UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 25, 2000
Commission File Number 0-22012
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GROW BIZ INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Minnesota 41-1622691
--------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
4200 Dahlberg Drive
Golden Valley, MN 55422-4837
----------------------------
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, Including Area Code 612-520-8500
------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, no par value, 5,386,433 shares outstanding as of April 28, 2000.
<PAGE>
GROW BIZ INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
- --------------------------------------------------------------------------------
Item 1. Financial Statements (Unaudited)
CONDENSED BALANCE SHEETS: 3
March 25, 2000 and December 25, 1999
CONDENSED STATEMENTS OF OPERATIONS: 4
Three Months Ended
March 25, 2000 and March 27, 1999
CONDENSED STATEMENTS OF CASH FLOWS: 5
Three Months Ended
March 25, 2000 and March 27, 1999
NOTES TO CONDENSED FINANCIAL STATEMENTS 6
Item 2. Management's Discussion and Analysis of Financial 7 - 11
Condition and Results of Operations
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
Items 1 through 5 have been omitted since all items
are inapplicable or answers negative.
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibit
Number: Description:
------- ------------
10.1 Employment Agreement with John Morgan, dated March 22, 2000
10.2 Non-qualified Stock Option Agreement with John Morgan, dated
March 22, 2000
10.3 Common Stock Warrant with Sheldon Fleck, dated March 22, 2000
10.4 Fourth Amendment to Amended and Restated Credit Agreement,
dated April 28, 2000
27 Financial Data Schedule
99 Cautionary Statements
(b.) On March 29, 2000, the Company filed an 8-K related to the resignation of
K. Jeffrey Dahlberg and the appointment of John L. Morgan as Chairman and
Chief Executive Officer.
2
<PAGE>
GROW BIZ INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
-----------------------------------
March 25, 2000 December 25, 1999
-----------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ -- $ --
Receivables, less allowance for doubtful accounts of
$1,113,000 and $1,044,000 9,745,700 11,164,600
Inventories 1,830,800 1,959,600
Prepaid expenses and other 5,753,700 6,773,800
Deferred income taxes 2,074,200 2,074,200
-------------- --------------
Total current assets 19,404,400 21,972,200
Notes receivable 1,136,600 1,156,300
Property and equipment, net 4,315,900 4,369,100
Other assets, net 2,079,000 2,144,200
-------------- --------------
$ 26,935,900 $ 29,641,800
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,046,100 $ 5,350,700
Accrued liabilities 3,314,800 3,707,000
Current maturities of long-term debt 7,883,700 9,287,600
Deferred franchise fee revenue 940,700 878,900
-------------- --------------
Total current liabilities 17,185,300 19,224,200
Long-Term Debt 6,766,400 7,528,500
Shareholders' Equity:
Common stock, no par, 10,000,000 shares authorized,
5,381,119 and 5,346,119 shares issued and outstanding 1,383,500 1,313,500
Retained earnings 1,600,700 1,575,600
-------------- --------------
Total shareholders' equity 2,984,200 2,889,100
-------------- --------------
$ 26,935,900 $ 29,641,800
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
GROW BIZ INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
-----------------------------------
Three Months Ended
March 25, 2000 March 27, 1999
-----------------------------------
<S> <C> <C>
REVENUE:
Merchandise sales $ 8,268,400 $ 12,937,500
Royalties 4,183,300 4,830,200
Franchise fees 151,200 555,800
Advertising and other 204,400 211,900
-------------- --------------
Total revenue 12,807,300 18,535,400
COST OF MERCHANDISE SOLD 7,113,700 11,110,400
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 5,313,400 7,442,300
-------------- --------------
Income (loss) from operations 380,200 (17,300)
INTEREST INCOME 45,500 100,100
INTEREST EXPENSE (384,500) (370,900)
-------------- --------------
Income (loss) before income taxes 41,200 (288,100)
BENEFIT (PROVISION) FOR INCOME TAXES (16,100) 112,900
-------------- --------------
NET INCOME (LOSS) $ 25,100 $ (175,200)
============== ==============
NET INCOME (LOSS) PER COMMON SHARE - BASIC
AND DILUTED $ .00 $ (.03)
============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING -
BASIC AND DILUTED 5,357,774 5,103,300
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
GROW BIZ INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
-----------------------------------
Three Months Ended
March 25, 2000 March 27, 1999
-----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 25,100 $ (175,200)
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 339,200 521,300
Change in operating assets and liabilities:
Receivables 1,438,600 2,308,400
Inventories 128,800 2,362,500
Prepaid expenses and other 1,020,100 100,200
Accounts payable (304,600) (5,397,200)
Accrued liabilities (392,200) (1,337,000)
Deferred franchise fee revenue 61,800 (176,300)
-------------- --------------
Net cash provided by (used for)
operating activities 2,316,800 (1,793,300)
-------------- --------------
INVESTING ACTIVITIES:
Increase in other assets (600) (299,100)
Purchases of property and equipment (220,200) (1,104,500)
-------------- --------------
Net cash used for investing activities (220,800) (1,403,600)
-------------- --------------
FINANCING ACTIVITIES:
Proceeds from long-term debt -- 1,776,000
Payments on long-term debt (2,166,000) (683,700)
Proceeds from stock option exercises 70,000 287,900
-------------- --------------
Net cash provided by (used for)
financing activities (2,096,000) 1,380,200
-------------- --------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS -- (1,816,700)
Cash and cash equivalents, beginning of period -- 2,418,000
-------------- --------------
Cash and cash equivalents, end of period -- $ 601,300
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
GROW BIZ INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. MANAGEMENT'S INTERIM FINANCIAL STATEMENT REPRESENTATION:
The accompanying condensed financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. The information in the condensed financial statements
includes normal recurring adjustments and reflects all adjustments which are, in
the opinion of management, necessary for a fair presentation of such financial
statements. Although the Company believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
condensed financial statements be read in conjunction with the audited financial
statements and the notes thereto included in the Company's latest Annual Report
on Form 10-K.
Revenues and operating results for the three months ended March 25, 2000 are not
necessarily indicative of the results to be expected for the full year.
2. ORGANIZATION AND BUSINESS:
Grow Biz International, Inc. (the 'Company') offers licenses to operate retail
stores using the service marks 'Play it Again Sports', 'Once Upon A Child',
'Computer Renaissance', 'Music Go Round', 'ReTool' and 'Plato's Closet'. In
addition, the Company sells inventory to its Play It Again Sports franchisees
through its buying group and operates retail stores. The Company has a 52/53
week year which ends on the last Saturday in December.
3. NET INCOME PER COMMON SHARE:
The Company calculates net income per share in accordance with FASB Statement
No. 128 by dividing net income by the weighted average number of shares of
common stock outstanding to arrive at the Net Income Per Common Share - Basic.
The Company calculates Net Income Per Share - Dilutive by diving net income by
the weighted average number of shares of common stock and dilutive stock
equivalents from the exercise of stock options and warrants using the treasury
stock method.
<TABLE>
<CAPTION>
---------------------------------
Three Months Ended
March 25, 2000 March 27, 1999
---------------------------------
<S> <C> <C>
Shares used in per common share computation:
Weighted average shares outstanding - Basic 5,357,774 5,103,300
Dilutive effect of stock options after application
of the treasury stock method - -
------------ ------------
Weighted average shares outstanding - Diluted 5,357,774 5,103,300
============ ============
</TABLE>
6
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Grow Biz International, Inc., (the Company) is a franchise company that
franchises retail concepts which buy, sell, trade and consign merchandise. Each
concept operates in a different industry and provides the consumer with
'ultra-high value' retailing by offering quality used merchandise at substantial
savings from the price of new merchandise and by purchasing customers' used
goods that have been outgrown or are no longer used. The stores also offer new
merchandise to supplement their selection of used goods.
Following is a summary of the Company's franchising and corporate retail store
activity for the retail concepts for the three months ended March 25, 2000:
<TABLE>
<CAPTION>
------------------------------------------------------------
TOTAL OPENED/ TOTAL
12/25/99 PURCHASED CLOSED CONVERTED 3/25/00
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Play It Again Sports(R)
- --------------------
Franchised Stores - US and Canada 580 3 (21) 0 562
Franchised Stores - Other International 8 0 0 0 8
Corporate 3 0 0 0 3
Other 23 0 0 0 23
Once Upon A Child(R)
- -----------------
Franchised Stores - US and Canada 220 6 (3) 0 223
Corporate 1 0 0 0 1
Computer Renaissance(R)
- --------------------
Franchised Stores - US and Canada 208 1 (3) 0 206
Corporate 3 0 0 0 3
Music Go Round(R)
- --------------
Franchised Stores - US and Canada 72 2 (2) 0 72
Corporate 8 0 0 0 8
ReTool(TM)
- ------
Franchised Stores - US and Canada 11 1 0 0 12
Corporate 1 0 0 0 1
Plato's Closet(R)
- --------------
Franchised Stores - US and Canada 4 4 0 0 8
Corporate 1 0 0 0 1
------------------------------------------------------------
Total 1,143 17 (29) 0 1,131
============================================================
</TABLE>
7
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS
The statements made in this report that are not historical facts are forward
looking statements. Such statements are based on current expectations but
involve risks, uncertainties and other factors which may cause actual results to
differ materially from those contemplated by such forward looking statements.
Important factors which may result in variations from results contemplated by
such forward looking statements include, but are not limited to: (1) the
Company's ability to refinance its existing credit facilities; (2) the Company's
ability to attract qualified franchisees; (3) the Company's ability to collect
its receivables; (4) the Company's ability to open stores; (5) each store's
ability to acquire high-quality, used merchandise; (6) the Company's ability to
control selling, general and administrative expenses; (7) the Company's ability
to operate the Company-owned stores profitably; (8) the Company's ability to
negotiate acceptable lease terminations in connection with the It's About Games
restructuring; and (9) the Company's ability to obtain competitive financing to
fund its growth.
The Company's strategy focuses on enhancing revenues and profits at all store
locations and the opening of additional stores. The Company's growth strategy is
premised on a number of assumptions concerning trends in each of the retail
industries as well as trends in franchising and the economy. To the extent that
the Company's assumptions with respect to any of these matters are inaccurate,
its results of operations and financial condition could be adversely affected.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain income
statement items as a percentage of total revenue and the percentage change in
the dollar amounts from the prior period:
<TABLE>
<CAPTION>
-------------------------------------------------
Three Months Ended First Quarter
March 25, March 27, 2000 over (under)
2000 1999 First Quarter 1999
-------------------------------------------------
<S> <C> <C> <C>
Revenue:
Merchandise sales 64.5% 69.8% (36.1)%
Royalties 32.7 26.1 (13.4)
Franchise fees 1.2 3.0 (72.8)
Advertising and other 1.6 1.1 (3.5)
------- ------- -------
Total revenues 100.0% 100.0% (30.9)%
Cost of merchandise sold 55.5 59.9 (36.0)
Selling, general and administrative expenses 41.5 40.2 (28.6)
------- ------- -------
Income (loss) from operations 3.0 (0.1) 2,297.7
Interest income (expense), net (2.7) (1.5) (3.7)
------- ------- -------
Income (loss) before income taxes 0.3 (1.6) 114.3
Benefit (provision) for income taxes (0.1) 0.6 114.3
------- ------- -------
Net income (loss) 0.2% (1.0)% 114.3%
======= ======= =======
</TABLE>
8
<PAGE>
COMPARISON OF THREE MONTHS ENDED MARCH 2000 TO THREE MONTHS ENDED MARCH 1999
REVENUES
Revenues for the quarter ended March 25, 2000 totaled $12.8 million compared to
$18.5 million for the comparable period in 1999.
