks meet our standards. Because our
products are manufactured by third-parties, we inspect
prototypes of each product prior to manufacture by such third-
parties, through our employees or sourcing agents, we inspect
the manufacturing facilities, and product samples are inspected
prior to shipment from our distributors to our customers.
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A wide range of materials are used in the production of our
products. We may from time to time experience significant
manufacturing delays caused by the unavailability of raw
materials. Moreover, the dependence on foreign manufacturers
subjects us 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.
We can not predict whether the conditions under which we plan 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
us.
Sales and Distribution
We have contracted with an independent warehouse facility
to provide us with importation, warehouse, distribution,
inspection and other services. The primary distribution channel
for our products is sales through national and regional
retailers, as well as independent specialty stores. We do not
currently intend to own or operate our own retail stores.
Competition
The fashion footwear industry is highly competitive. We
compete with a number of domestic and foreign designers and
manufacturers of footwear. Almost all of our competitors have
significantly greater financial resources than us, and many have
full lines of product offerings, compete with us for
manufacturing sources and spend substantially more resources on
product advertising than we are able to spend. Although Utopia
and its management have experience in the footwear industry, we
are, and are perceived by the market as, a new entrant to the
footwear industry. Our products are marketed and sold to image
conscious consumers and our failure to accurately predict and
target future trends or to maintain a fashionable image could
have a material adverse impact on our ability to generate
product sales or develop a recognizable brand name. There can
be no assurance that we will be able to develop and market well-
received products.
Intellectual Property
Our significant trademarks are our Naked Feet[TM] brand name
and the Ipanema[R] brand that we recently acquired. We are in
the process of registering our ownership and right to use of the
Naked Feet[TM] name with the United States Patent and Trademark
office and the trademark registration for the Ipanema[R] name has
been assigned to us. We believe that trademarks and other
proprietary rights are important to our success and our
competitive position. Accordingly, we intend 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 us to establish and protect
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any trademarks or other proprietary rights will be adequate to
prevent imitation of our products by others or to prevent others
from prohibiting sales of any products we may develop in
violation 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 that we may establish or acquire, or that we will be able
to successfully resolve such conflicts.
Employees & Contractors
As of March 21, 2000, we had 10 full-time employees. Most
of our sales efforts are conducted by third-party contractors.
We have engaged four independent contractors to undertake sales
efforts on our behalf. We believe our employee relations are
good.
ITEM 2. PROPERTIES
Our executive office is located in West Palm Beach,
Florida, where we lease approximately 2,700 square feet of
office space. We believe that our facilities are adequate for
our current needs and that additional facilities can be leased
to meet future needs. Our executive offices are located 312
Clematis Street, Suite 500, West Palm Beach, Florida 33401, and
our telephone number is (561) 835-9998.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings against us or our
properties, or to which we are a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our common stock is not listed on any stock exchange. Our
stock is traded over-the-counter under the symbol "UTPM".
The following table sets forth the high and low closing
sales prices of our common stock for our 1999 and 1998 fiscal
years ending January 1, 2000 and January 2, 1999, respectively,
as reported by the National Quotation Bureau, LLC.
<TABLE>
<CAPTION>
Fiscal 1999 High Low
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<S> <C> <C> <C>
First Quarter $0.375 $0.10
Second Quarter $0.468 $0.125
Third Quarter $0.65 $0.375
Fourth Quarter $0.562 $0.343
Fiscal 1998 High Low
------------------------------------------------
First Quarter $0.09 $0.01
Second Quarter $0.06 $0.01
Third Quarter $0.16 $0.01
Fourth Quarter $0.1875 $0.01
</TABLE>
These quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent
actual transactions.
At April 11, 2000, we had 1,029 shareholders of record. We
have no shares of any class of capital stock outstanding other
than our common stock. We have not paid any cash dividends on
our common stock since our inception, other than distributions
to Samuel L. Edelman, Louise B. Edelman and Stuart L. Kreisler
(the "Principal Shareholders") during the period that we were an
S Corporation and in connection with the termination of our
status as an S Corporation in 1991. We currently anticipate
that any future earnings will be retained for development of our
business and do not anticipate paying any dividends on our
common stock in the foreseeable future.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Utopia Marketing, Inc., formerly known as Sam & Libby, Inc.
was founded in October 1987, primarily for the purpose of
developing and commercializing footwear products. In 1991, we
completed a public offering of our common stock. On July 2,
1996, we entered into an agreement with Maxwell pursuant to
which the we sold our brand names, trademarks, trade names and
certain other intellectual property rights to Maxwell, and
received approximately $5.5 million. The sale of our trade
names and intellectual property to Maxwell effectively
terminated our then current operating business.
Since the sale of our trade names and intellectual property
to Maxwell, our management had been primarily involved in the
investigation of new business opportunities. During this time,
management had investigated possible acquisitions and mergers
and explored various start-up ventures. A number of
developments prompted our Board of Directors to conclude in
December 1998 that we should reenter the footwear business.
Since then we have been developing and marketing women's fashion
footwear under the brand names "Naked Feet" and, more recently,
"Ipanema."
Results of Operations
Years Ended January 1, 2000 and January 2, 1999
Revenues. We generated net revenues of $2,070,000 during
the second half of fiscal 1999. These revenues were generated
solely from the sales of women's footwear under the brand name
Naked Feet. We also had $807,000 of revenue in connection with
a Collection Services Agreement with Sumitomo Corporation of
America and Ipanema Shoe Corporation. This revenue will not
continue to be earned in the next fiscal year. Additionally,
interest income of $43,000 was generated from our excess cash in
a money market account, which was transferred to our factor (the
"Factor") as part of a factoring arrangement entered into in
March, 1999. The amount due from the Factor at January 1, 2000
was $185,000, included in cash and cash equivalents. Due to the
lack of revenue-generating activities during the year ended
January 2, 1999, our only revenue was interest income of
$122,000. This interest income was earned as a result of our
holding funds in a money market account.
Gross Profit. We generated gross profit of $633,000 or
30.5% of net sales during the year ended January 1, 2000. We
did not generate any gross profit during the year ended January
2, 1999, as we did not conduct any operating business.
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Selling, General and Administrative Expenses. Selling,
general, and administrative expenses increased to $3,146,000 for
the year ended January 1, 2000 from $571,000 for the year ended
January 2, 1999, an increase of $2,575,000 primarily as a result
of our developing and marketing the new "Naked Feet" brand name.
The increase was attributable to sales commissions of $635,000,
sample costs of $162,000, officers' salaries of $250,000,
increases in personnel costs by $428,000, travel and
entertainment costs of $318,000, increases in rent by $57,000,
marketing and advertising costs of $100,000, postage and
shipping of $102,000, increases in technology costs by $83,000,
increases in telephone costs by $70,000 and depreciation and
amortization of $22,000.
Liquidity and Capital Resources
We relied on funds held in a money market account for
operating working capital in 1999. We invested approximately
$109,000 in computers and software during the fiscal year ended
January 1, 2000. In April 1999, we entered into a factoring
agreement to finance growth in accounts receivable and inventory.
We invest our cash balances with this factor. The factor purchases
our accounts receivables and allows us to borrow up to 85% of
the uncollected accounts receivables. As of January 1, 2000, we
had no balance due outstanding to the factor. As of April 13,
2000, we had borrowed $1,561,000 from the factor against
approximately $2,365,000 of factored accounts receivables.
On October 5, 1999, we entered into a Collection Services
Agreement with Ipanema Shoe Corporation and its parent company,
Sumitomo Corporation of America, pursuant to which we were
providing services for the collection of certain accounts
receivables owned by Ipanema in exchange for 30% of the
receivables collected. In fiscal 1999 we received $807,000 in
revenue under the Collection Services Agreement. We will not
continue to earn revenues under this Agreement in the next fiscal
year.
We currently anticipate that we will require additional
capital to fund our working capital needs until we have positive
cash flows. During 1999, we depleted the money market
investment previously relied on for working capital. During
this start-up phase of our new operations, our cash requirements
will be substantial and may exceed the amount of working capital
available to us. Our ability to fund our operating requirements
and maintain an adequate level of working capital until we
achieve positive cash flows will depend primarily on our ability
to design, develop and market products that are accepted by the
market and generate rapidly increasing levels of sales. Our
failure to design, develop and market well-received products and
other events, including the costs and timing of establishing
trademarks and other proprietary rights; our 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 our planned business, could cause us to require
additional capital prior to achieving positive cash flows. In
the event that we must raise additional capital to fund our
working capital needs, we may seek to raise such capital through
loans or the issuance of debt or equity securities. To the
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extent we raise 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 us on acceptable terms, or at all.
FORWARD-LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in this Report that are not
historical facts contain forward-looking information with
respect to our plans, projections or future performance, the
occurrence of which involve certain risks and uncertainties that
could cause our actual results or plans to differ materially
from those expected by us.
Our operating business is in an early stage of development and
we may not become profitable.
With respect to our newly established business, we have not
yet generated significant revenues from product sales to offset
our expenses. We are dedicating most of our financial resources
to the development of new footwear products and general and
administrative expenses. We expect to incur significant
operating losses for at least the next 12 months. Our ability
to achieve profitability will depend, among other things, on our
successfully completing development of our products,
establishing or sourcing manufacturing, sales and marketing
capabilities, achieving market acceptance for our products and
maintaining sufficient funds to finance our activities. There
can be no assurance that we will be able to achieve
profitability or that profitability, if achieved, can be
sustained.
We will require substantial additional funds in order to develop
and commercialize our lines of footwear products and until we
achieve positive cash flows.
The extent to which we will be required to obtain
additional funding from third parties will primarily depend on
the time required for us to develop our product lines and the
rate at which we are able to generate sales of our products once
they are developed. Our 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 our design and
development of products; the costs and timing of establishing
trademarks or other proprietary rights; the success of our sales
and marketing programs; the extent and terms of any
manufacturing, marketing or other arrangements; and changes in
economic or competitive conditions of our planned business.
Estimates about the adequacy of funding for our activities are
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based on certain assumptions, including the assumption that
development of our products can be conducted at projected costs
and within projected time frames and that our products receive
market acceptance.
To satisfy our capital requirements, we may seek to raise funds
in the public or private capital markets.
Our ability to raise additional funds in the public or
private markets will be adversely affected if the results of our
business operations are not favorable, or if any products
developed are not well-received. We may seek additional funding
through corporate collaborations and other financing vehicles or
from loans or investments by our controlling shareholders.
There can be no assurance that any such funding will be
available to us, or if available, that it will be available on
acceptable terms. If adequate funds are not available, we will
not be able to complete the commercialization of any products
that we may have developed. As a result, we may be required to
discontinue our operations without obtaining any value for our
products under development, thereby eliminating shareholder
equity, or we could be forced to relinquish rights to some or
all of our products under development in return for an amount
substantially less than we expended to develop such products.
If we are 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.
We may not be able to develop a recognizable brand or otherwise
promote our products adequately.
There can be no assurance that we will be able to profit
from the development or manufacture of our products as planned,
or that we will be successful in promoting such products to
potential vendors. We do not have an established brand name
under which we will market any of our products under
development. The establishment of a recognizable brand name
that will enable us to successfully commercialize our products
under development generally requires the expenditure of
substantial financial resources for advertising and promotional
activities. We do not currently have sufficient resources to
conduct a national advertising campaign or otherwise promote our
products under development on a widescale basis. As a result,
we will be required to promote our products and brand name
through alternative and creative promotional efforts. There can
be no assurance that we will be able to successfully promote our
products or brand names.
Our products may not be accepted by vendors or retail purchasers.
Our ability to successfully commercialize our products will
depend in part on the acceptance of our products by vendors and
retail customers. The failure of vendors to purchase our
products or the failure of retail customers to purchase our
products would have a material adverse effect on our business,
results of operations and financial condition. Unfavorable
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publicity concerning us or any of our products could have an
adverse effect on our ability to achieve acceptance of our
products by vendors and retail customers and to commercialize
our products, which could have a material adverse effect on our
business, results of operations and financial condition.
We may not be able to manage our growth effectively.
Our growth, including growth as a result of our acquisition
and development of the Ipanema brand, has placed and will
continue to place a significant strain on our managerial,
operational and financial resources. Failure to manage our
growth effectively could have a material adverse effect on our
business, results of operations and financial condition. In
order to manage our growth effectively, we need to:
* improve our financial and management controls, reporting
systems and procedures;
* expand, train and manage our work force for production
and post-production, marketing and sales, and product
development; and
* manage multiple relationships with various customers,
suppliers, manufacturers and other third parties.
We have limited sales and marketing experience.
We intend to market our footwear lines through a specialty
sales force consisting primarily of independent contractors.
Substantial resources will be required for us to promote the
sale of our footwear products. There can be no assurance that
we will be able to establish an effective sales and marketing
organization or that we will be able to achieve market
acceptance. Our failure to establish an effective marketing and
sales force or our failure to expend the resources to adequately
promote any of our products under development could have a
material adverse effect on us.
We depend on key personnel and we may not be able to attract and
retain qualified employees.
Our success will be largely dependent, in particular, upon
the services of Samuel L. Edelman, our President and Chief
Executive Officer. If Mr. Edelman is unable to provide services
to us for whatever reason, our business would be adversely
affected. Because Mr. Edelman is involved in all aspects of our
business, there can be no assurance that a suitable replacement
could be found if he was unable to perform services for us. As
a consequence, the loss of Mr. Edelman or other key personnel
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could have a material adverse effect upon our business, results
of operations and financial condition.
In addition, our ability to market our products and to
achieve profitability will depend on our ability to attract and
retain highly talented design personnel and other employees. We
face intense competition for personnel from other companies.
There can be no assurance that we 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 and commercialization of our products, could
adversely affect our results of operations and our business.
We face intense 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. We will compete with numerous designers,
brands and manufacturers of women's footwear, including Kenneth
Cole, Nine West, DKNY, Sketchers, Nike and Guess, many of which
will have substantially greater financial, distribution,
marketing and other resources than us. We will also have to
compete for the limited shelf-space available for the display of
our 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. Our business will
depend on our 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
us will be able to compete successfully with the products of our
competitors.
