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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
BoysToys.com, Inc.
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(Exact name of registrant in charter)
Delaware 33-0824801
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(State or Other (IRS Employer
Jurisdiction of Incorporation Identification No.)
or Organization)
7825 Fay Avenue, Suite 200, La Jolla, California 92037
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(address of principal executive offices)
(858) 456-5556
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(Issuer's Telephone No., Including Area Code)
SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT:
Title of each class Name of Each Exchange on
to be so registered each class is to be
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None None
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $0.001
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(Title of Class)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BoysToys.com, Inc., a Delaware corporation (the "Company"), was
incorporated in the State of Delaware on April 21, 1997 under the name Wagg
Corp. While the Company is a development stage company and currently has no
revenues, it has completed all of the construction work on the Company's planned
upscale gentlemen's club located 408-412 Broadway, San Francisco, California
(the "Planned San Francisco Club" or "Club" or "Boys Toys Cabaret Club"). In
October 1999, the Company completed its 15,000 square foot Planned San Francisco
Club and received its certificate of final completion. The Company has secured
an alcoholic beverage license and all other licenses and permits required by the
City and County of San Francisco, California. The Company anticipates that the
Club will open for business on or before the second week of January 2000.
A subsidiary, Alternative Entertainment, Inc., a Nevada corporation
("AEI-Nevada") was initially formed to engage in the business of developing,
owning, and operating upscale nightclubs providing exotic dance entertainment
combined with private membership men's clubs and contemporary-styled full
service restaurants and bars. On January 15, 1998, 80% of the Company's Common
Stock was acquired by AEI-Nevada and the Company changed its name from Wagg
Corp. to Alternative Entertainment, Inc. On January 26, 1998, AEI-Nevada, as the
majority stockholder of the Company, effected a one for two reverse split of the
Company's common stock and approved an amendment to the Company's Certificate of
Incorporation to change the Company's name to Alternative Entertainment, Inc.
and to authorize the issuance of up to 8,000,000 shares of Preferred Stock.
Following these actions and on January 28, 1998, AEI-Nevada's Board of
Directors voted to approve the exchange of one share of the Company's Common
Stock for each share of AEI-Nevada common stock outstanding. This resulted in
AEI-Nevada becoming a subsidiary of the Company. As a result, AEI-Nevada became
a wholly-owned subsidiary of the Company. Subsequently and on December 29, 1998,
a majority of the Company's shareholders approved an amendment to the Company's
Certificate of Incorporation to change the Company's name to BoysToys.com, Inc.
The Company's subsidiary, AEI-Nevada, previously filed a Registration
Statement on Form SB-2 with the U.S. Securities and Exchange Commission for a
proposed public offering of over $11 million. AEI-Nevada's Registration
Statement became effective on July 3, 1996 and on September 15, 1996, AEI-Nevada
filed Form 8-A.
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However, despite the efforts of AEI-Nevada's management, AEI-Nevada was
unsuccessful in obtaining the services of an underwriter and was not able to
sell any of its securities pursuant to the public offering. As a result,
AEI-Nevada subsequently terminated its public offering without selling any of
its common stock or warrants or otherwise raising any capital pursuant to the
Registration Statement. In January 1997, AEI-Nevada withdrew the filing of its
Registration Statement. Subsequently, on March 10, 1997, AEI-Nevada filed Form
15 with the U.S. Securities and Exchange Commission to terminate its
registration under Section 12(g) of the SECURITIES EXCHANGE ACT OF 1934.
The Club will operate under the name "Boys Toys Cabaret Club."
On February 18, 1998, the Company entered into an agreement (the
"Purchase Agreement") with ITEX USA, Inc. ("ITEX") whereby ITEX has agreed to
provide the Company with up to $530,000 cash credit (the "Cash Credit") to be
applied to the Company's purchase of $530,000 in goods and services at prices
equal to the lowest price (as verified in writing). Under the terms of the
Purchase Agreement, the Company is to issue purchase requests to ITEX and ITEX
is then obligated to provide the goods and services requested through ITEX's
suppliers and vendors. In exchange for the Cash Credit, the Company committed to
issue to ITEX the sum of 100,000 shares of the Company's Common Stock. The
Company intends to use the Cash Credit to acquire, in part, some of the goods
and services it needs for advertising and promotion for the Company's Planned
San Francisco Club.
The Company anticipates that the Planned San Francisco Club will
essentially function to serve three distinct business segments (a nightclub
providing exotic dance entertainment, a full service restaurant and bar and a
private membership men's club) within the confines of a single facility. The
business of the Company will be conducted under the trade names, trademarks and
service marks of "Boys Toys," "Boys Toys Cabaret Clubs" and "Boys Toys Cabaret
Restaurants." Although the Company intends to register its claim to these
tradenames, the Company has not yet filed an application with the U.S. Patent
and Trademark office to register these names.
For its Planned San Francisco Club, the Company plans to generate its
revenues from food and beverage sales, Boardroom membership sales, nightclub
admission (door) fees, fees derived from exotic dance entertainment, fees
charged by the Company in connection with the use of credit cards by patrons to
obtain cash equivalent items at its planned Boys Toys Cabaret Club and
merchandise sales.
The Company leases the land and building for the Planned San Francisco
Club through its other wholly-owned subsidiary, RMA of San Francisco, Inc., a
California corporation (and as successor in interest to Boys Toys, Inc., a
California corporation). The real property for the Planned San Francisco Club is
owned by Roma Cafe, Inc. ("RCI") and is located in San Francisco's financial
district at 408-412 Broadway, San Francisco, California.
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And while the Company has not commenced any operations at the Planned
San Francisco Club location, the Company anticipates that it will require at
least $500,000 in additional capital for working capital needs to continue
operations of the Planned San Francisco Club once it opens. The Company has
secured all licenses and permits and a cabaret license for operations all as
required for operation of the Planned San Francisco Club.
If the Company is successful in establishing the Planned San Francisco
Club and if the Company is able to obtain additional financing, the Company
plans to establish additional Boys Toys Cabaret Clubs in other locations,
including New York, Chicago, New Orleans and Boston. However, the Company has
not identified any specific location in any of these cities and these plans are
subject to: (i) the successful operation of the Planned San Francisco Club; (ii)
the negotiation of acceptable terms for the acquisition of an existing
gentlemen's club in a location which would be suitable and compatible with the
Company's strategy; and (iii) the availability of financing terms from a seller
of a gentlemen's club that would permit the Company to complete the acquisition
on financial terms that are acceptable to the Company in view of the Company's
then existing financial abilities and the costs that the Company would incur in
expanding its currently limited management staff and providing additional
working capital to meet an expanded level of operations. The Company has not
presently identified any prospective acquisition candidate and there can be no
assurance that the Company will undertake any such acquisition or otherwise
expand to other locations.
If the Company is successful in operating the Planned San Francisco
Club, the Company anticipates that it may, subject to the limits of its
resources, establish other Boys Toys Cabaret Clubs by leasing existing nightclub
and/or restaurant locations, acquiring related nightclub/restaurant properties
and equipment, and thereafter making all necessary improvements to such
locations, properties and equipment in order to conform them to the Boys Toys
motif.
The Company's name for the Planned San Francisco Club, Boys Toys
Cabaret Club, embraces a concept featuring exotic dance entertainment performed
by attractive and talented entertainers within an upscale and trendy nightclub
environment. The Planned San Francisco Club (or "Boys Toys Cabaret Club" and
operating under the name "Boys Toys Cabaret Club") has an interior setting where
patrons will be surrounded, and among, numerous and various material items which
many men aspire to obtain in their life. The Company anticipates that a patron
of its Boys Toys Cabaret Club will be quickly struck by the nature and number of
items on display, such as artwork, collectibles, unusual artifacts and
memorabilia.
Not only will these items be strategically on display throughout a Boys
Toys Cabaret Club, but the Company expects that either all such displayed items
will be available for purchase by patrons, or the Company will be able to
provide patrons with detailed information concerning how and where such
displayed item may be purchased. The Company expects that all items on display
in the Company's Boys Toys Cabaret Club will be replaced with new and different
items
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approximately every 60 to 90 days, thereby giving the Boys Toys Cabaret Club
a new interior physical appearance every two to three months.
If the Company is successful, the Company further expects that the
exciting and vibrant atmosphere created by the Club's interior decor will be
enhanced by exhilarating lighting and specially selected upbeat music. In order
to obtain the items to place on display in its Boys Toys Cabaret Club, the
Company intends to approach local and regional vendors of the items it desires
to display, and enter into consignment arrangements with vendors.
The Company's business plan envisions that the consignment arrangements
will allow the Company to display various types of artwork, collectibles and
memorabilia owned by the vendors at its Boys Toys Cabaret Club at no cost to the
Company, while in return providing the vendor with increased exposure to its
owned items, and therefor providing the vendor with potential additional
marketing venues and outlets for the sale of its owned items. Currently, the
Company has not entered into any consignment arrangements with any vendors, and
has no reasonable basis at this time to believe that it will in fact be able to
obtain the items that it desires to display in its Boys Toys Cabaret Club on a
consignment basis. Therefore, absolutely no assurance can be given that the
Company will have adequate access to sources of collectibles and memorabilia or
that its efforts in developing and establishing consignment arrangements with
local and regional vendors of collectibles and memorabilia will be successful.
Failure of the Company to obtain the desired items on a consignment
basis may result in the Company being unable to embellish the interior physical
decor of its Boys Toys Cabaret Club in its planned manner. Further, failure of
the Company to obtain the desired items on a consignment basis will have a
material adverse impact on the Company's plan of operation in that such failure
may require the Company to expend significant amounts of its capital to purchase
such items.
As designed, the Boys Toys Cabaret Club will, in addition to its
nightclub proper, comprises a full service restaurant and bar and full service,
private members-only men's club facilities.
Rather than just establishing an exotic dance entertainment nightclub,
the Company's business concept for the Club is to create an entertainment
complex combining an exotic dance entertainment nightclub with a full service
restaurant and bar and a private members-only men's club. The concept is to
provide a place where one may enjoy quality exotic dance entertainment, relax
and converse in a place where one may see and be seen, partake in quality
restaurant dining, and entertain and be entertained in private members-only
quarters, all within the same facility.
The Company believes that excellence in operations, ambiance and
location are important for success in the exotic dance entertainment business.
The Company believes that it will be able to differentiate its Boys Toys Cabaret
Club by implementing the following strategic elements:
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* Combining its exotic dance entertainment nightclubs with
its Boys Toys Cabaret Restaurants and private members-only
men's clubs so as to provide patrons with a multi-faceted
entertainment experience.
* Designing its Boys Toys Cabaret Club to attract primarily
upscale professionals and businessmen.
* Physically embellishing its Boys Toys concept by creating
an exterior and interior physical decor for its Boys Toys
Cabaret Club which evidences the style and class of an
establishment designed for men's entertainment and
reflecting the upscale caliber of its patrons.
* Providing high quality and attentive service in a manner to
ensure patron satisfaction.
The Company believes that its Boys Toys concept will create a distinct
image and popularity among upscale gentlemen's club patrons. As such, the
Company believes that it will be successful in marketing T-Shirts, jackets and
other casual-wear merchandise that feature the Boys Toys logo and location.
However, absolutely no assurance can be given that the Company's Boys Toys
concept will create a distinct image and widespread popularity, or that the
Company will be successful in marketing T-Shirts, jackets and other casual-wear
merchandise with the Boys Toys logo.
It is the Company's philosophy and intention that the Boys Toys Cabaret
Club exhibit civic and social responsibilities by creating and maintaining an
active relationship with a variety of charity organizations in their respective
local communities.
In this regard, the Company expects to make contributions of food,
services or funds benefitting a wide range of causes, which causes management of
the Company expects to be brought to its attention through suggestions from the
Company's employees, officers and shareholders.
The Company anticipates that its Boys Toys Cabaret Restaurants will
provide all patrons of the Company's Boys Toys Cabaret Club with a full service
restaurant, bar and lounge area providing business lunch buffet and dinner table
service by waitresses. Through its Boys Toys Cabaret Restaurants, the Company
intends to offer a menu representing the finest culinary delights, distinctive
for their taste as well as nutritional balance, from throughout the various
regions of the United States.
Coupled with this distinctively American menu, the Company's Boys
Toys Cabaret Restaurants are expected to offer the highest quality of food
prepared with the greatest of care and presented and served in a manner which
would reflect the upscale nature of the Boys Toys
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Cabaret Restaurants. As a complement to its food menu, the Company expects
that its Boys Toys Cabaret Restaurant will offer an extensive selection of
domestic and foreign wines and spirits. Management of the Company anticipates
that an average lunch check per customer will be $25.00 and an average dinner
check per customer will be $100.00. However, these amounts and the operation
of the restaurant will be subject to prevailing competitive conditions at the
time that the Planned San Francisco Club is opened.
In general, the Company believes that excellence in operations and
quality of food and service, ambiance, location and price-value relationship
are keys to success in the restaurant industry. The Company believes that it
will be able to differentiate its Boys Toys Cabaret Restaurants by
emphasizing the following strategic elements:
* Positioning in the mid-priced to upper-priced, full service dining
segment of the restaurant industry.
* The location of the Boys Toys Cabaret Restaurants within the confines
of an exciting and upbeat facility provides a unique and enduring
attraction to a broad and diverse demographic mix of customers in the
25 to 65 age group.
* Quality and attentive service with each waitress generally being
assigned to no more than four tables at lunch and three tables at
dinner to ensure customer satisfaction.
* Consistent quality products through careful ingredient selection and
food preparation.
There can be no assurance that the Company can achieve any one or more
of these objectives or, if it does achieve these objectives, that it can achieve
them while also achieving and maintaining profitability.
PRIVATE MEMBERSHIP CLUB
The Boys Toys Cabaret Club will have full service private membership
facilities which will be open only to patrons who are members of the private
membership facilities. These private membership facilities will be known as the
"Boardroom." Membership in the Boardroom will entitle members to access a
private facility within the Boys Toys Cabaret Club containing such amenities as
a business center (with facsimile machines, secretarial staff and computers), a
private cigar smoking room and conference rooms. Additionally, Boardroom members
will have free use of Boardroom facilities for private parties and meetings,
preferred seating and advanced notices for special events and holiday functions
held at a particular Boys Toys Cabaret Club, and access to personal improvement
seminars and concierge services. The Company anticipates that initially,
Boardroom memberships will be for a period of one year, and may be renewed by a
member at the end of each membership year. Membership fees for the Boardroom
will be approximately $1,000 per annum.
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SITE SELECTION CRITERIA AND LEASING
In the event that the Company expands with other locations, the Company
believes that the selection process for sites for the Company's clubs is
critical in determining the potential success of a Boys Toys Cabaret Club, and
therefore it expects to devote a significant amount of time and resources to
analyze each prospective club site. A variety of factors are considered in the
site selection process, including local market demographics, site visibility and
accessibility and proximity to significant generators of potential customers
such as office complexes, hotel concentrations and other entertainment centers
such as stadiums and arenas. The Company will also review potential competition
and attempt to analyze the profitability of other nightclub, restaurant and bar
establishments operating in areas where the Company proposes to establish a Boys
Toys Cabaret Club.
The Company expects that it will lease all of its locations for its Boy
Toys Cabaret Club, although the Company may consider purchasing properties for
its facilities in the future, where it is cost effective to do so.
BOYS TOYS CABARET CLUB LOCATIONS
The Planned San Francisco Club will be the Company's first location.
The Planned San Francisco Club is located at 408-412 Broadway, San Francisco,
California, in the north beach area of the financial district of San Francisco
(the "San Francisco Premises"), approximately four blocks north of the landmark
Transamerica Building.
The Company has leased the San Francisco Premises from Roma Cafe, Inc.
The Company has obtained a Place of Entertainment Permit with respect to the
exotic dance entertainment aspects of the Company's business at the San
Francisco Premises. The Company has not commenced any operations of the Planned
San Francisco Club and the Company plans to commence operations on or before the
second week of January 2000. The Company has secured an alcoholic beverage
license and all other licenses and permits required by the City and County of
San Francisco, California.
ADDITIONAL BOYS TOYS CABARET CLUBS.
In addition to the Planned San Francisco Club and if the Company can
obtain additional financing on favorable terms, the Company plans to establish
other Boys Toys Cabaret Clubs.
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The exact number, location, and other aspects of this plan has not been
determined at this time.
If the Company is successful in establishing the Planned San Francisco
Club and if the Company is able to obtain additional financing, the Company
plans to establish additional Boys Toys Cabaret Clubs in other locations,
including New York, Chicago, New Orleans and Boston. However, the Company has
not identified any specific location in any of these cities and these plans are
subject to: (i) the successful operation of the Planned San Francisco Club; (ii)
the negotiation of acceptable terms for the acquisition of an existing
gentlemen's club in a location which would be suitable and compatible with the
Company's strategy; and (iii) the availability of financing terms from a seller
of a gentlemen's club that would permit the Company to complete the acquisition
on financial terms that are acceptable to the Company in view of the Company's
then existing financial abilities and the costs that the Company would incur in
expanding its currently limited management staff and providing additional
working capital to meet an expanded level of operations. The Company has not
presently identified any prospective acquisition or location and there can be no
assurance that the Company will undertake any such acquisition or otherwise
expand to other locations.
MARKETING
For the anticipated operation of its Planned San Francisco Club (and
any other clubs that the Company may establish), the marketing strategy for the
Company's Boys Toys concept will focus on attracting a primarily (if not
strictly) professional and white collar businessmen clientele.
The Company anticipates that upon operation of the Planned San
Francisco Club, it will use its brand name recognition and patron loyalty to
attract these customers. Due to its upscale theme, exotic dance entertainment
experience and quality food and service, the Company believes that its Boys Toys
Cabaret Clubs will have the unique ability to attract both local and out-of-town
professional and white collar businessmen patronage.
The tour and travel as well as convention segments of the cities in
which Boys Toys Cabaret Clubs will be located will be another focus of the
Company's marketing strategy. The Company's marketing strategy will be designed
to inform targeted patrons that Boys Toys Cabaret Clubs provide a unique and
exciting atmosphere not found elsewhere through visual and audio experiences.
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The Company expects that the center of its marketing efforts will
revolve around its exotic dance entertainment nightclubs. The Company's Boys
Toys concept will be directed at upscale, professionals and white collar
businessmen aged 25-65 who either reside in or near major U.S. commercial
centers where Boys Toys Cabaret Clubs will be located, or who frequently visit
these areas on business.
In order to reach this targeted market, the Company will attempt to
establish Boys Toys Cabaret Clubs in the heart of those cities in which it
intends to operate, so as to make its facilities easily accessible by
professional and white collar businessmen.
The Company believes that its local patrons will include primarily men
who work and/or live near a Boys Toys Cabaret Club, and who will seek some form
of nightclub environment at the end of their work day which will provide a
comfortable atmosphere with appropriately priced, high quality, food available.
The Company believes it will meet this type of patron's needs by
providing a quality entertainment experience with a high level of personalized
service in a casual, fun setting - an experience that the Company expects will
generate repeat visits among the local customer segment.
The Company anticipates that its business travel segment will be
primarily composed of individuals traveling on business to those cities where
Boys Toys Cabaret Clubs are located. The Company further believes that the
marketing approach for this customer requires an emphasis on the beauty and
elegance of the Boys Toys Cabaret Clubs, the exciting atmosphere, and safety.
The Company expects to promote and advertise its Boys Toys Cabaret
Restaurant and private members-only men's club segments of its Boys Toys Cabaret
Clubs as if they were not dependent upon its exotic dance entertainment segment.
Thus, the Company will strongly promote its Boys Toys Cabaret Restaurants as an
establishment providing the best food possible at reasonable prices. The Company
will promote its private members-only men's club as a private location where men
can meet to, among other things, discuss and effectuate business in a congenial
atmosphere, as well as a place where men can entertain themselves as well as
business clients and associates.
The Company intends to employ billboard, print and direct mail
advertising, and conduct coordinated promotional efforts with local and regional
hotels, taxi companies and limousine services.
Additionally, the Company intends to utilize merchandise as a means of
marketing its Boys Toys Cabaret Clubs. Thus, the Company will promote various
Boys Toys merchandise which is expected to be created by the Company as
popularity of the Boys Toys Cabaret Clubs increases. Such merchandise is
expected to include T-Shirts, jackets, sweatshirts, and other memorabilia.
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Because of its Boys Toys Cabaret Restaurants, as well as the presence
and availability of many interesting items displayed prominently throughout the
Boys Toys Cabaret Club, the Company believes that its Boys Toys Cabaret Club
will be able to adopt event-driven promotion oriented marketing strategies.
Thus, in addition to traditional advertising techniques, the Company intends to
seek to establish close ties with the entertainment industry so as to provide
the Company with extensive promotional opportunities.
Events such as surprise appearances by recording artists or
professional athletes can be expected to attract targeted upscale patrons.
BOYS TOYS CABARET CLUB OPERATIONS AND MANAGEMENT
The Company will strive to maintain quality and consistency in its Boys
Toys Cabaret Clubs through the careful training and supervision of personnel and
the establishment of standards relating to food and beverage preparation,
maintenance of facilities and conduct of personnel.
The Company expects to maintain financial and accounting controls for
the Boys Toys Cabaret Club through the use of centralized accounting and
management information systems. Operations information will be collected weekly
from the Boys Toys Cabaret Club, and club managers will be provided with weekly
and 28-day period operating statements for their locations. Cash will be
controlled through daily deposits of sales proceeds in local operating accounts.
The Company's Boys Toys Cabaret Clubs are scheduled to be open daily from 11:00
a.m. to 2:00 a.m.
Overall management of a typical Boys Toys Cabaret Club will be
conducted by two managers, a day manager and an evening manager in addition the
Club's General Manager. The Planned San Francisco Club will also employ a staff
consisting of approximately 40 hourly employees, some of whom it is anticipated
will work part-time.
The General Manager of the Planned San Francisco Club reports directly
to the Company's President. Working in concert with club managers, the Company's
senior management will define operations and performance objectives for the Boys
Toys Cabaret Club and will monitor implementation. The Company expects that its
Boys Toys Cabaret Club managers will participate in a variety of Company
sponsored employee incentive programs such as the Company's stock option plans.
Awards under Company sponsored employee incentive programs will be tied
to achievement by facility managers of specified operating targets. The Company
plans for its senior management to regularly visit the Company's Boys Toys
Cabaret Clubs and meet with the respective managers of those clubs to ensure
that the Company's strategies and standards of quality in all respects of
operations and personnel development are complied with.
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The Company believes that customer service and satisfaction are keys to
the success of its Boys Toys Cabaret Clubs. The Company's commitment to customer
service and satisfaction will be evidenced by several Company practices and
policies, including periodic visits by managers to customers' tables, active
involvement of management in responding to customer comments and assigning
waitresses in the Company's Boys Toys Cabaret Restaurants to a limited number of
tables, generally four for lunch and three for dinner.
PURCHASING
The Company will negotiate directly with suppliers for food and
beverage products to ensure consistent quality and freshness of products and to
obtain competitive prices. The Company anticipates that it will purchase
substantially all food and beverage products from authorized local or national
suppliers. Food, beverage and other products and supplies will be shipped
directly to the Boys Toys Cabaret Club, although invoices for purchases will be
sent to the Company's principal executive offices for payment.