Merchandise sales consist of the sale of product to franchisees through the
buying group and retail sales at the Company-owned stores. For the first quarter
of 2000 and 1999 they were as follows:
2000 1999
---- ----
Buying Group $ 5,922,600 $ 6,787,600
Retail 2,345,800 6,149,900
------------ ------------
Merchandise Sales $ 8,268,400 $ 12,937,500
============ ============
Buying group revenues decreased $865,000, or 12.7%, for the three months ended
March 25, 2000 compared to the same period last year. This is a result of
management's strategic decision to have more franchisees purchase merchandise
directly from vendors and having forty fewer stores open. It is anticipated that
buying group sales will trend at the first quarter level for the remainder of
2000. Retail store sales decreased $3.8 million, or 61.9%, for the three months
ended March 25, 2000 compared to the same period last year. The revenue decline
was due to closing all of the Company-owned It's About Games stores in the
fourth quarter of 1999.
Royalties decreased to $4.2 million for the first quarter of 2000 from $4.8
million for the same period in 1999, a 13.4% decrease. This decrease relates
primarily to the Computer Renaissance concept. Management is addressing this by
focusing on store-level profitability and positioning of the concept in a
changing environment.
Franchise fees decreased $404,600 in the first quarter of 2000 compared to the
first quarter of 1999. This decrease is due to opening 17 stores in the first
quarter of 2000 compared to 44 stores opened during the same period last year
and the change in the franchise fee structure made in July 1999.
COST OF MERCHANDISE SOLD
Cost of merchandise sold includes the cost of merchandise sold through the
buying group and at Company-owned retail stores. Cost of merchandise sold as a
percentage of the related revenue for the first quarter of 2000 and 1999 were as
follows:
2000 1999
---- ----
Buying Group 95.1% 95.8%
Retail 63.1 75.0
9
<PAGE>
Retail gross margin improvement from 25.0% in the first quarter of 1999 to 36.9%
in the first quarter of 2000 is primarily the result of eliminating video game
sales of new merchandise which carried a lower gross margin per item. Margins
have returned to a level consistent with margins achieved prior to acquiring the
It's About Games concept and are anticipated to remain at this level.
SELLING, GENERAL AND ADMINISTRATIVE
The $2.1 million, or 28.6%, decrease in operating expenses in the first three
months of 2000 compared to the same period in 1999 is primarily due to closing
all of the It's About Games stores in the fourth quarter of 1999 and elimination
of related costs.
During the first quarter of 2000, the Company had a net interest expense of
$339,000 compared to $270,800 in the first quarter of 1999. This increase is
primarily the result of reduced interest income.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the period with no cash balance and had a current ratio of 1.1
to 1.0.
Ongoing operating activities provided cash of $2.3 million relating to a $1.4
million reduction in accounts receivable as a result of reduced royalty
accruals, note receivables and buying group receivables. Prepaid expenses and
other provided cash of $1.0 million, primarily due to income tax refunds
received and cash surrender value of life insurance proceeds. The components of
cash utilized by the reduction in accounts payable of $304,600 consist primarily
of reduced buying group activity. Deferred franchise fee revenue provided cash
of $61,800. As a result of the change in the franchise fee structure for
additional stores, the number of stores awarded but not opened remained at 88
while the number of stores requiring a franchise fee increased by three.
Investing activities used $220,800 of cash during the first quarter of 2000
related to the purchase of office equipment and software development.
Financing activities used $2.1 million of cash during the first quarter of 2000.
The $2.17 million payments on long-term debt include $225,000 of installment
payments on a note relating to the purchase of Video Game Exchange, Inc., $1.38
million payments on the line of credit, $450,000 on the bank term note and
$104,800 payments on the settlement agreement note. The Company received $70,000
in cash from options exercised to purchase stock.
As of March 25, 2000, the Company had a $7.5 million committed revolving line of
credit which was due for renewal on April 30, 2000. This has been renewed
through July 31, 2000, at which time the Company will be looking for a different
financial institution to provide this financing. Borrowings against the line
carry an interest rate of the bank's base rate plus one percent, which was 10.0%
at April 28, 2000. At April 28, 2000, the Company had borrowings of $5.0 million
against the line.
10
<PAGE>
In addition to the line of credit, the Company had an $8.0 million converted
bank term note. At March 25, 2000, the Company had borrowings of $6.7 million
against the note. Borrowings against the converted note carry an interest rate
of the bank's base rate plus one percent, which was 10.0% at March 25, 2000.
Borrowings could be made and repaid through March 31, 1999 on a revolving basis
at which date the total amount outstanding was converted to term debt which was
being paid off in monthly installments that began May 1, 1999. This note is due
July 31, 2000.
A second bank term note bears interest at the bank's base rate plus one percent
which was 10.0% at March 25, 2000. It was being paid in monthly principal and
interest installments that began September 1997. At March 25, 2000, the Company
had borrowings of $2.3 million against the note. This note is due July 31, 2000.
The Company is currently working with several financial institutions to secure a
replacement to its existing credit facilities. It is possible that in order to
secure the financing required, additional equity, subordinated debt or personal
guarantees of the chief executive officer will be required. As of April 30,
2000, the total outstanding debt with its current financial institution was
$13.7 million. In March 2000, the Company filed for tax refunds totaling $5.0
million as a result of net operating loss carrybacks. It is anticipated that
these refunds will be received prior to July 31, 2000 and will be used to reduce
bank debt.
The Company believes that a facility with a new financial institution can be
arranged prior to the expiration of the Company's current facilities and that
this new facility, along with cash generated from future operations, will be
adequate to meet the Company's current obligations and operating needs.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GROW BIZ INTERNATIONAL, INC.
Date: May 8, 2000 By: /s/ John L. Morgan
------------------
John L. Morgan
Chairman of the Board, President
and Chief Executive Officer
Date: May 8, 2000 By: /s/ David J. Osdoba, Jr.
------------------------
David J. Osdoba, Jr.
Senior Vice President of Finance
and Chief Financial Officer
12
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("AGREEMENT") is made as of March 22, 2000,
between Grow Biz International, Inc. ("EMPLOYER") and John L. Morgan
("EMPLOYEE").
INTRODUCTION
Employer desires to employ Employee under the terms of this Agreement,
including the non-solicitation, registration rights and other covenants stated
below, and Employee is willing to enter into such covenants in return for the
benefits hereunder.
AGREEMENT
In consideration of the foregoing, the parties agree as follows:
1. NATURE AND CAPACITY OF EMPLOYMENT. Employer agrees to employ Employee
as Chief Executive Officer of Employer under the terms of this
Agreement. Employee agrees to perform, or be available to perform, on a
full-time basis, the functions of this position, under the terms of
this Agreement.
2. TERM OF EMPLOYMENT. The term of this Agreement will commence as of
March 23, 2000 and continue until such time as terminated under Section
9 below.
3. ANNUAL BASE SALARY. The annual base salary, exclusive of any benefits
or bonuses, which Employer agrees to pay to Employee for the first year
of this Agreement will be Fifty Thousand Dollars ($50,000). All amounts
paid under this Agreement will be paid consistent with Employer's
normal payroll practice and will be subject to all normal and required
withholdings.
4. BONUS. The Compensation Committee of Employer's Board of Directors may,
in its sole discretion, establish certain criteria under which Employee
may become eligible to receive an annual bonus payment, and will also
maintain the right to adjust such criteria in its sole discretion,
however the Committee is not obligated to grant any bonus to Employee.
5. EMPLOYEE EXPENSES. Employer agrees to reimburse Employee for the
reasonable business expenses Employee incurs on behalf of Employer upon
proof of expenditure.
6. EMPLOYEE BENEFITS. Employee will be eligible for those benefits
provided to executive management employees.
7. EMPLOYEE FRINGE BENEFITS. Employee will receive the following fringe
benefits ("EMPLOYEE FRINGE Benefits"):
7.1 STOCK OPTIONS. Employee will be issued a six year option (the
"OPTION"), under the terms of the stock option agreement
attached hereto as EXHIBIT A, to
<PAGE>
purchase 600,000 shares of Employer's common stock (the
"OPTION SHARES"), at an exercise price of $5 per share,
vesting at the rate of 120,000 shares per year on the
anniversaries of this Agreement.
7.2 REGISTRATION RIGHTS. Employer has agreed to register under the
Securities Act of 1933, as amended ("SECURITIES ACT"), the
Option, the Option Shares and the 700,000 shares of Employer's
common stock which Employee and others are purchasing from K.
Jeffrey Dahlberg, for resale by Employee.
8. UNDERTAKINGS OF EMPLOYEE. Employee agrees to spend Employee's full
working time and effort in performing Employee's duties with Employer
so long as employed by Employer, and will not, during the course of
employment by Employer, without prior written approval of Employer,
become an employee, director, officer, agent, partner of or consultant
to, or a stockholder of (except a stockholder of a public company in
which Employee owns less than five percent (5%) of the issued and
outstanding capital stock of such company) any company or other
business entity which is a significant competitor, supplier, or
customer of Employer.
9. TERMINATION OF EMPLOYMENT AGREEMENT. Employee's employment under this
Agreement may be terminated, by either party for any reason or no
reason upon 30 days written notice to Employee.
10. CONFIDENTIAL INFORMATION. For purposes hereof, "CONFIDENTIAL
INFORMATION" means any information that Employee learns or develops
during the course of employment that derives independent economic value
from being not generally known by the public and includes trade
secrets, methods of research and testing, customer lists, vendor lists
and financial information, and information relating to such matters as
management systems and sales or marketing techniques. Employee will not
directly or indirectly use or disclose any Confidential Information for
anyone other than Employer either during the course of employment or
after the termination of employment. Employee recognizes that the
Confidential Information constitutes a valuable asset of Employer and
agrees to act in such a manner as to prevent its disclosure and use by
any person unless such use is for Employer. Employee's obligations
under this paragraph are unconditional and will not be excused by any
Employer conduct, except prior voluntary disclosure by Employer of the
information.
11. INVENTIONS. Employee agrees to promptly disclose to Employer in writing
any invention, improvement, work of authorship, discovery or idea
(including those which may be subject to copyright protection)
generated, conceived, or reduced to practice by Employee alone or in
conjunction with others, during or after working hours, while an
employee of Employer ("INVENTIONS"); and all such Inventions will be
Employer's exclusive property and are hereby assigned to Employer.
Further, Employee will, at Employer's expense, give Employer all
assistance it reasonably requires to perfect, protect, and use its
rights to Inventions. In particular, Employee will sign all documents,
do all things, and supply all information that Employer may deem
necessary to: (i) transfer or record the transfer of
2
<PAGE>
Employee's entire right, title and interest in Inventions; and (ii)
enable Employer to obtain copyright or trademark protection for
Inventions. Employee's obligations under this Section will continue
beyond the termination of employment with respect to Inventions and
will be binding on assigns, executors, and other legal representatives.