We may not be able to protect our proprietary rights and may
infringe on the proprietary rights of others.
Establishment of trademarks and other proprietary rights is
important to our success and our competitive position.
Accordingly, we intend 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 us
to establish and protect any trademarks or other proprietary
rights will be adequate to prevent imitation of our products by
others or to prevent others from prohibiting sales of any
products we may develop in violation 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 we may establish or
acquire or that we will be able to successfully resolve such
conflicts.
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We may not be able to anticipate or respond to changing fashion
trends.
Our success will depend in significant part upon our
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 our products will correspond to the changes in taste and
demand or that we will be able to successfully market products
which respond to such trends. If we misjudge the market for our
products, we may be faced with significant excess inventories
for some products and missed opportunities with others, which
could have a material adverse effect on our business, results of
operations and financial condition.
Our business will be adversely affected by a recessionary
economy.
The fashion footwear industry in which we 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 our business,
results of operations and financial condition.
Consolidation in our industry could make it more difficult for
us to sell our products.
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 our products or increase the
ownership concentration within the retail industry. There can
be no assurance that the future effect of any such changes will
not affect our business, results of operations and financial
condition.
We may not be able to effectively manage our inventory.
Our ability to manage our inventories properly is an
important factor in our 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. Our inability to effectively manage our inventory
would have a material adverse effect on our business, results of
operation and financial condition.
14
<PAGE>
Our reliance on foreign manufacturers for the manufacture of our
products may put us at risk for interruptions or slow downs in
our business.
As is common in the footwear industry, we contract for the
manufacture of many of our products through foreign or other
unaffiliated manufacturers. We will not own or operate any
manufacturing facilities and will therefore be dependent upon
independent third parties for the manufacture of all our
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 our
business, results of operations and financial condition. Any
products we import 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 our
products are produced 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 our business, results of operations
and financial condition. The inability of a manufacturer to
ship our orders of products in a timely manner or to meet our
quality standards could cause us 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 our
business, results of operations and financial condition.
There is currently no active trading market for our common
stock.
Our 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 our 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 will find that the liquidity or
transferability of our securities is limited. Additionally, a
shareholder may find it more difficult to dispose of, or obtain
accurate quotations as to the market value, of our securities.
There can be no assurance that our 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). In addition, our securities may be subject to
the Securities and Exchange Commission penny stock rules. These
15
<PAGE>
rules may have the effect of reducing the level of trading
activity, if any, in the secondary market for our common stock.
Our founding shareholders control 43.9% of our common stock and
their interests may be different from and conflict with yours.
Samuel L. Edelman and Louise B. Edelman, the founders of
Utopia, together beneficially own approximately 36.3% of our
outstanding Common Stock and control an additional 7.6% of our
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 our 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 our
management or voting control of Utopia.
16
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Financial statements required by this item can be found at the
pages listed in the following index.
17
<PAGE>
UTOPIA MARKETING, INC.
INDEX TO FINANCIAL STATEMENTS
-----------------------------
PAGE
----
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 19
FINANCIAL STATEMENTS
Balance Sheet 20
Statements of Operations 21
Statements of Stockholders' Equity 22
Statements of Cash Flows 23
Notes to Financial Statements 24 - 32
18
<PAGE>
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 1, 2000, and the related statements
of operations, stockholders' equity, and cash flows for the years
ended January 1, 2000 and January 2, 1999. 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 audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Utopia Marketing, Inc. as of January 1, 2000, and the results
of its operations and its cash flows for the years ended January
1, 2000 and January 2, 1999, in conformity with generally
accepted accounting principles.
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
February 11, 2000
19
<PAGE>
UTOPIA MARKETING, INC.
BALANCE SHEET
JANUARY 1, 2000
(In thousands)
ASSETS
------
Current Assets:
Cash and cash equivalents $ 185
Due from factor, net of allowance 550
Merchandise inventories 1,418
Other 54
----------
Total current assets 2,207
Property and Equipment 98
Intangible Assets 648
----------
Total assets $ 2,953
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 1,716
Accrued expenses, primarily accrued
officers' salaries 317
----------
Total current liabilities 2,033
----------
Note Payable 468
----------
Commitments, Contingencies and Other Matters 0
Stockholders' Equity:
Preferred stock $.001 par value;
5,000,000 shares authorized;
none issued and outstanding 0
Common stock, $.001 par value;
45,000,000 shares authorized;
15,216,367 shares issued and outstanding 15
Additional paid-in capital 33,147
Deficit (32,710)
----------
Total stockholders' equity 452
----------
Total liabilities and stockholders' equity $ 2,953
==========
See notes to financial statements.
20
<PAGE>
UTOPIA MARKETING, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 1, 2000 (1999) AND JANUARY 2, 1999 (1998)
(In thousands except per share data)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net Sales $ 2,070 $ 0
Cost of Sales 1,437 0
-------- --------
Gross Profit 633 0
Selling, General and Administrative Expenses 3,146 571
-------- --------
Operating Loss (2,513) (571)
-------- --------
Other Income (Expense):
Collection fees 807 0
Interest expense (10)
Interest income 43 122
-------- --------
840 122
-------- --------
Net Loss $ (1,673) $ (449)
======== ========
Loss Per Common Share $ (0.12) $ (0.03)
======== ========
Weighted Average Shares Outstanding 14,457 14,216
======== ========
</TABLE>
See notes to financial statements.
21
<PAGE>
UTOPIA MARKETING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-In
Shares Amount Capital Deficit Total
------ ------ --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance, January 3, 1998 14,216 $ 14 $ 32,947 $ (30,588) $ 2,373
Year Ended January 2, 1999:
Net loss 0 0 0 (449) (449)
------ ------ --------- ---------- --------
Balance, January 2, 1999 14,216 14 32,947 (31,037) 1,924
Year Ended January 1, 2000:
Issuance of common stock related to
acquisition of assets 1,000 1 200 201
Net loss 0 0 0 (1,673) ( 1,673)
------ ------ --------- ---------- --------
Balance, January 1, 2000 15,216 $ 15 $ 33,147 $ (32,710) $ 452
====== ====== ========= ========== =========
</TABLE>
See notes to financial statements.
22
<PAGE>
UTOPIA MARKETING, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 1, 2000 (1999) AND JANUARY 2, 1999 (1998)
(In thousands)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (1,673) $ (449)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 32 0
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 0 25
Due from factor (550) 0
Merchandise inventories (1,418) 0
Other 14 (54)
Increase in:
Accounts payable and accrued liabilities 1,947 31
--------- --------
Net cash used by operating activities (1,648) (447)
--------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment (109) 0
--------- --------
Net Decrease in Cash and Cash Equivalents (1,757) (447)
Cash and Cash Equivalents, Beginning 1,942 2,389
--------- --------
Cash and Cash Equivalents, Ending $ 185 $ 1,942
========= ========
Supplemental Disclosures:
Cash paid for interest $ 3
=========
Non Cash Investing and Financing Activities:
Acquisition of intangibles through issuance of
debt and common stock $ 659
=========
</TABLE>
See notes to financial statements.
23
<PAGE>
UTOPIA MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 1, 2000 AND JANUARY 2, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
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.
Business
In December 1998, the Company finalized plans to begin
designing, developing and marketing women's footwear under
the trademark "NAKED/FEET"[TM]. 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.
Fiscal Year
The Company has a 52/53 week fiscal year ending on the
Saturday closest to December 31 of each year.
Cash and Cash Equivalents
The Company considers all highly liquid debt and equity
instruments with original maturities of three months or
less to be cash equivalents.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company
to concentrations of credit risk consist primarily of cash
and cash equivalents and the due from factor.
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 January 1, 2000, the
Company did not have deposits in excess of federally
insured limits. The Company maintains its cash with a
high quality financial institution which the Company
believes limits these risks.
24
<PAGE>
UTOPIA MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of Credit Risk (Continued)
Due from Factor
The Company maintains cash balances with the factor
which purchases accounts receivable. These cash
balances earn interest at 2% below Wall Street Journal
prime rate (6.5% at January 1, 2000), but are not
insured in any way.
The factor purchases substantially all eligible accounts
receivable, primarily without recourse (see Note 3).
The Company can draw funds as required. This amount due
from factor is not insured in any way. The Company
believes that the credit risk is limited by the
financial strength of the factor.
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. Estimates which are particularly susceptible to
change in the near term are adjustments for markdowns,
returns, cooperative advertising and allowances for
doubtful accounts with regard to amounts due from factor
in connection with receivables factored.
Inventories
Inventories, which consist primarily of finished goods,
are stated at the lower of cost or market, with cost
determined on an average cost method.
Property and Equipment
Property and equipment are recorded at cost and
depreciated using the straight-line method over the
estimated useful lives of the related assets. When assets
are sold or retired, the cost and related accumulated
depreciation are removed from the accounts and any gain or
loss is recognized currently. Repairs and maintenance are
charged to expense as incurred.
Revenue Recognition
Revenue from the sale of merchandise and private label
commissions is recognized upon shipment to the customer,
net of returns and allowances.
25
<PAGE>
UTOPIA MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation
The Company accounts for stock-based compensation issued
to employees and directors using the intrinsic value
method prescribed in Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees.
Compensation cost for 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 of 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.
Advertising Costs
Advertising costs are expensed as incurred. Advertising
costs incurred in 1999 and 1998 are approximately
$24,000 and $48,000, 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
The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share, which
provides for the calculation of basic and diluted earnings
per share.
26
<PAGE>
UTOPIA MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Net Loss Per Common Share (Continued)
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 outstanding
options and warrants granted. Diluted net loss for fiscal
years 1999 and 1998 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 1, 2000 14,457
January 2, 1999 14,216
NOTE 2. LIQUIDITY
As discussed in Note 1, the Company is developing a new
brand name after having been inactive for over two years.
Management has significant experience in the footwear
industry and, through July 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.
NOTE 3. SALE OF RECEIVABLES
On April 1, 1999, the Company entered into a factoring
agreement, which expires April 1, 2001, to sell an undivided
interest in all accounts receivable. The agreement calls
for the sale of receivables without recourse and with
recourse. Payments are remitted to the Company when
customer payments are received by the factor. The gross
amount due from the factor at December 31, 1999, $746,000,
represents the uncollected payments from customers. As of
December 31, 1999, approximately $81,000 of the uncollected
receivables represents receivables with recourse. The
Company has established an allowance of approximately
$196,000 for returns, markdowns and doubtful accounts
relating to the uncollected receivables. The agreement
allows the Company to borrow up to 85% of the uncollected
receivables. At January 1, 2000, the Company has not
borrowed any funds against the outstanding receivables. In
addition, the Company has pledged inventory, equipment, and
intangibles as required by the factoring agreement.
Due from factor - uncollected receivables $746,000
Less allowance for returns, markdowns and
doubtful accounts 196,000
--------
Due from factor, net $550,000
========
27
<PAGE>
UTOPIA MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. PROPERTY AND EQUIPMENT
Estimated Useful
Lives (Years)
----------------
Computers and software 5 $109,347
Less accumulated depreciation 11,023
--------
$ 98,324
========
Depreciation expense for 1999 was $11,023.
NOTE 5. ACQUISTION OF ASSETS
On October 5, 1999, the Company purchased certain intangible
assets of Ipanema Shoe Corporation (Ipanema), including
tradenames, trademarks, brand names, customer lists,
supplier lists, database information, proprietary software
and related goodwill. In exchange for these assets, the
Company issued 1,000,000 shares of Company common stock and
a subordinated convertible promissory note in the amount of
$500,000. The promissory note, which matures October 5,
2002, provides for interest at prime plus 1% commencing
October 5, 2000. The Company recorded the purchase of the
intangible assets at a value of $658,000, the sum of the
fair value of the promissory note discounted at 9-1/2%
($457,000) and the 1,000,000 shares of common stock issued
at a value of $.201 per share ($201,000). The intangible
assets are being amortized using a life of fifteen years.
In connection with the acquisition, the Company entered into
a collection services agreement with Ipanema whereby the
Company is to receive an amount equal to 30% of all accounts
receivable collected. The Company earned and received
approximately $807,000 pursuant to this agreement during
1999.
NOTE 6. MAJOR CUSTOMERS AND SUPPLIERS
During 1999, sales from four customers accounted for
approximately 58% of total sales. In addition, four vendors
accounted for approximately 70% of the total inventory
purchases in 1999.
NOTE 7. TRANSACTIONS WITH RELATED PARTIES
Stockholder
The Company frequently sends employees to New York for
business engagements. Employees lodge at a stockholder
owned apartment during their stay. The Company remits the
monthly rent directly to the landlord for the use of the
apartment. The Company remitted approximately $18,000 in
1999 for the New York apartment.
28
<PAGE>
UTOPIA MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8. 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>
1999 1998
---- ----
(in thousands) (in thousands)
<S> <C> <C>
Federal benefit computed at 34% $ (489) $ (154)
State benefit, net of federal benefit (72) (25)
Valuation allowance 558 179
------ ------
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 1, 2000 are as follows:
Benefit of net operating loss carryforwards $ 9,258
Less valuation allowance (9,258)
-------
Net deferred tax asset $ -
=======
At January 1, 2000, the Company had a net operating loss
carryforward for federal income tax purposes of
approximately $24,900,000, which is available to offset
future federal taxable income, if any, through 2019.
As of January 1, 2000, sufficient uncertainty exists
regarding the realizability of the full amount of the net
operating loss carryforward, and accordingly, a valuation
allowance of $9,258,000 has been established.
The valuation allowance for deferred tax assets as of
January 1, 2000 and January 1, 1999 was $9,258,000 and
$8,700,000, respectively. The net change in valuation
allowance for the years ended January 1, 2000 and January 2,
1999 was an increase of $558,000 and a increase of $179,000,
respectively.
29
<PAGE>
UTOPIA MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Stock Option Plan
1999 Long-Term Incentive Plan
During 1999, the Company adopted the Utopia Marketing,
Inc. 1999 Long-Term Incentive Plan (the "1999 Plan")
which provides for the grant of both nonstatutory stock
options and stock options intended to be treated as
incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended.