MANAGEMENT INFORMATION SYSTEMS
The Company plans to implement a computer information system which will
be designed to maintain personal profile information on the members of its
private members-only men's club. The profiles will be designed to assist
managers of the Boys Toys Cabaret Club in meeting the personal desires of
particular Boardroom members, and will contain such information as a Boardroom
member's favorite beverage, favorite food and spending habits. This information
will be available to all of the Company's Boys Toys Cabaret Clubs through a
proprietary database, and will enable Boardroom members to visit any of the
Company's Boys Toys Cabaret Clubs and be provided with a similar level of
personal service.
The Company believes that its point-of-sale information system is
designed to assist in labor scheduling and food cost management, provide
corporate management quicker access to financial data and reduce a particular
club manager's administrative time.
TRADE NAMES, TRADEMARKS AND SERVICE MARKS
The Company expects to develop and implement Boys Toys trademarks
and/or service marks which will enhance a customer's ability to identify the
Company, as well as the products and services to be offered by the Company.
Currently, the Company has not developed and implemented any trademarks
and/or
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service marks, and therefore has not filed any applications to register
any trademarks and/or service marks. Furthermore, the Company is unaware of
names similar to the trade names to be used by the Company which are used by
other persons.
The Company's overall policy will be to pursue registration of its
marks whenever possible and to oppose vigorously any infringement of its marks.
There can be no assurance that if and when the Company develops and implements
its trademarks and/or service marks, that such trademarks and/or service marks
will afford protection against competitors with similar products and services.
There can also be no assurance that the Company's trademarks and/or service
marks will not be infringed upon or designed around by others, or that the
Company can adequately prosecute or defend any infringements.
COMPETITION
While the Company has scheduled the opening of its Planned San
Francisco Club on or before the second week of January 2000, the Company will
compete with other nightclubs, restaurants and bars, some of which may be larger
and more established, experienced and better financed than the Company.
Competing nightclubs, restaurants and bars may offer services not
offered by the Company's Planned San Francisco Club, which could place the
Company at a competitive disadvantage.
The Company believes that the following factors will allow the Company
to compete effectively:
* Many of the Company's competitors are not designed to
market themselves as high quality, upscale exotic dance
entertainment complexes and have not attempted to do so.
* The Company's marketing strategy focuses on creating a
reputation for its Boys Toys Cabaret Clubs as an upscale,
tasteful nightclub, restaurant, and bar facility
frequented by professionals and white collar businessmen.
* The Company's three-pronged approach of having its Boys
Toys Cabaret Clubs produce revenues from food and beverage
sales, Boardroom membership fees and exotic dance
nightclub associated fees are anticipated to enhance the
Profitability of the Company.
The adult entertainment industry, including adult entertainment offered
in private clubs and through the internet, is large and includes many
well-established and well-managed and experienced enterprises.
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Many of these businesses possess financial and managerial skills that
far exceed the resources that the Company has or will have at any time in the
foreseeable future. Some of the larger operators have multiple locations within
a metropolitan area and effectively utilize their advertising and marketing
budgets to gain greater market share while achieving economies of scale to lower
certain fixed costs per unit and per retail location.
In addition, many of these established operators have developed
marketing, real estate, zoning, and licensing management skills that the Company
is not likely to possess at any time in the near future.
While the Company believes that its Planned San Francisco Club are
unique and will offer and attract an "upscale" clientele, there can be no
assurance that the Company will be successful or, if the Company achieves any
success, that other competitors will not imitate and duplicate the Company's
planned business with the result that the Company will not gain any significant
long-term advantage.
REGULATORY ASPECTS
The ownership and operation of restaurants, bars and exotic dance
nightclub businesses are generally subject to extensive state and local
regulation, and the Company, any subsidiaries it may form and various of their
respective officers and employees will be subject to such regulations.
While the Company has obtained all necessary licenses needed to open
its Planned San Francisco Club, the Company will need to renew licenses and
permits from various governmental agencies including, without limitation,
applicable zoning, land use, environmental and building permits.
The federal Americans with Disabilities Act prohibits discrimination on
the basis of disability in public accommodations and employment. The Company's
Boys Toys Cabaret Club is designed to be accessible to the disabled, and will
comply with all current applicable regulations relating to accommodating the
needs of the disabled. There can be no assurance that the Company will maintain
its licenses or permits or that they will always be obtained or renewed in a
timely manner. The failure to obtain any such permits or licenses could
adversely affect the Company.
The Company's Planned San Francisco Club is subject to numerous
federal, state and local laws affecting health, sanitation and safety standards,
as well as to state and local licensing related to the sale of alcoholic
beverages. The Company has secured all appropriate licenses
14
<PAGE>
from regulatory authorities allowing it to sell liquor, beer and wine, and a
food service license from San Francisco, California health authorities.
Management of the Company believes that the Company's licenses to sell
alcoholic beverages will in all likelihood require that they be renewed annually
and may be suspended or revoked at any time for cause, including violation by
the Company or its employees of any law or regulation pertaining to alcoholic
beverage control, such as those regulating the minimum age of patrons or
employees, advertising, wholesale purchasing and inventory control. The failure
of the Company's Planned San Francisco Club to retain liquor or food service
licenses could have a material adverse effect on its operations. In order to
reduce this risk, the Company intends to develop and implement at its Planned
San Francisco Club standardized procedures designed to assure compliance with
all applicable codes and regulations.
The Company may be subject in certain states to "dram-shop" statutes
which generally provide a person injured by an intoxicated person the right to
recover damages from an establishment that wrongfully served alcoholic beverages
to the intoxicated person. The Company expects to carry liquor liability
coverage as part of its comprehensive general liability insurance.
The Company's Planned San Francisco Club will also be subject to
federal and state minimum wage laws governing such matters as working
conditions, overtime and tip credits and other employee matters. The Company
expects that significant numbers of the Company's food and beverage service and
preparation personnel will be paid at rates related to the federal minimum wage
and, accordingly, further increases in the minimum wage could increase the
Company's labor costs.
Finally, the Company believes that since its planned operations involve
"exotic female entertainment," the Company may be subject to continuing social,
political, and other institutional pressures from organizations, women's groups,
and others who believe that the Company's business is inimical to social
progress and the rights of women.
As a result, many companies that offer adult entertainment expend
substantial sums in legal fees and costs to prevent or at least delay changes to
city zoning ordinances, state laws relating to adult entertainment, and other
similar regulations.
To the extent that these organizations and groups are able to organize
and obtain recognition by certain governmental bodies that license or allow the
Company to operate its planned business, the Company would likely suffer
additional costs, expenses, and losses whose magnitude can not be foreseen.
The Company anticipates that it will also expend substantial sums in
legal fees in connection with defending its business licenses, liquor license,
and any other operating, use, or
15
<PAGE>
occupancy licenses it will require to operate its Planned San Francisco Club
and if the Company later acquires and operates any other gentlemen's clubs at
any other location, it will likely incur significant similar expenses for any
such other location as well. The magnitude of these costs and expenses is
expected to be significant.
ITEM 1a. FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's business organization and existing debt and obligations
on its balance sheet all involve elements of substantial risk. In many
instances, these risks arise from factors over which the Company will have
little or no control. Some adverse events may be more likely than others and the
consequence of some adverse events may be greater than others. No attempt has
been made to rank risks in the order of their likelihood or potential harm. In
addition to those general risks enumerated elsewhere, any purchaser of the
Company's Common Stock should also consider the following factors.
1. CONTINUED OPERATING LOSSES & LACK OF OPERATING HISTORY. The Company incurred
$4,148,117 in losses during the nine months ending September 30, 1999 and the
Company anticipates that it may well incur significant additional losses in the
future as well. The Company lacks a substantial operating history on which to
base its anticipated expense and revenues. There is no assurance that the
Company's operations will be successful or that it will be profitable in the
future.
2. UNCERTAINTIES & LACK OF REVENUES. While the Company has expended substantial
resources for the development of its proposed upscale gentlemens' club in San
Francisco, California and the Company anticipates that the Planned San Francisco
Club will open on or before the second week of January 2000, the operation of
the Club is subject to changing state and municipal codes and ordinances. There
can be no assurance that the Company will be successful in opening the Club or,
if it is opened, that the Company will generate revenues sufficient to sustain
profitable operations.
3. CURRENT FINANCIAL STRUCTURE, LIMITED EQUITY, LIMITED WORKING CAPITAL & NEED
FOR ADDITIONAL FINANCING. While the Company's management believes that its
financial policies have been prudent, the Company anticipates that once the
Planned San Francisco Club opens, it will need to raise $500,000 in additional
capital to meet its operating, marketing, and working capital needs. The Company
has, as of September 30, 1999, an aggregate of $1,992,182 in current liabilities
that are due for payment prior to September 30, 2000 and of which $890,000 in
convertible debt and $370,980 in notes payable are convertible into shares of
the Company's Common Stock. However, the Company has not determined how it will
do so or the likelihood that it will be successful in any such efforts to obtain
any additional capital. The Company has had only limited discussions with
potential investors and it does not anticipate receiving any assurances that the
Company will obtain any such additional capital. The Company has not received
any assurances from any investor that it will invest any funds into the Company
and the Company has not sought to receive and has not received any commitments
or assurances from
16
<PAGE>
any underwriter, investment banker, venture capital fund, or other individual
or institutional investor for the $500,000 in funds the Company needs for
working capital and marketing. In the event that the Company does not receive
all or nearly all of the $500,000 needed for additional working capital, the
Company may not be able to continue the operations of the Club or otherwise
operate the Club at a level that will be profitable. There can be no
assurance that the Company will be successful in continuing to meet its cash
requirements or in raising a sufficient amount of additional capital, or if
it is successful, that the Company will be able to achieve these objectives
on reasonable terms in light of the Company's current circumstances.
4. AUDITOR'S OPINION: GOING CONCERN. Except for the explanatory paragraph
included in the firm's report on the financial statements for the years ended
December 31, 1997 and 1998, relating to the substantial doubt existing about the
Company's ability to continue as a going concern, the audit report did not
contain an adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope, or accounting principles.
5. SUBORDINATE TO EXISTING AND FUTURE DEBT & AUTHORIZED BUT UNISSUED PREFERRED
STOCK. All of the Common Stock offered hereby are subordinate to the claims of
the Company's existing and future creditors and any future holders of the
Company's preferred stock. The Company is authorized to issue up to 8,000,000
shares of the Company's preferred stock.
6. MARKETING STRATEGY. The Company believes its proposed operation of the
Planned San Francisco Club and related operations will be successful.
However, there is no guarantee that these business operations will be
commercially accepted with sales revenues sufficient to permit the Company to
achieve or maintain profitable operations.
7. LIMITED PUBLIC MARKET. There is a limited trading market for the Company's
Common Shares, and there is no guarantee that a continuous liquid trading
market will subsequently develop. All of the Common Shares of the Company's
Common Stock are traded only on the NASDAQ (OTC) Electronic Bulletin Board
and there can be no assurance that the Common Shares will ever gain any
liquid trading volumes in any other market or gain listing on any stock
exchange. The U.S. Securities and Exchange Commission requires that any
company whose securities are traded on the NASDAQ Over-The-Counter on the
Electronic Bulletin Board file a Form 10 and become a "reporting company" and
thereby become subject to the reporting requirements of Section 13 of the
SECURITIES EXCHANGE ACT OF 1934. In the event that any such company does not
file a Form 10 with the U.S. Securities and Exchange Commission and thereby
become a "reporting company" within the time allowed by these regulations, a
company's securities will no longer be permitted to trade on the Electronic
Bulletin Board. The Company is currently not a "reporting company" and is not
subject to the continuous disclosure obligations of Section 13 of the
SECURITIES EXCHANGE ACT OF 1934. While the Company has filed this Form 10,
the Company anticipates that it will not become effective on a timely basis
to allow the Company to continue the trading of its Common Stock on the
NASDAQ (OTC) Electronic Bulletin Board. In that event, the Company's Common
Stock may be traded only on the Pink Sheets with the
17
<PAGE>
result that any investor holding the Company's Common Stock may lose an
ability to otherwise sell any shares held by them until the Company is able
to successfully regain trading of its Common Stock on the NASDAQ (OTC)
Electronic Bulletin Board. There can be no assurance that the Company will be
successful in these efforts.
8. CONCENTRATION & LACK OF DIVERSIFICATION. The Company's assets are invested
almost entirely in the Planned San Francisco Club. While the Company believes
that will be successful, in the event that the Planned San Francisco Club is not
successfully received by the market, the Company will likely incur substantial
and protracted losses since the Company lacks diversification.
9. CONTROL BY OFFICERS AND DIRECTORS. The Company's present directors and
officers hold the power to vote an aggregate of 36.88% of the Company's Common
Shares as of November 4, 1999 (after including any shares purchasable upon
exercise of all existing common stock purchase options held by the Company's
officers and directors). The Company has granted a common stock purchase option
(the "First Amato Option") to Ralph M. Amato, the Company's Chairman, President,
Secretary, and Founder. The First Amato Option grants Mr. Amato the right to
purchase 1,200,000 shares of the Company's Common Stock at an exercise price of
$0.25 per Common Share. The First Amato Option has no expiration date. In
addition, Mr. Amato holds a second common stock purchase option for the purchase
of 500,000 shares of the Company's Common Stock with an exercise price of $0.25
per share (the "Second Amato Option"). The Second Amato Option expires February
13, 2004. Finally, Michael L. Potter, the Company's Secretary and Director,
holds an option to purchase 250,000 shares of the Company's Common Stock at a
purchase price of $0.25 per share (the "Potter Option"). The Potter Option
expires on February 13, 2004.
10. COMPETITION. The Company's Planned San Francisco Club will face severe
competition from several established companies who have well-established
operations, experienced management, and possess significantly greater financial
resources. In addition, the gentlemen's club business is very competitive and
many of competitors have substantially greater managerial resources. Further,
because the gentlemens club business is dependent upon the uncertain commercial
viability of the Company's business, it is especially sensitive to ever-changing
and unpredictable competitive trends which can not be easily predicted and which
are beyond the control of the Company. For these and other reasons, the
Company's business may be said to be riskier than investments in other types of
businesses.
18
<PAGE>
11. DEPENDENCE UPON KEY PERSONNEL AND NEW EMPLOYEES. The Company believes its
success will depend, to a significant extent, on the efforts and abilities of
Ralph M. Amato, the Company's President and CEO. The loss of the services of
Mr. Amato could have a material and continuing adverse effect on the Company.
The Company's success also depends upon its ability to attract and retain
qualified employees. Hiring to meet anticipated Company operations will
require the Company to assimilate significant numbers of new employees during
a relatively short period of time.
12. KEY MAN INSURANCE & LIMITED FULL-TIME MANAGEMENT. While the Company
currently plans to obtain key man life insurance on the life of Ralph M.
Amato, the Company has no key man life insurance on his life. In the event
that he is unable to perform his duties, the Company's business may be
adversely impacted. If the Company grows, it will need to hire additional
management and the ability of the Company to employ suitable management at a
cost acceptable to the Company, in light of the Company's limited financial
resources, can not be assured.
13. LACK OF INDEPENDENT EVALUATION OF BUSINESS PLAN & PROPOSED STRATEGY. The
Company has not obtained any independent evaluation of the Company's Business
Plan and the Company's proposed business strategy. There can be no assurance
that the Company's Planned San Francisco Club or proposed strategy will
generate any revenues, or if revenues can be generated, that they can be
generated at a level to maintain profitability.
14. LACK OF EXPERIENCED MANAGEMENT. The Company's officers, Ralph M. Amato
and Michael L. Potter, Esq. have no substantial recent experience in
acquiring, establishing, developing, or operating clubs that feature female
exotic dance entertainment. While the Company has, under an employment
agreement, employed Gary Marlin as the general manager of the Planned San
Francisco Club and the Company believes that he possesses the necessary
skills and experience, the Company will need to secure the services of others
who possess the management skill, experience, and industry knowledge. There
can be no assurance that the Company can secure and retain the necessary
management and staff on terms acceptable to the Company.
15. NO ASSURANCE OF AVAILABILITY OF THE ADDITIONAL CAPITAL & PAYMENT OF
DEBTS. The Company's continued operation of its Planned San Francisco Club
will be dependent upon the Company's ability to raise approximately $500,000
in additional capital on favorable terms (to provide working capital for the
continued operation of the Planned San Francisco Club once it opens) and
otherwise continue to meet its obligations to an aggregate of $1,992,182 in
amounts due as Total Current Liabilities. There can be no assurance that the
Company will be successful in paying these debts. The Company has received no
commitment from any underwriter or other source of capital that any
additional capital will be provided to the Company. If the Company is not
successful in raising the additional capital, the Company will likely be
unable to implement the opening of the Planned San Francisco Club and, as a
result, incur additional losses thereby.
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<PAGE>
There can be no assurance that the Company will be successful in completing
any needed transaction or in obtaining any additional financing. And if any
such transaction or financing is completed, there can be no guarantee that it
can be completed on terms that are reasonable in light of the Company's
current circumstances.
16. NO PLANNED DIVIDENDS. The Company does not anticipate that it will pay
any dividends on the Company's Common Stock at any time in the foreseeable
future.
17. GOVERNMENT REGULATION & EXOTIC ENTERTAINMENT INDUSTRY. The Company seeks
to operate establishments that offer "female exotic entertainment." This
business routinely suffers severe and unfavorable regulatory burdens, adverse
zoning ordinances, and other oppressive government regulations which may
result in the Company incurring substantial losses and significant delays in
connection with the development of any establishment.
17. LACK OF DIVERSIFICATION. The Company's proposed business involving the
proposed operation of establishments offering "female exotic entertainment"
will not provide any diversification. If the Company is successful, all of
the Company's business and assets will be concentrated in the same industry.
18. POTENTIAL DILUTION. Funding of the Company's proposed business plan is
likely to result in substantial and on-going dilution of the Company's
existing stockholders. While there can be no guarantee that the Company will
be successful in raising additional capital, if the Company is successful in
obtaining any additional capital, existing stockholders may incur substantial
dilution.
19. RULE 144 STOCK SALES. As of November 8, 1999, the Company had 1,541,374
shares of the Company's outstanding Common Stock as "restricted securities"
which may be sold only in compliance with Rule 144 adopted under the
Securities Act of 1933 or other applicable exemptions from registration. Rule
144 provides that a person holding restricted securities for a period of one
year may thereafter sell in brokerage transactions, an amount not exceeding
in any three month period the greater of either (i) 1% of the Company's
outstanding Common Stock, or (ii) the average weekly trading volume during a
period of four calendar weeks immediately preceding any sale. Persons who are
not affiliated with the Company and who have held their restricted securities
for at least two years are not subject to the volume limitation. Possible or
actual sales of the Company's Common Stock by present shareholders under Rule
144 may have a depressive effect on the price of the Company's Common Stock
if any liquid trading market develops.
20. RISKS OF LOW PRICED STOCKS. Trading in the Company's Common Stock is
limited. Consequently, a shareholder may find it more difficult to dispose
of, or to obtain accurate quotations as to the price of, the Company's
securities. In the absence of a security being quoted on NASDAQ, or the
Company having $2,000,000 in net tangible assets, trading in the Common Stock
is covered by Rule 3a51-1 promulgated under the Securities Exchange Act of
1934 for non-
20
<PAGE>
NASDAQ and non-exchange listed securities. Under such rules, broker/dealers
who recommend such securities to persons other than established customers and
accredited investors (generally institutions with assets in excess of
$5,000,000 or individuals with net worth in excess of $1,000,000 or an annual
income exceeding $200,000 or $300,000 jointly with their spouse) must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities are
also exempt from this rule if the market price is at least $5.00 per share,
or for warrants, if the warrants have an exercise price of at least $5.00 per
share. The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure related to the market for penny stocks and for trades
in any stock defined as a penny stock.
The Commission has adopted regulations under such Act which define a
penny stock to be any NASDAQ or non-NASDAQ equity security that has a market
price or exercise price of less than $5.00 per share and allow for the
enforcement against violators of the proposed rules.
In addition, unless exempt, the rules require the delivery, prior to
any transaction involving a penny stock, of a disclosure schedule prepared by
the Commission explaining important concepts involving a penny stock market,
the nature of such market, terms used in such market, the broker/dealer's
duties to the customer, a toll-free telephone number for inquiries about the
broker/dealer's disciplinary history, and the customer's rights and remedies
in case of fraud or abuse in the sale.
Disclosure also must be made about commissions payable to both the
broker/dealer and the registered representative, current quotations for the
securities, and, if the broker/dealer is the sole market maker, the
broker/dealer must disclose this fact and its control over the market.
Monthly statements must be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in
penny stocks.
While many NASDAQ stocks are covered by the proposed definition of
penny stock, transactions in NASDAQ stock are exempt from all but the sole
market-maker provision for (i) issuers who have $2,000,000 in tangible assets
has been in operation for at least three years ($5,000,000 if the issuer has
not been in continuous operation for three years), (ii) transactions in which
the customer is an institutional accredited investor, and (iii) transactions
that are not recommended by the broker/dealer.
In addition, transactions in a NASDAQ security directly with the
NASDAQ market maker for such securities, are subject only to the sole
market-maker disclosure, and the disclosure with regard to commissions to be
paid to the broker/dealer and the registered representatives. The Company's
securities are subject to the above rules on penny stocks and the market
liquidity for the Company's securities could be severely affected by limiting
the ability of broker/dealers to sell the Company's securities.
21. MATTER OF "Y2K" AND THE COMPANY'S COMPUTER AND INFORMATION SYSTEMS. The
Company has acquired point-of-sale computer hardware and software together
with certain management information systems for use in its Planned San
Francisco Club. While the Company has had its computer hardware and software
evaluated to ensure that it will operate effectively after
21
<PAGE>
December 31, 1999 and otherwise not result in "Y2K" operating problems
(problems arising out of the inability of any computer systems to accurately
calendar all dates following December 31, 1999 as occurring in the year 2000
and thereafter rather than inaccurately calendar all such dates as 1900,
etc.) there can be no assurance that the Company's point-of-sale computer
hardware and software together with certain management information systems
will function effectively on or after December 31, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company plans to open its Planned San Francisco Club (the
"Planned San Francisco Club" or "Club") on or before the second week of
January 2000. The Club is located in San Francisco's financial district at
408-412 Broadway, San Francisco, California, The Club's premises consist of
an entire building consisting of two floors and an alleyway along the west
side of the building.
The Company's to continue operations of the Club once it opens will
be dependent upon the Company's ability to obtain additional financing of at
least $500,000 prior to February 1, 2000. These funds will be needed to
provide working capital for operations and marketing. The Company has already
expended over $1,648,014 in leasehold improvements, equipment, and fixtures
at the Club and other expenditures to implement the Company's business plan.
The Company believes that it will not need to expend any additional
sums for equipment, computer systems, sound systems, furniture, fixtures, or
similar capital expenditures over the next 12 months. If the Company is
successful in obtaining $500,000 in additional financing, the Company
believes that this will provide adequate working capital to support the
Company's currently anticipated level of operations over the next 12 months.
The Company has had only limited discussions with certain private investors
and the terms of any such investment are not known at this time.
While the Company believes that given the progress the Company has
achieved and given the anticipated opening of the Club, the Company has not
received any assurances from any investor that it will invest any funds into
the Company and the Company has not sought to receive and has not received
any commitments or assurances from any underwriter, investment banker,
venture capital fund, or other individual or institutional investor for the
$500,000 in funds the Company needs for working capital and marketing. In the
event that the Company does not receive all or nearly all of the $500,000
needed for additional working capital for the continued operation of the
Planned San Francisco Club once it opens, the Company may not be able to
maintain the operations of the Club or otherwise operate the Club at a level
that will be profitable.