NOTICE: PURSUANT TO MINNESOTA STATUTES SS. 181.78, EMPLOYEE IS NOTIFIED
THAT THE AGREEMENT DOES NOT APPLY TO ANY INVENTION FOR WHICH NO
EQUIPMENT, SUPPLIES, FACILITY, OR TRADE SECRET INFORMATION OF EMPLOYER
WAS USED AND WHICH WAS DEVELOPED ENTIRELY ON EMPLOYEE'S OWN TIME, AND
WHICH DOES NOT RELATE DIRECTLY TO EMPLOYER'S BUSINESS OR TO ITS ACTUAL
OR DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT, OR WHICH DOES NOT
RESULT FROM ANY WORK EMPLOYEE PERFORMED FOR EMPLOYER.
12. NON-SOLICITATION. Employee covenants that during the term of his
employment by Employer, and for one year after the termination of his
employment, regardless of the cause of termination, Employee will not,
without Employer's prior written consent, directly or indirectly,
employ or seek to employ, in any capacity, any person who, within the
preceding six months, has been an employee of Employer, or any
franchisee of Employer.
13. INDEMNIFICATION BY EMPLOYER. In addition to any indemnification to
which Employee may be entitled in his capacity as an officer and
director of Employer, Employer shall indemnify, defend and hold
harmless Employee from and against any and all costs, expenses, losses,
damages, claims, liabilities, obligations, actions or causes of action
(including, without limitation, reasonable attorneys' fees and
expenses) incurred, sustained or suffered by him as a result of any
claim, suit, cause of action, investigation or proceeding, whenever
instituted or commenced, against Employee by a third party that is not
directly or indirectly affiliated or related to Employee, arising out
of the actions or inactions of Employer with respect to Employer's
business prior to March 22, 2000. Should any claim covered by the
indemnity provided in Section 13 be asserted, Employee shall promptly
notify Employer and give Employer an opportunity to defend the same
either in Employer's name or, as required by applicable laws and
regulations, in Employee's name; provided, that the failure to give
prompt notice shall not affect the rights of Employee to
indemnification hereunder except to the extent that such failure either
shall have materially prejudiced Employer in the defense of such claim
or shall have increased the amount of the obligation of Employer.
Employee shall extend reasonable cooperation in connection with such
defense and shall have the right, at his own expense, to participate
in, but not to control, any such defense by Employer. If Employer shall
fail, after notice from Employee, to defend against such claim within a
reasonable time, then Employee shall be entitled to assume the defense
thereof, and Employer shall be liable to repay Employee for all of his
expenses reasonably incurred in connection with such defense, including
reasonable attorney's fees and settlement payments. No settlement shall
be made by Employee of any claim which Employer has assumed pursuant to
this Section 13, or of any other claim or actions with respect to which
indemnification is claimed hereunder, without the prior written consent
of Employer, so long as such consent is not unreasonably withheld or
delayed.
3
<PAGE>
14. NO RESTRICTIONS. Employee represents and warrants to Employer that he
is not subject to any covenant, agreement, understanding or restriction
of any kind or nature which would prohibit, restrict or interfere in
any way with his ability to perform the functions of his positions with
Employer.
15. MISCELLANEOUS.
15.1 INTEGRATION. This Agreement and the Stock Option Agreement of
even date herewith contains the entire agreement and
understanding among the parties relative to the subject matter
hereof and supersedes all prior agreements and understandings
relating thereto.
15.2 APPLICABLE LAW. This Agreement and the rights of the parties
will be governed by and construed and enforced under the laws
of the state of Minnesota. The venue for any action hereunder
will be in the state of Minnesota, and the parties consent to
the jurisdiction of the courts of the state of Minnesota,
County of Hennepin, and the U.S. District Court, District of
Minnesota.
15.3 BINDING EFFECT. Except as herein provided, this Agreement will
be binding upon and will benefit the parties and their
respective heirs, successors, assigns and personal
representatives; provided, however, that Employee may not
assign his rights or obligations hereunder without Employer's
prior written consent. Employer may assign its rights and
obligations under this Agreement, provided the assignee agrees
to fulfill Employer's obligations hereunder.
15.4 NOTICES. All notices, requests and other communications
hereunder will be given in writing and deemed to have been
given if personally delivered, or sent by first class,
certified mail, return receipt requested, postage prepaid, to
the party at the address as provided below, or to such other
address as such party may hereafter designate by written
notice to the other party:
(a) If to Employer, to the address of its then principal
office.
(b) If to Employee, to the address last shown in
Employer's records.
15.5 MODIFICATION. This Agreement will not be modified or amended
except by a written instrument signed by the parties.
15.6 SEVERABILITY. The invalidity or partial invalidity of any
portion of this Agreement will not invalidate the remainder
thereof. If any provision of this Agreement is, for any
reason, held to be excessively broad as to scope, activity,
subject or otherwise, so as to be unenforceable at law, such
provision will be construed by the appropriate judicial body
by limiting or reducing it, so as to be enforceable to the
maximum extent compatible with then applicable law.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date herein first above written.
EMPLOYER:
Grow Biz International, Inc.
Dated: March 22, 2000 By: /s/ Ronald G. Olson
-------------------------------------
Ronald G. Olson, Vice Chairman
EMPLOYEE:
Dated: March 22, 2000 By: /s/ John L. Morgan
-------------------------------------
John L. Morgan
5
<PAGE>
EXHIBIT A
GROW BIZ INTERNATIONAL, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
March 22, 2000
TO: John L. Morgan (the "OPTIONEE")
As the new Chief Executive Officer of Grow Biz International, Inc., a
Minnesota corporation (the "COMPANY"), you are hereby granted an option (the
"OPTION"), pursuant to a resolution of the Board of Directors of the Company
adopted on March 22, 2000.
The Option entitles you to purchase up to 600,000 shares of Common
Stock (the "STOCK") of the Company at a price of $5.00 per share, which was in
excess of the sales price of the Stock as reported on the NASDAQ SmallCap Market
as of the time of the approval of the grant of this Option and as of the close
of business on the date immediately prior to the date of the grant of this
Option.
Your Option is in all respects limited and conditioned by the following
terms and conditions:
1. DEFINITIONS. In addition to definitions that may be contained elsewhere
herein, for purposes of this Agreement and the Option, the following
terms, when capitalized, shall have the following meanings:
(a) "AGREEMENT" means this written agreement evidencing
the Option granted hereunder which is signed by both
the Company and Optionee.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as
amended from time to time, and any successor thereto.
(d) "DISABILITY" means disability as defined in Section
22(e)(3) of the Code.
(e) "FAIR MARKET VALUE" means, as of any given date,
unless otherwise determined by the Board in good
faith, the closing sales price of the Stock for that
date as reported on the NASDAQ SmallCap Market.
2. OPTION TERMS. You will be entitled to purchase up to 120,000 shares of
Stock on March 22, 2001, and an additional 120,000 shares on each of
March 22, 2002, March 22, 2003, March 22, 2004 and March 22, 2005, so
long as you are still serving as Chief Executive Officer of the Company
on such date. If you cease serving as Chief Executive Officer of
6
<PAGE>
the Company, any nonvested portion of the Option is terminated
immediately, and any vested portion is exercisable for thirty (30) days
following the last day on which you served as Chief Executive Officer
of the Company or until the expiration of the Option, whichever period
is shorter.
3. TERM. This Option expires in its entirety on March 22, 2006. Subject to
the vesting schedule set forth in Section 2 hereof, the Option may be
exercised in whole or in part at any time during the term of the
Option.
4. EXERCISE. The Option may be exercised by delivery of the attached
Notice of Exercise to the Company. The exercise price may be paid in
cash, by certified check, or by transfer to the Company of shares of
Stock having a Fair Market Value, as of the date of exercise, not less
than the purchase price of the Stock being acquired pursuant to your
Option, or any combination thereof. The Company's obligation to deliver
shares upon the exercise of the Option will be subject to applicable
federal, state, and local tax withholding requirements. Unless
otherwise determined by the Board, withholding obligations may be
settled with Stock, including Stock received as part of the exercise
giving rise to the withholding requirement.
5. DEATH. If Optionee's service to the Company as Chief Executive Officer
of the Company terminates by reason of death, the Option held by
Optionee may thereafter be exercised by the legal representative of
Optionee's estate or by any person who acquires the Option by will or
the laws of descent and distribution for a period of one year from the
date of such death or until the expiration of the stated term of the
Option, whichever period is shorter. The Option shall be exercisable
only to the extent that the Option was exercisable as of the date of
death.
6. DISABILITY. If Optionee's service to the Company as Chief Executive
Officer of the Company terminates by reason of Disability, Optionee may
exercise such portion of the Option as was exercisable at the date of
termination for a period of one year from the date of termination or
until the expiration of the stated term of the Option, whichever period
is shorter. The Option shall be exercisable only to the extent that the
Option was exercisable as of the date termination.
7. NONTRANSFERABILITY. The Option is transferable only by will or the laws
of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act ("ERISA"), or the rules thereunder.
Except as permitted by the preceding sentence, neither the Option nor
any of the rights and privileges thereby conferred may be transferred,
assigned, pledged, or hypothecated in any way (whether by operation of
law or otherwise), and no such option, right, or privilege will be
subject to execution, attachment, or similar process. The Option may be
exercised during Optionee's lifetime only by Optionee or his or her
guardian or legal representative.
8. INVESTMENT INTENT. Unless a registration statement under the Securities
Act of 1933 (and applicable state securities laws) is in effect with
respect to Stock to be purchased pursuant
7
<PAGE>
to this Option, you agree with, and represent to, the Company that you
are acquiring the Option and Stock for the purpose of investment and
with no present intention to transfer, sell, or otherwise dispose of
the Stock. In the absence of such registration, no shares of Stock
acquired pursuant to the exercise, in whole or in part, of the Option
may be transferred unless, in the opinion of counsel to the Company,
such transfer is in compliance with applicable securities laws, and
each certificate representing any shares of Stock issued to Optionee
hereunder will have endorsed thereon an appropriate legend referring to
the restrictions against transfer. Prior to the transfer of any Stock
to you, the Company may require an opinion of counsel satisfactory to
it that at all times the Company will be in compliance with applicable
federal and state securities laws.
9. ADJUSTMENT IN CAPITALIZATION. In the event of any merger,
reorganization, consolidation, recapitalization, Stock dividend, Stock
split, or other change in corporate structure affecting the Stock, such
substitution or adjustment will be made in the number and option price
of shares purchasable hereunder, in the aggregate number of shares
reserved for issuance with respect to the Option, and in the number and
option price of shares subject to any outstanding portion of the Option
as may be determined to be appropriate by the Board to prevent dilution
or enlargement of Option rights granted hereunder, provided that the
number of shares subject to the Option will always be a whole number.
10. NONQUALIFIED OPTION. This Option is not intended to be an "incentive
stock option" as defined in the Code and is granted outside any stock
option plan adopted by the Company.
11. NONEXCLUSIVITY. The granting of the Option will not be construed as
limiting the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including the granting of other
stock options. Such arrangements may be either generally applicable or
applicable only in specific cases.