The 1999 Plan is intended to provide incentives to, and
rewards for, certain of the Company's employees and
non-employee directors. Those eligible are people who
have contributed and will continue to contribute to the
Company's success. Incentive stock options granted
under the 1999 Plan are non-transferable other than by
will or by the laws of descent and distribution. The
1999 Plan may be amended at any time by the Board,
although the Board may condition any amendment on the
approval of our stockholders if such approval is
necessary or advisable with respect to tax, securities
or other applicable laws. The total number of shares of
common stock reserved for issuance under the 1999 Plan
is 1,500,000. The Company has granted under the 1999
Plan stock options to acquire 155,000 shares of common
stock at an exercise price ranging from $.35 to $.50,
none of which are exercisable as of January 1, 2000.
The 1999 Plan terminates in September 2009.
1991 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 at 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.
30
<PAGE>
UTOPIA MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
1991 Stock Option Plan
The 1991 Plan also permits the Company to grant rights
to purchase common stock at a price which is at 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 2, 1999 and January 1, 2000 was as follows:
Shares Prices
------ ------
Outstanding, January 3, 1998 150,000 $.10
Options exercised 0
Options canceled 0
-------
Outstanding, January 2, 1999 150,000 $.10
Options granted 325,000 $.062 to $.375
-------
Outstanding, January 1, 2000 475,000 $.062 to $.375
=======
Fair Value Disclosures
The Company calculated the compensation cost for the plan
based on the fair value at the grant date under SFAS No.
123. The Company used the Black-Scholes option pricing
model to determine the fair value of grants made in 1999.
The pro forma net effect was not material for 1999 and,
therefore, the disclosures ordinarily required by SFAS 123
are not presented.
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, options to purchase
150,000 shares of common stock, 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. No bonuses were paid for fiscal year
1999.
Independent Agent Agreements
In March 1999, the Company entered into three 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
for, among other things, 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. Commission expense for 1999 was approximately
$635,000.
31
<PAGE>
UTOPIA MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9. COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS (Continued)
Operating Leases
The Company has entered into an agreement to lease its
facilities from April 1, 1999 until March 31, 2002, which
requires monthly payments of approximately $6,000. 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. The term of the lease is
three years, which requires monthly payments of
approximately $380. In April 1999, the Company entered
into an agreement to lease a vehicle from April 7, 1999 to
April 6, 2002, which requires monthly payments of
approximately $950.
Minimum future lease payments on these operating leases
are as follows:
Year Ending:
December 30, 2000 $ 80,000
December 29, 2001 83,000
January 4, 2002 20,000
---------
Total $ 183,000
=========
Rent expense was approximately $59,000 and $11,000 for the
years ended January 1, 2000 and January 2, 1999,
respectively.
Other Commitments
As of January 1, 2000, the Company has outstanding
purchase orders from retailers and has placed several
purchase orders to vendors. Customer purchase orders from
retailers, to date, total approximately $4,000,000. The
Company has placed several purchase orders totaling
approximately $4,000,000 with manufacturers in Brazil and
Asia for footwear production.
32
<PAGE>
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.
33
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers and their ages as of
January 1, 2000, are as follows:
Name Age Position
- ---- --- --------
Samuel L. Edelman 48 Chairman of the Board, President
and Chief Executive Officer
Louise B. Edelman 46 Director, Executive Vice-President
of Corporate Development and Secretary
Vance Kistler 28 Chief Financial Officer
Joel Solomon 53 Acting Chief Operating Officer and
Director
Bruce Oberfest 52 Director
Robert Wildrick 48 Director
Stuart Kreisler 53 Director
Samuel L. Edelman, a co-founder of the Company, has since
our inception served as our Chairman of the Board, President
and Chief Executive Officer. 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, has served
as a director since our founding. She served as Senior Vice
President - Image from our founding until the second quarter of
1992. Since that time, Ms. Edelman has served as Executive Vice
President - Corporate Development. Prior to 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.
Vance Kistler serves as our Chief Financial Officer. Mr.
Kistler is a certified public accountant. From September 1994
until his employment by us in June 1998, Mr. Kistler worked with
Arthur Andersen LLP as a senior auditor.
Joel Solomon has served as a director 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
34
<PAGE>
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 on October 6, 1997.
Robert Wildrick has served as a director since June 22,
1999. Mr. Wildrick also serves as a director and as the
president and Chief Executive Officer of Joseph A. Banks, Inc.,
a retail clothing store chain. From 1995 through 1998, Mr.
Wildrick was the Chairman, President and Chief Executive Officer
of Venture Stores, a national department store chain. For more
than five years prior to 1995, Mr. Wildrick served as Executive
Vice President of Belk Stores, a national department store chain.
Stuart Kreisler has served as a director since June 22,
1999. From December 1996 through February 1999, Mr. Kreisler
served as the President and Chief Operating Officer of Moore's
Retail Group, a men's retail and manufacturing company. Prior
to December 1996, Mr. Kreisler was a self-employed private
investor.
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.
In January 1998, Venture Shoes filed a petition under
Chapter 11 of the federal bankruptcy laws. At the time of the
Chapter 11 filing, Robert Wildrick was Chairman, President and
Chief Executive Officer of Venture Shoes.
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 1, 2000, 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.
35
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table summarizes the compensation during the
fiscal years ended January 1, 2000, January 2, 1999 and January
3, 1998, earned by the Company's Chief Executive Officer.
<TABLE>
<CAPTION> Long-Term Compensation
----------------------------------
Annual Compensation Awards Payouts
----------------------------- ------------------------- -------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
- ------------------ ---- ------ ----- ------------ --------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Samuel L. Edelman 1999 0(1) - - - - - -
President and CEO 1998 0 - - - - - -
1997 0 - - - - - -
</TABLE>
(1) Mr. Edelman did not receive a salary in connection with his
efforts on behalf of the Company from 1996 through the first
quarter of 1999. Mr. Edelman began accruing an annual salary
of $150,000 as of February 1, 1999.
Employee Benefit Plans
1999 Long-Term Incentive Plan. We have adopted the Utopia
Marketing, Inc. 1999 Long-Term Incentive Plan (the "1999 Plan")
which provides for the grant of both nonstatutory stock options
and stock options intended to be treated as incentive stock
options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended. The 1999 Plan is intended to
provide incentives to, and rewards for, certain of our employees
and non-employee directors. Those eligible are people who have
contributed and will continue to contribute to our success.
Incentive stock options granted under the 1999 Plan are non-
transferable other than by will or by the laws of descent and
distribution. The 1999 Plan may be amended at any time by the
Board, although the Board may condition any amendment on the
approval of our shareholders if such approval is necessary or
advisable with respect to tax, securities or other applicable
laws. The total number of shares of common stock reserved for
issuance under the 1999 Plan is 1,500,000. We have granted
under the 1999 Plan stock options to acquire 150,000 shares of
common stock, 50,000 of which are currently exercisable. The
1999 Plan terminates in September 2009.
1991 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. An aggregate of 1,500,000 shares of Common
Stock have been reserved for issuance under the 1991 Plan. We
have issued 1,210,200 options under the 1991 Plan of which
36
<PAGE>
580,200 have been exercised. Although we are authorized to
grant up to 289,800 additional options under the 1991 Plan, the
Board of Directors has determined that no additional options
will be awarded under the 1991 Plan.
Under the 1991 Plan, stock options intended to qualify as
incentive stock options under Section 422 of the Internal
Revenue Code were granted to employees at prices not less than
the fair market value of the common stock on the date of grant.
The 1991 Plan permitted, and we have granted, from time to time,
non-statutory stock options at exercise prices less than the
fair market value of the common stock on the date of grant. The
1991 Plan specifies that our 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
that they continue to serve as directors. Such options were
granted at the fair market value of the common stock on the date
of the grant, vested over four years, and are exercisable only
while the outside Director remains a Director. The 1991 Plan
also permits us to grant rights to purchase common stock at a
price which is at 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.
Employment Agreements
In 1998, we entered into an employment agreement with Vance
Kistler, who currently serves as our Chief Financial Officer.
The employment agreement 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.
Compensation of Directors
Each of our non-employee directors is entitled to receive a
fee of $10,000 per year and $500 for attendance at each meeting
of the Board of Directors. In addition, each non-employee
director is entitled to receive $500 for attendance at each
meeting of a committee of the Board of Directors. However, each
of non-employee director has waived these fees for 1999. No
decision has yet been made as to whether the non-employee
directors will be waiving these fees for the 2000 calendar year.
Each of our non-employee directors is entitled to receive
options to purchase 5,000 shares of common stock upon their
appointment to the Board of Directors and is entitled to receive
an option to purchase 5,000 shares of common stock annually
thereafter, so long as they continue to serve on the Board of
Directors.
37
<PAGE>
All directors are reimbursed for out of pocket expenses
incurred in connection with attending meetings of the Board of
Directors.
38
<PAGE>
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 April 10, 2000 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>
Name and Address of Number of Shares
Beneficial Owner Beneficially Owned (1) Percent of Class
- ------------------- ---------------------- ----------------
<S> <C> <C>
Samuel L. Edelman (2)(5) 6,684,982 43.9%
Louise B. Edelman (3) 5,519,482 36%
Joel Solomon 710,000 4.7%
Bruce Oberfest 0 --
Vance Kistler(4) 50,000 *
Stuart Kreisler(5) 1,165,500 7.7%
Lane International Trading, Inc. 1,358,608 8.9%
31284 San Antonio Street
Hayward, CA 94544
Braha Industries, Inc. 1,339,260 8.8%
1 East 33rd Street
New York, NY 10016
Ipanema Shoe Corporation 1,000,000 6.6%
c/o Sumitomo Corporation of America
600 Third Avenue
New York, NY 10116
All Directors and Executive Officers 7,444,982 48.8%
as a Group (5 persons) (6)
------------------------------
</TABLE>
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission, based on
factors including voting and investment power with respect to
shares, subject to the applicable community property laws. The
percentage of beneficial ownership is based on 15,216,367
shares of common stock outstanding as of April 10, 2000.
Also, shares of common stock subject to options or warrants
currently exercisable, or exercisable within 60 days of
April 10, 2000, are deemed outstanding for the purpose of
computing the percentage ownership of the person holding such
options or warrants, but are not deemed outstanding for
computing the percentage ownership of any other person
(2) 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 with respect to which he does not
admit beneficial ownership.
39
<PAGE>
(3) Includes 2,581,072 shares owned by Samuel L. Edelman over
which Ms. Edelman shares control, and 400,160 shares owned by
Ms. Edelman's relatives with respect to which she does not
admit beneficial ownership.
(4) Includes 50,000 options, which are currently exercisable.
(5) Stuart Kreisler holds 1,165,500 shares of common stock of the
Company under an Amended and Restated Shareholders Agreement.
The Agreement terminates on April 30, 2002. Pursuant to the
Agreement, Samuel L. Edelman effectively exercises voting
control over all of the shares of Common Stock held by
Stuart Kreisler.
(6) Includes 50,000 options awarded to one officer which are
currently exercisable.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
40
<PAGE>
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 18 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*
10.2 1999 Long-Term Incentive Plan
10.3 Employment Agreement between Utopia
Marketing, Inc. and Vance Kistler
10.4 Asset Purchase Agreement, dated as of
October 5, 1999, by and among Utopia
Marketing, Inc., Ipanema Shoe Corporation
and Sumitomo Corporation of America**
10.5 Subordinated Convertible Promissory Note,
dated October 5, 1999, issued by Utopia
Marketing, Inc. to Ipanema Shoe Corporation**
10.6 Collection Services Agreement dated as of
October 5, 1999 between Utopia Marketing,
Inc., Ipanema Shoe Corporation and Sumitomo
Corporation of America**
16 Letter, dated March 17, 1999, from Michael
Adest & Blumenkrantz addressed to the
Securities and Exchange Commission***
24 Power of Attorney (Included on Signature
Page)
41
<PAGE>
27 Financial Data Schedule
* Filed with the Company's Annual Report on Form 10-KSB,
filed with the Securities and Exchange Commission on April 19,
1999, and incorporated herein by reference.
** Filed in a Form 8-K which was filed with the Securities and
Exchange Commission on October 20, 1999, and incorporated herein
by reference.
*** Filed in a Form 8-K which was filed with the Securities and
Exchange Commission on March 18, 1999, and incorporated herein
by reference.
(b) The Company filed the following Reports on Form 8-K during
its last fiscal quarter:
On March 24, 2000, we filed an amendment to our Form 8-K
originally filed with the Securities and Exchange Commission on
October 20, 1999 in connection with the acquisition of certain
assets of Ipanema Shoe Corporation.
42
<PAGE>
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 on the 17th day of April, 2000.
UTOPIA MARKETING, INC.
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.
Signature Title Date
/s/Samuel L. Edelman
- ----------------------
Samuel L. Edelman President, Chief Executive Officer,
and Director (Principal Executive
Officer) April 17, 2000
/s/Vance Kistler
- ----------------------
Vance Kistler (Chief Financial Officer) April 17, 2000
/s/Louise B. Edelman
- ----------------------
Louise B. Edelman Executive Vice President of
Corporate Development, Secretary
and Director April 17, 2000
/s/Joel Solomon
- ----------------------
Joel Solomon Chief Operating Officer, April 17, 2000
Director
/s/Bruce Oberfest
- ----------------------
Bruce Oberfest Director April 17, 2000
/s/Robert Wildrick
- ----------------------
Robert Wildrick Director April 17, 2000
/s/Stuart Kreisler
- ----------------------
Stuart Kreisler Director April 17, 2000
43
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
10.2 1999 Long-Term Incentive Plan
10.3 Employment Agreement between Utopia
Marketing, Inc. and Vance Kistler
27 Financial Data Schedule
<PAGE>
UTOPIA MARKETING, INC.