The Company currently has three employees none of which are employed
under a collective bargaining agreement. The Company believes that its
relationship with its employees is excellent. In addition, the Company
expects to hire 37 additional employees. These employees are grouped as
follows: food servers, bartenders, cocktail waitresses, kitchen staff, and
additional management personnel. The Company believes that while it will
incur employee
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<PAGE>
turnover, the number of employees it will require over the next 12 months
will likely remain at these levels. Some of the entertainment staff will
likely be independent contractors. However, the Company has not yet
determined the exact number and status for all of the entertainers and
entertainment staff.
Since the Company's inception, it has expended substantial sums: (i)
to raise capital; and (ii) implement its business plan. While the company
believes that if it can obtain an addition $500,000 in additional financing
prior to February 1, 2000 it will be able to maintain operations of the
Planned San Francisco Club, there can be no assurance that the Company will
be successful in raising additional capital or commencing operations of the
Planned San Francisco Club.
ITEM 3. DESCRIPTION OF PROPERTY
The Company leases an executive office of 160 square feet in an
executive suite at 7825 Fay Avenue Suite #200, La Jolla, California 92037 at
a monthly rental of $1,700.00 under a month-to-month lease. The Company is
seeking to move its executive offices into larger facilities so as to
accommodate a need for expanded staff for accounting and management. The
Company has not determined the exact location of any such expanded facility.
However, the Company plans to maintain its executive offices in La Jolla,
California and anticipates it will require at least 3,600 square feet for its
anticipated requirements.
Based on a preliminary investigation of office lease rates in La
Jolla, California as of November 1, 1999, the Company anticipates that it may
incur an effective lease rate of between $2.25 to $2.45 per square foot for
an office facility.
The Company leases two residential apartment units from Bayside
Village at 180 Brannan Street Suite #217 and #406, San Francisco, California
under a month-to-month lease at a combined monthly rental of $4,520.00. One
unit is used by the general manager of the Company's Planned San Francisco
Club and the other unit is used by the Company's Chairman. The Company
believes that the two apartment units are sufficient for the Company's
anticipated requirements.
The Company's wholly-owned subsidiary, RMA of San Francisco, Inc., a
California corporation (and as successor in interest to Boys Toys Cabaret
Restaurants, Inc., a California corporation), is the lessee of a lease (the
"Lease") executed on August 1, 1994 for the lease of a 14,500 square foot
premises at 408 - 412 Broadway, San Francisco, California (the "San Francisco
Premises"). The subsidiary has subsequently assigned the lease to RMA of San
Francisco, Inc. The San Francisco Premises is the site for the Planned San
Francisco Club. The Company currently anticipates that it will open the
Planned San Francisco Club on or before the second week of January 2000. The
Club is located in San Francisco's financial district at 408-412 Broadway,
San Francisco, California, The Club's premises consist of an entire building
consisting of two floors and an alleyway along the west side of the building.
Under the terms of the Lease, Roma Cafe, Inc. leased the San
Francisco Premises to the
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<PAGE>
Boys Toys Cabaret Restaurants, Inc., a company established and owned by the
Company. This lease was subsequently assigned to the Company. The facility is
leased to the Company for a period of 10 years from August 1, 1994 to July
31, 2004 (the "Initial Lease Term"). The Lease provides that the Company is
obligated to pay $12,000 in monthly lease payments to Roma Cafe, Inc. ("RCI")
during the twelve months ending July 31, 1999 and subsequently the amount of
$12,500 monthly during the two years thereafter (ending July 31, 2001),
$13,000 monthly during the following year (ending July 31, 2002), $13,500
monthly in the next year (ending July 31, 2003), and, in the final 10th year
of the lease (ending July 31, 2004), the Company is obligated to pay $14,000
in monthly lease payments.
The monthly lease payments to RCI are also subject to adjustment
using the U.S. Department of Labor's Consumer Price Index for the San
Francisco/Northern California Region. All lease payments are due on the first
day of each month and, in the event that the Company fails to pay any
obligations due RCI within 10 days of the date that they are due, the Company
incurs a late charge equal to 5% of the amount due in addition to paying all
other amounts due under the Lease.
During the term of the Lease, the Company is also obligated to pay
all real property taxes and personal property taxes assessed against the San
Francisco Premises. And, provided that the Company is not in default of its
obligations under the Lease, RCI has granted the Company the right to extend
the term of the Lease for an additional two successive five year terms
following the Initial Lease Term. The Company believes that the San Francisco
Premises will be adequate for the operations of the Company's Planned San
Francisco Club to be operated under the name, Boys Toys of San Francisco.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information relating to the
beneficial ownership of Company common stock by those persons beneficially
holding more than 5% of the Company's capital stock, by the Company's
directors and executive officers, and by all of the Company's directors and
executive officers as a group as of September 30, 1999.
<TABLE>
<CAPTION>
- -------------------------------- -------------------------------- ----------------------- ------------------
(1) (2) (3) (4)
Name And Amount And
Address Of Nature Of
Title Of Beneficial Beneficial Percent Of
Class Owner Owner Class
- -------------------------------- -------------------------------- ----------------------- ------------------
<S> <C> <C> <C>
Common Stock Ralph M. Amato 2,686,669(1) 33.51%(1)
7825 Fay Avenue #200
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C> <C>
La Jolla, CA 92037
Common Stock Michael L. Potter, Esq. 270,000(2) 3.37%(2)
7825 Fay Avenue #200
La Jolla, CA 92037
----------------------- ------------------
Total for all persons as a
group (2 persons) 2,956,669(3) 36.88%(3)
======================= ==================
</TABLE>
- -----------------
Footnotes:
1. The amounts shown include 1,200,000 shares purchasable at $0.25 per share
by Ralph M. Amato pursuant to a certain common stock purchase option granted
by the Company's Board of Directors (the "First Amato Option"). The First
Amato Option has no expiration date. In addition, the amounts shown includes
500,000 shares purchasable at $0.25 per share by Ralph M. Amato (the "Second
Amato Option"). The Second Amato Option expires on February 13, 2004.
2. The amounts shown include 250,000 shares purchasable at $0.25 per share by
Michael L. Potter, Esq. pursuant to a certain common stock purchase option
granted by the Company's Board of Directors. This option expires on February
13, 2004.
3. Totals shown include shares purchasable upon exercise of the options
stated. In the event that all of the options were exercised and assuming that
the Company does not issue any additional shares of its Common Stock (par
value $0.001), the Company would have an aggregate of 8,016,503 shares of its
Common Stock (par value $0.001) outstanding.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The members of the Board of Directors of the Company serve until the
next annual meeting of stockholders, or until their successors have been
elected. The officers serve at the pleasure of the Board of Directors.
Information as to the directors and executive officers of the Company is as
follows:
<TABLE>
<CAPTION>
Name Age Position Date Elected
- ---------------------------------------------------- --------- ------------------------------------- ---------------
<S> <C> <C> <C>
Ralph M. Amato 48 President, Chairman, & Chief 12/06/93
7825 Fay Ave. #200 Financial Officer
La Jolla, California 92037
Michael L. Potter, Esq. 48 Secretary & Director 01/29/96
7825 Fay Ave. #200
La Jolla, California 92037
</TABLE>
25
<PAGE>
Each of the foregoing persons may be deemed a "promoter" of the
Company, as that term is defined in the rules and regulations promulgated
under the SECURITIES ACT OF 1933. Directors are elected to serve until the
next annual meeting of stockholders and until their successors have been
elected and have qualified.
RALPH M. AMATO, age 48, is the founder of the Company and has been
its President and Chairman since the December 6, 1993 incorporation of
Alternative Entertainment, Inc., a Nevada corporation ("AEI-Nevada"). In
August of 1998, Mr. Amato assumed the additional responsibilities of Chief
Financial Officer. In addition to his position as President, Chairman, and
Chief Financial Officer, Mr. Amato is also President of California Merchant
Group, an investment banking firm located in La Jolla, California ("CMG").
CMG specializes in assisting emerging growth companies in obtaining capital
throughout the United States, Canada, and Mexico. From 1990 to 1992, Mr.
Amato was a management consultant to Big Bob's Sports Collectibles, a Milford
Connecticut-based sports memorabilia distributor. From November 1988 to
November 1990, Mr. Amato was a Senior Account Executive for PaineWebber in
its San Diego, California office.
MICHAEL L. POTTER, ESQ., age 48, has been the Company's Secretary
and a Director of the Company since January 29, 1996. Since July 1994 to the
present, Mr. Potter has been an attorney with and name partner of the San
Diego law firm of Potter, Day & Associates where he specializes in business
law, asset protection law, and advanced estate planning. From January 1990 to
July 1994, Mr. Potter was an attorney with and name partner of the San Diego
law firm of Cannon, Potter & Day. Mr. Potter serves as a Commanding Officer
in the United States Navy Reserve. He holds a B.A. Degree from the University
of New York (Albany), an M.A. Degree (Management and Supervision) from
Central Michigan University, am M.S. Degree (Education) from the University
of Southern California, and a J.D. Degree from National University, San
Diego, California.
In addition, to the above officers and directors of the Company, the
Company has entered into a six year employment agreement with Gary Marlin.
Mr. Marlin is serving as the General Manager of the Company's Planned San
Francisco Club. Mr. Marlin has over 13 years of experience in managing
gentlemen's clubs.
ITEM 6. EXECUTIVE COMPENSATION
The Company's Board of Directors has authorized the compensation of
its officers with the following annual cash salaries:
26
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------- ---------- ----------------------------------------------------
Annual Compensation
--------------- ----------- ------------------------
Name and Principal Position Other Annual
(a) Salary Bonus Compensation
Year ($) ($) ($)
(b) (c) (d) (e)
- ---------------------------------------------------- ---------- --------------- ----------- ------------------------
<S> <C> <C> <C> <C>
Ralph M. Amato 1997 $0 $ 0 $ 0
Chairman, President and CFO 1998 $ 7,600 $ 0 $ 0
1999 $40,000 $ 0 $ 0
- ---------------------------------------------------- ---------- --------------- ----------- ------------------------
Michael L. Potter 1997 $ 0 $ 0 $ 0
Secretary and Director 1998 $ 0 $ 0 $ 0
1999 $ 0 $ 0 $ 0
==================================================== ========== =============== =========== ========================
</TABLE>
The Company may change or increase salaries as the Company's profits
and cash flow allow. The amount of any increase in salaries and compensation for
existing officers has not been determined at this time and the number and dollar
amount to be paid to additional management staff that will likely be employed
has not been determined.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST TWO FISCAL YEARS
(1998 and 1999 Fiscal Year Individual Grants)
- ----------------------------------- -------------------- -------------------- ----------------- --------------------
No. of Securities Percent of Total
Underlying Options/
Options/SARs SARs Granted to Exercise of
Granted Employees in Base Price
Name (#)(1) Fiscal Year ($/Sh) Expiration Date
(a) (b) (c)(1) (d) (e)
- ----------------------------------- -------------------- -------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Ralph M. Amato 1,200,000 87.18% $0.25 None
500,000 $0.25 02-13-00
- ----------------------------------- -------------------- -------------------- ----------------- --------------------
Michael L. Potter, Esq. 250,000 12.82% $0.25 02-13-00
=================================== ==================== ==================== ================= ====================
</TABLE>
Footnote:
1. Represents common stock purchase options granted the Company's officers and
directors in 1998 and 1999. Prior to 1998 and except for an option to purchase
60,000 shares (at $0.50 per share) granted to Stanley V. Heyman, a former
officer, the Company has not issued or granted any common stock purchase options
to the Company's officers and directors.
27
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 13, 1999 and in recognition of the limited cash
compensation paid, the Company's Board of Directors granted Ralph M. Amato,
the Company's Chairman, President, Secretary, and Founder, a common stock
purchase option (the "First Amato Option") for the purchase of up to
1,200,000 shares of the Company's Common Stock at an exercise price of $0.25
per share. The First Amato Option granted Mr. Amato does not have an
expiration date.
On February 13, 1999, the Company granted Michael L. Potter, The
Company's Secretary and a Director, a common stock purchase option for the
purchase of up to 250,000 shares of the Company's Common Stock at an exercise
price of $0.25 per share (the "Potter Option"). The Potter Option expires on
February 13, 2004.
On February 13, 1999, the Company granted Ralph M. Amato, the
Company's President, Chairman, CEO, and Treasurer a common stock purchase
option for the purchase of up to 250,000 shares of the Company's Common Stock
at an exercise price of $0.25 per share (the "Second Amato Option"). The
second Amato Option expires on February 13, 2004.
28
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
As of November 8, 1999 the Company had 6,066,503 shares of the
Company's Common Stock (par value $0.001) outstanding. The Company's
Certification of Incorporation, authorize the issuance of 20,000,000 shares
of the Company's Common Stock. Holders of shares of the Common Stock are
entitled to one vote for each share on all matters to be voted on by the
stockholders. Holders of Common Stock have no cumulative voting rights.
Holders of shares of Common Stock, subject to the rights of any outstanding
Preferred Stock, are entitled to share ratably in dividends, if any, as may
be declared from time to time by the Board of Directors in its discretion,
from funds legally available therefor.
In the event of a liquidation, dissolution or winding up of the
Company, the holders of shares of Common Stock are entitled to share pro rata
all assets remaining after payment in full of all liabilities. Holders of
common stock have no preemptive rights to purchase the Company's Common
Stock. All of the outstanding shares of Common Stock are fully paid and
non-assessable.
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of
8,000,000 shares of Preferred Stock (par value $0.001) in one or more series
and with such rights, privileges, and preferences as the Company's Board of
Directors may determine. The Company has no Preferred Stock issued or
outstanding.
29
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS.
The Company's Common Stock trades in the Over-The-Counter ("OTC")
market (Electronic Bulletin Board and "Pink Sheets") listed in the National
Daily Quotations Service. Since October 6, 1998 to the present, there were only
sporadic quotations with only limited and minimal interest by market makers. As
of October 31, 1999, the company had 12 market makers and 751 shareholders of
record. The following represents high and low bid prices by quarter as reported
by the National Quotation Bureau, Inc.
<TABLE>
<CAPTION>
- ------------------------------------------------------------- -------------------------- ---------------------------
High Low
- ------------------------------------------------------------- -------------------------- ---------------------------
<S> <C> <C>
1998
4th Quarter $3.75 $0.5625
- ------------------------------------------------------------- -------------------------- ---------------------------
1999
1st Quarter $4.25 $2.00
2nd Quarter $1.46 $0.62
3rd Quarter $0.81 $0.56
4th Quarter $0.75 $0.56
- ------------------------------------------------------------- -------------------------- ---------------------------
</TABLE>
ITEM 2. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not Applicable
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In January 1998 the Company issued 602,811 shares of its common
stock (par value $0.001) representing approximately $6,028 pursuant to
Section 4(2) of the SECURITIES ACT OF 1933. The shares were issued in
connection with the purchase of the Company by Alternative Entertainment,
Inc., a Nevada corporation. The Shares were issued without an underwriter.
30
<PAGE>
During the period from October through December 1998, the Company
issued 350,388 shares of its common stock (par value $0.001) to convert
$480,831 in outstanding notes payable. Each of the noteholders who exchanged
their promissory notes to acquire the shares were sophisticated persons and
each had a pre-existing relationship with the Company. All of the shares were
issued pursuant to Section 4(2) and 4(6) of the SECURITIES ACT OF 1933 and
Rule 506 of Regulation D thereunder. The shares were issued without an
underwriter.
During the period from October through December 1998, the Company
issued 186,376 shares of its common stock (par value $0.001) to convert
$162,484 of then outstanding accounts payable. Each of the purchasers were
sophisticated persons and each had a pre-existing relationship with the
Company. All of the shares were issued pursuant to Section 4(2) and 4(6) of
the SECURITIES ACT OF 1933 and Rule 506 of Regulation D thereunder. The
shares were issued without an underwriter.
During the period from October through December 1998 and in lieu of
cash payments, the Company issued 185,500 shares its common stock (par value
$0.001) for approximately $170,771 in architectural, design, and other
services. Each of the purchasers were sophisticated persons and each had a
pre-existing relationship with the Company. All of the shares were issued
pursuant to Section 4(2) and 4(6) of the SECURITIES ACT OF 1933 and Rule 506
of Regulation D thereunder. The shares were issued without an underwriter.
During the period from October through December 1998 and in lieu of
cash payments, the Company issued 240,000 shares of its common stock (par
value $0.001) for approximately $240,000 in construction work. The purchaser
was a sophisticated person and had a pre-existing relationship with the
Company. All of the shares were issued pursuant to Section 4(2) of the
SECURITIES ACT OF 1933. The shares were issued without an underwriter.
In December 1998 and in lieu of a cash payment, the Company issued
20,000 shares of its common stock (par value $0.001) in payment of certain
deposits due under the lease of the Company's lease agreement for its Planned
San Francisco Club at the real property located at 408-412 Broadway, San
Francisco, California. The purchaser was a sophisticated person and had a
pre-existing relationship with the Company. All of the shares were issued
pursuant to Section 4(2) of the SECURITIES ACT OF 1933. The shares were
issued without an underwriter.
During October and November 1998 and in exchange for approximately
$90,000 of accounts payable, the Company issued common stock purchase options
for the purchase of up to 60,000 shares of its common stock at an exercise
price of $1.00 per share. The options remain exercisable however none of the
options have been exercised. The holders of the options are sophisticated
investors and each had a pre-existing relationship with the Company. The
options were issued pursuant to Section 4(2) of the SECURITIES ACT OF 1933.
The options were issued without an underwriter.
31
<PAGE>
In January 1999, an investor exercised an option to purchase 100,000
shares of the Company's common stock (par value $0.001) at an exercise price
of $0.25 per share. The investor is a sophisticated investor and had a
pre-existing relationship with the Company. The shares were issued pursuant
to Sections 4(2) and 4(6) of the SECURITIES ACT OF 1933 and Rule 506
thereunder. The shares were issued without an underwriter.
In January through August 1999, the Company issued 923,000 shares of
its common stock to certain holders of $1,129,235 of the Company's
convertible promissory notes. Each of the converting promissory note holders
were sophisticated investors, Accredited Investors (as that term is defined
under Rule 501(a) of Regulation D) and each had a pre-existing relationship
with the Company. The shares were issued pursuant to Section 4(2) and 4(6) of
the SECURITIES ACT OF 1933 and Rule 506 thereunder. The shares were issued
without an underwriter.
In February 1999 and in lieu of cash payments, the Company issued
223,642 shares of the Company's Common Stock for certain consulting services
rendered to the Company. The purchaser was a sophisticated person and had a
pre-existing relationship with the Company. All of the shares were issued
pursuant to Section 4(2) and 4(6) of the SECURITIES ACT OF 1933 and Rule 506
thereunder. The shares were issued without an underwriter.
In January through March 1999, the Company issued 909,879 shares of
its common stock in exchange for $909,879 in cash proceeds pursuant to
Section 4(2) of the SECURITIES ACT OF 1933 and Rule 504 of Regulation D
thereunder. All of the shares were issued without an underwriter.
In June 1999, the Company issued 125,000 shares of its common stock
in exchange for $62,500 in cash pursuant to Section 4(2) and 4(6) of the
SECURITIES ACT OF 1933 and Rule 506 thereunder. The purchaser was a
sophisticated investor and the Company had a pre-existing relationship with
the purchaser. The shares were issued without an underwriter.
In June 1999, the Company obtained commitments for the Company's
issuance of up to $1,000,000 in an unsecured convertible promissory note (the
"Note"). Under the terms of the Note, the Company received $890,000 from the
investor who was issued the Note. The investor is a sophisticated investor
and has a pre-existing relationship with the Company. The Note was issued
pursuant to Section 4(2) of the SECURITIES ACT OF 1933. The Note was issued
without an underwriter.
On September 7, 1999, the Company agreed to issue 150,000 shares of
its common stock in exchange for certain consulting services to be valued at
$150,000. The purchaser was a sophisticated investor and the Company had a
pre-existing relationship with the purchaser. The shares were to be issued
pursuant to Section 4(2) of the SECURITIES ACT OF 1933. The shares were
issued without an underwriter.
All of the transactions referred to above are exempt from the
registration requirements of the SECURITIES ACT OF 1933, as amended, by
virtue of Section 4(2) thereof covering transactions not involving any public
offering or involving no "offer" or "sale." As a condition precedent to
32
<PAGE>
each sale, the respective purchaser was required to execute an investment
letter and consent to the imprinting of a restrictive legend on each stock
certificate received from the Company.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware Corporation Law provides that a
corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending, or completed action, suit or
proceeding by reason of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgements, fines, and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful, except that, in the case of an action or suit by or in the right of
the corporation, the corporation shall not indemnify such persons against
judgements and fines and no person shall be indemnified as to any claim,
issue, or matter as to which such person shall have been adjudged to be
liable for the negligence or misconduct in the performance of that person's
duty to the corporation, unless and only to the extent that the court in
which the action or suit was brought determines upon application that such
person is fairly and reasonably entitled to indemnity for proper expenses.
In addition, the Company amended its Certificate of Incorporation on
January 26, 1998 and, among other provisions, adopted Article "EIGHTH" which
provides for the indemnification of the Company's officers and directors as
follows:
EIGHTH. (a.) A Director of the Corporation shall not be personally
liable to the Corporation or its shareholders for monetary damages for
breach of fiduciary duty as a Director, except for liability (i) for
any breach of the Director's duty of loyalty to the Corporation or its
shareholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the Director derived an improper personal
benefit. If the Delaware General Corporation Law is amended after
approval by the shareholders of this article to authorize corporate
action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, so as amended. Any repeal or modification of
the foregoing paragraph by the shareholders of the Corporation shall
not adversely affect any right or protection of a Director of the
Corporation existing at the time of such repeal or modification.
33
<PAGE>
(b.) Right to Indemnification. Each person who was or is made
a party to, or is threatened to be made a party to, or is otherwise
involved, in any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director, Officer, or
employee of the Corporation, or is or was serving at the request of the
Corporation as a Director, Officer, employee, or agent of another
corporation or of a partnership, joint venture, trust, or other
enterprise, including service with respect to employee benefit plans
(hereinafter an "indemnitee"), whether the basis of such proceeding is
alleged action in an official capacity as a Director, Officer,
employee, or agent or in any other capacity while serving as a
Director, Officer, employee, or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to
provide prior to such amendment, against all expense, liability, and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes
or penalties, and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith, and such
indemnification shall continue as to an indemnitee who has ceased to be
a Director, Officer, employee, or agent and shall inure to the benefit
of the indemnitee's heirs, executors, and administrators; provided,
however, that, except as provided in paragraph (b) hereof with respect
to proceedings to enforce rights to indemnification, the Corporation
shall indemnify any such indemnitee in connection with a proceeding (or
part thereof) initiated by such indemnitee only if such proceeding (or
part thereof) was authorized by the Board of Directors of the
Corporation.
The right to indemnification conferred in this section shall be a
contract right and shall include the right to be reimbursed by the
Corporation for expenses incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of
expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an
indemnitee in his or her capacity as a Director of Officer (and not in
any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee
benefit plan) shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such indemnitee, to repay all amounts
so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal that such
indemnitee is not entitled to be indemnified for such expenses under
this section or otherwise (hereinafter an "undertaking").
34
<PAGE>
(c.) Right of Indemnitee to Bring Suit. If a claim under paragraph (a)
of this section is not paid in full by the Corporation within sixty
days after a written claim has been received by the Corporation, except
in the case of a claim for an advancement of expenses, in which case
the applicable period shall be twenty days, the indemnitee may, at any
time thereafter, bring suit against the Corporation to recover the
unpaid amount of the claim. If successful, in whole or in part, in any
such suit or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting
or defending such suit. In any suit brought by the indemnitee to
enforce a right to indemnification hereunder (but not in a suit brought
by the indemnitee to enforce a right to an advancement of expenses), it
shall be a defense that the indemnitee has not met the applicable
standard of conduct set forth in the Delaware General Corporation Law.