12. GOVERNING LAW. The Option and this Agreement will be governed by and
construed in accordance with the laws of the State of Minnesota without
regard to conflicts of laws principles, and all terms will be
interpreted and construed so that there will not be committed any
violation of applicable state or federal securities laws.
13. NO RIGHT TO SERVE. The granting of the Option does not grant Optionee
any right of service as a director, and the Company retains the right
to terminate service of Optionee as its Chief Executive Officer, or
otherwise, pursuant to Company's Articles of Incorporation, Bylaws and
applicable law.
8
<PAGE>
IN WITNESS WHEREOF, Company and Optionee have each executed this
Agreement effective as of the date first above written.
COMPANY: OPTIONEE:
GROW BIZ INTERNATIONAL, INC.
/s/ Ronald G. Olson /s/ John L. Morgan
- ---------------------------------- ----------------------------------
By: Ronald G. Olson John L. Morgan
Its: Vice Chairman
9
<PAGE>
NOTICE OF EXERCISE OF STOCK OPTION
AND RECORD OF STOCK TRANSFER
TO: Grow Biz International, Inc.
4200 Dahlberg Drive
Golden Valley, MN 55422-4837
I hereby exercise my stock option granted by Grow Biz International,
Inc. ("COMPANY"), effective March 22, 2000, subject to all terms and provisions
thereof and notify you of my desire to purchase ________ shares of Common Stock
of the Company ("SHARES"), offered to me pursuant to said Option. Enclosed is a
certified check in the sum of $________ or payment in such other form as the
Company has specified.
[THIS SECTION IS APPLICABLE IF THE SHARES ARE NOT REGISTERED UNDER THE
SECURITIES ACT OF 1933.] I hereby represent that the Shares are being acquired
by me as an investment and not with a view to, or for resale in connection with,
the distribution of any shares of the Company. I understand that the Shares are
not registered under the Securities Act of 1933, as amended ("ACT"), or
applicable state securities laws, that the Shares may not be sold or otherwise
transferred except pursuant to an effective registration statement under the Act
and said laws, unless the Company has received an opinion of counsel
satisfactory to it that such transfer or disposition does not require
registration under the Act or said laws and, for any sales under Rule 144 of the
Act, such evidence as it shall request for compliance with that rule or
applicable state securities laws. I further understand that the certificate
representing the Shares will contain a legend referring to such restrictions.
I acknowledge that I am responsible for payment of any taxes for which
I may become liable as a result of the exercise of this Option.
, /s/ John L. Morgan
- ---------------------- ------ -----------------------------------------
John L. Morgan
RECEIPT is hereby acknowledged of the delivery to me by Grow Biz
International, Inc. on _______________, _____ of stock certificate no. _________
for __________ shares of Common Stock purchased by me pursuant to the terms and
conditions of the option agreement referred to above.
/s/ John L. Morgan
-----------------------------------------
John L. Morgan
EXHIBIT 10.2
GROW BIZ INTERNATIONAL, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
March 22, 2000
TO: John L. Morgan (the "OPTIONEE")
As the new Chief Executive Officer of Grow Biz International, Inc., a
Minnesota corporation (the "COMPANY"), you are hereby granted an option (the
"OPTION"), pursuant to a resolution of the Board of Directors of the Company
adopted on March 22, 2000.
The Option entitles you to purchase up to 600,000 shares of Common
Stock (the "STOCK") of the Company at a price of $5.00 per share, which was in
excess of the sales price of the Stock as reported on the NASDAQ SmallCap Market
as of the time of the approval of the grant of this Option and as of the close
of business on the date immediately prior to the date of the grant of this
Option.
Your Option is in all respects limited and conditioned by the following
terms and conditions:
14. DEFINITIONS. In addition to definitions that may be contained elsewhere
herein, for purposes of this Agreement and the Option, the following
terms, when capitalized, shall have the following meanings:
(a) "AGREEMENT" means this written agreement evidencing the Option
granted hereunder which is signed by both the Company and
Optionee.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
(d) "DISABILITY" means disability as defined in Section 22(e)(3)
of the Code.
(e) "FAIR MARKET VALUE" means, as of any given date, unless
otherwise determined by the Board in good faith, the closing
sales price of the Stock for that date as reported on the
NASDAQ SmallCap Market.
15. OPTION TERMS. You will be entitled to purchase up to 120,000 shares of
Stock on March 22, 2001, and an additional 120,000 shares on each of
March 22, 2002, March 22, 2003, March 22, 2004 and March 22, 2005, so
long as you are still serving as Chief Executive Officer of the Company
on such date. If you cease serving as Chief Executive Officer of the
Company, any nonvested portion of the Option is terminated immediately,
and any
<PAGE>
vested portion is exercisable for thirty (30) days following the last
day on which you served as Chief Executive Officer of the Company or
until the expiration of the Option, whichever period is shorter.
16. TERM. This Option expires in its entirety on March 22, 2006. Subject to
the vesting schedule set forth in Section 2 hereof, the Option may be
exercised in whole or in part at any time during the term of the
Option.
17. EXERCISE. The Option may be exercised by delivery of the attached
Notice of Exercise to the Company. The exercise price may be paid in
cash, by certified check, or by transfer to the Company of shares of
Stock having a Fair Market Value, as of the date of exercise, not less
than the purchase price of the Stock being acquired pursuant to your
Option, or any combination thereof. The Company's obligation to deliver
shares upon the exercise of the Option will be subject to applicable
federal, state, and local tax withholding requirements. Unless
otherwise determined by the Board, withholding obligations may be
settled with Stock, including Stock received as part of the exercise
giving rise to the withholding requirement.
18. DEATH. If Optionee's service to the Company as Chief Executive Officer
of the Company terminates by reason of death, the Option held by
Optionee may thereafter be exercised by the legal representative of
Optionee's estate or by any person who acquires the Option by will or
the laws of descent and distribution for a period of one year from the
date of such death or until the expiration of the stated term of the
Option, whichever period is shorter. The Option shall be exercisable
only to the extent that the Option was exercisable as of the date of
death.
19. DISABILITY. If Optionee's service to the Company as Chief Executive
Officer of the Company terminates by reason of Disability, Optionee may
exercise such portion of the Option as was exercisable at the date of
termination for a period of one year from the date of termination or
until the expiration of the stated term of the Option, whichever period
is shorter. The Option shall be exercisable only to the extent that the
Option was exercisable as of the date termination.
20. NONTRANSFERABILITY. The Option is transferable only by will or the laws
of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act ("ERISA"), or the rules thereunder.
Except as permitted by the preceding sentence, neither the Option nor
any of the rights and privileges thereby conferred may be transferred,
assigned, pledged, or hypothecated in any way (whether by operation of
law or otherwise), and no such option, right, or privilege will be
subject to execution, attachment, or similar process. The Option may be
exercised during Optionee's lifetime only by Optionee or his or her
guardian or legal representative.
21. INVESTMENT INTENT. Unless a registration statement under the Securities
Act of 1933 (and applicable state securities laws) is in effect with
respect to Stock to be purchased pursuant to this Option, you agree
with, and represent to, the Company that you are acquiring the
2
<PAGE>
Option and Stock for the purpose of investment and with no present
intention to transfer, sell, or otherwise dispose of the Stock. In the
absence of such registration, no shares of Stock acquired pursuant to
the exercise, in whole or in part, of the Option may be transferred
unless, in the opinion of counsel to the Company, such transfer is in
compliance with applicable securities laws, and each certificate
representing any shares of Stock issued to Optionee hereunder will have
endorsed thereon an appropriate legend referring to the restrictions
against transfer. Prior to the transfer of any Stock to you, the
Company may require an opinion of counsel satisfactory to it that at
all times the Company will be in compliance with applicable federal and
state securities laws.
22. ADJUSTMENT IN CAPITALIZATION. In the event of any merger,
reorganization, consolidation, recapitalization, Stock dividend, Stock
split, or other change in corporate structure affecting the Stock, such
substitution or adjustment will be made in the number and option price
of shares purchasable hereunder, in the aggregate number of shares
reserved for issuance with respect to the Option, and in the number and
option price of shares subject to any outstanding portion of the Option
as may be determined to be appropriate by the Board to prevent dilution
or enlargement of Option rights granted hereunder, provided that the
number of shares subject to the Option will always be a whole number.
23. NONQUALIFIED OPTION. This Option is not intended to be an "incentive
stock option" as defined in the Code and is granted outside any stock
option plan adopted by the Company.
24. NONEXCLUSIVITY. The granting of the Option will not be construed as
limiting the power of the Board to adopt such other incentive
arrangements as it may deem desirable, including the granting of other
stock options. Such arrangements may be either generally applicable or
applicable only in specific cases.
25. GOVERNING LAW. The Option and this Agreement will be governed by and
construed in accordance with the laws of the State of Minnesota without
regard to conflicts of laws principles, and all terms will be
interpreted and construed so that there will not be committed any
violation of applicable state or federal securities laws.
26. NO RIGHT TO SERVE. The granting of the Option does not grant Optionee
any right of service as a director, and the Company retains the right
to terminate service of Optionee as its Chief Executive Officer, or
otherwise, pursuant to Company's Articles of Incorporation, Bylaws and
applicable law.
3
<PAGE>
IN WITNESS WHEREOF, Company and Optionee have each executed this
Agreement effective as of the date first above written.
COMPANY: OPTIONEE:
GROW BIZ INTERNATIONAL, INC.
/s/ Ronald G. Olson /s/ John L. Morgan
- ---------------------------------- ----------------------------------
By: Ronald G. Olson John L. Morgan
Its: Vice Chairman
4
<PAGE>
NOTICE OF EXERCISE OF STOCK OPTION
AND RECORD OF STOCK TRANSFER
TO: Grow Biz International, Inc.
4200 Dahlberg Drive
Golden Valley, MN 55422-4837
I hereby exercise my stock option granted by Grow Biz International,
Inc. ("COMPANY"), effective March 22, 2000, subject to all terms and provisions
thereof and notify you of my desire to purchase ________ shares of Common Stock
of the Company ("SHARES"), offered to me pursuant to said Option. Enclosed is a
certified check in the sum of $________ or payment in such other form as the
Company has specified.
[THIS SECTION IS APPLICABLE IF THE SHARES ARE NOT REGISTERED UNDER THE
SECURITIES ACT OF 1933.] I hereby represent that the Shares are being acquired
by me as an investment and not with a view to, or for resale in connection with,
the distribution of any shares of the Company. I understand that the Shares are
not registered under the Securities Act of 1933, as amended ("ACT"), or
applicable state securities laws, that the Shares may not be sold or otherwise
transferred except pursuant to an effective registration statement under the Act
and said laws, unless the Company has received an opinion of counsel
satisfactory to it that such transfer or disposition does not require
registration under the Act or said laws and, for any sales under Rule 144 of the
Act, such evidence as it shall request for compliance with that rule or
applicable state securities laws. I further understand that the certificate
representing the Shares will contain a legend referring to such restrictions.
I acknowledge that I am responsible for payment of any taxes for which
I may become liable as a result of the exercise of this Option.
, /s/ John L. Morgan
- ---------------------- ------ -----------------------------------------
John L. Morgan
RECEIPT is hereby acknowledged of the delivery to me by Grow Biz
International, Inc. on _______________, _____ of stock certificate no. _________
for __________ shares of Common Stock purchased by me pursuant to the terms and
conditions of the option agreement referred to above.