1999 LONG-TERM INCENTIVE PLAN
I. PURPOSE
The Utopia Marketing, Inc. 1999 Long-Term Incentive Plan is
adopted effective September 1, 1999. The Plan is designed to
attract, retain and motivate selected Key Employees and Key Non-
Employees of the Company and its Affiliates, and reward them for
making major contributions to the success of the Company and its
Affiliates. These objectives are accomplished by making long-
term incentive awards under the Plan that will offer
Participants an opportunity to have a greater proprietary
interest in, and closer identity with, the Company and its
Affiliates and their financial success.
The Awards may consist of:
1. Incentive Options;
2. Nonstatutory Options;
3. Formula Options;
4. Restricted Stock;
5. Rights;
6. Dividend Equivalents;
7. Performance Awards; or
8. Cash Awards.
or any combination of the foregoing, as the Committee may determine.
II. DEFINITIONS
A. "Affiliate" means any individual, corporation,
partnership, association, joint-stock company, trust,
unincorporated association or other entity (other than the
Company) that, for purposes of Section 422 of the Code, is a
parent or subsidiary of the Company, direct or indirect.
B. "Award" means the grant to any Key Employee or Key Non-
Employee of any form of Option, Restricted Stock, Right,
Performance Award, or Cash Award, whether granted singly, in
combination, or in tandem, and pursuant to such terms,
<PAGE>
conditions, and limitations as the Committee may establish in
order to fulfill the objectives of the Plan.
C. "Award Agreement" means a written agreement entered into
between the Company and a Participant under which an Award is
granted and which sets forth the terms, conditions, and
limitations applicable to the Award.
D. "Board" means the Board of Directors of the Company.
E. "Cash Award" means an Award of cash, subject to the
requirements of Article XIII and such other restrictions as the
Committee deems appropriate or desirable.
F. "Code" means the Internal Revenue Code of 1986, as
amended from time to time, or any successor statute thereto.
References to any provision of the Code shall be deemed to
include regulations thereunder and successor provisions and
regulations thereto.
G. "Committee" means the committee to which the Board
delegates the power to act under or pursuant to the provisions
of the Plan, or the Board if no committee is selected. If the
Board delegates powers to a committee, and if the Company is or
becomes subject to Section 16 of the Exchange Act, then, if
necessary for compliance therewith, such committee shall consist
initially of not less than two (2) members of the Board, each
member of which must be a "non-employee director", within the
meaning of the applicable rules promulgated pursuant to the
Exchange Act. If the Company is or becomes subject to Section
16 of the Exchange Act, no member of the Committee shall receive
any Award pursuant to the Plan or any similar plan of the
Company or any Affiliate while serving on the Committee, unless
the Board determines that the grant of such an Award satisfies
the then current Rule 16b-3 requirements under the Exchange Act.
Notwithstanding anything herein to the contrary, and insofar as
it is necessary in order for compensation recognized by
Participants pursuant to the Plan to be fully deductible to the
Company for federal income tax purposes, each member of the
Committee also shall be an "outside director" (as defined in
regulations or other guidance issued by the Internal Revenue
Service under Code Section 162(m)).
H. "Common Stock" means the common stock, par value $.001,
of the Company.
I. "Company" means Utopia Marketing, Inc., a Florida
corporation, and includes any successor or assignee corporation
or corporations into which the Company may be merged, changed,
or consolidated; any corporation for whose securities the
securities of the Company shall be exchanged; and any assignee
of or successor to substantially all of the assets of the
Company.
<PAGE> 2
J. "Disability" or "Disabled" means a permanent and total
disability as defined in Section 22(e)(3) of the Code.
K. "Dividend Equivalent" means an Award subject to the
requirements of Article XI.
L. "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, or any successor statute thereto.
References to any provision of the Exchange Act shall be deemed
to include rules thereunder and successor provisions and rules
thereto.
M. "Fair Market Value" means, if the Shares are listed on
any national securities exchange, the closing sales price, if
any, on the largest such exchange on the valuation date, or, if
none, on the most recent trade date immediately prior to the
valuation date provided such trade date is no more than thirty
(30) days prior to the valuation date. If the Shares are not
then listed on any such exchange, the fair market value of such
Shares shall be the closing sales price if such is reported, or
otherwise the mean between the closing "Bid" and the closing
"Ask" prices, if any, as reported in the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") for the
valuation date, or if none, on the most recent trade date
immediately prior to the valuation date provided such trade date
is no more than thirty (30) days prior to the valuation date.
If the Shares are not then either listed on any such exchange or
quoted in NASDAQ, or there has been no trade date within such
thirty (30) day period, the fair market value shall be the mean
between the average of the "Bid" and the average of the "Ask"
prices, if any, as reported in the National Daily Quotation
System for the valuation date, or, if none, for the most recent
trade date immediately prior to the valuation date provided such
trade date is no more than thirty (30) days prior to the
valuation date. If the fair market value cannot be determined
under the preceding three sentences, it shall be determined in
good faith by the Committee.
N. "Formula Option" means a Nonstatutory Option granted
automatically to a Non-Employee Board Member upon his or her
initial election, and any subsequent re-election, as a Non-
Employee Board Member.
O. "Incentive Option" means an Option that, when granted, is
intended to be an "incentive stock option", as defined in
Section 422 of the Code.
P. "Key Employee" means an employee of the Company or of an
Affiliate who is designated by the Committee as being eligible
to be granted one or more Awards under the Plan.
Q. "Key Non-Employee" means a Non-Employee Board Member,
consultant, advisor or independent contractor of the Company or
of an Affiliate who is designated by the Committee as being
<PAGE> 3
eligible to be granted one or more Awards under the Plan.
R. "Non-Employee Board Member" means a director of the
Company who is not an employee of the Company or any of its
Affiliates.
S. "Nonstatutory Option" means an Option that, when granted,
is not intended to be an "incentive stock option", as defined in
Section 422 of the Code.
T. "Option" means a right or option to purchase Common
Stock, including Restricted Stock if the Committee so
determines.
U. "Participant" means a Key Employee or Key Non-Employee to
whom one or more Awards are granted under the Plan.
V. "Performance Award" means an Award subject to the
requirements of Article XII, and such performance conditions as
the Committee deems appropriate or desirable.
W. "Plan" means the Utopia Marketing, Inc. 1999 Long-Term
Incentive Plan, as amended from time to time.
X. "Restricted Stock" means an Award made in Common Stock or
denominated in units of Common Stock and delivered under the
Plan, subject to the requirements of Article IX, such other
restrictions as the Committee deems appropriate or desirable,
and as awarded in accordance with the terms of the Plan.
Y. "Right" means a stock appreciation right delivered under
the Plan, subject to the requirements of Article X and as
awarded in accordance with the terms of the Plan.
Z. "Shares" means the following shares of the capital stock
of the Company as to which Options or Restricted Stock have been
or may be granted under the Plan and upon which Rights or units
of Restricted Stock may be based : treasury or authorized but
unissued Common Stock of the Company, or any shares of capital
stock into which the Shares are changed or for which they are
exchanged within the provisions of Article XIX of the Plan.
III. SHARES SUBJECT TO THE PLAN
The aggregate number of Shares as to which Awards may be
granted from time to time (subject to adjustment for stock
splits, stock dividends, and other adjustments described in
Article XIX hereof) shall be 1,500,000.
From time to time, the Committee and appropriate officers
of the Company shall take whatever actions are necessary to file
<PAGE> 4
required documents with governmental authorities and stock
exchanges so as to make Shares available for issuance pursuant
to the Plan. Shares subject to Awards that are forfeited,
terminated, expire unexercised, canceled by agreement of the
Company and the Participant, settled in cash in lieu of Common
Stock or in such manner that all or some of the Shares covered
by such Awards are not issued to a Participant, or are exchanged
for Awards that do not involve Common Stock, shall immediately
become available for Awards. Awards payable in cash shall not
reduce the number of Shares available for Awards under the Plan.
Except as otherwise set forth herein, the aggregate number
of Shares as to which Awards may be granted shall be subject to
change only by means of an amendment of the Plan duly adopted by
the Company and approved by the shareholders of the Company
within one year before or after the date of the adoption of the
amendment.
IV. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee. A
majority of the Committee shall constitute a quorum at any
meeting thereof (including by telephone conference) and the acts
of a majority of the members present, or acts approved in
writing by a majority of the entire Committee without a meeting,
shall be the acts of the Committee for purposes of this Plan.
The Committee may authorize one or more of its members or an
officer of the Company to execute and deliver documents on
behalf of the Committee. A member of the Committee shall not
exercise any discretion respecting himself or herself under the
Plan. The Board shall have the authority to remove, replace or
fill any vacancy of any member of the Committee upon notice to
the Committee and the affected member. Any member of the
Committee may resign upon notice to the Board. The Committee
may allocate among one or more of its members, or may delegate
to an officer of the Company, such responsibility and authority
as it determines. Subject to the provisions of the Plan, the
Committee is authorized to:
A. Interpret the provisions of the Plan and any Award or
Award Agreement, and make all rules and determinations that it
deems necessary or advisable to the administration of the Plan;
B. Determine which employees of the Company or an Affiliate
shall be designated as Key Employees and which of the Key
Employees shall be granted Awards;
C. Determine the Key Non-Employees to whom Awards, other
than Incentive Options and Performance Awards for which Key Non-
Employees shall not be eligible, shall be granted;
<PAGE> 5
D. Determine whether an Option to be granted shall be an
Incentive Option or Nonstatutory Option;
E. Determine the number of Shares for which an Option or
Restricted Stock shall be granted;
F. Determine the number of Rights, the Cash Award or the
Performance Award to be granted;
G. Provide for the acceleration of the right to exercise any
Award; and
H. Specify the terms, conditions, and limitations upon which
Awards may be granted;
provided, however, that with respect to Incentive Options, all
such interpretations, rules, determinations, terms, and
conditions shall be made and prescribed in the context of
preserving the tax status of the Incentive Options as incentive
stock options within the meaning of Section 422 of the Code.
The Committee may delegate to one or more employees of the
Company or its Affiliates any duty, responsibility or authority
of the Committee under the Plan pursuant to such conditions or
limitations as the Committee may establish except that only the
Committee may select and grant Awards to Participants who are
subject to Section 16 of the Exchange Act. All determinations of
the Committee shall be made by a majority of its members. No
member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any
Award.
The Committee shall have the authority at any time to
cancel Awards for reasonable cause and to provide for the
conditions and circumstances under which Awards shall be
forfeited.
Any determination made by the Committee pursuant to the
provisions of the Plan shall be made in its sole discretion, and
in the case of any determination relating to an Award, may be
made at the time of the grant of the Award or, unless in
contravention of any express term of the Plan or an Agreement,
at any time thereafter. All decisions made by the Committee
pursuant to the provisions of the Plan shall be final and
binding on all persons, including the Company and the
Participants. No determination shall be subject to de novo
review if challenged in court.
V. ELIGIBILITY FOR PARTICIPATION
Awards may be granted under this Plan only to Key Employees
and Key Non-Employees of the Company or its Affiliates. The
foregoing notwithstanding, each Participant receiving an
Incentive Option must be a employee of the Company or of a
<PAGE> 6
corporation that is an Affiliate corporation at the time the
Incentive Option is granted.
The Committee may at any time and from time to time grant
one or more Awards to one or more Key Employees or Key Non-
Employees and may designate the number of Shares, if applicable,
to be subject to each Award so granted, provided, however that
no Incentive Option shall be granted after the expiration of ten
(10) years from the earlier of the date of the adoption of the
Plan by the Company or the approval of the Plan by the
shareholders of the Company, and provided further, that the Fair
Market Value of the Shares (determined at the time the Option is
granted) as to which Incentive Options are exercisable for the
first time by any Key Employee during any single calendar year
(under the Plan and under any other incentive stock option plan
of the Company or an Affiliate) shall not exceed One Hundred
Thousand Dollars ($100,000). To the extent that the Fair Market
Value of such Shares exceeds One Hundred Thousand Dollars
($100,000), the Shares subject to Option in excess of One
Hundred Thousand Dollars ($100,000) shall, without further
action by the Committee, automatically be converted to
Nonstatutory Options.
Notwithstanding any of the foregoing provisions, the
Committee may authorize the grant of an Award to a person not
then in the employ of, or engaged by, the Company or of an
Affiliate, conditioned upon such person becoming eligible to be
granted an Award at or prior to the execution of the Award
Agreement evidencing the actual grant of such Award.
VI. AWARDS UNDER THIS PLAN
As the Committee may determine, the following types of
Awards may be granted under the Plan on a stand alone,
combination, or tandem basis:
A. Incentive Option
An Award in the form of an Option that shall comply with
the requirements of Section 422 of the Code.
B. Nonstatutory Option
An Award in the form of an Option that shall not be
intended to comply with the requirements of Section 422 of the Code.
C. Formula Option
An Award in the form of an Option granted to a Non-Employee
Board Member at the time of his or her initial election to the
Board, or any subsequent re-election.
<PAGE> 7
D. Restricted Stock
An Award made to a Participant in Common Stock or
denominated in units of Common Stock, subject to future service
and such other restrictions and conditions as may be established
by the Committee, and as set forth in the Award Agreement,
including but not limited to continuous service with the Company
or its Affiliates, achievement of specific business objectives,
increases in specified indices, attaining growth rates, and
other measurements of Company or Affiliate performance.
E. Stock Appreciation Right
An Award in the form of a Right to receive the excess of
the Fair Market Value of a Share on the date the Right is
exercised over the Fair Market Value of a Share on the date the
Right was granted.
F. Dividend Equivalents
An Award in the form of and based upon the value of
dividends of Shares.
G. Performance Awards
An Award made to a Participant that is subject to
performance conditions specified by the Committee, including but
not limited to continuous service with the Company or its
Affiliates, achievement of specific business objectives,
increases in specified indices, attaining growth rates, and
other measurements of Company or Affiliate performance.
H. Cash Awards
An Award made to a Participant and denominated in cash,
with the eventual payment subject to future service and such
other restrictions and conditions as may be established by the
Committee, and as set forth in the Award Agreement.
Each Award under the Plan shall be evidenced by an Award
Agreement. Delivery of an Award Agreement to each Participant
shall constitute an agreement between the Company and the
Participant as to the terms and conditions of the Award.