In any suit brought by the Corporation to recover an advancement of
expenses, pursuant to the terms of an undertaking, the Corporation
shall be entitled to recover such expenses upon a final adjudication
that the indemnitee has not met the applicable standard of conduct set
forth in the Delaware General Corporation Law.
Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its shareholders) to have made
a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its shareholders) that the indemnitee has
not met such applicable standard of conduct, shall create a presumption
that the indemnitee has not met the applicable standard of conduct or,
in the case of such suit brought by the indemnitee, by a defense to
such suit. In any suit brought by the indemnitee to enforce a right
hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified or to such advancement of
expenses under this section or otherwise shall be on the Corporation.
(d.) Non-Exclusivity of Rights. The rights to indemnification and to
the advancement of expenses conferred in this section shall not be
exclusive of any other right which any person may have or hereafter
acquire under any statute, this Certificate of Incorporation, By-Law,
agreement, vote of shareholders or disinterested Directors, or
otherwise.
(e.) Insurance. The Corporation may maintain insurance, at its expense,
to protect itself and any Director, Officer, employee, or agent of the
Corporation or another corporation, partnership, joint venture, trust,
or other enterprise against any expense, liability, or loss, whether or
not the Corporation would have the power to indemnify such person
against such expense, liability, or loss under the
35
<PAGE>
Delaware General Corporation Law.
(f.) Indemnification of Agents of the Corporation. The Corporation may,
to the extent authorized from time to time by the Board of Directors,
grant rights to indemnification and to the advancement of expenses to
any agent of the Corporation to the fullest extent of the provisions of
this section with respect to the indemnification and advancement of
expenses of Directors and Officers of the Corporation.
Finally, on December 10, 1993, the Company's predecessor, Alternative
Entertainment, Inc., a Nevada corporation, agreed to indemnify Ralph M. Amato,
the Company's Chairman, from and against any loss, damage, deficiency, expense,
or cost (including reasonable attorneys' fees) incurred by Mr. Amato on account
of or in connection with his serving as a director of the Company.
PART F/S
36
<PAGE>
PART III
<TABLE>
<CAPTION>
ITEM 1. INDEX TO EXHIBITS
Description Page
- ----------- ----
<S> <C> <C>
3 Certificate of Incorporation - Wagg Corp.
3.1 Amendment to Certificate of Incorporation - Wagg Corp.
3.2 Amendment to Certificate of Incorporation - Wagg Corp.
3.3 By-Laws of Wagg Corp. (Delaware)
3.4 Articles of Incorporation - Alternative Entertainment, Inc. (NV)
3.5 By-Laws of Alternative Entertainment, Inc. (NV)
3.6 Articles of Incorporation of RMA of San Francisco, Inc.
3.7 By-Laws of RMA of San Francisco, Inc.
4.1 Specimen of Common Stock Certificate
10 Agreement for the Purchase of Common Stock
10.1 Lease for Office Space in La Jolla, California
10.2 Lease of Real Property from Roma Cafe, Inc.
10.3 Lease of Apartment Units in San Francisco, California
10.4 Indemnification Agreement between the Company and Ralph M. Amato
10.5 Agreement with Itex Corporation
10.6 Employment Agreement Between the Company and Gary Marlin
10.7 Loan Agreement with Unsecured Convertible Note
10.8 Unsecured Promissory Note (C. Palozzi)
10.9 Settlement Agreement With Bowne of Los Angeles, Inc.
10.10 Unsecured Promissory Note (V. Amato)
10.11 Unsecured Promissory Note (V. Amato)
10.12 Secured Promisory Note (R. Smith)
10.13 Secured Promissory Note (I. Weeda Family Trust)
10.14 Secured Promissory Note (I. Weeda Family Trust)
10.15 Secured Promissory Note (K. Marc)
10.16 Secured Promissory Note (G. W. Smith)
10.17 Secured Promissory Note (D. Hylton)
10.18 Secured Promissory Note (M. Yonika)
10.19 Unsecured Promisory Note (R. Kaelan)
27 Financial Data Schedule
</TABLE>
37
<PAGE>
ITEM 2. DESCRIPTION OF EXHIBITS
The following exhibits required by Item 601 of Regulation S-B are filed
herewith:
<TABLE>
<CAPTION>
Exhibit No. Document Description
- ----------- --------------------
<S> <C>
3 Certificate of Incorporation - Wagg Corp.
3.1 Amendment to Certificate of Incorporation - Wagg Corp.
3.2 Amendment to Certificate of Incorporation - Wagg Corp.
3.3 By-Laws of Wagg Corp. (Delaware)
3.4 Articles of Incorporation - Alternative Entertainment, Inc. (NV)
3.5 By-Laws of Alternative Entertainment, Inc. (NV)
4.1 Specimen of Common Stock Certificate
10 Agreement for the Purchase of Common Stock
10.1 Lease for Office Space in La Jolla, California
10.2 Lease of Real Property from Roma Cafe, Inc.
10.3 Lease of Apartment Units in San Francisco, California
10.4 Indemnification Agreement between the Company and Ralph M. Amato
10.5 Agreement with Itex Corporation
10.6 Employment Agreement Between the Company and Gary Marlin
10.7 Loan Agreement with Unsecured Convertible Note
10.8 Unsecured Promissory Note (C. Palozzi)
10.9 Settlement Agreement With Bowne of Los Angeles, Inc.
10.10 Unsecured Promissory Note (V. Amato)
10.11 Unsecured Promissory Note (V. Amato)
10.12 Secured Promisory Note (R. Smith)
10.13 Secured Promissory Note (I. Weeda Family Trust)
10.14 Secured Promissory Note (I. Weeda Family Trust)
10.15 Secured Promissory Note (K. Marc)
10.16 Secured Promissory Note (G. W. Smith)
10.17 Secured Promissory Note (D. Hylton)
10.18 Secured Promissory Note (M. Yonika)
10.19 Unsecured Promisory Note (R. Kaelan)
27 Financial Data Schedule
</TABLE>
38
<PAGE>
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this registration statement to be signed on its behalf by
the undersigned thereunto duly authorized.
BOYSTOYS.COM, INC.
(Registrant)
Date: November 22, 1999 By /s/ Ralph M. Amato
--------------------------------------
Ralph M. Amato, Chairman,
President, CEO, & Treasurer
39
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
<TABLE>
<S> <C>
INDEPENDENT AUDITOR'S REPORT................................................... F-1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets
as of December 31, 1997 and 1998,
and September 30, 1999 (unaudited) ..................................... F-2 - F-3
Consolidated Statements of Operations for the Years Ended December 31,
1997 and 1998, and for the Nine Months Ended September 30, 1998
and 1999 (unaudited), and from December 6, 1993
(inception) through September 30, 1999 (unaudited) ..................... F-4
Consolidated Statements of Changes in Shareholders' (Deficit) Equity for
the Years Ended December 31, 1997 and 1998, and for the Nine
Months Ended September 30, 1999 (unaudited) and from December
6, 1993 (inception) through September 30, 1999 (unaudited).............. F-5 - F-7
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997 and 1998, and for the Nine Months Ended September 30, 1998
and 1999 (unaudited), and from December 6, 1993
(inception) through September 30, 1999 (unaudited)...................... F-8 - F-9
Notes to Consolidated Financial Statements................................ F-10 - F-22
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors.
BoysToys.com, Inc.
San Diego, California
We have audited the accompanying consolidated balance sheets of BoysToys.com,
Inc. as of December 31, 1997 and 1998 and the related consolidated statements
of operations, shareholders' deficit and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
BoysToys.com, Inc. and subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 12 to the consolidated financial statements, the Company's loss from
operations and excess of liabilities over assets raises substantial doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
San Diego, California PANNELL KERR FORSTER
August 31, 1999 Certified Public Accountants
A Professional Corporation
F-1
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and 1998, and
September 30, 1999 (unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1997 1998 1999
-------- -------- ------------
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash $ - $ - $ 14,449
Prepaid rent - 24,000 4,000
Construction escrow deposits - 240,000 47,971
-------- -------- ----------
Total current assets - 264,000 66,420
-------- -------- ----------
Noncurrent assets:
Organization costs, net 1,445 - -
Note receivable-officer 33,602 35,515 37,073
Deposits 37,000 37,000 64,715
Barter credits - 100,000 100,000
Property and equipment, net 540,525 538,350 2,378,393
-------- -------- ----------
Total noncurrent assets 612,572 710,865 2,580,181
-------- -------- ----------
Total Assets $612,572 $974,865 $2,646,601
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-2
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
As of December 31, 1998 and 1997, and
September 30, 1999 (unaudited)
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
December 31,
------------------------- September 30,
1997 1998 1999
----------- ----------- -------------
(Unaudited)
<S> <C> <C> <C>
Current liabilities:
Bank overdraft $ 2,247 $ 12,556 $ -
Accounts payable and accrued expenses 642,931 621,704 622,969
Accrued interest 175,509 262,856 108,233
Notes payable 1,297,528 1,255,668 370,980
Convertible debt - - 890,000
----------- ----------- -----------
Total current liabilities 2,118,215 2,152,784 1,992,182
----------- ----------- -----------
Commitments and contingencies (Note 11)
Shareholders' (deficit) equity:
Preferred stock, $.01 par value
(8,000,000 authorized; none issued
and outstanding) - - -
Common stock, $.01 par value
(20,000,000 shares authorized; issued
and outstanding: 1,856,687, 3,441,762
and 5,723,283 as of December 31,
1997 and 1998, and September 30,
1999 (unaudited); issuable: 100,000
as of December 31, 1998 and
September 30, 1999 (unaudited) 18,567 35,418 58,233
Additional paid-in-capital 825,733 2,112,996 8,133,136
Common stock subscribed - - (62,500)
Deficit accumulated during the
development stage (2,349,943) (3,326,333) (7,474,450)
----------- ----------- -----------
Total shareholders' (deficit) equity (1,505,643) (1,177,919) 654,419
----------- ----------- -----------
Total Liabilities and Shareholders'
(Deficit) Equity $ 612,572 $ 974,865 $ 2,646,601
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-3
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998 and 1997,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30, December 6, 1993
------------------------- --------------------------- (Inception) through
1997 1998 1998 1999 September 30, 1999
--------- ---------- ----------- ----------- ------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues $ - $ - $ - $ - $ -
--------- ---------- ---------- ----------- -----------
General and
Administrative Expenses (355,177) (838,594) (395,921) (3,691,556) (6,397,071)
--------- ---------- ---------- ----------- -----------
Other Income (Expenses):
Interest income 1,359 2,102 133 4,064 7,525
Interest expense (146,949) (139,098) (121,067) (460,025) (782,360)
Offering costs written-off - - - - (297,944)
--------- ---------- ---------- ----------- -----------
Total other expenses (145,590) (136,996) (120,934) (455,961) (1,072,779)
--------- ---------- ---------- ----------- -----------
Deficit Before Income Taxes (500,767) (975,590) (516,855) (4,147,517) (7,469,850)
--------- ---------- ---------- ----------- -----------
Provision for Income Taxes (800) (800) (600) (600) (4,600)
--------- ---------- ---------- ----------- -----------
Net loss $(501,567) $ (976,390) $ (517,455) $(4,148,117) $(7,474,450)
========= ========== ========== =========== ===========
Net loss per share $ (0.27) $ (0.41) $ (0.24) $ (0.81)
========= ========== ========== ===========
Weighted average shares
used for net loss per share 1,856,687 2,409,637 2,198,221 5,114,379
========= ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-4
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT) EQUITY
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
Common Stock Additional Subscribed During
-------------------- Paid-in -------------------- Development
Shares Amount Capital Shares Amount Stage Total
--------- ------- ---------- ---------- ------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 6, 1993 - $ - $ - - $ - $ - $ -
Issuance of common stock 50,000 500 1,000 - - - 1,500
Sale of stock to common stock
subscribers upon full payment of
subscription during December, 1993 11,817 118 237 - - - 355
Common stock subscribed, net
$50,871 of subscriptions receivable - - - 1,666,667 119 - 119
Net loss - - - - - (564) (564)
--------- ------- -------- ---------- ----- ----------- -----------
Balance, December 31, 1993 61,817 618 1,237 1,666,667 119 (564) 1,410
Sale of stock to common stock
subscribers upon full payment of
subscription during June, 1994 1,666,667 16,667 34,233 (1,666,667) (119) - 50,781
Issuance of common stock in
private placement offering, net
$10,067 of offering costs 71,442 714 203,546 - - - 204,260
Net loss - - - - - (170,155) (170,155)
--------- ------- -------- ---------- ----- ----------- -----------
Balance, December 31, 1994 1,799,926 17,999 239,016 - - (170,719) 86,296
Issuance of common stock in
private placement offering 56,761 568 169,717 - - - 170,285
Return and cancellation of
common stock (139,000) (1,390) 1,390 - - - -
Issuance of common stock for
services 139,000 1,390 415,610 - - - 417,000
Net loss - - - - - (777,674) (777,674)
--------- ------- -------- ---------- ----- ----------- -----------
Balance, December 31, 1995 1,856,687 18,567 825,733 - - (948,393) (104,093)
Net loss - - - - - (899,983) (899,983)
--------- ------- -------- ---------- ----- ----------- -----------
Balance, December 31, 1996 1,856,687 18,567 825,733 - - (1,848,376) (1,004,076)
Net loss - - - - - (501,567) (501,567)
--------- ------- -------- ---------- ----- ----------- -----------
Balance, December 31, 1997 1,856,687 $18,567 $825,733 - $ - $(2,349,943) $(1,505,643)
--------- ------- -------- ---------- ----- ----------- -----------
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-5
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT) EQUITY (Continued)
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
Common Stock Additional Subscribed During
-------------------- Paid-in --------------- Development
Shares Amount Capital Shares Amount Stage Total
--------- ------- ---------- ------ ------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 1,856,687 $18,567 $ 825,733 - $ - $(2,349,943) $(1,505,643)
Issuance of common stock on
reverse merger 602,811 6,028 - - - - 6,028
Issuance of common stock on
conversion of notes payable and
accrued interest 350,388 3,504 477,327 - - - 480,831
Issuance of common stock on
conversion of accounts payable 186,376 1,864 160,620 - - - 162,484
Issuance of common stock for
services 185,500 1,855 168,916 - - - 170,771
Issuance of common stock for
construction escrow deposits 240,000 2,400 237,600 - - - 240,000
Issuance of common stock for
prepaid rent 20,000 200 23,800 - - - 24,000
Issuance of stock options on
conversion of accounts payable
(Note 8) - - 90,000 - - - 90,000
Issuance of stock options to
directors for services (Note 8) - - 30,000 - - - 30,000
Issuable common stock on
receipt of barter credits (Note 4) - 1,000 99,000 - - - 100,000
Net loss - - - - - (976,390) (976,390)
--------- ------- ---------- ------- ----- ------------ -----------
Balance, December 31, 1998 3,441,762 $35,418 $2,112,996 - $ - $(3,326,333) $(1,177,919)
--------- ------- ---------- ------- ----- ------------ -----------
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-6
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT) EQUITY (Continued)
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
Common Stock Additional Subscribed During
-------------------- Paid-in ------------------ Development
Shares Amount Capital Shares Amount Stage Total
--------- ------- ---------- ------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 3,441,762 $35,418 $2,112,996 - $ - $(3,326,333) $(1,177,919)
Unaudited information:
Issuance of common stock on
exercise of option 100,000 1,000 24,000 - - - 25,000
Issuance of common stock on
conversion of notes payable and
accrued interest 923,000 9,230 1,120,005 - - - 1,129,235
Issuance of common stock for
services 223,642 2,236 221,741 - - - 223,977
Issuance of common stock in
private placement offering 909,879 9,099 900,780 - - - 909,879
Issuance of stock options to
directors for services (Note 8) - - 3,042,000 - - - 3,042,000
Issuance of common stock for
cash and subscription receivable 125,000 1,250 123,750 (62,500) (62,500) - 62,500
Beneficial conversion feature of
convertible debt (Note 13) - - 587,864 - - - 587,864
Net loss - - - - - (4,148,117) (4,148,117)
--------- ------- ---------- ------- -------- ----------- -----------
Balance, September 30, 1999
(Unaudited) 5,723,283 $58,233 $8,133,136 (62,500) $(62,500) $(7,474,450) $ 654,419
========= ======= ========== ======= ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-7
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30, December 6, 1993
------------------------- --------------------------- (Inception) through
1997 1998 1998 1999 September 30, 1999
---------- ---------- ----------- ----------- -------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $(501,567) $(976,390) $(517,455) $(4,148,117) $(7,474,450)
Non-cash operating activities included
in deficit accumulated:
Amortization 1,040 2,175 - - 5,931
Accrued rent converted into
note payable - - - - 94,600
Issuance of common stock for
services - 170,771 421,983 223,977 394,748
Issuance of stock options to
directors for services - 30,000 - 3,042,000 3,072,000
Financing cost of beneficial
conversion feature of
convertible debt - - - 587,864 587,864
(Increase) decrease in assets:
Prepaid rent - - - 20,000 20,000
Note receivable-officer (22,875) (1,913) 51 (1,558) (37,073)
Deposits - - (27,715) (67,715)
Organization Costs - 1,445 - - (3,756)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 103,959 231,257 (87,344) 1,265 875,453
Accrued interest 112,359 159,490 65,510 51,384 389,383
--------- --------- --------- ----------- -----------
Net cash used in operating activities (307,084) (383,165) (117,255) (250,900) (2,143,015)
--------- --------- --------- ----------- -----------
Cash Flows from Investing Activities:
Capital expenditures on
leasehold improvements (11,632) - - (1,648,014) (2,188,539)
--------- --------- --------- ----------- -----------
Net cash used in investing activities (11,632) - - (1,648,014) (2,188,539)
--------- --------- --------- ----------- -----------
Cash Flows from Financing Activities:
Increase (decrease) in bank overdraft 328 10,309 2,607 (12,556) -
Borrowings on notes payable 318,388 366,828 114,648 38,540 1,608,296
Borrowings on convertible debt 890,000 890,000
Proceeds from issuance of
common stock - 6,028 - 972,379 1,822,707
Proceeds on exercise of stock option - - 25,000 25,000
--------- --------- --------- ----------- -----------
Net cash provided by financing activities 318,716 383,165 117,255 1,913,363 4,346,003
--------- --------- --------- ----------- -----------
Net increase in cash - - - 14,449 14,449
Cash at Beginning of Year - - - - -
--------- --------- --------- ----------- -----------
Cash at End of Year $ - $ - $ - $ 14,449 $ 14,449
========= ========= ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-8
<PAGE>
BOYSTOYS.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Years Ended December 31, 1998 and 1997,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30, December 6, 1993
------------------------- --------------------------- (Inception) through
1997 1998 1998 1999 September 30, 1999
---------- ---------- ----------- ----------- -------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) $(7,500) $ (1,880) $ (1,880) $ - $ (13,380)
======= ========= ========= ============ ===========
Income taxes $ (800) $ (800) $ (600) $ (600) $ (4,600)
======= ========= ========= ============ ===========
Noncash investing and financing
activities:
Accrued rent, late payment fees and
costs due to landlord converted into
note payable $ - $ - $ - $ - $ (94,600)
======= ========= ========= ============ ===========
Issuance of common stock and stock
options on conversion of debt $ - $(733,315) $ - $(1,129,235) $(1,862,550)
======= ========= ========= ============ ===========
Issuance of common stock and stock
options for goods and services $ - $(264,000) $(264,000) $ - $ (264,000)
======= ========= ========= ============ ===========
Issuable common stock on receipt of
barter credits $ - $(100,000) $(100,000) $ - $ (100,000)
======= ========= ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of
the financial statements.
F-9
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 1 - ORGANIZATION AND BUSINESS
BoysToys.com, Inc. (formerly Alternative Entertainment, Inc.) was
incorporated in the state of Delaware on April 21, 1997, under the name
Wagg Corp. ("Wagg"). BoysToys.com, Inc. engages in the business of
developing, owning and operating nightclubs providing exotic dance
entertainment combined with a full service restaurant, lounge, and
business meeting facilities.
On December 6, 1993 Alternative Entertainment, Inc. a Nevada corporation
("AEI Nevada") was formed. On November 10, 1994, a wholly-owned
subsidiary was formed, BoysToys Cabaret Restaurants, Inc., a California
Corporation, which plans to operate its first such nightclub facility in
San Francisco, California.
On January 15, 1998, AEI Nevada acquired 80% of the outstanding common
stock of Wagg. On January 25, 1998, the shareholders of AEI Nevada voted
to execute a one-for-three reverse split of its common stock. On January
26, 1998, the shareholders of Wagg voted to execute a one-for-two reverse
split of its common stock. Number of shares and per share amounts have
been restated as though the transaction occurred on December 6, 1993
(Inception).
Following these actions and on January 28, 1998, the Wagg Board of
Directors voted to approve a plan and agreement of reorganization between
Wagg and AEI Nevada. Under the terms of the reorganization, each
outstanding share of Wagg's common stock was exchanged for one share of
AEI Nevada common stock and all of the assets of AEI Nevada were
transferred to Wagg. This resulted in AEI Nevada becoming a wholly-owned
subsidiary of Wagg. In conjunction with these actions, the shareholders
of Wagg approved an amendment to Wagg's Certificate of Incorporation to
change its name to Alternative Entertainment, Inc., a Delaware
Corporation ("AEI"). The reorganization has been accounted for as a
reverse acquisition with a public shell. Accordingly, the accompanying
consolidated financial statements have been presented as if AEI Nevada
had always been a part of Wagg.
During 1998 Wagg changed its name to AEI. On December 29, 1998, AEI
changed its name to BoysToys.com, Inc. (the "Company")
Activity for all periods consisted primarily of efforts devoted to
identifying suitable properties for acquisition, performing
administrative functions, and the initial construction of the Company's
first establishment located in San Francisco, California. Since planned
operating activities have not yet commenced, the financial statements are
those of a development stage company.
F-10
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The Company's policy is to use the accrual method of accounting and to
prepare and present financial statements in accordance with generally
accepted accounting principles.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Boys Toys Cabaret Restaurants, Inc.
and AEI Nevada. All significant intercompany transactions and balances
have been eliminated.
INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet as of September 30, 1999 and the
statements of operations and cash flows for the nine month periods ended
September 30, 1998 and 1999, and from December 6, 1993 (inception)
through September 30, 1999, have not been audited. However, these
financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions to Form 10 of Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
management's opinion, the accompanying financial statements reflect all
material adjustments (consisting only of normal recurring adjustments)
necessary for a fair statement of the results for the interim periods
presented. The results for the interim periods are not necessarily
indicative of the results which will be reported for the entire year.
FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for cash, bank
overdraft, accounts payable and accrued expenses approximate fair value
due to the immediate short-term maturity of these financial instruments.
The fair value of the Company's notes payable and convertible debt
approximates the carrying amount based on the current rates offered to
the Company for debt of the same remaining maturities with similar
collateral requirements.
F-11
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The company is currently
capitalizing all leasehold improvements, equipment and fixtures
associated with the development of its first establishment located in San
Francisco, California. No depreciation or amortization has been recorded
because the Company is currently in the development stage and the assets
have not yet been placed into service. Equipment and fixtures will be
depreciated using the straight-line method over the estimated asset lives
ranging from 3 to 7 years. Leasehold improvements will be amortized using
the straight-line method over the shorter of the life of the improvements
or the length of the lease.