/s/ John L. Morgan
-----------------------------------------
John L. Morgan
5
EXHIBIT 10.3
COMMON STOCK WARRANT
To Purchase 200,000
Shares of Common Stock of
Grow Biz International, Inc.
March 22, 2000
THE SECURITIES EVIDENCED BY THIS CERTIFICATE WERE ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL (WHICH SHALL BE
IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY) THAT SUCH REGISTRATION IS NOT
REQUIRED.
THIS CERTIFIES THAT, for value received Sheldon Fleck ("Fleck") or his
registered assigns is entitled to subscribe for and purchase from Grow Biz
International, Inc. (the "Company"), a Minnesota corporation, at any time after
the date hereof to and including the Expiration Date (as defined in Section 1
hereof), Two Hundred Thousand (200,000) fully paid and nonassessable shares of
the Company's Common Stock, no par value, at a price of $6.00 per share:
This Warrant is subject to the following provisions, terms and
conditions:
1. Expiration; Exercise; Transferability.
(a) This Warrant may be exercised in whole or in part, at any time
after the date hereof to and including the Expiration Date. As used herein
"Expiration Date" shall mean March 22, 2008.
(b) The rights represented by this Warrant may be exercised by the
holder hereof, in whole or in part (but not as to a fractional share of stock),
by written notice of exercise in the form appended hereto delivered to the
Company on or prior to the Expiration Date, ten (10) days prior to the intended
date of exercise and by the surrender of this Warrant (properly endorsed if
required) at the principal office of the Company and upon payment to it of the
purchase price for such shares by certified bank check or wire transfer of funds
or by surrender to the Company of shares of the Company's Common Stock having a
fair market value (as defined in Section 9(d) below) equal to the purchase
price.
<PAGE>
(c) This Warrant may be transferred subject to the opinion of
counsel as provided by paragraph 7 herein that such transfer is not in violation
of federal or state securities laws. In the event of any such transfer, the term
"Warrants" as used hereinbelow shall apply to all of such transferred Warrants,
in the aggregate.
2. Issuance of Shares. The Company agrees that the shares purchased
hereby shall be and are deemed to be issued to the record holder hereof as of
the close of business on the date on which this Warrant shall have been
exercised by surrender of the Warrant and payment for the shares. Subject to the
provisions of the next succeeding paragraph, certificates for the shares of
stock so purchased shall be delivered to the holder hereof within a reasonable
time, not exceeding ten (10) days after the rights represented by this Warrant
shall have been so exercised, and, unless this Warrant has expired, a new
Warrant representing the number of shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be delivered to the holder
hereof within such time.
Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant, except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof.
3. Covenants of Company. The Company covenants and agrees that all
shares which may be issued upon the exercise of the rights represented by this
Warrant will upon receipt of payment therefor upon issuance, be duly authorized
and issued, fully paid, nonassessable and free from all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized, and reserved for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of its common stock to
provide for the exercise of the rights represented by this Warrant.
4. Anti-Dilution Adjustments. The above provisions are, however,
subject to the following:
(a) In case the Company shall at any time hereafter subdivide or
combine the outstanding shares of common stock or declare a dividend payable in
common stock, the exercise price of this Warrant in effect immediately prior to
the subdivision, combination or record date for such dividend payable in common
stock shall forthwith be proportionately increased, in the case of combination,
or decreased, in the case of subdivision or dividend payable in common stock.
Upon each adjustment of the exercise price, the holder of this Warrant shall
thereafter be entitled to purchase, at the exercise price resulting from such
adjustment, the number of shares obtained by multiplying the exercise price
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the exercise price resulting from such adjustment.
(b) No fractional shares of common stock are to be issued upon the
exercise of this Warrant, but the Company shall pay a cash adjustment in respect
of any fraction of a share
-2-
<PAGE>
which would otherwise be issuable in an amount equal to the same fraction of the
market price per share of common stock on the day of exercise as determined in
good faith by the Company.
(c) (i) If any capital reorganization or reclassification of the
capital stock of the Company shall be effected in such a way that holders of
common stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for common stock, then, as a condition of such
reorganization or reclassification, lawful and adequate provision shall be made
whereby the holder hereof shall thereafter have the right to purchase and
receive, upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the shares of common stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, such stock, securities or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares of such common
stock equal to the number of shares of such stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby
had such reorganization or reclassification not taken place, and in any such
case appropriate provisions shall be made with respect to the rights and
interests of the holder of this Warrant to the end that the provisions hereof
(including without limitation provisions for adjustments of the Warrant purchase
price and of the number of shares purchasable upon the exercise of this Warrant)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise hereof.
(ii) In any event any consolidation or merger of the Company
or the sale of all or substantially all of its assets, the Company shall give
the holder of this Warrant notice of any such transaction, which notice shall be
given at least 10 days prior to any record date which shall be established in
connection with any shareholder meeting or consent solicitation with respect to
such transaction.
Notwithstanding any language to the contrary set forth in
this paragraph 4 (c), if an occurrence or event described herein shall take
place in which the shareholders of the Company receive cash for their shares of
common stock of the Company and a successor corporation or corporation
purchasing assets shall survive the transaction then, at the election of the
record holder hereof, such corporation shall be obligated to purchase this
Warrant (or the unexercised part hereof) from the record holder without
requiring the holder to exercise all or part of the Warrant. If such corporation
refuses to so purchase this Warrant then the Company shall purchase the Warrant
for cash. In either case the purchase price shall be the amount per share that
shareholders of the outstanding common stock of the Company shall receive as a
result of the transaction multiplied by the number of shares covered by the
Warrant, minus the aggregate exercise price of the Warrant. Such purchase shall
be closed within 60 days following the election of the holder to sell this
Warrant.
(d) Upon any adjustment of the Warrant purchase price, then, and
in each such case, the Company shall give written notice thereof, by first class
mail, postage prepaid, addressed to the registered holder of this Warrant at the
address of such holder as shown on the books of the Company, which notice shall
state the Warrant purchase price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price
-3-
<PAGE>
upon the exercise of this Warrant, setting forth in reasonable detail the method
of calculation and the facts upon which such calculation is based.
(e) If any event occurs as to which in the good faith
determination of the Board of Directors of the Company the other provisions of
this paragraph 4 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the holder of this Warrant or of common
stock in accordance with the essential intent and principles of such provisions,
then the Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such purchase rights as aforesaid.
5. Common Stock. As used herein, the term "common stock" shall mean and
include the Company's presently authorized shares of common stock and shall also
include any capital stock of any class of the Company hereafter authorized which
shall not be limited to fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution, dissolution
or winding up of the Company; provided that the shares purchasable pursuant to
this Warrant shall include shares designated as common stock of the Company on
the date of original issue of this Warrant or, in the case of any
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in Section 4 above.
6. No Voting Rights. This Warrant shall not entitle the holder hereof
to any voting rights or other rights as a stockholder of the Company.
7. Transfer of Warrant or Resale of Shares. In the event the holder of
this Warrant desires to transfer this Warrant, or any common stock issued upon
the exercise hereof, the holder shall provide the Company with a written notice
describing the manner of such transfer in the form appended hereto and an
opinion of counsel (reasonably acceptable to the Company) that the proposed
transfer may be effected without registration or qualification (under any
Federal or State law), whereupon such holder shall be entitled to transfer this
Warrant or to dispose of shares of common stock received upon the previous
exercise hereof in accordance with the notice delivered by such holder to the
Company; provided, that an appropriate legend may be endorsed on this Warrant or
the certificates for such shares respecting restrictions upon transfer thereof
necessary or advisable in the opinion of counsel satisfactory to the Company to
prevent further transfers which would be in violation of Section 5 of the
Securities Act, as amended (the "Securities Act").
If, in the opinion of either of the counsel referred to in this
paragraph 7, the proposed transfer or disposition described in the written
notice given pursuant to this paragraph 7 may not be effected without
registration or qualification of this Warrant or the shares of common stock
issued upon the exercise hereof, the Company shall promptly give written notice
thereof to the holder hereof, and such holder will limit its activities in
respect to such proposed transfer or disposition as, in the opinion of both such
counsel, are permitted by law.
8. Registration Rights.
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<PAGE>
(a) If the Company proposes to claim an exemption under Section
3(b) for a public offering of any of its securities or to register under the
Securities Act (except by a claim of exemption or registration statement on Form
S-8 or Form S-4 or any form that does not permit the inclusion of shares by its
security holders) any of its securities, and provided that the holders of shares
purchased or purchasable under the Warrants would be unable to sell all of such
shares under Rule 144, the Company will give written notice to all registered
holders of Warrants, and all registered holders of shares of common stock
acquired upon the exercise of Warrants (the "Common Shares") of its intention to
do so and, on the written request of any such registered holders given within
twenty (20) days after receipt of any such notice, the Company will use its best
efforts to cause all Common Shares which such holders shall have requested the
registration or qualification thereof, to be included in such notification or
registration statement proposed to be filed by the Company; provided, however,
that nothing herein shall prevent the Company from, at any time, abandoning or
delaying any such registration initiated by it. If any such registration shall
be underwritten in whole or in part, the Company may require that the shares
requested for inclusion pursuant to this section be included in the underwriting
on the same terms and conditions as the securities otherwise being sold through
the underwriters. In the event that, in the good faith judgment of the managing
underwriter of such public offering, the inclusion of all of the shares
originally covered by a request for registration would reduce the number of
shares to be offered by the Company or interfere with the successful marketing
of the shares of stock offered by the Company, the number of shares otherwise to
be included pursuant to this Section in the underwritten public offering may be
proportionately reduced (among all shareholders seeking registration) to a
number deemed satisfactory by the managing underwriter. Those shares which are
thus excluded from the underwritten public offering shall be withheld from the
market for a period, not to exceed 90 days from the effective date of the
registration statement, which the managing underwriter reasonably determines is
necessary in order to effect the underwritten public offering. All expenses of
such offering, except the fees of special counsel to such holders and brokers'
commissions or underwriting discounts payable by such holders, shall be borne by
the Company.