VII. TERM AND CONDITIONS OF INCENTIVE OPTIONS AND NONSTATUTORY OPTIONS
Each Option shall be set forth in an Award Agreement, duly
executed on behalf of the Company and by the Participant to whom
such Option is granted. Except for the setting of the Option
price under Paragraph A, no Option shall be granted and no
purported grant of any Option shall be effective until such
Award Agreement shall have been duly executed on behalf of the
<PAGE> 8
Company and by the Participant. Each such Award Agreement shall
be subject to at least the following terms and conditions:
A. Option Price
The purchase price of the Shares covered by each Option
granted under the Plan shall be determined by the Committee.
The Option price per share of the Shares covered by each
Nonstatutory Option shall be at such amount as may be determined
by the Committee in its sole discretion on the date of the grant
of the Option. In the case of an Incentive Option, if the
Participant owns directly or by reason of the applicable
attribution rules ten percent (10%) or less of the total
combined voting power of all classes of share capital of the
Company, the Option price per share of the Shares covered by
each Incentive Option shall be not less than the Fair Market
Value of the Shares on the date of the grant of the Incentive
Option. In all other cases of incentive Options, the Option
price shall be not less than one hundred ten percent (110%) of
the Fair Market Value on the date of grant.
B. Number of Shares
Each Option shall state the number of Shares to which it
pertains.
C. Term of Option
Each Incentive Option shall terminate not more than ten
(10) years from the date of the grant thereof, or at such
earlier time as the Award Agreement may provide, and shall be
subject to earlier termination as herein provided, except that
if the Option price is required under Paragraph A of this
Article VII to be at least one hundred ten percent (110%) of
Fair Market Value, each such Incentive Option shall terminate
not more than five (5) years from the date of the grant thereof,
and shall be subject to earlier termination as herein provided.
The Committee shall determine the time at which a Nonstatutory
Option shall terminate.
D. Date of Exercise
Upon the authorization of the grant of an Option, or at any
time thereafter, the Committee may, subject to the provisions of
Paragraph C of this Article VII, prescribe the date or dates on
which the Option becomes exercisable, and may provide that the
Option become exercisable in installments over a period of
years, or upon the attainment of stated goals. The Committee,
in its discretion, shall have the power to accelerate the date
or dates on which the Option becomes exercisable.
E. Medium of Payment
The Option price shall be payable upon the exercise of the
Option, as set forth in Paragraph A of this Article VII. It
shall be payable in such form (permitted by Section 422 of the
Code in the case of Incentive Options) as the Committee shall,
<PAGE> 9
either by rules promulgated pursuant to the provisions of
Article IV of the Plan, or in the particular Award Agreement,
provide.
F. Termination of Employment
1. A Participant who ceases to be an employee or Key
Non-Employee of the Company or of an Affiliate for any reason
other than death, Disability, or termination "for cause", as
defined in subparagraph 2. below, may exercise any Option
granted to such Participant, to the extent that the right to
purchase Shares thereunder has become exercisable on the date of
such termination, but only until the earlier of (i) the
expiration of three (3) months after such date, or (ii) the
expiration of the originally prescribed term of the Option. A
Participant's employment shall not be deemed terminated by
reason of a transfer to another employer that is the Company or
an Affiliate, except that in the case of an Incentive Option
such Affiliate must be a corporation.
2. A Participant who ceases to be an employee or Key
Non-Employee of the Company or of an Affiliate "for cause"
shall, upon such termination, cease to have any right to
exercise any Option. For purposes of this Plan, cause shall
mean (i) a Participant's theft or embezzlement, or attempted
theft or embezzlement, of money or property of the Company or of
an Affiliate, a Participant's perpetration or attempted
perpetration of fraud, or a Participant's participation in a
fraud or attempted fraud, on the Company or an Affiliate or a
Participant's unauthorized appropriation of, or a Participant's
attempt to misappropriate, any tangible or intangible assets or
property of the Company or an Affiliate; (ii) any act or acts of
disloyalty, dishonesty, misconduct, moral turpitude, or any
other act or acts by a Participant injurious to the interest,
property, operations, business or reputation of the Company or
an Affiliate; (iii) a Participant's commission of a felony or
any other crime the commission of which results in injury to the
Company or an Affiliate; or (iv) any violation of any
restriction on the disclosure or use of confidential information
of the Company or an Affiliate, or client, prospect, or merger
or acquisition target, or on competition with the Company or an
Affiliate or any of its businesses as then conducted. The
determination of the Committee as to the existence of cause
shall be conclusive and binding upon the Participant and the
Company.
3. A Participant who is absent from work with the
Company or an Affiliate because of temporary disability (any
disability other than a Disability), or who is on leave of
absence, shall not, during the period of any such absence, be
deemed, by virtue of such absence alone, to have terminated his
or her employment or relationship with the Company or with an
Affiliate, except as the Committee may otherwise expressly
provide or determine.
4. Paragraph F.1. shall control and fix the rights of a
Participant who ceases to be an employee or Key Non-Employee of
the Company or of an Affiliate for any reason other than
<PAGE> 10
Disability, death, or termination "for cause", and who
subsequently becomes Disabled or dies. Nothing in Paragraphs Q
and H of this Article VII shall be applicable in any such case
except that, in the event of such a subsequent Disability or
death within the three (3) month period after the termination of
employment or, if earlier, within the originally prescribed term
of the Option, the Participant or the Participant's estate or
personal representative may exercise the Option permitted by
this Paragraph F within twelve (12) months after the date of
Disability or death of such Participant, but in no event beyond
the originally prescribed term of the Option.
G. Total and Permanent Disability
A Participant who ceases to be an employee or Key Non-
Employee of the Company or of an Affiliate by reason of
Disability may exercise any Option granted to such Participant
(i) to the extent that the right to purchase Shares thereunder
has become exercisable on or before the date such Participant
becomes Disabled as determined by the Committee, and (ii) if the
Option becomes exercisable periodically, to the extent of any
additional rights that would have become exercisable had the
Participant not become so Disabled until after the close of
business on the next periodic, exercise date.
A Disabled Participant shall exercise such rights, if at
all, only within a period of not more than twelve (12) months
after the date that the Participant became Disabled as
determined by the Committee (notwithstanding that the
Participant might have been able to exercise the Option as to
some or all of the Shares on a later date if the Participant had
not become Disabled) or, if earlier, within the originally
prescribed term of the Option.
H. Death
In the event that a Participant to whom an Option has been
granted ceases to be an employee or Key Non-Employee of the
Company or of an Affiliate by reason of such Participant's
death, such Option, to the extent that the right is exercisable
but not exercised on the date of death, may be exercised by the
Participant's estate or personal representative within twelve
(12) months after the date of death of such Participant or, if
earlier, within the originally prescribed term of the Option,
notwithstanding that the decedent might have been able to
exercise the Option as to some or all of the Shares on a later
date if the Participant were alive and had continued to be an
employee or Key Non-Employee of the Company or of an Affiliate.
I. Exercise of Option and Issuance of Stock
Options shall be exercised by giving written notice to the
Company. Such written notice shall: (i) be signed by the
person exercising the Option; (ii) state the number of Shares
<PAGE 11
with respect to which the Option is being exercised;
(iii) contain the warranty required by paragraph M of this
Article VII, if applicable; and (iv) specify a date (other than
a Saturday, Sunday or legal holiday) not less than five (5) nor
more than ten (10) days after the date of such written notice,
as the date on which the Shares will be purchased. Such tender
and conveyance shall take place at the principal office of the
Company during ordinary business hours, or at such other hour
and place agreed upon by the Company and the person or persons
exercising the Option. On the date specified in such written
notice (which date may be extended by the Company in order to
comply with any law or regulation that requires the Company to
take any action with respect to the Option Shares prior to the
issuance thereof), the Company shall accept payment for the
Option Shares in cash, by bank or certified check, by wire
transfer, or by such other means as may be approved by the
Committee and shall deliver to the person or persons exercising
the Option in exchange therefor an appropriate certificate or
certificates for fully paid nonassessable Shares or undertake to
deliver certificates within a reasonable period of time. In the
event of any failure to take up and pay for the number of Shares
specified in such written notice on the date set forth therein
(or on the extended date as above provided), the right to
exercise the Option shall terminate with respect to such number
of Shares, but shall continue with respect to the remaining
Shares covered by the Option and not yet acquired pursuant
thereto.
If approved in advance by the Committee, payment in full or
in part also may be made (i) by delivering Shares already owned
by the Participant having a total Fair Market Value on the date
of such delivery equal to the Option price; (ii) by the
execution and delivery of a note or other evidence of
indebtedness (and any security agreement thereunder)
satisfactory to the Committee; (iii) by authorizing the Company
to retain Shares that otherwise would be issuable upon exercise
of the Option having a total Fair Market Value on the date of
delivery equal to the Option price; (iv) by the delivery of cash
or the extension of credit by a broker-dealer to whom the
Participant has submitted a notice of exercise or otherwise
indicated an intent to exercise an Option (in accordance with
part 220, Chapter II, Title 12 of the Code of Federal
Regulations, a so-called "cashless" exercise); or (v) by any
combination of the foregoing.
J. Rights as a Shareholder
No participant to whom an Option has been granted shall
have rights as a shareholder with respect to any Shares covered
by such Option except as to such Shares as have been registered
in the Company's share register in the name of such Participant
upon the due exercise of the Option and tender of the full
Option price.
K. Assignability and Transferability of Option
Unless otherwise permitted by the Code and by Rule 16b-3 of
the Exchange Act, if applicable, and approved in advance by the
Committee, an Option granted to a Participant shall not be
<PAGE> 12
transferable by the Participant and shall be exercisable, during
the Participant's lifetime, only by such Participant or, in the
event of the Participant's incapacity, his guardian or legal
representative. Except as otherwise permitted herein, such
Option shall not be assigned, pledged, or hypothecated in any
way (whether by operation of law or otherwise) and shall not be
subject to execution, attachment, or similar process and any
attempted transfer, assignment, pledge, hypothecation or other
disposition of any Option or of any rights granted thereunder
contrary to the provisions of this Paragraph K, or the levy of
any attachment or similar process upon an option or such rights,
shall be null and void.
L. Other Provisions
The Award Agreement for an Incentive Option shall contain
such limitations and restrictions upon the exercise of the
Option as shall be necessary in order that such Option can be an
"incentive stock option" within the meaning of Section 422 of
the Code. Further, the Award Agreements authorized under the
Plan shall be subject to such other terms and conditions
including, without limitation, restrictions upon the exercise of
the Option, as the Committee shall deem advisable and which, in
the case of Incentive Options, are not inconsistent with the
requirements of Section 422 of the Code.
M. Purchase for Investment
If Shares to be issued upon the particular exercise of an
Option shall not have been effectively registered under the
Securities Act of 1933, as now in force or hereafter amended,
the Company shall be under no obligation to issue the Shares
covered by such exercise unless and until the following
conditions have been fulfilled. The person who exercises such
Option shall warrant to the Company that, at the time of such
exercise, such person is acquiring his or her Option Shares for
investment and not with a view to, or for or in connection with,
the distribution of any such Shares, and shall make such other
representations, warranties, acknowledgments, and affirmations,
if any, as the Committee may require. In such event, the person
acquiring such Shares shall be bound by the provisions of the
following legend (or similar legend) which shall be endorsed
upon the certificate(s) evidencing his or her Option Shares
issued pursuant to such exercise.
"The shares represented by this
certificate have been acquired for
investment and they may not be sold or
otherwise transferred by any person,
including a pledgee, in the absence of an
effective registration statement for the
shares under the Securities Act of 1933 or
an opinion of counsel satisfactory to the
Company that an exemption from registration
is then available."
<PAGE> 13
Without limiting the generality of the foregoing, the Company
may delay issuance of the Shares until completion of any action
or obtaining any consent that the Company deem necessary under
any applicable law (including without limitation state
securities or "blue sky" laws).
VIII. FORMULA OPTIONS
A. Each Non-Employee Board Member shall be granted
automatically a Formula Option to purchase 5,000 Shares upon his
or her initial election and qualification as a Non-Employee
Board Member, and, thereafter, shall be granted automatically a
Formula Option to purchase 5,000 Shares upon each re-election
and qualification as a Non-Employee Board Member.
B. The purchase price of the Shares subject to the Formula
Option shall be equal to one hundred percent (100%) of the Fair
Market Value as of the date of grant.
C. The Shares subject to the Formula Option granted to a
Non-Employee Board Members shall become exercisable
cumulatively, in accordance with the following schedule:
Percentage of
Years Elapsed Shares for Which Formula
Since Date of Grant Option May Be Exercised
------------------- ------------------------
Less than 1 0%
1 or more 100%
The foregoing schedule notwithstanding, if a Non-Employee Board
Member shall cease to be a director of the Company because of
death or Disability, all Shares for which a Formula Option has
been granted shall become immediately exercisable and shall be
exercisable in accordance with Paragraphs G and H of
Article VII. If a Non-Employee Board Member ceases to be a
director of the Company for any reason other than death or
Disability, his or her right to exercise the Formula Option, and
the timing of such exercise, shall be governed by the applicable
provisions of Paragraph F of Article VII.
D. Formula Options shall be evidenced by an Award Agreement
which shall conform to the requirements of the Plan, and may
contain such other provisions not inconsistent therewith, as the
Committee shall deem advisable. The provisions of Article VII
governing Nonstatutory Options, and the exercise and issuance
thereof, shall apply to Formula Options to the extent such
provisions are not inconsistent with this Article VIII.
<PAGE> 14
IX. TERMS AND CONDITIONS OF RESTRICTED STOCK
A. The Committee may from time to time grant an Award in
Shares of Common Stock or grant an Award denominated in units of
Common Stock, for such consideration, if any, as the Committee
deems appropriate (which amount may be less than the Fair Market
Value of the Common Stock on the date of the Award), and subject
to such restrictions and conditions and other terms as the
Committee may determine at the time of the Award (including, but
not limited to, continuous service with the Company or its
Affiliates, achievement of specific business objectives,
increases in specified indices, attaining growth rates, and
other measurements of Company or Affiliate performance), and
subject further to the general provisions of the Plan, the
applicable Award Agreement and the following specific rules.