Leasehold improvements are primarily architectural, planning and
construction costs associated with construction of the facility.
Equipment and fixtures are primarily computer systems, furniture,
lighting, sound and video equipment.
The Company applies the provisions of Statement of Financial Accounting
Standards (SFAS) No. 34. Consequently, interest cost related to the
construction of the Company's first establishment is capitalized and will
be amortized consistent with the leasehold improvements. Capitalized
interest totaled $31,422, $31,422 and $233,070 as of December 31, 1997
and 1998, and September 30, 1999 (unaudited), respectively.
STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation." This statement allows entities to measure
compensation costs related to awards of stock-based compensation, using
either the fair value method or the intrinsic value method. The Company
has elected to account for stock-based compensation programs using the
intrinsic value method.
Companies that do not choose to adopt the expense recognition rules of
SFAS No. 123 will continue to apply the existing accounting rules
contained in Accounting Principles Board Opinion (APB) No. 25, but are
required to provide pro forma disclosures of the compensation expense
determined under the fair-value provisions of SFAS No. 123. APB No. 25
requires no recognition of compensation expense for most of the
stock-based compensation arrangements provided by the Company, namely,
broad-based employee stock purchase plans and option grants where the
exercise price is equal to the market price at the date of the grant. See
Note 8 for the proforma disclosures of the effect on net loss and net
loss per share.
F-12
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires impairment losses to be recorded on long-lived assets
used in operations when indicators of the impairment are present and the
undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. No
impairment of long-lived assets has been recognized.
INCOME TAXES
The Company accounts for income taxes using the asset and liability
method. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will
not be realized.
BASIC LOSS PER SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share",
which specifies the computation, presentation and disclosure requirements
for earnings (loss) per share for entities with publicly held common
stock. SFAS No. 128 supercedes the provisions of APB No. 15, and requires
the presentation of basic earnings (loss) per share and diluted earnings
(loss) per share. The Company has adopted the provisions of SFAS No.
128 effective December 6, 1993 (Inception).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-13
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 3 - NOTE RECEIVABLE-OFFICER
A note receivable in the amount of $33,602, $35,515 and $37,073 is due
from an officer of the Company as of December 31, 1997 and 1998, and
September 30, 1999 (unaudited), respectively. This note bears interest at
5.85% and is due upon demand.
NOTE 4 - BARTER CREDITS
On February 18, 1998, the Company purchased $530,000 of Barter Credits
via the future issuance of 100,000 shares of common stock of the Company.
The Barter Credits entitle the Company to receive goods and services with
a fair value estimated at $530,000 in excess of cash payments made.
Management has valued the Barter Credits at $100,000, which is
management's estimate of the fair value of the Company's common stock at
the time the transaction was entered into. As the Company utilizes the
Barter Credits, it will record an increase in additional paid-in capital
for the excess of the fair value of the goods and/or services received
over cash payments made plus the pro-rata portion of the available Barter
Credits utilized to the fair value of the Barter Credits recorded by the
Company. The shares to be issued are subject to restrictions on their
transferability of up to two years. The Barter Credits expire sixty
months from February 18, 1998, unless the Company has used at least
$100,000 of the Barter Credits during this period, which will extend the
remaining Barter Credits through February 18, 2008.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1997 and 1998, and September
30, 1999 (unaudited) consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------- September 30,
1997 1998 1999
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
Equipment and fixtures $ 2,175 $ - $ 171,745
Leasehold improvements:
Capitalized construction costs 506,928 506,928 1,973,578
Capitalized interest 31,422 31,422 233,070
---------- ---------- ----------
$ 540,525 $ 538,350 $2,378,393
========== ========== ==========
</TABLE>
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
December 31,
------------------------- September 30,
1997 1998 1999
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
Accounts payable $ 625,614 $ 597,214 $ 606,652
Accrued expenses 17,317 24,490 16,317
---------- ---------- ----------
$ 642,931 $ 621,704 $ 622,969
========== ========== ==========
</TABLE>
F-14
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 7 - NOTES PAYABLE
Notes payable as of December 31, 1997 and 1998, and September 30, 1999
(unaudited) consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1997 1998 1999
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
Secured promissory notes with issuance dates ranging from September 1995
to February 1999, with interest rates ranging from 8% to 12% per annum
The notes are due at the earlier of one year after the date of the note
or 60 days after the Company's common stock is traded on any securities
exchange or in any over-the-counter market. The notes and accrued
interest thereon are secured by Company common stock and note holders
have the option to convert their debt into Company common stock. These
notes were not paid at their maturity dates and are due upon demand. $1,070,528 $1,120,268 $295,580
Unsecured non-negotiable promissory notes dated September 1997, with an
interest rate of 12% computed on a daily basis. The notes, including
principal and interest, are due six months from the issuance date. These
notes were not paid at their maturity dates and are due upon demand. 60,000 60,000 -
Unsecured promissory notes with issuance dates ranging from May 1997 to
December 1997, with an interest rate of 12% per annum, with interest only
payable on a quarterly basis. These notes were not paid at their maturity
dates and are due upon demand. 50,000 50,000 50,000
F-15
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 7 - NOTES PAYABLE (CONTINUED)
December 31,
------------------------ September 30,
1997 1998 1999
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
Unsecured promissory note dated December 31, 1996, due ten business days
after demand for payment. Note is non-interest bearing. Note is due to
landlord of the Company's San Francisco facility for unpaid rent, late
payment fees and costs for the year ended December 31, 1996. 94,600 - -
Unsecured promissory notes dated in 1996 and 1997 due to related parties
upon demand, with an interest rate of 12% per annum. 22,400 25,400 25,400
---------- ---------- --------
$1,297,528 $1,255,668 $370,980
========== ========== ========
</TABLE>
Accrued interest related to notes payable totaled $175,509, $262,856 and
$108,233 as of December 31, 1997 and 1998, and September 30, 1999
(unaudited), respectively. During 1998 and the first nine months of 1999,
notes payable of $408,688 and $923,228 and accrued interest of $72,143
and $206,007, were converted into 350,388 and 923,000 shares of common
stock, respectively.
NOTE 8 - SHAREHOLDERS' EQUITY
STOCK OPTIONS ISSUED ON CONVERSION OF ACCOUNTS PAYABLE
During the year ended December 31, 1998, the Company issued options to
purchase 60,000 shares of common stock at an exercise price of $1 per
share, on the conversion of $90,000 of accounts payable. None of the
options had been exercised at year end and expire on December 31, 2000.
STOCK OPTION PLANS
The Company has approved two stock option plans that became effective
January 1, 1994, an Incentive Stock Option Plan and a Non-qualified
Stock Option Plan. Both plans are available to officers, directors and
key employees of the Company. Each plan allows for the purchase of up to
500,000 shares of common stock of the Company. See Note 13.
F-16
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 8 - SHAREHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLAN (CONTINUED)
During the year ended December 31, 1998, the Company issued 60,000
options to a director under the non-qualified stock option plan. During
the nine months ended September 30, 1999 (unaudited), 1,950,000 options
were granted to officers of the Company as a compensation award. The
options were immediately exercisable for $0.25 per share and were
granted at less than the quoted market price of the stock on the date of
grant. The Company has elected to account for incentive grants and
grants under its Plan following APB No. 25 and related interpretations.
Accordingly, the Company recorded $30,000 and $3,042,000 as compensation
expense for the year ended December 31, 1998 and the nine months ended
September 30, 1999 (unaudited), respectively, with a corresponding
credit to additional paid in capital.
The Company has adopted the disclosure provisions of SFAS No. 123
effective January 1, 1997. Under SFAS No. 123, the fair value of each
option granted is estimated on the measurement date utilizing the then
current fair value of the underlying shares, as estimated by management,
less the exercise price discounted over the average expected life of the
options of 10 years, with an average risk free interest rate of 5%,
price volatility of .1 and no dividends. Had compensation cost for all
awards been determined based on the fair value method as prescribed by
SFAS No.123, reported net (loss) and net (loss) per common share would
have been as follows:
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Net (loss):
As reported $(976,390)
Pro forma $(988,082)
Basic and diluted net (loss) per share:
As reported $ (0.41)
Pro forma $ (0.41)
</TABLE>
F-17
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 8 - SHAREHOLDERS' EQUITY (CONTINUED)
A summary of the activity of the stock options for the year ended
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Year ended
December 31, 1998
----------------------
Weighted
Average
Exercise
Shares Price
----------------------
<S> <C> <C>
Outstanding at beginning of period - $ -
Granted 120,000 0.75
Forfeited - -
Expired - -
----------------------
Outstanding at end of period 120,000 $ 0.75
======================
Exercisable at end of period 120,000 $ 0.75
======================
Weighted-average fair value of options
granted during the period $ 1.10
=========
Weighted-average remaining contractual life 10 years
=========
</TABLE>
NOTE 9 - INTEREST EXPENSE
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30, December 6, 1993
---------------------------- ---------------------------- (Inception) through
1997 1998 1998 1999 September 30, 1999
----------- ----------- ----------- ----------- -------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Interest expense incurred $ 146,949 $ 139,098 $ 121,067 $ 661,673 $ 1,015,430
Less: Capitalization interest - - - (201,648) (233,070)
----------- ----------- ----------- ----------- -----------
Net interest expense $ 146,949 $ 139,098 $ 121,067 $ 460,025 $ 782,360
=========== =========== =========== =========== ===========
</TABLE>
NOTE 10 - INCOME TAXES
Provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Nine months ended
Years ended December 31, September 30, December 6, 1993
---------------------------- ---------------------------- (Inception) through
1997 1998 1998 1999 September 30, 1999
----------- ----------- ----------- ----------- -------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Current income taxes $ (800) $ (800) $ (600) $ (600) $ (4,600)
Deferred income taxes - - - - -
----------- ----------- ----------- ----------- -----------
Provision for income taxes $ (800) $ (800) $ (600) $ (600) $ (4,600)
=========== =========== =========== =========== ===========
</TABLE>
F-18
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 10 - INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
reporting and the amounts used for income tax purposes. The tax effects
of items comprising the Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
----------------------------- -------------
1997 1998 1999
----------- ----------- -------------
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 657,000 $ 1,008,000 $ 2,659,000
Other - 12,000 12,000
----------- ----------- -----------
Gross deferred tax assets 657,000 1,020,000 2,671,000
Valuation allowance (657,000) (1,020,000) (2,671,000)
----------- ----------- -----------
Net deferred tax assets $ - $ - $ -
=========== =========== ===========
</TABLE>
Realization of deferred tax assets is dependant upon sufficient future
taxable income during the period that deductible temporary differences
and carryforward are expected to be available to reduce taxable income.
As the achievement of required future taxable income is uncertain, the
Company recorded a valuation allowance. The valuation allowance
increased by $363,000 and $140,000 from 1997and 1996 respectively.
As of December 31, 1998, the Company has net operating loss carryforwards
for both federal and state income tax purposes of approximately
$2,500,000 which expire through 2018. Under federal and state laws, the
availability of the Company's net operating loss carryforward may be
limited if a cumulative change in ownership of more than 50% occurs
within any three year period. Management has not completed an analysis to
determine whether such a change has occurred.
F-19
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 10 - INCOME TAXES (CONTINUED)
A reconciliation of the effective tax rates with the federal statutory
rate is as follows:
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, September 30,
----------------------------- -----------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Income tax expense (benefit)
at 35% statutory rate $ (175,500) $ (338,900) $ (181,100) $(1,452,000)
Change in valuation allowance 140,000 363,000 155,300 1,651,000
Nondeductible expenses 1,000 36,400 36,400 -
Adjustment to net operating
loss carryforwards 38,500 - - -
State income taxes, net (28,200) (55,400) (29,600) (240,400)
Other 25,000 (4,300) 19,600 42,000
----------- ----------- ----------- -----------
$ 800 $ 800 $ 600 $ 600
=========== =========== =========== ===========
</TABLE>
NOTE 11 - COMMITMENTS AND CONTINGENCIES
In February 1995, the Company began leasing real property in San
Francisco, California which will be used to open its first night club
facility. The operating lease is for a period of ten years with two
renewal options, each for an additional five years. At December 31, 1998,
minimum annual rental commitments under this non-cancelable lease were as
follows:
<TABLE>
<CAPTION>
Year Ending
-----------
<S> <C>
1999 $ 94,800
2000 195,600
2001 195,600
2002 201,600
2003 201,600
Thereafter 128,400
------------
$ 1,017,600
============
</TABLE>
Unpaid rent totaling $60,000 has been included in accrued expenses as of
December 31, 1997.
Rent expense for the years ended December 31, 1997 and 1998 and for the
nine months ended September 30, 1998 and 1999 (unaudited) was $157,026,
$180,707, $135,350 and $150,541, respectively.
F-20
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 12 - GOING CONCERN
As shown in the accompanying financial statements the Company has
incurred a deficit of $501,567 and $976,390 for the years ended December
31, 1997 and 1998, respectively, and has incurred a deficit totaling
$7,474,450 since its inception in 1993. Additionally, the Company's
current liabilities exceeded its current assets by $1,925,762 as of
September 30, 1999 (unaudited). The Company has been unable to meet its
loan obligations as they became due. (See Note 7). The ability of the
Company to continue as a going concern is dependent on the significant
generation of revenue from the Company's facility in San Francisco,
California. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going
concern.
NOTE 13 - SUBSEQUENT EVENTS
CONVERTIBLE DEBT
During 1999 the Company obtained an unsecured convertible promissory note
which is not to exceed $1,000,000. Interest accrues at 12% per year,
payable quarterly. Principal, and any accrued interest, is payable on or
before January 23, 2001. The Company has the right to accelerate the
maturity date and prepay all or any portion of the principal at 125% of
the then outstanding principal amount, plus all accrued interest. Should
the Company decide not to retire the debt, at maturity the outstanding
note balance and accrued interest is immediately convertible into shares
of the Company's common stock at the conversion price of $0.40 per share.
Consequently there is no amortization period and the Company has
recognized the value of this conversion feature by recording additional
interest expense based on the difference between the quoted stock price
and the conversion price for each draw on the line and for each monthly
interest accrual. For the nine months ended September 30, 1999
(unaudited) the Company recognized $587,864 of interest expense related
to this conversion feature.
PRIVATE PLACEMENT
During 1999, the Company completed a private placement of 909,879 shares
of common stock issued under Rule 504 of Regulation D promulgated under
the Securities Act of 1933. Total net proceeds from the offering were
$909,879.
CERTIFICATE OF FINAL COMPLETION
During October 1999 the Company completed its 15,000 square foot
nightclub facility in San Francisco, California and received its
certificate of final completion. The Company anticipates opening the
facility in December 1999.
DEBT CONVERSION
Of the $1,120,268 of outstanding notes payable at December 31, 1998,
$824,688 was converted into equity during the nine months ended September
30, 1999.
F-21
<PAGE>
BoysToys.com, Inc.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1997 and 1998,
for the Nine Months Ended September 30, 1998 and 1999 (unaudited),
and from December 6, 1993 (inception) through September 30, 1999 (unaudited)
NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)
STOCK OPTION PLAN
During February 1999, the Company adopted the BoysToys.com Inc. Stock
Option Plan (the "Plan"). The Plan is available to the Company's
officers, directors, and employees. The Plan allows for the grant of up
to 2,500,000 shares of the Company's common stock at exercise prices and
other terms as determined by the Company's Board of Directors. As of
September 30, 1999 the Company has granted 1,950,000 shares (unaudited)
of common stock under this plan.
F-22
<PAGE>
CERTIFICATE OF INCORPORATION
OF
Wagg Corp.
FIRST: The name of this corporation is Wagg Corp.
SECOND: Its registered office in the State of Delaware is to be located at
1313 N. Market Street, Wilmington DE 19801-1151, County of New Castle. The
registered agent in charge thereof is The Company Corporation, address "same as
above".
THIRD: The nature of the business and, the objects and purposes proposed to
be transacted, promoted and carried on, are to do any or all the things herein
mentioned as fully and to the same extent as natural persons might or could do,
and in any part of the world, viz:
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The amount of the total authorized capital stock of this
corporation is divided into 20,000,000 shares of stock at .001 par value.
FIFTH: The name and mailing address of the incorporator is as follows:
Regina Cephas, 1313 N. Market St., Wilmington DE 19801-1151
SIXTH: The Directors shall have power to make and to alter or amend the
By-Laws; to fix the amount to be reserved as working capital, and to
authorize and cause to be executed, mortgages and liens without limit as to
the amount, upon the property and franchise of the Corporation.
With the consent in writing, and pursuant to a vote of the holders of a
majority of the capital stock issued and outstanding, the Directors shall have
the authority to dispose, in any manner, of the whole property of this
corporation.
The By-Laws shall determine whether and to what extent the accounts and
books of this corporation, or any of them shall be open to the inspection of the
stockholder, and no stockholder shall have any right of inspecting any account,
or book or document of this Corporation, except as conferred by the law of the
By-Laws, or by resolution of the stockholders.
The stockholders and directors shall have power to hold their meetings
and keep the books, documents and papers of the Corporation outside of the
State of Delaware, at such places as may be from time to time designated by
the By-Laws or by resolution of the stockholders or directors, except as
otherwise required by the laws of Delaware.
SEVENTH: Directors of the corporation shall not be liable to either the
corporation or its stockholders for monetary damages for a breach of
fiduciary duties unless the breach involves: (1) a director's duty of loyalty
to the corporation or its stockholders; (2) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(3) liability for unlawful payments of dividends or unlawful stock purchase
or redemption by the corporation; or (4) a transaction from which the
director derived an improper personal benefit.
I, THE UNDERSIGNED, for the purpose of forming a Corporation under the
laws of the State of Delaware, do make, file and record this Certificate and
do certify that the facts herein are true; and I have accordingly hereunto
set my hand.
DATED: April 21, 1997 /s/ Regina Cephas
------------------------
Regina Cephas
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
WAGG CORP.
Wagg Corp., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That by action of the majority of the Shareholders of Wagg Corp.,
resolutions were duly adopted setting forth a proposed amendment to Article
numbered "FIRST" of the Certificate of Incorporation of said corporation. The
resolution setting forth the proposed amendment is as follows:
RESOLVED: The Shareholders of this Company hereby approve an amendment
to Article "First" of this Company's Certificate of Incorporation so that,
as amended, it shall be and read as follows:
"FIRST: The name of this corporation is Alternative Entertainment,
Inc."
SECOND: That by action of the majority of the Shareholders of Wagg
Corp., resolutions were duly adopted setting forth a proposed amendment to
Article numbered "FOURTH" of the Certificate of Incorporation of said
corporation. The resolution setting forth the proposed amendment is as
follows:
RESOLVED: The Shareholders of this Company hereby approve an
amendment to Article "Fourth" or this Company's Certificate of
Incorporation so that, as amended, it shall be and read as follows:
"FOURTH. The aggregate number of Common Shares that this Corporation
shall have the authority to issue is 20,000,000 Shares with a par
value of $0.001 per Share. The Corporation shall also have the
authority to issue 8,000,000 Shares of Preferred Stock with a par
value of $0.001 per Share. The description of the Preferred Stock
with the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, and qualifications and
rights thereof are as follows:
1
<PAGE>
(A) Preferred Stock may be issued, from time to time, in one or more
Series, each of such Series to have such terms as are stated and expressed
herein and in the resolutions providing for the issue of such Series
adopted by the Board of Directors as hereinafter provided.
(B) The Board of Directors, subject to the provisions hereof, may
classify or reclassify any unissued Shares of Preferred Stock into one or
more Series of Preferred Stock by fixing or altering in any one or more
respects, from time to time, before issuance of such unissued Shares:
(i) The distinctive designation of such Series and the number of
Shares to constitute such Series;
(ii) The annual dividend rate on the Shares of such Series, the time
of payment, whether or not dividends thereon shall be cumulative, and, if
cumulative, the date or dates from which such dividends shall be
cumulative;
(iii) The price at and any terms and conditions on which Shares may be
redeemed;
(iv) The sinking fund provisions for the redemption or purchase
of Shares;
(v) The amount payable on the Shares of such Series in the event of
voluntary liquidation, dissolution, or winding up of the Corporation;
(vi) The amount payable on the Shares of such Series in the event of
involuntary liquidation;
(vii) Whether or not the Shares of such Series shall be convertible
into Shares of stock of any other class or classes, and if so convertible,
the terms and conditions of such conversion;
(viii) The limitations and restrictions, if any, to be effective while
any Shares of such Series are outstanding, upon the payment of dividends or
making of other distributions on the Common Stock or any other class or
classes of stock of the Corporation ranking junior to the Shares of such
Series;
2
<PAGE>
(ix) The conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or any subsidiary and the conditions or
restrictions, if any, upon the issuance of any additional stock (including
additional Shares of such Series or of any other Series) ranking on a
parity with or prior to the Shares of such Series as to dividends or upon
liquidation;
(x) Any right to vote with holders of Shares of any other Series or
class and any right to vote as a class, either generally or as a condition
to specified corporate action; and
(xi) Such other preferences, rights, restrictions, and qualifications
as shall not be inconsistent herewith.
(C) All Shares of any Series of Preferred Stock shall be identical
with each other in all respects, except that Shares of any one Series
issued at different times may differ as to the dates from which dividends
thereon shall be cumulative, if cumulative dividends have been designated
for such Series, and all Series shall rank equally and be identical in all
respects, except as permitted by the foregoing provisions of Section (2)
hereof.
(D) The Preferred Stock is senior to the Common Stock, and the Common
Stock is subject to the rights and preferences of the Preferred Stock as
herein set forth.
(E)(i) The holders of Preferred Stock of each Series shall be entitled
to receive, and the Corporation shall be bound to pay, out of any funds
legally available for such purpose, when and as declared by the Board of
Directors, cash dividends thereon at such rate and payable at such times as
shall be fixed and determined for such Series as herein set forth.
Dividends with respect to each Series of Preferred Stock shall be
cumulative or non-cumulative, as determined by the Board of Directors, and
shall accrue from such date or dates as shall have been fixed and
determined with respect to such Series by the Board of Directors as herein
provided.
(ii) In no event, so long as any Preferred Stock shall remain
outstanding, shall any dividend whatsoever be declared or paid upon, or
any distribution be made or ordered in respect of, the Common Stock or any
other class of stock ranking junior to the Preferred Stock, or any moneys
be set aside for or applied to the purchase or redemption (through a
sinking fund or otherwise) of Shares of Common Stock or of any other such
junior class of stock, unless:
3
<PAGE>
(a) Full cumulative dividends on the Preferred Stock of all
Series for all past dividend periods shall have been paid with respect
to any outstanding Preferred Shares having cumulative dividend rights,
and the full dividend on all outstanding Shares of Preferred Stock of
all Series for the then current dividend period, if any, shall have
been paid or declared and set apart for payment; and
(b) The Corporation shall have set aside all amounts, if any,
theretofore required to be set aside as and for sinking funds, if any,
for the Preferred Stock of all Series for the then current year, and
all defaults, if any, in complying with any such sinking fund
requirements in respect of previous years shall have been made good.
(iii) Subject to the foregoing provisions respecting the Preferred
Stock, and not otherwise, dividends, payable in cash, stock, or otherwise,
as may be determined by the Board of Directors, may be declared and paid
upon the Common Stock, from time to time, out of any funds legally
available therefor, and no holder of any Shares of any Series of Preferred
Stock, as such, shall be entitled to participate in any such dividend.