(b) Further, provided that the holders of shares purchased or
purchasable under the Warrants would be unable to sell all of such shares under
Rule 144, on one occasion only upon request by the holders of Warrants and/or
the holders of shares issued upon the exercise of the Warrants who collectively
(i) have the right to purchase at least 50% of the shares subject to the
Warrants, (ii) hold directly at least 50% of the shares purchased under the
Warrants, or (iii) have the right to purchase or hold directly an aggregate of
at least 50% of the shares purchasable or purchased under the Warrants, the
Company will promptly take all necessary steps, at the option of such holders,
to register or qualify the sale of the Warrants or such shares by the holders
thereof, under the Securities Act (and, upon the request of such holders, under
Rule 415 thereunder) and such state laws as such holders may reasonably request;
provided that (i) such request must be made by the Expiration Date; and (ii) the
Company may delay the filing of any registration statement requested pursuant to
this section to a date not more than sixty (60) days following the date of such
request if in the opinion of the Company's principal investment banker at the
time of such request such a delay is necessary in order not to adversely affect
financing efforts then underway at the Company or if in the opinion of the
Company such a delay is necessary or advisable to avoid disclosure of material
nonpublic
-5-
<PAGE>
information. The costs and expenses directly related to any registration
requested pursuant to this section, including but not limited to legal fees of
the Company's counsel, audit fees, printing expense, filing fees and fees and
expenses relating to qualifications under state securities or blue sky laws
incurred by the Company shall be borne entirely by the Company; provided,
however, that the persons for whose account the securities covered by such
registration are sold shall bear the expenses of underwriting commissions
applicable to their shares and fees of their legal counsel. If the holders of
Warrants and the holders of shares of common stock underlying the Warrants are
the only persons whose shares are included in the registration pursuant to this
section, such holders shall bear the expense of inclusion of audited financial
statements in the registration statement which are not dated as of the Company's
normal fiscal year or are not otherwise prepared by the Company for its own
business purposes. The Company shall keep effective and maintain any
registration, qualification, notification or approval specified in this
paragraph for such period as may be necessary for the holders of the Warrants
and such common stock to dispose thereof, and from time to time shall amend or
supplement, at the holder's expense, the prospectus or offering circular used in
connection therewith to the extent necessary in order to comply with applicable
law. The Company covenants and agrees that it will use its best efforts to meet
the qualifications to use a Form S-3 Registration Statement for the sale of the
shares purchased or purchasable under the Warrants.
If, at the time any written request for registration is received
by the Company pursuant to this Section 8(b), the Company has determined to
proceed with the actual preparation and filing of a registration statement under
the Securities Act in connection with the proposed offer and sale for cash of
any of its securities by it or any of its security holders, such written request
shall be deemed to have been given pursuant to Section 8(a) hereof rather than
this Section 8(b), and the rights of the holders of Warrants and or shares
issued upon the exercise of the Warrants covered by such written request shall
be governed by Section 8(a) hereof.
(c) If and whenever the Company is required by the provisions of
Sections 8(a) or 8(b) hereof to effect the registration of Warrants and/or
shares issued upon the exercise of the Warrants under the Securities Act, the
Company will:
(i) Prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement with
respect to such securities, and use its diligent, good faith
efforts to cause such registration statement to become and remain
effective until the earlier of the date on which all the
securities have been sold or the date the securities may be sold
without restriction pursuant to Rule 144(k) under the Securities
Act;
(ii) prepare and file with the Commission such amendments
to such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration
statement effective for the period required by Section 8(c)(i)
above;
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<PAGE>
(iii) provide security holders' counsel with reasonable
opportunities to review and comment on, and otherwise participate
in, the preparation of such registration statement;
(iv) furnish to the security holders participating in such
registration and to the underwriters of the securities being
registered such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other
documents as such security holders and underwriters may reasonably
request in order to facilitate the public offering of such
securities;
(v) use its diligent, good faith efforts to register or
qualify the securities covered by such registration statement
under such state securities or blue sky laws of such jurisdictions
as such participating holders may reasonably request in writing
within 30 days following the original filing of such registration
statement, except that the Company shall not for any purpose be
required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified;
(vi) notify the security holders participating in such
registration, promptly after it shall receive notice thereof, of
the time when such registration statement has become effective or
a supplement to any prospectus forming a part of such registration
statement has been filed;
(vii) notify such holders promptly of any request by the
Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;
(viii) prepare and file with the Commission, promptly upon
the request of any such holders, any amendments or supplements to
such registration statement or prospectus which, in the opinion of
counsel for such holders (and concurred in by counsel for the
Company), is required under the Securities Act or the rules and
regulations thereunder in connection with the distribution of the
Warrants or shares by such holder;
(ix) prepare and promptly file with the Commission and
promptly notify such holders of the filing of such amendment or
supplement to such registration statement or prospectus as may be
necessary to correct any statements or omissions if, at the time
when a prospectus relating to such securities is required to be
delivered under the Securities Act, any event shall have occurred
as the result of which any such prospectus or any other prospectus
as then in effect would include an untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which
they were made, not misleading;
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<PAGE>
(x) advise such holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop
order by the Commission suspending the effectiveness of such
registration statement or the initiation or threatening of any
proceeding for that purpose and promptly use its best efforts to
prevent the issuance of any stop order or to obtain its withdrawal
if such stop order should be issued;
(xi) not file any amendment or supplement to such
registration statement or prospectus to which a majority in
interest of such holders shall have reasonably objected on the
grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or
the rules and regulations thereunder, after having been furnished
with a copy thereof at least five business days prior to the
filing thereof, unless in the opinion of counsel for the Company
the filing of such amendment or supplement is reasonably necessary
to protect the Company from any liabilities under any applicable
federal or state law and such filing will not violate applicable
law; and
(xii) at the request of any such holder, furnish on the
effective date of the registration statement and, if such
registration includes an underwritten public offering, at the
closing provided for in the underwriting agreement: (i) opinions,
dated such respective dates, of the counsel representing the
Company for the purposes of such registration, addressed to the
underwriters, if any, and to the holder or holders making such
request, covering such matters as such underwriters and holder or
holders may reasonably request; and (ii) letters, dated such
respective dates, from the independent certified public
accountants of the Company, addressed to the underwriters, if any,
and to the holder or holders making such request, covering such
matters as such underwriters and holder or holders may reasonably
request.
(d) The Company shall pay all Registration Expenses (as defined
below) in connection with the inclusion of Shares in any Registration Statement,
or application to register or qualify Shares under state securities laws, filed
by the Company hereunder, other than as set forth herein. For purposes of this
Agreement, the term "Registration Expenses" means the filing fees payable to the
Commission, any state agency and the National Association of Securities Dealers,
Inc.; the fees and expenses of the Company's legal counsel and independent
certified public accountants in connection with the preparation and filing of
the Registration Statement (and all amendments and supplements thereto) with the
Commission; and all expenses relating to the printing of the Registration
Statement, prospectuses and various agreements executed in connection with the
Registration Statement. Notwithstanding the foregoing, the security holder will
pay the fees and expenses of any legal counsel such holders may engage, as well
as the holder's proportionate share of any custodian fees or commission or
discounts which may be payable to any underwriter.
(e) The holders of Warrants and/or the holders of shares issued
upon the exercise of the Warrants acknowledge that there may occasionally be
times when the Company
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<PAGE>
must suspend the use of the prospectus forming a part of the Registration
Statement, when there exists material non-public information relating to the
Company (including, but not limited to, an acquisition, merger,
recapitalization, consolidation, reorganization or similar transaction (or
negotiations with respect thereto)) which in the reasonable opinion of the
Company's Board of Directors should not be disclosed. Accordingly, the Company
may suspend resales pursuant to such Registration Statement for a period not to
exceed sixty (60) days in any twenty-four (24) month period if the Company has
been advised by counsel and the Board of Directors reasonably concurs that the
information the Board reasonably believes should not be disclosed is material
and therefore the prospectus forming a part of the Registration Statement is not
current. Each such holder agrees that it shall not sell any Shares pursuant to
said prospectus during the period commencing at the time at which the Company
gives the holder notice of the suspension of such prospectus and ending at the
time the Company gives the holder notice that the holder may thereafter effect
sales pursuant to such prospectus.
(f) The Company hereby indemnifies the holder of this Warrant and
of any common stock issued or issuable hereunder, its officers and directors,
and any person who controls such Warrant holder or such holder of common stock
within the meaning of Section 15 of the Securities Act, against all losses,
claims, damages and liabilities caused by any untrue statement of a material
fact contained in any registration statement, prospectus, notification or
offering circular (and as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or any preliminary prospectus
or caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as such losses, claims, damages or liabilities are caused by any untrue
statement or omission contained in information furnished in writing to the
Company by such Warrant holder or such holder of common stock expressly for use
therein, and each such holder by its acceptance hereof severally agrees that it
will indemnify and hold harmless the Company and each of its officers who signs
such registration statement and each of its directors and each person, if any,
who controls the Company within the meaning of Section 15 of the Securities Act
with respect to losses, claims, damages or liabilities which are caused by any
untrue statement or omission contained in information furnished in writing to
the Company by such holder expressly for use therein.
9. Additional Right to Convert Warrant.
(a) The holder of this Warrant shall have the right to require the
Company to convert this Warrant (the "Conversion Right") at any time prior to
its expiration into shares of Common Stock as provided for in this Section 9.
Upon exercise of the Conversion Right, the Company shall deliver to the holder
(without payment by the holder of any Exercise Price) that number of shares of
Common Stock equal to the quotient obtained by dividing (x) the value of the
Warrant at the time the Conversion Right is exercised (determined by subtracting
the aggregate Exercise Price for the Warrant Shares in effect immediately prior
to the exercise of the Conversion Right from the aggregate Fair Market Value for
the Warrant Shares immediately prior to the exercise of the Conversion Right) by
(y) the Fair Market Value of one share of Common Stock immediately prior to the
exercise of the Conversion Right.
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<PAGE>
(b) The Conversion Right may be exercised by the holder, at any
time or from time to time, prior to its expiration, on any business day by
delivering a written notice in the form attached hereto (the "Conversion
Notice") to the Company at the offices of the Company exercising the Conversion
Right and specifying (i) the total number of shares of Common Stock the
Warrantholder will purchase pursuant to such conversion and (ii) a place and
date not less than one nor more than 20 business days from the date of the
Conversion Notice for the closing of such purchase.
(c) At any closing under Section 9(b) hereof, (i) the holder will
surrender the Warrant and (ii) the Company will deliver to the holder a
certificate or certificates for the number of shares of Common Stock issuable
upon such conversion, together with cash, in lieu of any fraction of a share,
and (iii) the Company will deliver to the holder a new warrant representing the
number of shares, if any, with respect to which the warrant shall not have been
exercised.
(d) "Fair Market Value" means, with respect to the Company's
Common Stock, as of any date:
(i) if the Common Stock is listed or admitted to unlisted
trading privileges on any national securities exchange or is not so listed or
admitted but transactions in the Common Stock are reported on the NASDAQ
National Market System, the reported closing price of the Common Stock on such
exchange or by the NASDAQ National Market System as of such date (or, if no
shares were traded on such day, as of the next preceding day on which there was
such a trade); or
(ii) if the Common Stock is not so listed or admitted to
unlisted trading privileges or reported on the NASDAQ National Market System,
and bid and asked prices therefor in the over-the-counter market are reported by
the NASDAQ system or National Quotation Bureau, Inc. (or any comparable
reporting service), the mean of the closing bid and asked prices as of such
date, as so reported by the NASDAQ System, or, if not so reported thereon, as
reported by National Quotation Bureau, Inc. (or such comparable reporting
service); or
(iii) if the Common Stock is not so listed or admitted to
unlisted trading privileges, or reported on the NASDAQ National Market System,
and such bid and asked prices are not so reported by the NASDAQ system or
National Quotation Bureau, Inc. (or any comparable reporting service), such
price as the Company's Board of Directors determines in good faith in the
exercise of its reasonable discretion.
[Remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, Grow Biz International, Inc. has caused this Warrant to be
executed by its duly authorized officers and this Warrant to be dated as of
March 22, 2000.
GROW BIZ INTERNATIONAL, INC.
By /s/ Ronald G. Olson
-----------------------------------------
GROW BIZ INTERNATIONAL, INC.