B. If Shares of Restricted Stock are awarded, such Shares
cannot be assigned, sold, transferred, pledged, or hypothecated
prior to the lapse of the restrictions applicable thereto, and,
in no event, absent Committee approval, prior to six (6) months
from the date of the Award. The Company shall issue, in the
name of the Participant, stock certificates representing the
total number of Shares of Restricted Stock awarded to the
Participant, as soon as may be reasonably practicable after the
grant of the Award, which certificates shall be held by the
Secretary of the Company as provided in Paragraph G.
C. Restricted Stock issued to a Participant under the Plan
shall be governed by an Award Agreement that shall specify
whether Shares of Common Stock are awarded to the Participant,
or whether the Award shall be one not of Shares of Common Stock
but one denominated in units of Common Stock, any consideration
required thereto, and such other provisions as the Committee
shall determine.
D. Subject to the provisions of Paragraphs B and E hereof
and the restrictions set forth in the related Award Agreement,
the Participant receiving an Award of Shares of Restricted Stock
shall thereupon be a shareholder with respect to all of the
Shares represented by such certificate or certificates and shall
have the rights of a shareholder with respect to such Shares,
including the right to vote such Shares and to receive dividends
and other distributions made with respect to such Shares. All
Common Stock received by a Participant as the result of any
dividend on the Shares of Restricted Stock, or as the result of
any stock split, stock distribution, or combination of the
Shares affecting Restricted Stock, shall be subject to the
restrictions set forth in the related Award Agreement.
E. Restricted Stock or units of Restricted Stock awarded to
a Participant pursuant to the Plan will be forfeited, and any
Shares of Restricted Stock or units of Restricted Stock sold to
a Participant pursuant to the Plan may, at the Company's option,
be resold to the Company for an amount equal to the price paid
therefor, and in either case, such Restricted Stock or units of
Restricted Stock shall revert to the Company, if the Company so
<PAGE> 15
determines in accordance with Article XIV or any other condition
set forth in the Award Agreement, or, alternatively, if the
Participant's employment with the Company or its Affiliates
terminates, other than for reasons set forth in Article XIV,
prior to the expiration of the forfeiture or restriction
provisions set forth in the Award Agreement.
F. The Committee, in its discretion, shall have the power to
accelerate the date on which the restrictions contained in the
Award Agreement shall lapse with respect to any or all
Restricted Stock awarded under the Plan.
G. The Secretary of the Company shall hold the certificate
or certificates representing Share of Restricted Stock issued
under the Plan, properly endorsed for transfer, on behalf of
each Participant who holds such Shares, until such time as the
Shares of Restricted Stock are forfeited, resold to the Company,
or the restrictions lapse. Any Restricted Stock denominated in
units of Common Stock, if not previously forfeited, shall be
payable in accordance with Article XVI as soon as practicable
after the restrictions lapse.
H. The Committee may prescribe such other restrictions,
conditions, and terms applicable to Restricted Stock issued to a
Participant under the Plan that are neither inconsistent with
nor prohibited by the Plan or the Award Agreement, including,
without limitation, terms providing for a lapse of the
restrictions of this Article or any Award Agreement in
installments.
X. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
If deemed by the Committee to be in the best interests of
the Company, a Participant may be granted a Right. Each Right
shall be granted subject to such restrictions and conditions and
other terms as the Committee may specify in the Award Agreement
at the time the Right is granted, subject to the general
provisions of the Plan, and the following specific rules.
A. Rights may be granted, if at all, either singly, in
combination with another Award, or in tandem with another Award.
At the time of grant of a Right, the Committee shall specify the
base price of Common Stock to be used in connection with the
calculation described in Paragraph B below, provided that the
base price shall not be less than one hundred percent (100%) of
the Fair Market Value of a Share of Common Stock on the date of
grant, unless approved by the Board.
B. Upon exercise of a Right, which shall be not less than
six (6) months from the date of the grant, the Participant shall
be entitled to receive in accordance with Article XVI, and as
soon as practicable after exercise, the excess of the Fair
Market Value of one Share of Common Stock on the date of
exercise over the base price specified in such Right, multiplied
by the number of Shares of Common Stock then subject to the
Right, or the portion thereof being exercised.
<PAGE> 16
C. Notwithstanding anything herein to the contrary, if the
Award granted to a Participant allows him or her to elect to
cancel all or any portion of an unexercised Option by exercising
an additional or tandem Right, then the Option price per Share
of Common Stock shall be used as the base price specified in
Paragraph A to determine the value of the Right upon such
exercise and, in the event of the exercise of such Right, the
Company's obligation with respect to such Option or portion
thereof shall be discharged by payment of the Right so
exercised, In the event of such a cancellation, the number of
Shares as to which such Option was canceled shall become
available for use under the Plan, less the number of Shares, if
any, received by the Participant upon such cancellation in
accordance with Article XVI.
D. A Right may be exercised only by the Participant (or, if
applicable under Article XV, by a legatee or legatees of such
Right, or by the Participant's executors, personal
representatives or distributees).
XI. TERMS AND CONDITIONS OF DIVIDEND EQUIVALENTS
A Participant may be granted an Award in the form of
Dividend Equivalents. Such an Award shall entitle the
Participant to receive cash, Shares, other Awards or other
property equal in value to dividends paid with respect to a
specified number of Shares. Dividend Equivalents may be awarded
on a free-standing basis or in connection with another Award.
The Committee may provide that Dividend Equivalents shall be
paid or distributed when accrued or shall be deemed to have been
reinvested in additional Shares, Awards or other investment
vehicles, and subject to such restrictions on transferability
and risks of forfeiture, as the Committee may specify.
XII. TERMS AND CONDITIONS OF PERFORMANCE AWARDS
A. A Participant may be granted an Award that is subject to
performance conditions specified by the Committee. The
Committee may use business criteria and other measures of
performance it deems appropriate in establishing any performance
conditions (including, but not Limited to, continuous service
with the Company or its Affiliates, achievement of specific
business objectives, increases in specified indices, attaining
growth rates, and other measurements of Company or Affiliate
performance), and may exercise its discretion to reduce or
increase the amounts payable under any Award subject to
performance conditions, except as otherwise limited under
Paragraphs C and D, below, in the case of a Performance Award
intended to qualify under Code Section 162(m).
B. Any Performance Award will be forfeited if the Company so
determines in accordance with Article XV or any other condition
set forth in the Award Agreement, or, alternatively, if the
Participant's employment with the Company or its Affiliates
terminates, other than for reasons set forth in Article XIV,
<PAGE> 17
prior to the expiration of the time period over which the
performance conditions are to be measured.
C. If the Committee determines that a Performance Award to
be granted to a Key Employee should qualify as "performance-
based compensation" for purposes of Code Section 162(m), the
grant and/or settlement of such Performance Award shall be
contingent upon achievement of preestablished performance goals
and other terms set forth in this Paragraph C.
1. Performance Goals Generally. The performance goals
---------------------------
for such Performance Awards shall consist of one or more
business criteria and a targeted level or levels of performance
with respect to such criteria, as specified by the Committee
consistent with this Paragraph C. Performance goals shall be
objective and shall otherwise meet the requirements of Code
Section 162(m), including the requirement that the level or
levels of performance targeted by the Committee result in the
performance goals being "substantially uncertain". The
Committee may determine that more than one performance goal must
be achieved as a condition to settlement of such Performance
Awards. Performance goals may differ for Performance Awards
granted to any one Participant or to different Participants.
2. Business Criteria. One or more of the following
------------------
business criteria for the Company, on a consolidated basis,
and/or for specified Affiliates or business units of the Company
(except with respect to the total shareholder return and
earnings per share criteria), shall be used exclusively by the
Committee in establishing performance goals for such Performance
Awards: (a) total shareholder return; (b) such total
shareholder return as compared to the total return (on a
comparable basis) of a publicly available index such as, but not
limited to, the Standard & Poor's 500 or the Nasdaq-U.S. Index;
(c) net income; (d) pre-tax earnings; (e) EBITDA; (f) pre-tax
operating earnings after interest expense and before bonuses,
service fees, and extraordinary or special items; (g) operating
margin; (h) earnings per share; (i) return on equity; (j) return
on capital; (k) return on investment; (l) operating income,
excluding the effect of charges for acquired in-process
technology and before payment of executive bonuses; (m) earnings
per share, excluding the effect of charges for acquired in-
process technology and before payment of executive bonuses;
(n) working capital; (o) sales; and (p) total revenues. The
foregoing business criteria also may be used in establishing
performance goals for Cash Awards granted under Article XII
hereof.
D. Achievement of performance goals in respect of such
Performance Awards shall be measured over such periods as may be
specified by the Committee. Performance goals shall be
established on or before the dates that are required or
permitted for "performance-based compensation" under Code
Section 162(m).
E. Settlement of Performance Awards may be in cash or
Shares, or other property, in the discretion of the Committee.
The Committee may, in its discretion, reduce the amount of a
<PAGE> 18
settlement otherwise to be made in connection with such
Performance Awards, but may not exercise discretion to increase
any such amount payable in respect of a Performance Award that
is subject to Code Section 162(m).
XIII. TERMS AND CONDITIONS OF CASH AWARDS
A. The Committee may from time to time authorize the award
of cash payments under the Plan to Participants, subject to such
restrictions and conditions and other terms as the Committee may
determine at the time of authorization (including, but not
limited to, continuous service with the Company or its
Affiliates, achievement of specific business objectives,
increases in specified indices, attaining growth rates, and
other measurements of Company or Affiliate performance), and
subject to the general provisions of the Plan, the applicable
Award Agreement, and the following specific rules.
B. Any Cash Award will be forfeited if Company so
determines in accordance with Article XIII or any other
condition set forth in the Award Agreement, or, alternatively,
if the Participant's employment or engagement with the Company
or its Affiliates terminates, other than for reasons set forth
in Article XIV, prior to the attainment of any goals set forth
in the Award Agreement or prior to the expiration of the
forfeiture or restriction provisions set forth in the Award
Agreement, whichever is applicable.
C. The Committee, in its discretion, shall have the power to
change the date on which the restrictions contained in the Award
Agreement shall lapse, or the date on which goals are to be
measured, with respect to any Cash Award.
D. Any Cash Award, if not previously forfeited, shall be
payable in accordance with Article XVI as soon as practicable
after the restrictions lapse or the goals are attained.
E. The Committee may prescribe such other restrictions,
conditions, and terms applicable to the Cash Awards issued to a
Participant under the Plan that are neither inconsistent with
nor prohibited by the Plan or the Award Agreement, including,
without limitation, terms providing for a lapse of the
restrictions, or a measurement of the goals, in installments.
XIV. TERMINATION OF EMPLOYMENT
Except as may otherwise be (i) provided in Article VII for
Options, (ii) provided for under the Award Agreement, or
(iii) permitted pursuant to Paragraphs A through C of this
Article XIV (subject to the limitations under the Code for
Incentive Options), if the employment of a Participant
terminates, all unexpired, unpaid, unexercised, or deferred
Awards shall be canceled immediately.
<PAGE> 19
A. Retirement Under a Company or Affiliate Retirement Plan.
When a Participant's employment terminates as a result of
retirement as defined under a Company or Affiliate retirement
plan, the Committee may permit Awards to continue in effect
beyond the date of retirement in accordance with the applicable
Award Agreement, and/or the exercisability and vesting of any
Award may be accelerated.
B. Resignation In the Best Interests of the Company or an
Affiliate. When a Participant resigns from the Company or an
Affiliate and, in the judgment of the chief executive officer or
other senior officer designated by the Committee, the
acceleration and/or continuation of outstanding Awards would be
in the best interests of the Company, the Committee may
(i) authorize, where appropriate, the acceleration and/or
continuation of all or any part of Awards granted prior to such
termination and (ii) permit the exercise, vesting, and payment
of such Awards for such period as may be set forth in the
applicable Award Agreement, subject to earlier cancellation
pursuant to Article XV or at such time as the Committee shall
deem the continuation of all or any part of the Participants
Awards are not in the Company's or its Affiliate's best
interests.
C. Death or Disability of a Participant.
1. In the event of a Participant's death, the
Participant's estate or beneficiaries shall have a period up to
the earlier of (i) the expiration date specified in the Award
Agreement, or (ii) the expiration date specified in Paragraph H
of Article VII, within which to receive or exercise any
outstanding Awards held by the Participant under such terms as
may be specified in the applicable Award Agreement. Rights to
any such outstanding Awards shall pass by will or the laws of
descent and distribution in the following order: (a) to
beneficiaries so designated by the Participant; (b) to a legal
representative of the Participant; or (c) to the persons
entitled thereto as determined by a court of competent
jurisdiction. Awards so passing shall be made at such times and
in such manner as if the Participant were living.
2. In the event a Participant is determined by the
Company to be Disabled, and subject to the limitations of
Paragraph G of Article VII, Awards may be paid to, or exercised
by, the Participant, if legally competent, or by a legally
designated guardian or other representative if the Participant
is legally incompetent by virtue of such Disability.
3. After the death or Disability of a Participant, the
Committee may in its sole discretion at any time (i) terminate
restrictions in Award Agreements; (ii) accelerate any or all
installments and rights; and/or (iii) instruct the Company to
pay the total of any accelerated payments in a lump sum to the
Participant, the Participant's estate, beneficiaries or
representative, notwithstanding that, in the absence of such
termination of restrictions or acceleration of payments, any or
<PAGE> 20
all of the payments due under the Awards ultimately might have
become payable to other beneficiaries.