(F) The Corporation, at the option of the Board of Directors, may, at
any time permitted by the resolution or resolutions adopted by the Board of
Directors providing for the issuance of any Series of Preferred Stock, and
at the redemption price per Share fixed and determined for such Series,
redeem the whole or any part of the Shares of such Series at the time
outstanding (the total sum so payable on any such redemption being herein
referred to as the "redemption price"). Notice of every such redemption
shall be mailed to the holders of record of the Shares of such Series so to
be redeemed at their respective addresses as the same shall appear on the
books of the Corporation. Such notice shall be mailed at least 30 days in
advance of the date designated for such redemption to the holders of record
of Shares so to be redeemed. In case of the redemption of a part only of
any Series at the time outstanding, the Shares of such Series so to be
redeemed shall be selected by lot or pro rate in such manner as the Board
of Directors may determine.
4
<PAGE>
(G) If, on the redemption date specified in such notice, the funds
necessary for such redemption shall have been set aside by the Corporation,
separate and apart from its other funds, in trust for the pro rata benefit
of the holders of the Shares so called for redemption, then,
notwithstanding that any certificates for Shares of Preferred Stock so
called for redemption shall not have been surrendered for cancellation, the
Shares represented thereby shall no longer be deemed outstanding, the right
to receive dividends thereon shall cease to accrue from and after the date
of redemption so designated, and all rights of holders of the Shares of
Preferred Stock so called for redemption shall forthwith, after such
redemption date, cease and terminate, excepting only the right of the
holders thereof to receive the redemption price therefor but without
interest. Any moneys so set aside by the Corporation and unclaimed at the
end of six years from the date designated for such redemption shall revert
to the general funds of the Corporation; after which reversion, the holders
of such Shares so called for redemption shall look only to the Corporation
for payment of the redemption price, and such Shares shall not still be
deemed to be outstanding.
(H) Upon any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, the Preferred Stock of each
Series shall be entitled, before any distribution shall be made to the
Common Stock or to any other class of stock junior to the Preferred Stock,
to be paid the amount fixed and determined by the board of Directors for
such Series as herein provided, plus accrued and unpaid dividends thereon
to the date of distribution, but the Preferred Stock shall not be entitled
to any further payment, and any remaining net assets shall be distributed
ratably to the outstanding Common Stock. If, upon such liquidation,
dissolution, or winding up of the Corporation, whether voluntary or
involuntary, the net assets of the Corporation shall be insufficient to
permit the payment to all outstanding Shares of Preferred Stock of all
Series of the full preferential amounts to which they are respectively
entitled, then the entire net assets of the Corporation shall be
distributed ratably to all outstanding Shares of Preferred Stock of all
Series in proportion to the full preferential amount to which each Share is
entitled. Neither a consolidation nor a merger of the Corporation with or
into any other corporation or corporations, nor the sale of all or
substantially all of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution, or winding up within the meaning of this section.
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(I) The Preferred Stock shall not be convertible, except to the extent
that any one or more Series thereof may be issued with the privilege of
conversion as may be determined by the Board of Directors prior to issuance
of any Shares of such Series as herein set forth. If the Shares of any
Series are so issued with the privilege of conversion, then, at the option
of the respective holders thereof, the Preferred Stock of such Series shall
be convertible into a number of fully paid and non-assessable Shares of the
Common Stock or any other class of stock of the Corporation at the
conversion rate, or upon payment to the Corporation of the conversion
price, which is in effect for the Preferred Stock of such Series at the
time of such conversion. The initial conversion rate or conversion price
(including, in the latter case, the number of Shares of Common Stock or
other class of stock issuable upon conversion), and the terms and
conditions of conversion for each Series issued with the privilege of
conversion shall be fixed and determined by the Board of Directors as
hereinafter provided. Such conversion price or conversion rate, with
respect to any such Series, may be subject, from time to time, to
adjustment by virtue of issuance of securities or rights to purchase
securities of the Corporation, or upon any capital reorganization or
reclassification of the Common Stock of the Corporation, or the
consolidation or merger of the Corporation, or the sale, conveyance, lease,
or other transfer by the Corporation of all or substantially all of its
property, or in other circumstances, all to the extent and in the manner
fixed and determined by the Board of Directors as herein set forth.
(J) Shares of any Series of Preferred Stock which have been issued and
reacquired in any manner by the Corporation (including Shares redeemed,
Shares purchased and retired, and Shares which, if convertible or
exchangeable, have been converted into or exchanged for Shares of stock of
any other class, classes, or Series) shall have the status of authorized
and unissued Shares of Preferred Stock and may be reissued as a part of the
Series of which they were originally a part, or may be reclassified and
reissued as part of a new Series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors, or as part of any
other Series of Preferred Stock, all subject to the conditions or
restrictions on issuance set forth in any resolution or resolutions adopted
by the Board of Directors provided for the issue of any Series of Preferred
Stock.
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(K) None of the holders of Preferred Stock of any Series shall have
any voting powers for any purpose, except as may be specifically required
by law, or except as any such right to vote may be fixed and determined by
the Board of Directors prior to issuance of any Shares of such Series as
herein provided.
(L) In order the Board of Directors to establish a Series of Preferred
Stock, the Board of Directors shall adopt a resolution or resolutions
setting forth the designation and the number of Shares of such Series and
the relative rights and preferences thereof in respect of the foregoing
particulars. The Board of Directors may redesignate any Shares of any
Series theretofore established that have not been issued, or that have been
issued and retired, as Shares of some other Series, or change the
designation of outstanding Shares where desired to prevent confusion.
(M) For the purposes hereof and of any resolution of the Board of
Directors providing for the classification or reclassification of any
Shares of Preferred Stock:
(i) The term "outstanding," when used in reference to Shares of stock,
shall mean issued Shares, excluding Shares held by the Corporation or
a subsidiary, and Shares called for redemption; funds for the
redemption of which shall have been deposited in trust;
COMMON STOCK
Subject to the foregoing provisions, dividends may be declared on
the Common Stock, and each Share of Common Stock shall entitle the
holder thereof to one vote in all proceedings in which action shall be
taken by stockholders of the Corporation.
THIRD: That by action of the majority of the Shareholders of Wagg Corp.,
resolutions were duly adopted setting forth a proposed amendment to add Article
numbered "EIGHTH" of the Certificate of Incorporation of said corporation. The
resolution setting forth the proposed amendment is as follows:
RESOLVED: The Shareholders of this Company hereby approve an amendment to
this Company's Certificate of Incorporation to add Article "EIGHTH" so that, as
amended, it shall be and read as follows:
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"EIGHTH. (a.) A Director of the Corporation shall not be personally liable
to the Corporation or its shareholders for monetary damages for breach of
fiduciary duty as a Director, except for liability (i) for any breach of
the Director's duty of loyalty to the Corporation or its shareholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which
the Director derived an improper personal benefit. If the Delaware General
Corporation Law is amended after approval by the shareholders of this
article to authorize corporate action further eliminating or limiting the
personal liability of Directors, then the liability of a Director of the
Corporation shall be eliminated or limited to the fullest extent permitted
by the Delaware General Corporation Law, so as amended. Any repeal or
modification of the foregoing paragraph by the shareholders of the
Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or
modification.
(b.) Right to Indemnification. Each person who was or is made a party to,
or is threatened to be made a party to, or is otherwise involved, in any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (hereinafter a "proceeding"), by reason of the fact that he
or she is or was a Director, Officer, or employee of the Corporation, or is
or was serving at the request of the Corporation as a Director, Officer,
employee, or agent of another corporation or of a partnership, joint
venture, trust, or other enterprise, including service with respect to
employee benefit plans (hereinafter an "indemnitee"), whether the basis of
such proceeding is alleged action in an official capacity as a Director,
Officer, employee, or agent or in any other capacity while serving as a
Director, Officer, employee, or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that
such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment, against all expense, liability, and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid
in settlement) reasonably incurred or suffered by such indemnitee in
connection therewith, and such indemnification shall continue as to an
indemnitee who has ceased to be a Director, Officer, employee, or agent and
shall inure to the benefit of the indemnitee's heirs, executors, and
administrators; provided, however, that, except as provided in paragraph
(b) hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation.
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The right to indemnification conferred in this section shall be a contract
right and shall include the right to be reimbursed by the Corporation for
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a Director of
Officer (and not in any other capacity in which service was or is rendered
by such indemnitee, including, without limitation, service to an employee
benefit plan) shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision
from which there is no further right to appeal that such indemnitee is not
entitled to be indemnified for such expenses under this section or
otherwise (hereinafter an "undertaking").
(c.) Right of Indemnitee to Bring Suit. If a claim under paragraph (a) of
this section is not paid in full by the Corporation within sixty days after
a written claim has been received by the Corporation, except in the case of
a claim for an advancement of expenses, in which case the applicable period
shall be twenty days, the indemnitee may, at any time thereafter, bring
suit against the Corporation to recover the unpaid amount of the claim. If
successful, in whole or in part, in any such suit or in a suit brought by
the Corporation to recover an advancement of expenses pursuant to the terms
of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by the indemnitee to enforce a right to an advancement of
expenses), it shall be a defense that the indemnitee has not met the
applicable standard of conduct set forth in the Delaware General
Corporation Law. In any suit brought by the Corporation to recover an
advancement of expenses, pursuant to the terms of an undertaking, the
Corporation shall be entitled to recover such expenses upon a final
adjudication that the indemnitee has not met the applicable standard of
conduct set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent
legal counsel, or its shareholders) to have made a determination prior to
the commencement of such suit that indemnification of the indemnitee is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor
an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its shareholders) that the
indemnitee has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard of
conduct or, in the case of such suit brought by the indemnitee, by a
defense to such suit. In any suit brought by the indemnitee to enforce a
right hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving
that the indemnitee is not entitled to be indemnified or to such
advancement of expenses under this section or otherwise shall be on the
Corporation.
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(d.) Non-Exclusivity of Rights. The rights to indemnification and to
the advancement of expenses conferred in this section shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, this Certificate of Incorporation, By-Law, agreement,
vote of shareholders or disinterested Directors, or otherwise.
(e.) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, Officer, employee, or agent of
the Corporation or another corporation, partnership, joint venture, trust,
or other enterprise against any expense, liability, or loss, whether or not
the Corporation would have the power to indemnify such person against such
expense, liability, or loss under the Delaware General Corporation Law.
(f.) Indemnification of Agents of the Corporation. The Corporation
may, to the extent authorized from time to time by the Board of Directors,
grant rights to indemnification and to the advancement of expenses to any
agent of the Corporation to the fullest extent of the provisions of this
section with respect to the indemnification and advancement of expenses of
Directors and Officers of the Corporation."
FOURTH: That said amendments were duly adopted in accordance with
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FIFTH: That the capital of said corporation shall not be reduced under or
by reason of said amendments.
IN WITNESS WHEREOF, said WAGG Corp., has caused this certificate to be
signed by Ralph M. Amato, its President, this 26th day of January 1998.
BY: /s/ Ralph M. Amato
---------------------------------------
Ralph M. Amato, President
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ALTERNATIVE ENTERTAINMENT, INC.
Alternative Entertainment, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That by action of the majority of the Shareholders of Alternative
Entertainment, Inc., resolutions were duly adopted setting forth a proposed
amendment to Article numbered "FIRST" of the Certificate of Incorporation of
said corporation. The resolution setting forth the proposed amendment is as
follows:
RESOLVED: The Shareholders of this Company hereby approve an amendment
to Article "First" of this Company's Certificate of Incorporation so that,
as amended, it shall be and read as follows:
"FIRST: The name of this corporation is BoysToys.com, Inc."
SECOND: That said amendment was duly adopted in accordance with provisions
of Section 242 of the General Corporation Law of the State of Delaware.
THIRD: That the capital of said corporation shall not be reduced under or
by reason of said amendment.
IN WITNESS WHEREOF, said Alternative Entertainment, Inc., has caused
this certificate to be signed by Ralph M. Amato, its President, this 29th day
of December 1998.
BY: /s/ Ralph M. Amato
-----------------------------------------
Ralph M. Amato, President
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BYLAWS OF WAGG CORP.
ARTICLE I--Offices
The principal office of the corporation shall be located in the State of New
York in the County of Monroe. The corporation may have such other offices,
either within or outside the state, as the Board of Directors may designate or
as the business of the corporation may require from time to time. The registered
office of the corporation may be, but need not be, identical with the principal
office, and the address of the registered office may be changed from time to
time by the Board of Directors.
ARTICLE II--Shareholders
Section 1. Annual Meeting. The annual meeting of the shareholders shall be held
at 4:00 o'clock PM. on the Third Tuesday in the month of January in each year,
beginning with the year 1999. If the day fixed for the annual meeting shall be a
legal holiday, such meeting shall be held on the next succeeding business day.
Section 2. Special Meetings. Special meetings of the shareholders, for any
purpose, unless otherwise prescribed by statute, may be called by the president
or by the Board of Directors, and shall be called by the president at the
request of the holders of not less than one-tenth of all the outstanding shares
of the corporation entitled to vote at the meeting.
Section 3. Place of Meeting. The Board of Directors may designate any place as
the place for any annual meeting or for any special meeting called by the Board
of Directors. A waiver of notice signed by all shareholders entitled to vote at
a meeting may designate any place as the place for such meeting. If no
designation is made, or if a special meeting shall be called otherwise than by
the Board, the place of meeting shall be the registered office of the
corporation.
Section 4. Notice of Meeting. Written or printed notice stating the place, day
and hour of the meeting, and, in case of a special meeting, the purposes for
which the meeting is called, shall be delivered not less than ten nor more than
fifty days before the date of the meeting, either personally or by mail, by or
at the direction of the president, or the secretary, or the officer or persons
calling the meeting, to each shareholder of record entitled to vote at such
meeting, except that if the authorized capital stock is to be increased at least
thirty days notice shall be given. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, addressed to the shareholder
at his address as it appears on the stock transfer books of the corporation,
with postage thereon prepaid. If requested by the person or persons lawfully
calling such meeting, the secretary shall give notice thereof at corporate
expense.
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Section 5. Closing of Transfer Books or Fixing of Record Date. For the purpose
of determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or shareholders entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
any other proper purpose, the Board of Directors may provide that the stock
transfer books shall be closed for any stated period not exceeding fifty days.
If the stock transfer books shall be closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders, such
books shall be closed for at least ten days immediately preceding such meeting.
In lieu of closing the stock transfer books the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than fifty days, and, in case of a meeting
of shareholderers, not less than ten days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
If the stock transfer books are not closed and no record date is fixed for the
determination of shareholders entiled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof except where the determination has been made
through the closing of the stock transfer books and the stated period of the
closing has expired.
Section 6. Voting Lists. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make, at least ten days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of and the number of shares held by each.
For a period of ten days prior to such meeting, this list shall be kept on file
at the principal office of the corporation and shall be subject to inspection by
any shareholder at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the meeting. The
original stock transfer books shall be prima facie evidence as to who are the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
Section 7. Quorum. Fifty One Percent (51%) of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a quorum of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been
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transacted at the meeting as originally notified. The shareholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
If a quorum is present, the affirmative vote of a majority of the
shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the shareholders, unless the vote of a greater number or
voting by classes is required by law or the articles of incorporation.
Section 8. Proxies. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or his or her duly authorized
attorney-in-fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. No proxy shall be valid
after eleven months from the date of its execution, unless otherwise provided
in the proxy.
Section 9. Voting of Shares. Each outstanding share, regardless of class, shall
be entitled to one vote, and each fractional share shall be entitled to a
corresponding fractional vote on each matter submitted to a vote at a meeting of
shareholders. Cumulative voting shall not be allowed.
Section 10. Voting of Shares by Certain Holders. Neither treasury shares, nor
shares of its own stock held by the corporation in a fiduciary capacity, nor
shares held by another corporation if a majority of the shares entitled to vote
for the election of Directors of such other corporation is held by this
corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time.
Shares standing in the name of another corporation may be voted by such
officer, agent or proxy as the bylaws of such corporation may prescribe or, in
the absence of such provision, as the Board of Directors of such corporation may
determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him or her, either in person or by proxy, without a transfer of such
shares into his or her name. Shares standing in the name of a trustee may be
voted by him or her, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him or her without a transfer of such shares
into his or her name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his or her name if authority to do so
be contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the
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name of the pledgee, and thereafter the pledgee shall be entitled to vote the
shares so transferred.
Section 11. Informal Action by Shareholders. Any action required to be taken at
a meeting of the shareholders, or any other action which may be taken at a
meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof. Such
consent shall have the same force and effect as a unanimous vote of the
shareholders.
ARTICLE III--Board of Directors
Section 1. General Powers. The business and affairs of the corporation shall be
managed by its Board of Directors, except as otherwise provided by statute or
the articles of incorporation.
Section 2. Number, Tenure and Qualifications. The number of Directors of the
corporation shall be not less than three nor more than five, unless a lesser
number is allowed by statute. Directors shall be elected at each annual meeting
of shareholders. Each director shall hold office until the next annual meeting
of shareholders and thereafter until his or her successor shall have been
elected and qualified.
Directors need not be residents of this state or shareholders of the
corporation. Directors shall be removable in the manner provided by statute.
Section 3. Vacancies. Any director may resign at any time by giving written
notice to the president or to the secretary of the corporation. Any vacancy
occurring in the Board of Directors may be filled by the affirmative vote of a
majority of the remaining Directors though not less than a quorum. A director
elected to fill a vacancy shall be elected for the unexpired term of his or her
predecessor in office. Any Directorship to be filled by the affirmative vote of
a majority of the Directors then in office or by an election at an annual
meeting or at a special meeting of shareholders called for that purpose, and a
director so chosen shall hold office for the term specified in Section 2 above.
Section 4. Regular Meetings. A regular meeting of the Board of Directors shall
be held without other notice than this bylaw immediately after and at the same
place as the annual meeting of shareholders. The Board of Directors may provide
by resolution the time and place for the holding of additional regular meetings
without other notice than such resolution.
Section 5. Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the president or any two Directors. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place as the place for holding any special meeting of the Board of Directors
called by them.
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Section 6. Notice. Notice of any special meeting shall be given at least
seven days previous thereto by written notice delivered personally or mailed
to each director at his or her business address, or by notice given at least
two days previously by telegraph. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail so addressed, with
postage thereon prepaid. If notice be given by telegram, such notice shall be
deemed to be delivered when the telegram is delivered to the telegraph
company. Any director may waive notice of any meeting. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of
objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board of Directors need
be specified in the notice of waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of Directors fixed by Section 2
shall constitute a quorum for the transaction of business at any meeting of
the Board of Directors, but if less than such majority is present at a
meeting, a majority of the Directors present may adjourn the meeting from
time to time without further notice.
Section 8. Manner of Acting. The act of the majority of the Directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors.
Section 9. Compensation. By resolution of the Board of Directors, any
director may be paid any one or more of the following: expenses, if any, of
attendance at meetings; a fixed sum for attendance at each meeting; or a
stated salary as director. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor.
Section 10. Informal Action by Directors. Any action required or permitted to
be taken at a meeting of the Directors may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all
of the Directors entitled to vote with respect to the subject matter thereof.
Such consent shall have the same force and effect as a unanimous vote of the
Directors.
ARTICLE IV--Officers and Agents
Section 1. General. The officers of the corporation shall be a president, one or
more vice presidents, a secretary and a treasurer. The salaries of all the
officers of the corporation shall be fixed by the Board of Directors.
One person may hold any two offices, except that no person may
simultaneously hold the offices of president and secretary.
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Section 2. Election and Term of Office. The officers of the corporation shall be
elected by the Board of Directors annually at the first meeting of the Board
held after each annual meeting of the shareholders.
Section 3. Removal. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interests of the corporation will be
served thereby.
Section 4. Vacancies. A vacancy in any office, however occurring, may be filled
by the Board of Directors for the unexpired portion of the term.
Section 5. President. The president shall:
(a) subject to the direction and supervision of the Board of Directors, be
the chief executive officer of the corporation;
(b) shall have general and active control of its affairs and business and
general supervision of its officers, agents and employees; and
(c) the president shall have custody of the treasurer's bond, if any.
Section 6. Vice Presidents. The vice presidents shall:
(a) assist the president; and
(b) shall perform such duties as may be assigned to them by the president
or by the Board of Directors.
Section 7. Secretary. The secretary shall:
(a) keep the minutes of the proceedings of the shareholders and the Board
of Directors;
(b) see that all notices are duly given in accordance with the provisions
of these bylaws or as required by law;
(c) be custodian of the corporate records and of the seal of the
corporation and affix the seal to all documents when authorized by the Board
of Directors;
(d) keep at its registered office or principal place of business a
record containing the names and addresses of all shareholders and the number
and class of shares held by each, unless such a record shall be kept at the
office of the corporation's transfer agent or registrar;
(e) sign with the president, or a vice president, certificates for
shares of the corporation, the issuance of which shall have been authorized
by resolution of the Board of Directors;
(f) have general charge of the stock transfer books of the corporation,
unless the corporation has a transfer agent; and
(g) in general, perform all duties incident to the office as secretary
and such other duties as from time to time may be assigned to him or her by
the president or by the Board of Directors.
Section 8. Treasurer. The treasurer shall:
(a) be the principal financial officer of the corporation;
(b) perform all other duties incident to the office of the treasurer
and, upon request of the Board, shall make such reports to it as may be
required at any time;
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(c) be the principal accounting officer of the corporation; and
(d) have such other powers and perform such other duties as may be from
time to time prescribed by the Board of Directors or the president;
ARTICLE V--Stock
Section 1. Certificates. The shares of stock shall be represented by
consecutively numbered certificates signed in the name of the corporation by
its president or a vice president and the secretary, and shall be sealed with
the seal of the corporation, or with a facsimile thereof. No certificate
shall be issued until the shares represented thereby are fully paid.
Section 2. Consideration for Shares. Shares shall be issued for such
consideration, expressed in dollars (but not less than the par value thereof,
if any) as shall be fixed from time to time by the Board of Directors. Such
consideration may consist, in whole or in part of money, other property,
tangible or intangible, or in labor or services actually performed for the
corporation, but neither promissory notes nor future services shall
constitute payment or part payment for shares.
Section 3. Transfer of Shares. Upon surrender to the corporation or to a
transfer agent of the corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and such documentary stamps as may be required by law, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate. Every such transfer of stock shall
be entered on the stock book of the corporation which shall be kept at its
principal office, or by its registrar duly appointed.
Section 4. Transfer Agents, Registrars and Paying Agents. The Board may at
its discretion appoint one or more transfer agents, registrars and agents for
making payment upon any class of stock, bond, debenture or other security of
the corporation.
ARTICLE VI--Indemnification of Officers and Directors
Each director and officer of this corporation shall be indemnified by the
corporation against all costs and expenses actually and necessarily incurred by
him or her in connection with the defense of any action, suit or proceeding in
which he or she may be involved or to which he or she may be made a party by
reason of his or her being or having been such director or officer, except in
relation to matters as to which he or she shall be finally adjudged in such
action, suit or proceeding to be liable for negligence or misconduct in the
performance of duty.
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ARTICLE VII--Miscellaneous
Section 1. Waivers of Notice. Whenever notice is required by law, by the
articles of incorporation or by these bylaws, a waiver thereof in writing signed
by the director, shareholder or other person entitled to said notice, whether
before or after the time stated therein, or his or her appearance at such
meeting in person or (in the case of a shareholders' meeting) by proxy, *hall be
equivalent to such notice.
Section 2. Fiscal Year. The fiscal year of the corporation shall be as
established by the Board of Directors.