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<PAGE>
EXERCISE FORM
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
GROW BIZ INTERNATIONAL, INC.
The undersigned, the holder of the within warrant, hereby irrevocably
elects to exercise the purchase right represented by such warrant for, and to
purchase thereunder ______________ shares of the Common Stock, no par value, of
Grow Biz International, Inc. and herewith makes payment of $________________
therefor, and requests that the certificates for such shares be issued in the
name of __________________________ and be delivered to _________________________
whose address is _________________________.
Dated:
------------------- -----------------------------------------
(Signature must conform in all respects
to the name of holder as specified on the
face of the warrant)
(Address)
(City - State - Zip)
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<PAGE>
ASSIGNMENT FORM
(TO BE SIGNED ONLY UPON TRANSFER OF THE WARRANT)
For value received, the undersigned hereby sells, assigns and transfers
unto those individuals listed on Exhibit A, attached hereto, the right
represented by the within warrant to purchase the number of shares opposite
their names on the attached Exhibit A of Common Stock, no par value, of Grow Biz
International, Inc. to which the within warrant relates, and appoints
______________________ attorney to transfer said right on the books of Grow Biz
International, Inc., with full power of substitution in the premises.
Dated: ________________ SHELDON FLECK
4611 Browndale Avenue
Edina, MN 55424
------------------------------------------
Sheldon Fleck
In the presence of:
- -----------------------------------
- -----------------------------------
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<PAGE>
CONVERSION NOTICE
(TO BE SIGNED ONLY UPON EXERCISE OF CONVERSION RIGHT
SET FORTH IN SECTION 9 OF THE WARRANT)
TO Grow Biz International, Inc.:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the Conversion Right set forth in Section 9 of such Warrant
and to surrender for conversion _______________ shares of the Common Stock of
Grow Biz International, Inc. and to receive _________ shares of the Common Stock
of Grow Biz International, Inc. The closing of this conversion shall take place
at the offices of the undersigned on ____________________. Certificates for the
shares to be delivered at the closing shall be issued in the name of
______________________________ whose address is _______________________________.
Dated:
------------------- -----------------------------------------
(Signature must conform in all respects
to the name of holder as specified on the
face of the Warrant)
(Address)
(City - State - Zip)
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EXHIBIT 10.4
FOURTH AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT
This Fourth Amendment to Amended and Restated Credit Agreement (this
"Amendment"), dated as of April 28, 2000, is made by and between GROW BIZ
INTERNATIONAL, INC. and GROW BIZ GAMES, INC., each a Minnesota corporation (each
a "Borrower" and collectively the "Borrowers"), and TCF NATIONAL BANK, a
national banking association formerly known as TCF National Bank Minnesota (the
"Bank").
RECITALS
The Borrowers and the Bank have entered into an Amended and Restated
Credit Agreement dated as of October 14, 1998, as amended by a letter agreement
amendment dated as of July 29, 1999, a Second Amendment to Amended and Restated
Credit Agreement dated as of August 31, 1999 and a Third Amendment to Amended
and Restated Credit Agreement (the "Third Amendment") effective as of December
25, 1999 (as so amended, the "Credit Agreement").
The Borrowers are currently in default of various financial
covenants under the Credit Agreement and have requested that such defaults be
waived by the Bank and that the maturity of the Credit Agreement be extended.
The Bank has agreed to waive such defaults and extend the maturity to July 31,
2000, provided that certain amendments are made to the Credit Agreement and
certain conditions are satisfied, as set forth herein. In addition, the
Borrowers have requested the consent of the Bank to the sale of one of the
Borrowers' stores, which consent the Bank has agreed to provide on the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, it is agreed as follows:
1. Defined Terms. Capitalized terms used in this Amendment which are defined in
the Credit Agreement shall have the same meanings as defined therein, unless
otherwise defined herein. In addition, the Glossary of Terms appearing as the
Appendix to the Credit Agreement is amended by adding or amending, as the case
may be, the following definitions:
"'Borrowing Base' means, at any time, an amount equal to:
(a) eighty-five percent (85%) of the Eligible Buying Group Accounts,
computed on the basis of the most recent Borrowing Base Certificate; plus
(b) thirty percent (30%) of the Eligible Royalty Accounts, computed
on the basis of the most recent Borrowing Base Certificate furnished to
the Bank; plus
(c) fifty percent (50%) of Eligible Inventory, computed on the basis
of the most recent Borrowing Base Certificate furnished to the Bank; plus
<PAGE>
(d) $2,640,000, representing seventy-five percent (75%) of the
appraised fair market value of the real property subject to that certain
Combination Mortgage, Security Agreement and Fixture Financing Statement
dated as of December 30, 1999 by International in favor of the Bank."
"'Fourth Amendment' means that certain Fourth Amendment to Amended
and Restated Credit Agreement dated as of April 28, 2000."
"'Maximum Line' means $7,500,000."
"'Revolving Loan Maturity Date' means July 31, 2000."
2. The Revolving Loan. Section 3.2(a) of the Credit Agreement is hereby amended
in its entirety to read as follows:
"General Terms and Conditions. The Bank agrees, on the terms and
conditions herein set forth, to make Revolving Advances to the Borrowers
from time to time from the date hereof to and including July 31, 2000, or
the earlier termination of the Commitment to make Revolving Advances
pursuant to Section 9.2 hereof, in an aggregate amount not to exceed at
any time outstanding the lesser of (i) the Revolving Commitment Amount or
(ii) the Borrowing Base. The minimum amount of each Revolving Advance
shall be $50,000. Within the above limits, the Borrowers may borrow,
prepay and reborrow Revolving Advances under this Section 3.2(a). From and
after the date of the first Revolving Advance, accrued interest on the
Revolving Note shall be due and payable monthly, commencing on the tenth
(10th) day of the month following the date of the first Revolving Advance,
and on the same day of each month thereafter until payment in full of the
Revolving Note. On the Revolving Loan Maturity Date the remaining unpaid
principal balance of the Revolving Advances and all accrued and unpaid
interest shall be due and payable."
3. Normal Rate of Interest on Revolving Note. Section 3.2(d) of the Credit
Agreement is hereby amended in its entirety to read as follows:
"(d) Normal Rate of Interest. The principal balance of the Revolving
Note outstanding from time to time shall bear interest from the date
hereof until paid in full at an annual rate which shall at all times be
equal to the Base Rate plus one percent (1.00%), which annual rate shall
change when and as the Base Rate changes; subject, however, to imposition
of the Default Rate pursuant to Section 4.5."
4. Term Loan B. Section 3.3(a) of the Credit Agreement is hereby amended in its
entirety to read as follows:
"(a) General Terms and Conditions. The Bank made Term Loan B
Advances to the Borrowers during the period from October 14, 1998 to and
including March 31,
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<PAGE>
1999, on which date the aggregate unpaid principal amount of the Term Loan
B Advances was $8,000,000. The Bank has no obligation to make any
additional Term Loan B Advances. The Term Loan B Advances shall be
repayable in monthly installments of principal and interest, which such
payments began on April 1, 1999. On May 10, 2000, June 10, 2000 and July
10, 2000, accrued interest for the previous month shall be due and
payable, together, each such month, with a principal payment in the amount
of $150,000. On July 31, 2000 (the 'Term Loan B Maturity Date'), the
remaining principal balance of the Term Loan B Advances together with all
accrued and unpaid interest thereon shall be due and payable. Such monthly
payment amount may change as the interest rate changes due to any
implementation of the Default Rate. As of April 28, 2000, the outstanding
principal balance of the Term Loan B Advances was $6,500,000."
5. Existing Term Loan. Section 3.4(a) of the Credit Agreement is hereby amended
in its entirety to read as follows:
"(a) General Terms and Conditions. On August 8, 1997, the Bank made
a single advance term loan to International in the amount of $4,500,000
(the "Existing Term Loan Advance"). The Existing Term Loan shall be repaid
by the Borrowers in equal principal payments of $75,000 per month, which
such payments began on October 10, 1997, and shall continue until July 31,
2000 (the 'Existing Term Loan Maturity Date'), at which time a final
payment of the remaining unpaid principal balance and all accrued and
unpaid interest thereon shall be made. Interest on the Existing Term Loan
Advance shall be payable monthly on the tenth (10th) day of the next
succeeding month and at maturity or earlier prepayment in full. As of
April 28, 2000, the outstanding principal balance of the Existing Term
Loan Advance was $2,175,000."
6. Capital Base. Section 7.10 of the Credit Agreement is hereby amended in its
entirety to read as follows:
"Section 7.10 Capital Base. For each period described below,
International will maintain at all times, on a consolidated basis, its
Capital Base in an amount not less than:
Period Capital Base
------ ------------
3/1/00 through 3/31/00 $800,000
4/1/00 through 4/30/00 $800,000
5/1/00 through 5/31/00 $950,000
6/1/00 through 6/30/00 $1,100,000
7/1/00 through 7/31/00 $1,100,000"
7. Total Liabilities to Capital Base Ratio. Section 7.11 of the Credit Agreement
is hereby deleted and replaced with the following:
"Section 7.11 - RESERVED."
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<PAGE>
All references to "Section 7.11" elsewhere in the Credit Agreement are
accordingly hereby deleted.
8. Minimum Debt Service Coverage Ratio. Section 7.12 of the Credit Agreement is
hereby deleted and replaced with the following:
"Section 7.12 - RESERVED."
All references to "Section 7.12" elsewhere in the Credit Agreement are
accordingly hereby deleted.
9. Minimum EBIT. Section 7.13 of the Credit Agreement is hereby deleted and
replaced with the following:
"Section 7.13 - RESERVED."
All references to "Section 7.13" elsewhere in the Credit Agreement are
accordingly hereby deleted.
10. Application of Tax Refund to Obligations. Section 7.14 of the Credit
Agreement is hereby amended to read as follows:
"Section 7.14 Application of Tax Refund. The Borrowers hereby acknowledge
and agree that any and all tax refunds to be received by either of them
are subject to the Bank's first prior security interest therein and
further agree to deliver to the Bank, properly endorsed, any check and
direct to the Bank any wire transfer, in each case, for application to the
Obligations, with respect to any tax refund or other payment made by a
taxing authority (federal, state or otherwise) to or for the benefit of
either of the Borrowers, and to take such other steps as the Bank shall
request regarding any such tax refund or other payment in order to give
effect to this Section 7.14. Notwithstanding Section 4.3 or any other
provision of this Agreement, any and all such tax refunds shall be
applied: first to payment or prepayment of all monthly principal
installments due or to become due on the Term Loan B Advances and the
Existing Term Loan Advances pursuant to Section 3.3(a) and Section 3.4(a),
respectively; second to prepayment of the remainder of the Term Loan B
Advances and the Existing Term Loan Advances in such order as the Bank may
determine in its sole discretion until the Term Loan B Advances and the
Existing Term Loan Advances have been fully repaid; and third to payment
of the other Obligations in such order as the Bank may determine in its
sole discretion. The Bank waives any prior notice requirement under
Section 3.2(f), Section 3.3(f) and Section 3.4(d) for prepayments made
from tax refunds under this Section."