XV. CANCELLATION AND RESCISSION OF AWARDS
Unless the Award Agreement specifies otherwise, the
Committee may cancel any unexpired, unpaid, unexercised, or
deferred Awards at any time if the Participant is not in
compliance with the applicable provisions of the Award
Agreement, the Plan, or with the following conditions:
A. A Participant shall not breach any protective agreement
entered into between him or her and the Company or any
Affiliates, or render services for any organization or engage
directly or indirectly in any business which, in the judgment of
the chief executive officer of the Company or other senior
officer designated by the Committee, is or becomes competitive
with the Company, or which organization or business, or the
rendering of services to such organization or business, is or
becomes otherwise prejudicial to or in conflict with the
interests of the Company. For a Participant whose employment
has terminated, the judgment of the chief executive officer
shall be based on terms of the protective agreement, if
applicable, or on the Participant's position and
responsibilities while employed by the Company or its
Affiliates, the Participant's post-employment responsibilities
and position with the other organization or business, the extent
of past, current, and potential competition or conflict between
the Company and the other organization or business, the effect
of the Participants assuming the post employment position on the
Company's or its Affiliates customers, suppliers, investors, and
competitors, and such other considerations as are deemed
relevant given the applicable facts and circumstances. A
Participant may, however, purchase as an investment or
otherwise, stock or other securities of any organization or
business so long as they are listed upon a recognized securities
exchange or traded over-the-counter, and such investment does
not represent a substantial investment to the Participant or a
greater than one percent (1%) equity interest in the
organization or business.
B. A Participant shall not, without prior written
authorization from the Company, disclose to anyone outside the
Company or its Affiliates, or use in other than the Company's or
Affiliate's business, any confidential information or materials
relating to the business of the Company or its Affiliates,
acquired by the Participant either during or after employment or
engagement with the Company or its Affiliates.
C. A Participant shall disclose promptly and assign to the
Company all right, title, and interest in any invention or idea,
patentable or not, made or conceived by the Participant during
employment with the Company or an Affiliate, relating in any
manner to the actual or anticipated business, research, or
development work of the Company or its Affiliates, and shall do
anything reasonably necessary to enable the Company or its
Affiliates to secure a patent, trademark, copyright, or other
<PAGE> 21
protectable interest where appropriate in the United States and
in foreign countries.
Upon exercise, payment, or delivery pursuant to an Award, the
Participant shall certify on a form acceptable to the Committee
that he or she is in compliance with the terms and conditions of
the Plan, including the provisions of Paragraphs A, B and C of
this Article XV. Failure to comply with the provisions of
Paragraphs A, B or C of this Article XV prior to, or during the
one (1) year period after, any exercise, payment, or delivery
pursuant to an Award shall cause such exercise, payment, or
delivery to be rescinded. The Company shall notify the
Participant in writing of any such rescission within two (2)
years after such exercise, payment, or delivery. Within ten
(10) days after receiving such a notice from the Company, the
Participant shall pay to the Company the amount of any gain
realized or payment received as a result of the rescinded
exercise, payment, or delivery pursuant to the Award. Such
payment shall be made either in cash or by returning to the
Company the number of Shares of Common Stock that the
Participant received in connection with the rescinded exercise,
payment, or delivery.
XVI. PAYMENT OF RESTRICTED STOCK, RIGHTS, PERFORMANCE AWARDS AND CASH
AWARDS
Payment of Restricted Stock, Rights, Performance Awards and
Cash Awards may be made, as the Committee shall specify, in the
form of cash, Shares of Common Stock, or combinations thereof;
provided, however, that a fractional Share of Common Stock shall
be paid in cash equal to the Fair Market Value of the fractional
Share of Common Stock at the time of payment.
XVII. WITHHOLDING
Except as otherwise provided by the Committee,
A. The Company shall have the power and right to deduct or
withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy federal, state, and local taxes
required by law to be withheld with respect to any grant,
exercise, or payment made under or as a result of this Plan; and
B. In the case of payments of Awards, or upon any other
taxable event hereunder, a Participant may elect, subject to the
approval in advance by the Committee, to satisfy the withholding
requirement, if any, in whole or in part, by having the Company
withhold Shares of Common Stock that would otherwise be
transferred to the Participant having a Fair Market Value, on
the date the tax is to be determined, equal to the minimum
marginal tax that could be imposed on the transaction. All
elections shall be made in writing and signed by the
Participant.
<PAGE> 22
XVIII. SAVINGS CLAUSE; COMPLIANCE WITH LAW
This Plan is intended to comply in all respects with
applicable law and regulations, including, (1) with respect to
those Participants who are officers or directors for purposes of
Section 16 of the Exchange Act, Rule 16b-3 of the Securities and
Exchange Commission, if applicable, and (ii) with respect to
executive officers, Code Section 162(m). In case any one or
more provisions of this Plan shall be held invalid, illegal, or
unenforceable in any respect under applicable law and regulation
(including Rule 16b-3 and Code Section 162(m)), the validity,
legality, and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby and the invalid,
illegal, or unenforceable provision shall be deemed null and
void; however, to the extent permitted by law, any provision
that could be deemed null and void shall first be construed,
interpreted, or revised retroactively to permit this Plan to be
construed in compliance with all applicable law (including
Rule 16b-3 and Code Section 162(m)) so as to foster the intent
of this Plan. Notwithstanding anything herein to the contrary,
with respect to Participants who are officers and directors for
purposes of Section 16 of the Exchange Act, if applicable; and
if required to comply with rules promulgated thereunder, no
grant of, or Option to purchase, Shares shall permit
unrestricted ownership of Shares by the Participant for at least
six (6) months from the, date of grant or Option, unless the
Board determines that the grant of, or Option to purchase,
Shares otherwise satisfies the then current Rule 16b-3
requirements.
The Committee may grant Awards and the Company may deliver
Shares under the Plan only in compliance with all applicable
federal and state laws and regulations and the rules of all
stock exchanges on which the Company's stock is listed at any
time. An Option is exercisable only if either (i) a
registration statement pertaining to the Shares to be issued
upon exercise of the Option has been filed with and declared
effective by the Securities and Exchange Commission and remains
effective on the date of exercise, or (ii) an exemption from the
registration requirements of applicable securities laws is
available. The Company is not required to file such a
registration statement or to assure the availability of such
exemptions.
XIX. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS
In the event that the outstanding Shares of the Company are
changed into or exchanged for a different number or kind of
shares or other securities of the Company or of another
corporation by reason of any reorganization, merger,
consolidation, recapitalization, spin-off, reclassification,
change in par value, stock split, combination of shares or
dividends payable in capital stock, or the like, appropriate
adjustments to prevent dilution or enlargement of the Awards
granted to, or available for, Participants shall be made in the
manner and kind of Shares for the purchase of which Awards may
be granted under the Plan, and, in addition, appropriate
<PAGE> 23
adjustment shall be made in the number and kind of Shares and in
the Option price per share subject to outstanding Options. The
foregoing notwithstanding, no such adjustment shall be made in
an Incentive Option which shall, within the meaning of
Section 424 of the Code, constitute such a modification,
extension, or renewal of an Option as to cause it to be
considered as the grant of a new Option.
Notwithstanding anything herein to the contrary, the
Company may, in its sole discretion, accelerate the timing of
the exercise provisions of any Award in the event of a tender
offer for the Company's Shares, the adoption of a plan of merger
or consolidation under which a majority of the Shares of the
Company would be eliminated, or a sale of all or any portion of
the Company's assets or capital stock. Alternatively, the
Company may, in its sole discretion, cancel any or all Awards
upon any of the foregoing events and provide for the payment to
Participants in cash of an amount equal to the value or
appreciated value, whichever is applicable, of the Award, as
determined in good faith by the Committee, at the close of
business on the date of such event. The preceding two sentences
of this Article XX notwithstanding, the Company shall be
required to accelerate the timing of the exercise provisions of
any Award if (i) any such business combination is to be
accounted for as a pooling-of-interests under APB Opinion 16 and
(ii) the timing of such acceleration does not prevent such
pooling-of-interests treatment.
Upon a business combination by the Company or any of its
Affiliates with any corporation or other entity through the
adoption of a plan of merger or consolidation or a share
exchange or through the purchase of all or substantially all of
the capital stock or assets of such other corporation or entity,
the Board or the Committee may, in its sole discretion, grant
Options pursuant hereto to all or any persons who, on the
effective date of such transaction, hold outstanding options to
purchase securities of such other corporation or entity and who,
on and after the effective date of such transaction, will become
employees or directors of, or consultants or advisors to, the
Company or its Affiliates. The number of Shares subject to such
substitute Options shall be determined in accordance with the
terms of the transaction by which the business combination is
effected. Notwithstanding the other provisions of this Plan,
the other terms of such substitute Options shall be
substantially the same as or economically equivalent to the
terms of the options for which such Options are substituted, all
as determined by the Board or by the Committee, as the case may
be. Upon the grant of substitute Options pursuant hereto, the
options to purchase securities of such other corporation or
entity for which such Options are substituted shall be canceled
immediately.
XX. DISSOLUTION OR LIQUIDATION OF THE COMPANY
Upon the dissolution or liquidation of the Company other
than in connection with a transaction to which Article XX is
applicable, all Awards granted hereunder shall terminate and
become null and void; provided, however, that if the rights of a
<PAGE> 25
Participant under the applicable Award have not otherwise
terminated and expired, the Participant may, if the Committee,
in its sole discretion so permits, have the right immediately
prior to such dissolution or liquidation to exercise any Award
granted hereunder to the extent that the right thereunder has
become exercisable as of the date immediately prior to such
dissolution or liquidation.
XXI. TERMINATION OF THE PLAN
The Plan shall terminate ten (10) years from the earlier of
the date of its adoption by the Board or the date of its
approval by the shareholders. The Plan may be terminated at an
earlier date by vote of the shareholders or the Board; provided,
however, that any such earlier termination shall not affect any
Award Agreements executed prior to the effective date of such
termination. Notwithstanding anything in this Plan to the
contrary, any Options granted prior to the effective date of the
Plan's termination may be exercised until the earlier of (i) the
date set forth in the Award Agreement, or (ii) in the case of an
Incentive Option, ten (10) years from the date the Option is
granted; and the provisions of the Plan with respect to the full
and final authority of the Committee under the Plan shall
continue to control.
XXII. AMENDMENT OF THE PLAN
The Plan may be amended by the Board and such amendment
shall become effective upon adoption by the Board; provided,
however, that any amendment shall be subject to the approval of
the shareholders of the Company at or before the next annual
meeting of the shareholders of the Company if such shareholder
approval is required by the Code, any federal or state law or
regulation, the rules of any stock exchange or automated
quotation system on which the Shares may be listed or quoted, or
if the Board, in its discretion, determines to submit such
changes to the Plan to its shareholders for approval.
XXIII. EMPLOYMENT RELATIONSHIP
Nothing herein contained shall be deemed to prevent the
Company or an Affiliate from. terminating the employment of a
Participant, nor to prevent a Participant from terminating the
Participant's employment with the Company or an Affiliate.
XXIV. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they
may have as directors or as members of the Committee, the
members of the Committee shall be indemnified by the Company
against all reasonable expenses, including attorneys' fees,
actually and reasonably incurred in connection with the defense
of any action, suit or proceeding, or in connection with any
appeal therein, to which they or any of them may be a party by
<PAGE> 25
reason of any action taken by them as directors or members of
the Committee and against all amounts paid by them in settlement
thereof (provided such settlement is approved by the Board) or
paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that the
director or Committee member is liable for gross negligence or
willful misconduct in the performance of his or her duties. To
receive such indemnification, a director or Committee member
must first offer in writing to the Company the opportunity, at
its own expense, to defend any such action, suit or proceeding.
XXV. UNFUNDED PLAN
Insofar as it provides for payments in cash in accordance
with Article XVI, or otherwise, the Plan shall be unfunded.
Although bookkeeping accounts may be established with respect to
Participants who are entitled to cash, Common Stock, or rights
thereto under the Plan, any such accounts shall be used merely
as a bookkeeping convenience. The Company shall not be required
to segregate any assets that may at any time be represented by
cash, Common Stock, or rights thereto, nor shall the Plan be
construed as providing for such segregation, nor shall the
Company, the Board, or the Committee be deemed to be a trustee
of any cash, Common Stock, or rights thereto to be granted under
the Plan. Any liability of the Company to any Participant with
respect to a grant of cash, Common Stock, or rights thereto
under the Plan shall be based solely upon any contractual
obligations that may be created by the Plan and any Award
Agreement; no such obligation of the Company shall be deemed to
be secured by any pledge or other encumbrance on any property of
the Company. Neither the Company nor the Board nor the
Committee shall be required to give any security or bond for the
performance of any obligation that may be created by the Plan.
XXVI. MITIGATION OF EXCISE TAX
If any payment or right accruing to a Participant under
this Plan (without the application of this Article XXVI), either
alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate, would constitute a
"parachute payment" (as defined in Section 280G of the Code and
regulations thereunder), such payment or right shall be reduced
to the largest amount or greatest right that will result in no
portion of the amount payable or right accruing under the Plan
being subject to an excise tax under Section 4999 of the Code or
being disallowed as a deduction under Section 280G of the Code.
The determination of whether any reduction in the rights or
payments under this Plan is to apply shall be made by the
Company. The Participant shall cooperate in good faith with the
Company in making such determination and providing any necessary
information for this purpose.
<PAGE> 26
XXVII. GOVERNING LAW
This Plan shall be governed by the laws of the State of
Florida and construed in accordance therewith.
Adopted effective as of this ________ day of September, 1999.
<PAGE> 27
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of this 21st day of June 1998, n by and
between Utopia Marketing, Inc., a California corporation (hereinafter
called the "Company"), and Vance F. Kistler, an individual (hereinafter
called the "Employee"). The Company employs Employee upon the terms and
conditions set forth below.
Article 1: Employment, Compensation, and Expenses
- -------------------------------------------------
1.1 EMPLOYMENT. The Company employs Employee, and Employee accepts
employment with the Company upon all of the terms and conditions described
in this Agreement. The Employee's first date of employment shall be July 6,
1998 or two weeks from the date of execution of this Agreement, whichever
is later (the "Commencement Date"),
1.2 WORK RESPONSIBILITIES. Subject to the terms of this Agreement,
Employee is employed in the position of Chief Financial Officer, and shall
perform the functions and responsibilities of that position. Additional or
different duties may be assigned by the Company from time to time, and
Employee's position, job descriptions, duties and responsibilities may be
modified in the sole discretion of the Company.