Section 3. Amendments. The Board of Directors shall have power to make, amend
and repeal the bylaws of the corporation at any regular meeting of the Board or
at any special meeting called for the purpose.
APPROVED:
/s/ Shirley Diamond
-----------------------------------
DATED: Jan 16, 1998 Director: Shirley Diamond
/s/ Suzanne Luxenberg
-----------------------------------
Director: Suzanne Luxenberg
/s/ Morris Diamond
-----------------------------------
Director: Morris Diamond
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[SEAL]
CORPORATE CHARTER
I, CHERYL A. LAU, Secretary of State of the State of Nevada, do hereby certify
that ALTERNATIVE ENTERTAINMENT, INC. did on the SIXTH day of DECEMBER 1993 file
in this office the original Articles of Incorporation; that said Articles are
now on file and of record in the office of the Secretary of State of the State
of Nevada, and further, that said Articles contain all the provisions required
by the law of said State of Nevada.
IN WITNESS WHEREOF, I have hereunto set my hand
and affixed the Great Seal of State, at my
office, in Carson City, Nevada, this SIXTH day
of DECEMBER, 1993.
/s/ Cheryl A. Lau
-------------------------------------------
Secretary of State
By /s/ [Illegible]
-------------------------------------------
Deputy
[SEAL]
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ARTICLES OF INCORPORATION
OF
ALTERNATIVE ENTERTAINMENT, INC.
A NEVADA CORPORATION
I, the undersigned, being the original incorporator herein named, for
the purpose of forming a corporation under the general corporation laws of the
State of Nevada, to do business both within and without the State of Nevada, do
make and file these Articles of Incorporation hereby declaring and certifying
that the facts herein stated are true:
ARTICLE I
NAME
The name of the corporation is: ALTERNATIVE ENTERTAINMENT, INC.
ARTICLE II
REGISTERED AGENT
Section 2.01 REGISTERED AGENT. The location of the corporation's
registered agent in the State of Nevada is Paracorp Incorporated, 401 Ryland
Street, Suite 330, Reno, Nevada 89502.
Section 2.02 OTHER OFFICES. The corporation may also maintain
offices for the transaction of any business at such other places within or
without the State of Nevada as it may from time to time determine. Corporate
business of every kind and nature may be conducted, and meetings of directors
and shareholders held, outside the State of Nevada with the same effect as if
in the State of Nevada.
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ARTICLES III
PURPOSE
The corporation is organized for the purpose of engaging in any lawful
activity, within or without the State of Nevada.
ARTICLES IV
SHARES OF STOCK
Section 4.01 AUTHORIZED SHARES. The aggregate number of shares which
the corporation shall have the authority to issue shall consist of 40,000,000
shares of Common Stock having a $.01 par value and 10,000,000 shares of
Preferred Stock having $.01 par value. The Common Stock may be issued from time
to time without action by the stockholders. The Common Stock may be issued for
such consideration as may be fixed from time to time by the Board of Directors.
The Board of Directors may issue such shares of Common Stock in one or more
series, with such voting powers, designations, preferences and rights or
qualifications, limitations or restrictions thereof as shall be stated in the
resolution or resolutions adopted by them.
The Preferred Stock authorized by these Articles of Incorporation may
be issued from time to time in one or more series. The Board of Directors is
authorized to determine or alter any or all of the rights preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock, and to fix, alter or reduce (but not below the number
then outstanding) the number of shares comprising any such series and the
designation thereof, or any of them, and to provide for the
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rights and terms of redemption or conversion of the shares of any such series.
Section 4.02 NO PREEMPTIVE RIGHTS. Holders of the Common Stock or
Preferred Stock of the corporation shall not have any preference, preemptive
right or right of subscription to acquire any shares of the corporation
authorized, issued or sold, or to be authorized, issued or sold, or to any
obligations or shares authorized or issued or to be authorized or issued, and
convertible into shares of the corporation, nor to any right of subscription
thereto, other than to the extent, if any, the Board of Directors in its
discretion, may determine from time to time.
Section 4.03 ASSESSMENT OF SHARES. The Common Stock or Preferred Stock
of the corporation, after the amount of the subscription price has been fully
paid in, in money, property or services, as the directors shall determine, shall
not be subject to assessment to pay the debts of the corporation, nor for any
other purpose, and no Common Stock or Preferred Stock issued as fully paid shall
ever be assessable or assessed, and the Articles of Incorporation shall not be
amended to provide for such assessment.
ARTICLE V
DIRECTORS
Section 5.01 GOVERNING BOARD. The members of the governing board of
the corporation shall be styled directors.
Section 5.02 INITIAL BOARD OF DIRECTORS. The initial Board of
Directors shall consist of one (1) member. The name and address of the initial
member of the Board of Directors is:
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NAME ADDRESS
---- -------
Ralph M. Amato 8910 University Center Lane
Suite 300
San Diego, California 92122
This individual shall serve as a Director until the first annual
meeting of the shareholders or until his successor or successors shall have been
elected and qualified.
Section 5.03 CHANGE IN NUMBER OF DIRECTORS. The number of directors
may be increased or decreased by a duly adopted amendment to the Bylaws of the
corporation.
ARTICLE VI
INCORPORATORS
The name and address of the incorporator is JOHN W. MARTIN, ESQ., of
the Law Offices of John W. Martin, 3699 Wilshire Boulevard, Suite 650, Los
Angeles, California 90010.
ARTICLE VII
PERIOD OF DURATION
This corporation is to have a perpetual existence.
ARTICLE VIII
DIRECTORS' AND OFFICERS' LIABILITY
A director or officer of the corporation shall not be personally
liable to this corporation or its stockholders for damages for breach of
fiduciary duty as a director or officer, but this Article shall not eliminate or
limit the liability of a director or officer for (i) acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law or (ii) the
unlawful payment of dividends. Any repeal or modification of
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this Article by the stockholders of the Corporation shall be prospective only,
and shall not adversely affect any limitation on the personal liability of a
director or officer of the corporation for acts or omissions prior to such
repeal or modification.
ARTICLE IX
INDEMNITY
Every person who was or is a party to, or is threatened to be made
a party to, or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he, or
a person of whom he is the legal representative, is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise,
shall be indemnified and held harmless to the fullest extent legally
permissible under the laws of the State of Nevada from time to time against
all expenses, liability and loss (including attorneys' fees, judgments, fines
and amounts paid or to be paid in settlement) reasonably incurred or suffered
by him in connection therewith. Such right of indemnification shall be a
contract right which may be enforced in any manner desired by such person.
The expenses of officers and directors incurred in defending a civil or
criminal action, suit or proceeding must be paid by the corporation as they
are incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director or
officer to
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repay the amount if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to be indemnified by the corporation. Such
right of indemnification shall not be exclusive of any other right which such
directors, officers or representatives may have or hereafter acquire, and,
without limiting the generality of such statement, they shall be entitled to
their respective rights of indemnification under any bylaw, agreement, vote of
stockholders, provision of law, or otherwise, as well as their rights under this
Article.
Without limiting the application of the foregoing, the Board of
Directors may adopt Bylaws from time to time without respect to indemnification,
to provide at all times the fullest indemnification permitted by the laws of the
State of Nevada, and may cause the corporation to purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as director
or officer of another corporation, or as its representative in a partnership,
joint venture, trust or other enterprises against any liability asserted against
such person and incurred in any such capacity or arising out of such status,
whether or not the corporation would have the power to indemnify such person.
The indemnification provided in this Article shall continue as to a
person who has ceased to be a director, officer, employee or agent, and shall
inure to the benefit of the heirs, executors and administrators of such person.
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ARTICLE X
AMENDMENTS
Subject at all times to the express provisions of Section 4.03 which
cannot be amended, this corporation reserves the right to amend, alter, change
or repeal any provision contained in these Articles of Incorporation or its
Bylaws, in the manner now or hereafter prescribed by statute or by these
Articles of Incorporation or said Bylaws, and all rights conferred upon the
shareholders are granted subject to this reservation.
ARTICLES XI
POWER OF DIRECTORS
In furtherance, and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
(1) Subject to the Bylaws, if any, adopted by the shareholders, to
make, alter or repeal the Bylaws of the corporation;
(2) To authorize and cause to be executed mortgages and liens, with or
without limit as to amount, upon the real and personal property of the
corporation;
(3) To authorize the guaranty by the corporation of securities,
evidences of indebtedness and obligations of other persons, corporations and
business entities;
(4) To set apart out of any of the funds of the corporation available
for dividends a reserve or reserves for any proper purpose and to abolish any
such reserve; and
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(5) By resolution adopted by a majority of the whole board, to
designate one or more committees, each committee to consist of one or more of
the directors of the corporation, which, to the extent provided in the
resolution or in the Bylaws of the corporation, shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of the corporation, and may authorize the seal of the corporation to be affixed
to all papers which may require it. Such committee or committees shall have such
name or names as may be stated in the Bylaws of the corporation or as may be
determined from time to time by resolution adopted by the Board of Directors.
All corporate powers of the corporation shall be exercised by the
Board of Directors except as otherwise provided herein or by law.
IN WITNESS WHEREOF, I have hereunder set my hand this 10th day of
November, 1993, hereby declaring and certifying that the facts stated
hereinabove are true.
/s/ John W. Martin
---------------------------------
Incorporator
ACKNOWLEDGMENT
STATE OF CALIFORNIA )
) ss:
COUNTY OF LOS ANGELES )
On this [Illegible] day of [Illegible] 1993, personally
----------- ------------
appeared before me, a Notary Public, [Illegible], who acknowledged to me
-----------
that he executed the foregoing instrument.
[SEAL]
/s/ Michelle Chang
---------------------------------
NOTARY PUBLIC
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AMENDED AND RESTATED
BYLAWS OF
ALTERNATIVE ENTERTAINMENT, INC.
A NEVADA CORPORATION
ARTICLE I
STOCKHOLDERS
Section 1.01 ANNUAL MEETING. The annual meeting of the stockholders of
the corporation shall be held on such date and at time as shall be designated
from time to time for the purpose of electing directors of the corporation and
to transact all business as may properly come before the meeting. If the
election of the directors is not held on the day designated herein for any
annual meeting of the stockholders, or at any adjournment thereof, the president
shall cause the election to be held at a special meeting of the stockholders as
soon thereafter as is convenient.
Section 1.02 SPECIAL MEETINGS. Special meetings of the stockholders
may be called by the president or the Board of Directors and shall be called by
the president at the written request of the holders of not less than 10% of the
issued and outstanding voting shares of capital stock of the corporation.
All business lawfully to be transacted by the stockholders may be
transacted at any special meeting or at any adjournment thereof. However, no
business shall be acted upon at a special meeting except that referred to in the
notice calling the meeting, unless all of the outstanding capital stock of the
corporation is represented either in person or by proxy. Where all of the
capital stock is represented, any lawful business may be transacted and the
meeting shall be valid for all purposes.
Section 1.03 PLACE OF MEETINGS. Any meeting of the stockholders of the
corporation may be held at its principal office in the State of Nevada or at
such other place in or out of the United States as the Board of Directors may
designate. A waiver of notice signed by the stockholders entitled to vote may
designate any place for the holding of such meeting.
Section 1.04 NOTICE OF MEETINGS.
(a) The secretary shall sign and deliver to all stockholders of
record written or printed notice of any meeting at least ten (10) days, but not
more than sixty (60) days, before the date of such meeting; which notice shall
state the place, date, and time of the meeting, the general nature of the
business to be transacted, and, in the case of any meeting at which directors
are
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to be elected, the names of nominees, if any, to be presented for election.
(b) In the case of any meeting, any proper business may be
presented for action, except that the following items shall be valid only if the
general nature of the proposal is stated in the notice or written waiver of
notice:
(1) Action with respect to any contract or transaction
between the corporation and one or more of its directors or officers or another
firm, association, or corporation in which one or more of its directors or
officers has a material financial interest;
(2) Adoption of amendments to the Articles of Incorporation;
or
(3) Action with respect to the merger, consolidation,
reorganization, partial or complete liquidation, or dissolution of the
corporation.
(c) The notice shall be personally delivered or mailed by first
class mail to each stockholder of record at the last known address thereof, as
the same appears on the books of the corporation, and the giving of such notice
shall be deemed delivered the date the same is deposited in the United States
mail, postage prepaid. If the address of any stockholder does not appear upon
the books of the corporation, it will be sufficient to address any notice to
such stockholder at the principal office of the corporation.
(d) The written certificate of the person calling any meeting,
duly sworn, setting forth the substance of the notice, the time and place the
notice was mailed or personally delivered to the stockholders, and the addresses
to which the notice was mailed shall be prima facie evidence of the manner and
fact of giving such notice.
Section 1.05 WAIVER OF NOTICE. If all of the stockholders of the
corporation shall waive notice of a meeting, no notice shall be required, and,
whenever all of the stockholders shall meet in person or by proxy, such meeting
shall be valid for all purposes without call or notice, and at such meeting any
corporate action may be taken.
Section 1.06 DETERMINATION OF STOCKHOLDERS OF RECORD.
(a) The Board of Directors may at any time fix a future date as a
record date for the determination of the stockholders entitled to notice of any
meeting or to vote or entitled to receive payment of any dividend or other
distribution or allotment of any rights or entitled to exercise any rights in
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respect of any other lawful action. The record date so fixed shall not be more
than sixty (60) days nor less than ten (10) days prior to the date of such
meeting nor more than sixty (60) days nor less than ten (10) days prior to any
other action. When a record date is so fixed, only stockholders of record on
that date are entitled to notice of and to vote at the meeting or to receive the
dividend, distribution or allotment of rights, or to exercise their rights, as
the case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date.
(b) If no record date is fixed by the Board of Directors, then
(1) the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived at the close of business on the day next preceding the day on which the
meeting is held; (2) the record date for action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day on
which written consent is given; and (3) the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto, or the
sixtieth (60th) days prior to the date of such other action, whichever is later.
Section 1.07 VOTING.
(a) Each stockholder of record, or such stockholder's duly
authorized proxy or attorney-in-fact shall be entitled to one (1) vote for each
share of voting stock standing registered in such stockholder's name on the
books of the corporation on the record date.
(b) Except as otherwise provided herein, all votes with respect
to shares standing in the name of an individual on the record date (included
pledged shares) shall be cast only by that individual or such individual's duly
authorized proxy or attorney-in-fact. With respect to shares held by a
representative of the estate of a deceased stockholder, guardian, conservator,
custodian or trustee, votes may be cast by such holder upon proof of capacity,
even though the shares do not stand in the name of such holder. In the case of
shares under the control of a receiver, the receiver may cast in the name of the
receiver provided that the order of the court of competent jurisdiction which
appoints the receiver contains the authority to cast votes carried by such
shares. If shares stand in the name of a minor, votes may be cast only by the
duly appointed guardian of the estate of such minor if such guardian has
provided the corporation with written notice and proof of such appointment.
(c) With respect to shares standing in the name of a corporation
on the record date, votes may be cast by such officer
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or agent as the bylaws of such corporation prescribe or, in the absence of an
applicable bylaw provision, by such person as may be appointed by resolution of
the Board of Directors of such corporation. In the event no person is so
appointed, such votes of the corporation may be cast by any person (including
the officer making the authorization) authorized to do so by the Chairman of the
Board of Directors, President or any Vice-President of such corporation.
(d) Notwithstanding anything to the contrary herein contained, no
votes may be cast by shares owned by this corporation or its subsidiaries, if
any. If shares are held by this corporation or its subsidiaries, if any, in a
fiduciary capacity, no votes shall be cast with respect thereto on any matter
except to the extent that the beneficial owner thereof possesses and exercises
either a right to vote or to give the corporation holding the same binding
instructions on how to vote.
(e) With respect to shares standing in the name of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, husband and wife as community property, tenants by the entirety,
voting trustees, persons entitled to vote under a stockholder voting agreement
or otherwise and shares held by two or more persons (including proxy holders)
having the same fiduciary relationship with respect to the same shares, votes
may be cast in the following manner:
(1) If only one person votes, the vote of such person binds
all.
(2) If more than one person casts votes, the act of the
majority so voting binds all.
(3) If more than one person casts votes, but the vote is
evenly split on a particular matter, the votes shall be deemed cast
proportionately, as split.
(f) Any holder of shares entitled to vote on any matter may cast
a portion of the votes in favor of such matter and refrain from casting the
remaining votes or cast the same against the proposal, except in the case of
elections of directors. If such holder entitled to vote fails to specify the
number of affirmative votes, it will be conclusively presumed that the holder is
casting affirmative votes with respect to all shares held.
(g) If a quorum is present, the affirmative vote of the holders
of a majority of the voting shares represented at the meeting and entitled to
vote on any matter shall be the act of the stockholders, unless a vote of
greater number by classes is required by the laws of the State of Nevada, the
Articles of Incorporation or these Bylaws.
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Section 1.08 QUORUM; ADJOURNED MEETINGS.
(a) At any meeting of the stockholders, a majority of the issued
and outstanding voting shares of the corporation represented in person or by
proxy, shall constitute a quorum.
(b) If less than a majority of the issued and outstanding voting
shares are represented, a majority of shares so represented may adjourn from
time to time at the meeting, until holders of the amount of stock required to
constitute a quorum shall be in attendance. At any such adjourned meeting at
which a quorum shall be present, any business may be transacted which might have
been transacted as originally called. When a stockholder's meeting is adjourned
to another time or place, notice need not be given of the adjourned meeting if
the time and place thereof are announced to the meeting at which the adjournment
is taken, unless the adjournment is for more than ten (10) days in which event
notice thereof shall be given.
Section 1.09 PROXIES. At any meeting of stockholders, any holder of
shares entitled to vote may authorize another person or persons to vote by proxy
with respect to the shares held by an instrument in writing and subscribed to by
the holder of such shares entitled to vote. No proxy shall be valid after the
expiration of six (6) months from or unless otherwise specified in the proxy. In
no event shall the term of a proxy exceed seven (7) years from the date of its
execution. Every proxy shall continue in full force and effect until its
expiration or revocation. Revocation may be effected by filing an instrument
revoking the same or a duly executed proxy bearing a later date with the
secretary of the corporation.
Section 1.10 ORDER OF BUSINESS. At the annual stockholder's meeting,
the regular order of business shall be as follows:
1. Determination of stockholders present and existence of quorum;
2. Reading and approval of the minutes of the previous meeting or
meetings;
3. Reports of the Board of Directors, the president, treasurer
and secretary of the corporation, in the order named;
4. Reports of committees;
5. Election of directors;
6. Unfinished business;
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7. New business; and
8. Adjournment.
Section 1.11 ABSENTEES' CONSENT TO MEETINGS. Transactions of any
meeting of the stockholders are as valid as though had at a meeting duly held
after regular call and notice of a quorum is present, either in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote, not present in person or by proxy (and those who, although present,
either object at the beginning of the meeting to the transaction of any business
because the meeting has not been lawfully called or convened or expressly object
at the meeting to the consideration of matters not included in the notice which
are legally required to be included there), signs a written waiver of notice
and/or consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents, and approvals shall be filed with the
corporate records and made a part of the minutes of the meeting. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, such
meeting, except that when the person objects at the beginning of the meeting is
not lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters not included in
the notice if such objection is expressly made at the beginning. Neither the
business to be transacted at nor the purpose of any regular or special meeting
of stockholders need be specified in any written waiver of notice, except as
otherwise provided in Section 1.04(b) of these Bylaws.
Section 1.12 ACTION WITHOUT MEETING. Any action, except the election
of directors, which may be taken by the vote of the stockholders at a meeting,
may be taken without a meeting if consented to by the holders of a majority of
the shares entitled to vote or such greater proportion as may be required by the
laws of the State of Nevada, the Articles of Incorporation, or these Bylaws.
Whenever action is taken by written consent, a meeting of stockholders need not
be called or noticed.
Section 1.13 TELEPHONIC MEETINGS. Meeting of the stockholders may be
held through the use of a conference telephone or similar communications
equipment so long as all members participating in such meeting can hear one
another at the time of such meeting. Participation in such meeting constitutes
presence in person at such meeting.
ARTICLE II
DIRECTORS
Section 2.01 NUMBER, TENURE, AND QUALIFICATIONS. Except as otherwise
provided herein, the Board of Directors of the corporation shall consist of at
least four (4) persons, who shall
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be elected at the annual meeting of the stockholders of the corporation and who
shall hold office for one (1) year or until his or her successor or successors
are elected and qualify. If, at any time, the number of stockholders of the
corporation is less than three (3), the Board of Directors may consist of fewer
persons, but shall not be less than the number of stockholders. A director need
not be a stockholder of the corporation.
Section 2.02 RESIGNATION. Any director may resign effective upon
giving written notice to the Chairman of the Board of Directors, the president
or the secretary of the corporation, unless the notice specified a later time
for effectiveness of such resignation. If the Board of Directors accepts the
resignation of a director tendered to take effect at a future date, the Board of
Directors or the stockholders may elect a successor to take office when the
resignation becomes effective.
Section 2.03 CHANGE IN NUMBER. Subject to the limitations in the laws
of the State of Nevada, the Articles of Incorporation or Section 2.01 of these
Bylaws, the number of directors may be changed from time to time by resolution
adopted by the Board of Directors.
Section 2.04 REDUCTION IN NUMBER. No reduction of the number of
directors shall have the effect of removing any director prior the expiration of
his term of office.
Section 2.05 REMOVAL.
(a) The Board of Directors of the corporation, by majority vote,
may declare vacant the office of a director who has been declared incompetent by
an order of a court of competent jurisdiction or convicted of a felony.
(b) Any director may be removed from office, with or without
cause, by the vote or written consent of stockholders representing a majority of
the issued and outstanding voting capital stock of the corporation.
Section 2.06 VACANCIES.
(a) A vacancy in the Board of Directors because of death,
resignation, removal, change in number of directors, or otherwise may be filled
by the stockholders at any regular or special meeting or any adjourned meeting
thereof (but not by written consent) or the remaining director(s) by the
affirmative vote of a majority thereof. Each successor so elected shall hold
office until the next annual meeting of stockholders or until a successor shall
have been duly elected and qualified.
(b) If, after the filling of any vacancy by the directors, the
directors then in office who have been elected by
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the stockholders shall constitute less than a majority of the directors then in
office, any holder or holders of an aggregate of five percent (5%) or more of
the total number of shares entitled to vote may call a special meeting of the
stockholders to be held to elect the entire Board of Directors. The term of the
office of any director shall terminate upon such election of a successor.
Section 2.07 REGULAR MEETINGS. Immediately following the adjournment
of, and at the same place as, the annual meeting of the stockholders, the Board
of Directors, including directors newly elected, shall hold its annual meeting
without notice other than this provision, to elect officers of the corporation
and to transact such further business as may be necessary or appropriate. The
Board of Directors may provide by resolution the place, date, and hour for
holding additional regular meetings.
Section 2.08 SPECIAL MEETINGS. Special meeting of the Board of
Directors may be called by the Chairman and shall be called by the Chairman upon
the request of any two (2) directors or the President of the corporation.
Section 2.09 PLACE OF MEETINGS. Any meeting of the directors of the
corporation may be held at the corporation's principal office in the State of
Nevada or at such other place in or out of the United States as the Board of
Directors may designate. A waiver of notice signed by the directors may
designate any place for the holding of such meeting.