11. Waiver of Defaults. The Borrowers are in default of the financial covenants
set forth in Sections 7.10, 7.11, 7.12 and 7.13 of the Credit Agreement for
periods through March 31,
-4-
<PAGE>
2000 (collectively, the "Defaults"). Upon the terms and subject to the
conditions set forth in this Amendment, the Bank hereby waives the Defaults.
This waiver shall be effective only in this specific instance and for the
specific purpose for which it is given, and this waiver shall not entitle either
Borrower to any other or further waiver in any similar or other circumstances.
12. Consent to Sale of Hennepin Avenue Store. The Borrowers have
negotiated a sale of their store located at 3505 Hennepin Avenue South,
Minneapolis, Minnesota 55408, and certain personal property located at that
store, on terms previously disclosed to the Bank. Such sale would violate
Section 8.9 of the Credit Agreement which, among other things, prohibits either
Borrower from selling a substantial part of its assets to any Person other than
in the ordinary course of business, and Section 3(a) of the Security Agreement
dated as of October 14, 1998 between the Borrowers and the Bank (the "Security
Agreement"), which, among other things, prohibits either Borrower from selling
or otherwise disposing of any Collateral (as defined in the Security Agreement).
The Borrowers have requested that the Bank consent to this transaction.
The Bank hereby consents to this certain transaction upon the terms and
subject to the conditions set forth in this Amendment. The Borrowers acknowledge
that the proceeds of the above-referenced sale shall constitute proceeds of
Collateral (as defined in the Security Agreement). As a requirement of this
consent, the Borrowers shall cause such sale proceeds to be delivered directly
to the Bank for application to the Obligations in the same manner as set forth
for application of tax refunds under Section 7.14 of the Credit Agreement (as
amended by this Amendment). This consent shall be effective only in this
specific instance and for the specific purpose for which it is given, and this
consent shall not entitle the Borrowers to any other or further consent in any
similar or other circumstances.
13. No Other Changes. Except as explicitly amended by this Amendment, all of the
terms and conditions of the Credit Agreement shall remain in full force and
effect and shall apply to any advance or letter of credit thereunder.
14. Representations and Warranties. The Borrowers hereby represent and warrant
to the Bank as follows:
(a) The Borrowers have all requisite power and authority to execute
this Amendment and to perform all of their obligations hereunder, and this
Amendment has been duly executed and delivered by the Borrowers and
constitutes the legal, valid and binding obligation of the Borrowers,
enforceable in accordance with its terms.
(b) The execution, delivery and performance by the Borrowers of this
Amendment have been duly authorized by all necessary corporate action and
do not (i) require any authorization, consent or approval by any
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate any provision of any
law, rule or regulation or of any order, writ, injunction or decree
presently in effect, having applicability to the Borrowers or the articles
of incorporation
-5-
<PAGE>
or by-laws of the Borrowers, or (iii) result in a breach of or constitute
a default under any indenture or loan or credit agreement or any other
agreement, lease or instrument to which either Borrower is a party or by
which it or its properties may be bound or affected.
(c) All of the representations and warranties contained in Article
VI of the Credit Agreement are true and correct on and as of the date
hereof as though made on and as of such date, except to the extent that
such representations and warranties relate solely to an earlier date.
15. Conditions Precedent. This Amendment, the waiver set forth in Section 11
hereof, and the consent set forth in Section 12 hereof, shall be effective when
the Bank shall have received a fully executed original hereof, together with
each of the following, each in substance and form acceptable to the Bank in its
sole discretion:
(a) A certificate of authority of each of the Borrowers certifying
as to (i) the resolutions of the board of directors of such Borrower
approving the execution and delivery of this Amendment, as well as the
Third Amendment, the mortgage, the trademark security agreement, and
certain other documents required under Section 5.3 of the Credit
Agreement, (ii) the fact that the articles of incorporation and bylaws of
such Borrower, which were certified to the Bank pursuant to the
certificate of authority of such Borrower's secretary or assistant
secretary in connection with the execution and delivery of the Credit
Agreement continue in full force and effect and have not been amended or
otherwise modified except as set forth in the certificate to be delivered,
and (iii) certifying that the officers and agents of such Borrower who
have been certified to the Bank, pursuant to the certificate of authority
of such Borrower's secretary or assistant secretary dated as of October
14, 1998 (as modified by a Supplemental Secretary's Certificate dated as
of July 29, 1999) as being authorized to sign and to act on behalf of such
Borrower continue to be so authorized or setting forth the sample
signatures of each of the officers and agents of such Borrower authorized
to execute and deliver this Amendment and all other documents, agreements
and certificates on behalf of such Borrower.
(b) Such other items as the Bank may, in its discretion, require.
16. References. All references in the Credit Agreement to "this Agreement" shall
be deemed to refer to the Credit Agreement as amended hereby; and any and all
references in the Security Documents to the Credit Agreement shall be deemed to
refer to the Credit Agreement as amended hereby.
-6-
<PAGE>
17. No Other Waiver. Except as set forth in Section 11 of this Amendment, above,
the execution of this Amendment shall not be deemed to be a waiver of any
Default or Event of Default under the Credit Agreement or breach, default or
event of default under any Security Document or other document held by the Bank,
whether or not known to the Bank and whether or not existing on the date of this
Amendment.
18. Release. Each Borrower hereby absolutely and unconditionally releases and
forever discharges the Bank, and any and all participants, parent corporations,
subsidiary corporations, affiliated corporations, insurers, indemnities,
successors and assigns thereof, together with all of the present and former
directors, officers, agents and employees of any of the foregoing, from any and
all claims, demands or causes of action of any kind, nature or description,
whether arising in law or equity or upon contract or tort or under any state or
federal law or otherwise, which such Borrower has had, now has or has made claim
to have against any such person for or by reason of any act, omission, matter,
cause or thing whatsoever arising from the beginning of time to and including
the date of this Amendment, whether such claims, demands and causes of action
are matured or unmatured or known or unknown.
19. Costs and Expenses. Each Borrower hereby reaffirms its agreement under the
Credit Agreement to pay or reimburse the Bank on demand for all costs and
expenses incurred by the Bank in connection with the Credit Agreement, the
Security Documents and all other documents contemplated thereby, including
without limitation all reasonable fees and disbursements of legal counsel.
Without limiting the generality of the foregoing, each Borrower specifically
agrees to pay all fees and disbursements of counsel to the Bank for the services
performed by such counsel in connection with the preparation of this Amendment
and the documents and instruments incidental hereto. Each Borrower hereby agrees
that the Bank may, at any time or from time to time in its sole discretion and
without further authorization by either Borrower, make a loan to the Borrowers
under the Credit Agreement, or apply the proceeds of any loan, for the purpose
of paying any such fees, disbursements, costs and expenses.
20. Miscellaneous. This Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original and all
of which counterparts, taken together, shall constitute one and the same
instrument.
[SIGNATURE PAGE FOLLOWS]
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first written above.
GROW BIZ INTERNATIONAL, INC.
By /s/ David J. Osdoba, Jr.
--------------------------------------
David J. Osdoba, Jr.
Its Vice President of Finance and Chief
Financial Officer
GROW BIZ GAMES, INC.
By /s/ David J. Osdoba, Jr.
--------------------------------------
David J. Osdoba, Jr.
Its Vice President of Finance and Chief
Financial Officer
TCF NATIONAL BANK
By
--------------------------------------
Its
----------------------------------
By
--------------------------------------
Its
----------------------------------
[SIGNATURE PAGE TO FOURTH AMENDMENT TO
CREDIT AGREEMENT]
-8-
Exhibit 99
GROW BIZ INTERNATIONAL, INC.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
Grow Biz International, Inc. (the "Company") desires to take advantage of the
"safe harbor" provisions of the Private Securities Litigation Reform Act of 1995
and is filing this Exhibit to its Quarterly Report on Form 10-Q in order to do
so. When used in this Quarterly Report on Form 10-Q and in future filings by the
Company with the Securities and Exchange Commission in the Company's annual
report, quarterly reports, press releases and in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result", "look for", "may result", "will continue", "is anticipated", "expect",
"project" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical earnings and
those presently anticipated or projected. The Company cautions readers that the
following important factors, among others, could affect the Company's financial
performance and could cause the Company's actual results for future periods to
differ materially from any forward-looking statements made by, or on behalf of,
the Company:
DEPENDENCE ON NEW FRANCHISEES
The Company's ability to generate increased revenue and achieve higher levels of
profitability depends on increasing the number of franchised stores open. While
management believes that a number of major metropolitan markets have reached or
are nearing the saturation point for certain concepts, management also believes
that many larger and smaller markets will continue to provide significant
opportunities for sales of franchises and that the Company can sustain
approximately its current annual level of store openings. However, there can be
no assurance that the Company will sustain this level of store openings.
INABILITY TO COLLECT ACCOUNTS RECEIVABLE
In the event that the Company's ability to collect accounts receivable
significantly declines from current rates, additional charges that affect
earnings may be incurred.
UNOPENED STORES
The Company believes that a substantial majority of stores sold but not opened
will open within the time period permitted by the applicable franchise agreement
or the Company will be able to resell the territories for most of the terminated
or expired franchises. However, there can be no assurance that substantially all
of the currently sold but unopened franchises will open and commence paying
royalties to the Company. To the extent the Company is required to refund any
franchise fees for stores that do not open, the Company believes that it will be
able to repay these fees out of available cash.
<PAGE>
DEPENDENCE ON SUPPLY OF USED MERCHANDISE
The Company's store concepts are based on offering customers a mix of used and
new merchandise. As a result, obtaining continuing supplies of high quality used
merchandise is essential to the success of the Company's store concepts. To
date, supplies of used merchandise have been adequate and the Company's training
programs emphasize methods for locating and purchasing used goods. There can be
no assurance, however, that supply problems will not be encountered in the
future.
COMPETITION
Retailing, including the sale of sporting goods, children and teenage apparel,
computer equipment, tools and musical instruments, is highly competitive. Many
retailers have significantly greater financial and other resources than the
Company and its franchisees. Individual franchisees face competition in their
markets from retailers of new merchandise and, in certain instances, resale,
thrift and other stores that sell used merchandise. To date, the Company's
franchisees and its Company-owned stores have not faced a high degree of
competition in the sale of used merchandise. However, the Company may face
additional competition as its franchise systems expand and additional
competitors may enter the used merchandise market.
S, G & A EXPENSE
The Company's ability to control the amount, and rate of growth in, selling,
general and administrative expenses; and the impact of unusual items resulting
from the Company's ongoing evaluation of its business strategies, asset
valuations and organizational structures.
FINANCING
The Company's ability to obtain competitive financing to fund its growth.
QUARTERLY FLUCTUATIONS
The Company's quarterly results of operations have fluctuated as a result of the
timing of recognition of franchise fees, receipt of royalty payments, timing of
merchandise shipments, timing of expenditures and other factors. There can be no
assurance that results in future periods will not fluctuate on a quarterly
basis.
GOVERNMENT REGULATION
As a franchisor, the Company is subject to various federal and state franchise
laws and regulations. Although the Company believes it is currently in material
compliance with existing federal and state laws, there is a trend toward
increasing government regulation of franchising. The promulgation of new
franchising laws and regulations could adversely affect the Company.
The Company does not undertake and specifically declines any obligations to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-END> MAR-25-2000
<CASH> 0
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<RECEIVABLES> 11,995
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