1.3 COMPENSATION. In full compensation for the services rendered by
the Employee hereunder, and in consideration for the various restrictions
set forth herein, the Company will provide the Employee with the following
remuneration and benefits:
a. Salary/Wages. The Company agrees to pay Employee as
follows:
(1) $37,500 from the Commencement Date through
December 31, 1998.
(2) $77,500 per year, from January 1, 1999 through
December 31, 1999.
2) $80,000 per year, from January 1, 2000 through
December 31, 2000.
The amount of salary/wages to be paid after January 1, 2001, if any, is
subject to negotiation by the parties.
b. Bonus.
(1) If the Company achieves shipped sales of six
million dollars ($6,000,000) during the period January 1, 1999 through
December 31, 1999, Employee will be entitled to a bonus equal to 10% of
Employee's salary and wages for the calendar year 1999, to be paid on or
before April 15, 2000.
1
<PAGE>
(2) If the Company achieves"shipped sales' of six
million dollars ($6,000,000) during the period January 1, 2000 through
December 31, 2000, Employee will be entitled to a bonus equal to 10% of
Employee's salary and wages for the calendar year 2000, to be paid on or
before April 15, 2001.
(3) Additionally, the Company may grant the Employee,
in its sole discretion, an additional bonus at such times and in such amounts
as it may deem appropriate.
c. Stock Option. Employee will receive, on the Commencement
Date, a nonqualified option to purchase 150,000 shares of the Company's Common
Stock, at the lowest trading price on the Stock Exchange during the twelve
mouth period prior to the date of vesting; provided, however, in no event
shall the option price be less than $.10 per share. The option to purchase
shall vest, as to the first 50,000 shares, on June 30, 1999; as to the
second 50,000 shares, on June 30, 2000: and as to the last 50,000 shares,
on June 30, 2001; provided however, that the Employee must be employed by
the Company for the options described herein to vest. ,
d. Employment Benefits.
(1) Health and Welfare Plans. Employee shall elect,
pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act
("COBRA"), temporary health care continuation coverage, the cost of which
sha11 be fully reimbursed by the Company. At the Company's election,
Employee may be required to terminate such continuation coverage in order
to participate in the Company's employee retirement and welfare plan or
another such plan.
Upon the Company's establishment of an employee retirement and welfare
plan, the Employee will be eligible to participate in all such plans,
subject to any applicable waiting periods. Employee's rights or those of
Employee's dependents under any benefits policies or plans shall be
governed solely by the terms of such policies or plans. The Company
reserves to itself, or its designated administrators, exclusive authority
and discretion to determine all issues of eligibility, interpretation and
administration of each such benefit plan or policy. The Company's
employment benefits, and policies related thereto, are subject to
termination, modification or limitation at the Company's sole discretion.
(a) Section 401(k) Plan. The Company will
utilize its best efforts to establish a Section 401(k) non-contributory plan
by November 15, 1998, provided that the Company may do so without incurring
substantial expense.
2
<PAGE>
(2) Vacation. The Employee will be entitled to paid
vacation each year, to be taken in such period and at such time us it
consistent with Utopia's business and the Employee's duties.
(a) During the first twelve months of
employment, Employee shall be entitled to five (5) days of vacation, to be
accrued on a monthly basis.
(b) During the second twelve months of
employment, Employee, shall be entitled to ten (10) days of vacation, to be
accrued on a monthly basis.
(c) During the third twelve months of
employment, Employee shall be entitled to fifteen (15) days of vacation, to
be accrued on a monthly basis.
(3) Parking Space. The Company will provide, at its
own cost, a parking space at the Company's facility, for the Employee's sole
use and enjoyment.
(4) Continuing Education. The Company will reimburse
reasonable and necessary expenses, not to exceed $1,000 per calendar year,
incurred in connection with Employee's CPE. Employee shall not attend such
courses during regular business hours without the Company's knowledge and
consent.
(5) Hold Harmless. The Company shall hold employee
harmless from damages incurred in any suit, claim or legal action arising out
of Employee's performance of his duties hereunder. However, under no
circumstance will the Company hold Employee harmless tom damages arising
from acts of employment discrimination or harassment, or acts that
constitute a violation of any federal, state or local law or regulation.
(6) Other Benefits. On the Commencement Date, the
Employee will be eligible to participate in all other employee benefits
plans, such as but not limited to holidays and leaves of absence, if any,
which are available to employees of the Company generally, in accordance with
any policies, procedures, or benefit plans adopted by the Company from time
to time during the existence of this Agreement.
e. Total Compensation. Employee agrees that the compensation
stated above constitutes the full and exclusive monetary consideration and
compensation for all services rendered under than Agreement and for all
promises and obligations under this Agreement.
1.4 BUSINESS EXPENSES. The Company shall pay Employee's reasonable
business expenses, including expenses incurred for travel on Company
business, in accordance with the policies and procedures of the Company, as
may be adopted or amended from time to time at the Company's sole
discretion. If Employee incurs business expenses under this Agreement, the
Employee shall, submit to the Company a monthly request for reimbursement
3
<PAGE>
together with supporting documentation satisfactory to the Company.
Article 2 -Confidential Information: Post-Employment Obligations
- ----------------------------------------------------------------
2.1 COMPANY PROPERTY. All written materials, records, data,
and other documents prepared or possessed by Employee during
Employee's employment by the Company are the Company's property.
All information, ideas, concepts, improvements, discoveries, and
inventions that are conceived, made, developed, or acquired by
Employee individu4lIy or in conjunction with others during
Employee's employment (whether during business hours and whether
on Company's premises or otherwise) which relate to Company
business, products, or services are the Company's sole and
exclusive property. All memoranda, notes, records, files,
correspondence. drawings. manuals, models, specifications,
computer programs, maps, and all other documents, data, or
materials of any type embodying such information, ideas, concepts,
improvements, discoveries, and inventions are Company property. At
the termination of Employee's employment with the Company for any
reason, Employee shall return all of the Company's documents,
data, or other Company property to the Company.
2.2 CONFIDENTIAL INFORMATION, NON-DISCLOSURE. Employee
acknowledges that the business of the Company, and its affiliates
is highly competitive and that. the Company has provided and will
provide Employee with access to Confidential Information relating
to the business of the Company and its affiliates. "Confidential
information" means and includes the Company's confidential and/or
proprietary information and/or trade secrets that have been
developed or used and/or will be developed and that cannot be
obtained readily by third parties from outside sources.
Confidential Information includes, by way of example and without
limitation, the following: information regarding customers,
employees, contractors, and the industry not generally known to
the public; strategies, methods, books, records, and documents;
technical information concerning products, equipment, services,
and processes; procurement procedures and pricing techniques; and
the names of and other information concerning customers,
investors, and business affiliates.
Employee agrees that Employee will not, at any time during or
after Employee's employment with the Company, make any
unauthorized disclosure of any Confidential Information of the
Company or its affiliates, or make any use thereof, except in the
carrying out of the Employee's employment responsibilities
thereunder. Employee also agrees to preserve and protect the
confidentiality of third party Confidential Information to the
same extent, and on the same basis, as the Company's Confidential
Information.
2.3 NON-SOLICITATION OF CUSTOMERS. For a period of twelve
(12) months following the termination of employment for any
reason, Employee will not call on, service, or solicit competing
business from customers of the Company or its affiliates with whom
Employee, within the previous twenty-four (24) months, (1) had or
4
<PAGE>
made contact, or (ii) had access to information and files
regarding. These restrictions are limited by geography to the
specific places, addresses, or locations where a customer is
present and available for soliciting or servicing.
2.4 NON-SOLICITATION OF EMPLOYEES. During Employee's
employment, and for a period of twelve (12) months following the
termination of employment for any reason, Employee will not,
either directly or indirectly, call on, solicit, or induce any
other employee or officer of the Company or its affiliates whom
Employee had contact with, knowledge of, or association with in
the course of employment with the Company to terminate his or her
employment, and will not assist any other person or entity in such
a solicitation.
2.5 WARRANTY AND INDEMNIFICATION. Employee warrants that
Employee is not a party to any other restrictive agreement
limiting Employee's activities for the Company. Employee further
warrants that at the time of the signing of this Agreement,
Employee knows of no written or oral contract or of any other
impediment that would inhibit or prohibit employment with the
Company and that Employee will not knowingly use any trade secret,
confidential information, or other intellectual property right of
any other party in the performance of Employee's duties hereunder.
Employee shall hold the Company harmless from any and all suits
and claims arising out of any breach of such restrictive agreement
or contracts.
2.6 EQUITABLE RELIEF. Employee and the Company agree that in
the event of a breach or threatened breach by Employee of any
paragraph in Article 2 of this Agreement, the Company will not
have an adequate remedy at law. Thus, in the event of such a
breach or threatened breach, the Company will be entitled to such
equitable and injunctive relief as may be available to prevent and
restrain Employee from breaching the provisions of any paragraph
in Article 2. The availability to obtain injunctive relieve will
not prevent the Company from pursuing any other equitable or legal
relief, including the recovery of damages from such breach or
threatened breach.
Article 3: Termination Of Employment.
- -------------------------------------
3.1 AT-WILL EMPLOYMENT. The Company and Employee acknowledge
and agree that Employee's employment is at-will and that either
the Company or Employee may, at any time, with or without cause
and with or without notice, terminate the employment relationship,
including all compensation and benefits under this Agreement.
3.2 SEVERANCE. Unless the Employee's employment with the
Company is terminated by the Company for "cause" (other than
death, injury, or illness) or by Employ, the Company shall pay
Employee an amount equal to three month's salary and wages, as set
forth in Article 2 above, to be paid within two weeks of
Employee's termination. For purposes of this Agreement, "Cause"
means (1) Nonperformance, defined as the Employee's substantial
5
<PAGE>
failure to perform his duties or responsibilities, caused by
reason other than his death or disability; or (2) Malfeasance,
defiled as the Employee's (A) gross negligence, recklessness or
malfeasance in the performance of his duties hereunder, (13)
committing any criminal act, fraud or other misconduct resulting
or intending to result directly or indirectly in gain or personal
enrichment at the expense of the Company, (C) conduct that would
constitute a breach of the duty of loyalty owed the Company or the
employee's fiduciary duties, or (D) engaging in any conduct
relating to the business of the Company that could reasonably be
expected to have a materially detrimental effect on the Company.
For purposes hereof, you will be deemed to have committed an act
if, based upon the Company's investigation of the facts, it
reasonably concludes that you committed such an act.
Article 4: Miscellaneous
- ------------------------
4.1 GOVERNING LAW. This Agreement shall be construed is
accordance with and governed by the laws of the State of Florida.
4.2 INTERPRETATION. This Agreement shall be interpreted in
accordance with the plain meaning of its terms and not strictly
for or against either party.
4.3 HEADINGS- The headings of this Agreement are intended
solely for the convenience of reference and should be given no
effect in the construction or interpretation of this Agreement.
4.4 ENTIRE AGREEMENT. This Agreement embodies the complete
agreement and understanding of the parties related to Employee's
employment by the Company, superseding any and all other prior or
contemporaneous oral or written agreements between the parties
hereto with respect to the employment of Employee by the Company,
and contains all of the covenants and agreements of any kind
whatsoever between the parties with respect to such employment.
Each party acknowledges that no representations, inducements,
promises or agreements, whether oral or written, express or
implied, have been made by either party or anyone acting on behalf
of a party, that are not incorporated herein and that no other
agreement or promise not contained herein shall be valid or
binding.
4.5 MODIFICATION. This Agreement may be amended only by an
agreement in writing signed by Employee and the Company.
4.6 WAIVER. The failure of either patty to insist, in any one
or more instances, upon performance of the teens or conditions of
this Agreement shall not be construed as a waiver or a
relinquishment of any right granted under this Agreement or of the
future performance of any such term, covenants or condition.
4.7 INVALIDITY. Should any provisions) in this Agreement be
held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions shall be unaffected and shall
6
<PAGE>
continue in full force and effect, and the invalid, void or
unenforceable provisions) shall be deemed not to be part of this
Agreement.
4.8 VOLUNTARY AGREEMENT. Employee and the Company represent and
agree that each has reviewed all aspects of this Agreement, has carefully
read and fully understands all provisions of this Agreement, and is
voluntarily entering into this Agreement. Each party represents and agrees
that such party has had the opportunity to review any and all aspects of
this Agreement with the legal, tax or other advisor or advisors of such
party's choice before executing this Agreement.
4.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of and shall be enforceable by and against
Employee's heirs, beneficiaries and legal representatives. It is agreed
that the rights ,and obligations of Employee may not be delegated or
assigned except as specifically set forth in this Agreement. In the event
of a sale of all or substantially all of the Company's capital stock, sale
of all or substantially all of the Company's assets. or consolidation or
merger of the Company with or into another corporation or entity or
individual, the Company shall assign its rights and obligations under this
Agreement to its successor-in-interest, and such successor-in-interest shall
be deemed to have acquired all rights and assumed all obligations of the
Company under this Agreement.
4.10 COUNTERPARTS. This Agreement may be executed in counterparts
and each counterpart, when executed, shall have the validity of a second
original. Photographic or facsimile copies of any such signed counterparts
may be used in lieu of the original for any purpose.
/s/Vance F. Kistler
Vance F. Kistler
UTOPIA MARKETING, INC.
By:/s/Samuel L. Edelman
Samuel L. Edelman
President
7
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Balance
Sheet, Statement of Operations, Statements of Cash Flows and Notes thereto
incorporated in Part II, Item 7. of this Form 10-KSB and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 185
<SECURITIES> 0
<RECEIVABLES> 550
<ALLOWANCES> 0
<INVENTORY> 1,418
<CURRENT-ASSETS> 2,207
<PP&E> 98
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,953
<CURRENT-LIABILITIES> 2,033
<BONDS> 468
0
0
<COMMON> 15
<OTHER-SE> 437
<TOTAL-LIABILITY-AND-EQUITY> 2,953
<SALES> 2,070
<TOTAL-REVENUES> 2,070
<CGS> 1,437
<TOTAL-COSTS> 3,146
<OTHER-EXPENSES> (807)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (33)
<INCOME-PRETAX> (1,673)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,673)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,673)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