Section 2.10 NOTICE OF MEETINGS. Except as otherwise provided in
Section 2.07, the Chairman shall deliver to all directors written or printed
notice of any special meeting, at least 48 hours before the time of such
meeting, by delivery of such notice personally or mailing such notice first
class mail or by telegram. If mailed, the notice shall be deemed delivered two
(2) business days following the date the same is deposited in the United States
mail, postage prepaid. Any director may waive notice of any meeting, and the
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, unless such attendance is for the express purpose of objecting to
the transaction of business thereat because the meeting is not properly called
or convened.
Section 2.11 QUORUM; ADJOURNED MEETINGS.
(a) A majority of the Board of Directors in office shall
constitute a quorum.
(b) At any meeting of the Board of Directors where a quorum is
not present, a majority of those present may adjourn, from time to time, until a
quorum is present, and no notice of such adjournment shall be required. At any
adjourned meeting where a quorum is present, any business may be transacted
which could have
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been transacted at the meeting originally called.
Section 2.12 ACTION WITHOUT MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting if a written consent thereto is signed by all of
the members of the Board of Directors or of such committee. Such written consent
or consents shall be filed with the minutes of the proceedings of the Board of
Directors or committee. Such action by written consent shall have the same force
and effect as the unanimous vote of the Board of Directors or committee.
Section 2.13 TELEPHONIC MEETINGS. Meetings of the Board of Directors
may be held through the use of a conference telephone or similar communications
equipment so long as all members participating in such meeting can hear one
another at the time of such meeting. Participation in such a meeting constitutes
presence in person at such meeting. Each person participating in the meeting
shall sign the minutes thereof which may be in counterparts.
Section 2.14 BOARD DECISIONS. The affirmative vote of a majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors.
Section 2.15 POWERS AND DUTIES.
(a) Except as otherwise provided in the Articles of
Incorporation or the laws of the State of Nevada, the Board of Directors is
invested with the complete and unrestrained authority to manage the affairs
of the corporation, and is authorized to exercise for such purpose as the
general agent of the corporation, its entire corporate authority in such
manner as it sees fit. The Board of Directors may delegate any of its
authority to manage, control or conduct the current business of the
corporation to any standing or special committee or to any officer or agent
and to appoint any persons to be agents of the corporation with such powers,
including the power to subdelegate, and upon such terms as may be deemed fit.
(b) The Board of Directors shall present to the stockholders at
annual meetings of the stockholders, and when called for by a majority vote of
the stockholders at a special meeting of the stockholders, a full and clear
statement of the condition of the corporation, and shall, at request, furnish
each of the stockholders with a true copy thereof.
(c) The Board of Directors, in its discretion, may submit any
contract or act for approval or ratification at any annual meeting of the
stockholders or any special meeting properly called for the purpose of
considering any such contract or act, provided a quorum is present. The contract
or act shall be valid
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and binding upon the corporation and upon all the stockholders thereof, if
approved and ratified by the affirmative vote of a majority of the stockholders
at such meeting.
Section 2.16 COMPENSATION. The directors shall be allowed and paid all
necessary expenses incurred in attending any meetings of the Board, and shall be
entitled to receive such compensation for their services as directors as shall
be determined from time to time by the Board of Directors of any committee
thereof.
Section 2.17 BOARD OFFICERS.
(a) At its annual meeting, the Board of Directors shall elect,
from among its members, a Chairman to preside at meetings of the Board of
Directors. The Board of Directors may also elect such other board officers as it
may, from time to time, determine advisable.
(b) Any vacancy in any board office because of death,
resignation, removal or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
Section 2.18 ORDER OF BUSINESS. The order of business at any meeting
of the Board of Directors shall be as follows:
1. Determination of members present and existence of quorum;
2. Reading and approval of the minutes of any previous meeting or
meetings;
3. Reports of officers and committeemen;
4. Election of officers (annual meeting);
5. Unfinished business;
6. New business; and
7. Adjournment.
ARTICLE III
OFFICERS
Section 3.01 ELECTION. The Board of Directors, at its first meeting
following the annual meeting of stockholders, shall elect a President, a
Secretary and a Treasurer to hold office for a term of one (1) year and until
their successors are elected and qualified. Any person may hold two or more
offices. The Board of Directors may, from time to time, by resolution, appoint
one or
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more Vice-Presidents, Assistant Secretaries, Assistant Treasurers and transfer
agents of the corporation as it may deem advisable; prescribe their duties; and
fix their compensation.
Section 3.02 REMOVAL; RESIGNATION. Any officer or agent elected or
appointed by the Board of Directors may be removed by it with or without cause.
Any officer may resign at any time upon written notice to the corporation
without prejudice to the rights, if any, of the corporation under any contract
to which the resigning officer is a party.
Section 3.03 VACANCIES. Any vacancy in any office because of death,
resignation, removal or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
Section 3.04 PRESIDENT. The President shall be the general manager and
executive officer of the corporation, subject to the supervision and control of
the Board of Directors, and shall direct the corporate affairs, with full power
to execute all resolutions and orders of the Board of Directors not especially
entrusted to some other officer of the corporation. The President shall preside
at all meetings of the stockholders and shall perform such other duties as shall
be prescribed by the Board of Directors.
Unless otherwise ordered by the Board of Directors, the President
shall have full power and authority on behalf of the corporation to attend and
to act and to vote at any meetings of the stockholders of any corporation in
which the corporation may hold stock and, at any such meetings, shall possess
and may exercise any and all rights and powers incident to the ownership of such
stock. The Board of Directors, by resolution from time to time, may confer like
powers on any person or persons in place of the President to represent the
corporation for these purposes.
Section 3.05 VICE PRESIDENT. The Board of Directors may elect one or
more Vice-Presidents who shall be vested with all the powers and perform all the
duties of the President whenever the President is absent or unable to act,
including the signing of the certificates of stock issued by the corporation,
and the Vice-President shall perform such other duties as shall be prescribed by
the Board of Directors.
Section 3.06 SECRETARY. The Secretary shall keep the minutes of all
meetings of the stockholders and the Board of Directors in books provided for
that purpose. The Secretary shall attend to the giving and service of all
notices of the corporation, may sign with the President in the name of the
corporation all contracts authorized by the Board of Directors or appropriate
committee, shall have the custody of the corporate seal, shall affix the
corporate seal to all certificates of stock duly issued by the corporation,
shall have charge of stock certificate books,
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transfer books and stock ledgers, and such other books and papers as the Board
of Directors or appropriate committee may direct, and shall, in general, perform
all duties incident to the office of the Secretary. All corporate books kept by
the Secretary shall be open for examination by any director at any reasonable
time.
Section 3.07 ASSISTANT SECRETARY. The Board of Directors may appoint
an Assistant Secretary who shall have such powers and perform such duties as may
be prescribed for him by the Secretary of the corporation or by the Board of
Directors.
Section 3.08 TREASURER. The Treasurer shall be the chief financial
officer of the corporation, subject to the supervision and control of the Board
of Directors, and shall have custody of all the funds and securities of the
corporation. When necessary or proper, the Treasurer shall endorse on behalf of
the corporation for collection checks, notes, and other obligations, and shall
deposit all monies to the credit of the corporation in such bank or banks or
other depository as the Board of Directors may designate, and shall sign all
receipts and vouchers for payments by the corporation. Unless otherwise
specified by the Board of Directors, the Treasurer shall sign with the President
all bills of exchange and promissory notes of the corporation, shall also have
the care and custody of the stocks, bonds, certificates, vouchers, evidence of
debts, securities, and such other property belonging to the corporation as the
Board of Directors shall designate, and shall sign all papers required by law,
by these Bylaws, or by the Board of Directors to be signed by the Treasurer. The
Treasurer shall enter regularly in the books of the corporation, to be kept for
that purpose, full and accurate accounts of all monies received and paid on
account of the corporation and, whenever required by the Board of Directors, the
Treasurer shall render a statement of any or all accounts. The Treasurer shall
at all reasonable times exhibit the books of account to any directors of the
corporation and shall perform all acts incident to the position of Treasurer
subject to the control of the Board of Directors.
The Treasurer shall, if required by the Board of Directors, give bond
to the corporation in such sum and with such security as shall be approved by
the Board of Directors for the faithful performance of all the duties of
Treasurer and for restoration to the corporation, in the event of the
Treasurer's death, resignation, retirement or removal from office, of all books,
records, papers, vouchers, money and other property belonging to the
corporation. The expense of such bond shall be borne by the corporation.
Section 3.09 ASSISTANT TREASURER. The Board of Directors may appoint
an Assistant Treasurer who shall have such powers and perform such duties as may
be prescribed by the Treasurer of the corporation or by the Board of Directors,
and the
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Board of Directors may require the Assistant Treasurer to give a bond to the
corporation in such sum and with such security as it may approve, for the
faithful performance of the duties of Assistant Treasurer, and for restoration
to the corporation, in the event of the Assistant Treasurer's death,
resignation, retirement or removal from office, of all books, records, papers,
vouchers, money and other property belonging to the corporation. The expense of
such bond shall be borne by the corporation.
ARTICLE IV
CAPITAL STOCK
Section 4.01 ISSUANCE. Shares of capital stock of the corporation
shall be issued in such manner and at such times and upon such conditions as
shall be prescribed by the Board of Directors.
Section 4.02 CERTIFICATES. Ownership in the corporation shall be
evidenced by certificates for shares of stock in such form as shall be
prescribed by the Board of Directors, shall be under the seal of the corporation
and shall be signed by the President or a Vice-President and also by the
Secretary or an Assistant Secretary. Each certificate shall contain the then
name of the record holder, the number, designation, if any, class or series of
shares represented, a statement of summary of any applicable rights,
preferences, privileges or restrictions thereon, and a statement that the shares
are assessable, if applicable. All certificates shall be consecutively numbered.
The name, address and federal tax identification number of the stockholder, the
number of shares, and the date of issue shall be entered on the stock transfer
books of the corporation.
Section 4.03 SURRENDER; LOST OR DESTROYED CERTIFICATES. All
certificates surrendered to the corporation, except those representing shares
of treasury stock, shall be canceled and no new certificate shall be issued
until the former certificate for a like number of shares shall have been
canceled, except that in case of a lost, stolen, destroyed or mutilated
certificate, a new one may be issued therefor. However, any stockholder
applying for the issuance of a stock certificate in lieu of one alleged to
have been lost, stolen, destroyed or mutilated shall, prior to the issuance
of a replacement, provide the corporation with his, her or its affidavit of
the facts surrounding the loss, theft, destruction or mutilation and if
required by the Board of Directors, an indemnity bond in an amount and upon
such terms as the Treasurer, or the Board of Directors, shall require. In no
case shall the bond be in an amount less than twice the current market value
of the stock and it shall indemnify the corporation against any loss, damage,
cost or inconvenience arising as a consequence of the issuance of a
replacement certificate.
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Section 4.04 REPLACEMENT CERTIFICATE. When the Articles of
Incorporation are amended in any way affecting the statements contained in the
certificates for outstanding shares of capital stock of the corporation or it
becomes desirable for any reason, including, without limitation, the merger or
consolidation of the corporation with another corporation or the reorganization
of the corporation, to cancel any outstanding certificate for shares and issue a
new certificate for shares, the corporation shall issue an order for
stockholders of record, to surrender and exchange the same for new certificates
within a reasonable time to be fixed by the Board of Directors. The order may
provide that a holder of any certificate(s) ordered to be surrendered shall not
be entitled to vote, receive dividends or exercise any other rights of
stockholders until the holder has complied with the order, provided that such
order operates to suspend such rights only after notice and until compliance.
Section 4.05 TRANSFER OF SHARES. No transfer of stock shall be valid
as against the corporation except on surrender and cancellation of the
certificates therefor accompanied by an assignment or transfer by the registered
owner made either in person or under assignment. Whenever any transfer shall be
expressly made for collateral security and not absolutely, the collateral nature
of the transfer shall be reflected in the entry of transfer on the books of the
corporation.
Section 4.06 TRANSFER AGENT. The Board of Directors may appoint one or
more transfer agents and registrars of transfer and may require all certificates
for shares of stock to bear the signature of such transfer agent and such
registrar of transfer.
Section 4.07 STOCK TRANSFER BOOKS. The stock transfer books shall be
closed for a period of at least ten (10) days prior to all meetings of the
stockholders and shall be closed for the payment of dividends as provided in
Article V hereof and during such periods as, from time to time, may be fixed by
the Board of Directors, and, during such periods, no stock shall be
transferable.
Section 4.08 MISCELLANEOUS. The Board of Directors shall have the
power and authority to make such rules and regulations not inconsistent herewith
as it may deem expedient concerning the issue, transfer, and registration of
certificates for shares of the capital stock of the corporation.
ARTICLE V
DIVIDENDS
Dividends may be declared, subject to the provisions of the laws of
the State of Nevada and the Articles of Incorporation,
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by the Board of Directors at any regular or special meeting and may be paid in
cash, property, shares of the corporation stock, or any other medium. The Board
of Directors may fix in advance a record date, as provided in Section 1.06 of
these Bylaws, prior to the dividend payment for the purpose of determining
stockholders entitled to receive payment of any dividend. The Board of
Directors may close the stock transfer books for such purpose for a period of
not more than ten (10) days prior to the payment date of such dividend.
ARTICLE VI
OFFICES; RECORDS, REPORTS; SEAL AND FINANCIAL MATTERS
Section 6.01 PRINCIPAL OFFICE. The principal office of the corporation
in the State of Nevada shall be at 401 Ryland Street, Suite 330, Reno, Nevada
89502.
The Board of Directors may from time to time, by resolution, change the
location of the principal office within the State of Nevada. The corporation may
also maintain an office or offices at such other place or places, either within
or without the State of Nevada, as may be resolved, from time to time, by the
Board of Directors.
Section 6.02 RECORDS. The stock transfer books and a certified copy of
the Bylaws, Articles of Incorporation, any amendments thereto, and the minutes
of the proceedings of stockholders, the Board of Directors, and Committees of
the Board of Directors shall be kept at the principal office of the corporation
for the inspection of all who have the right to see the same and for the
transfer of stock. All other books of the corporation shall be kept at such
places as may be prescribed by the Board of Directors.
Section 6.03 FINANCIAL REPORT ON REQUEST. Any stockholder or
stockholders holding at least five percent (5%) of the outstanding shares of any
class of stock may make a written request for an income statement of the
corporation for the three (3) month, six (6) month or nine (9) month period of
the current fiscal year ended more than thirty (30) days prior to the date of
the request and a balance sheet of the corporation as of the end of such period.
In addition, if no annual report of the last fiscal year has been sent to
stockholders, such stockholder or stockholders may make a request for a balance
sheet as of the end of such fiscal year and an income statement and statement of
changes in financial position for such fiscal year. The statements shall be
delivered or mailed to the person making the request within thirty (30) days
thereafter. A copy of the statements shall be kept on file in the principal
office of the corporation for twelve (12) months, and such copies shall be
exhibited at all reasonable times to any stockholder demanding an examination of
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them or a copy shall be mailed to each stockholder. Upon request by any
stockholder, there shall be mailed to the stockholder a copy of the last annual,
semiannual or quarterly income statement which it has prepared and a balance
sheet as of the end of the period. The financial statements referred to in this
Section 6.03 shall be accompanied by the report thereon, if any, of any
independent accountants engaged by the corporation or the certificate of an
authorized officer of the corporation that such financial statements were
prepared without audit from the books and records of the corporation.
Section 6.04 RIGHT OF INSPECTION.
(a) The accounting and records and minutes of proceedings of the
stockholders and the Board of Directors and committees of the Board of Directors
shall be open to inspection upon the written demand of any stockholder or holder
of a voting trust certificate at any reasonable time during usual business hours
for a purpose reasonably related to such holder's interest as a stockholder or
as the holder of such voting trust certificate. This right of inspection shall
extend to the records of the subsidiaries, if any, of the corporation. Such
inspection may be made in person or by agent or attorney, and the right of
inspection includes the right to copy and make extracts.
(b) Every director shall have the absolute right at any reasonable
time to inspect and copy all books, records, and documents of every kind and to
inspect the physical properties of the corporation and/or its subsidiary
corporations. Such inspection may be made in person or by agent or attorney, and
the right of inspection includes the right to copy and make extracts.
Section 6.05 CORPORATE SEAL. The Board of Directors may, by
resolution, authorize a seal, and the seal may be used by causing it, or a
facsimile, to be impressed or affixed or reproduced or otherwise. Except when
otherwise specifically provided herein, any officer of the corporation shall
have the authority to affix the seal to any document requiring it.
Section 6.06 FISCAL YEAR-END. The fiscal year-end of the corporation
shall be such date as may be fixed from time to time by resolution by the Board
of Directors.
Section 6.07 RESERVES. The Board of Directors may create, by
resolution, out of the earned surplus of the corporation such reserves as the
directors may, from time to time, in their discretion, think proper to provide
for contingencies, or to equalize dividends or to repair or maintain any
property of the corporation, or for such other purpose as the Board of Directors
may deem beneficial to the corporation, and the directors may modify or abolish
any such reserves in the manner in which they were created.
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Section 6.08 PAYMENTS TO OFFICERS OR DIRECTORS. Any payments made to
an officer or director of the corporation, such as salary, commission, bonus,
interest, rent or entertainment expense, which shall be disallowed by the
Internal Revenue Service in whole or in part as a deductible expense by the
corporation, shall be reimbursed by such officer or director to the corporation
to the full extent of such disallowance. It shall be the duty of the Board of
Directors to enforce repayment of each such amount disallowed. In lieu of direct
reimbursement by such officer or director, the Board of Directors may withhold
future compensation to such officer or director until the amount owed to the
corporation has been recovered.
ARTICLE VII
INDEMNIFICATION
Section 7.01 IN GENERAL. Subject to Section 7.02, the corporation
shall indemnify any director, officer, employee or agent or the corporation, or
any person serving in any such capacity of any other entity or enterprise at the
request of the corporation, against any and all legal expenses (including
attorneys' fees), claims and/or liabilities arising out of any action, suit or
proceeding, except an action by or in the right of the corporation.
Section 7.02 LACK OF GOOD FAITH; CRIMINAL CONDUCT. The corporation
may, but shall not be required to, indemnify any person where such person acted
in good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, where there was not reasonable cause to believe the conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order
or settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, there was reasonable cause to believe that the conduct was unlawful.
Section 7.03 SUCCESSFUL DEFENSE OF ACTIONS. The corporation shall
reimburse or otherwise indemnify any director, officer, employee, or agent
against legal expenses (including attorneys' fees) actually and reasonably
incurred in connection with defense of any action, suit, or proceeding
hereinabove referred to, to the extent such person is successful on the merits
or otherwise.
Section 7.04 AUTHORIZATION. Indemnification shall be made by the
corporation only when authorized in the specific case and upon a determination
that indemnification is proper by:
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(1) The stockholders;
(2) A majority vote of a quorum of the Board of Directors,
consisting of directors who were not parties to the action, suit, or proceeding;
or
(3) Independent legal counsel in a written opinion, if a quorum
of disinterested directors so orders or if a quorum of disinterested directors
cannot be obtained.
Section 7.05 ADVANCING EXPENSES. Expenses incurred in defending any
action, suit, or proceeding may be paid by the corporation in advance of the
final disposition, when authorized by the Board of Directors, upon receipt of an
undertaking by or on behalf of the person defending to repay such advances if
indemnification is not ultimately available under these provisions.
Section 7.06 CONTINUING INDEMNIFICATION. The indemnification provided
by these Bylaws shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
Section 7.07 INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the corporation or who is or was serving at the request of the
corporation in any capacity against any liability asserted.
ARTICLE VIII
BYLAWS
Section 8.01 AMENDMENT. These Bylaws may be altered, amended or
repealed at any regular meeting of the Board of Directors without prior notice,
or at any special meeting of the Board of Directors if notice of such
alteration, amendment or repeal be contained in the notice of such special
meeting. These Bylaws may also be altered, amended, or repealed at a meeting of
the stockholders at which a quorum is present by the affirmative vote of the
holders of 51% of the capital stock of the corporation entitled to vote or by
the consent of the stockholders in accordance with Section 1.12 of these Bylaws.
The stockholders may provide by resolution that any Bylaw provision repealed,
amended, adopted or altered by them may not be repealed amended, adopted or
altered by the Board of Directors.
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CERTIFICATION
I, the undersigned, being the duly elected secretary of the
corporation, do hereby certify that the foregoing Bylaws were adopted by the
Board of Directors the 1st day of April, 1996.
/s/ [Illegible]
----------------------------
Secretary
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BYLAWS
OF
ALTERNATIVE ENTERTAINMENT, INC.
A NEVADA CORPORATION
ARTICLE I
STOCKHOLDERS
Section 1.01 ANNUAL MEETING. The annual meeting of the stockholders of
the corporation shall be held at on such date and time as shall be designated
from time to time by the purpose of electing directors of the corporation to
serve business as may properly come before the meeting. If the election of the
directors is not held on the day designated herein for any annual meeting of the
stockholders, or at any adjournment thereof, the president shall cause the
election to be held at a special meeting of the stockholders as soon thereafter
as is convenient.
Section 1.02 SPECIAL MEETINGS. Special meetings of the stockholders
may be called by the president or the Board of Directors and shall be called by
the president oat the written request of the holders of not less than 51% of the
issued and outstanding voting shares of capital stock of the corporation.
All business lawfully to be transacted by the stockholders may be
transacted at any special meeting or at any adjournment thereof. However, no
business shall be acted upon at a special meeting except that referred to in the
notice calling the meeting, unless all of the outstanding capital stock of the
corporation is represented either in person or by proxy. Where all of the
capital stock is represented, any lawful business may be transacted and the
meeting shall be valid for all purposes.
Section 1.03 PLACE OF MEETINGS. Any meeting of the stockholders of the
corporation may be held at its principal office in the State of Nevada or at
such other place in or out of the United States as the Board of Directors may
designate. A waiver of notice signed by the stockholders entitled to vote may
designate any place for the holding of such meeting.
Section 1.04 NOTICE OF MEETINGS.
(a) The secretary shall sign and deliver to all stockholders of
record written or printed notice of any meeting at least ten (10) days, but not
more than sixty (60) days, before the date of such meeting; which notice shall
state the place, date, and time of the meeting, the general nature of the
business to be transacted, and, in the case of any meeting at which directors
are to be elected, the names of nominees, if any, to be presented for
election.
<PAGE>
(b) In the case of any meeting, any proper business may be
presented for action, except that the following items shall be valid only if the
general nature of the proposal is stated in the notice or written waiver of
notice:
(1) Action with respect to any contract or transaction
between the corporation and one or more of its directors or officers or another
firm, association, or corporation in which one or more of its directors or
officers has a material financial interest;
(2) Adoption of amendments to the Articles of Incorporation;
or
(3) Action with respect to the merger, consolidation,
reorganization, partial or complete liquidation, or dissolution of the
corporation.
(c) The notice shall be personally delivered or mailed by first
class mail to each stockholder of record at the last known address thereof, as
the same appears on the books of the corporation, and the giving of such notice
shall be deemed delivered the date the same is deposited in the United States
mail, postage prepaid. If the address of any stockholder does not appear upon
the books of the corporation, it will be sufficient to address any notice to
such stockholder at the principal office of the corporation.
(d) The written certificate of the person calling any meeting,
duly sworn, setting forth the substance of the notice, the time and place the
notice was mailed or personally delivered to the stockholders, and the addresses
to which the notice was mailed shall be prima facie evidence of the manner and
fact of giving such notice.
Section 1.05 WAIVER OF NOTICE. If all of the stockholders of the
corporation shall waive notice of a meeting, no notice shall be required, and,
whenever all of the stockholders shall meet in person or by proxy, such meeting
shall be valid for all purposes without call or notice, and at such meeting any
corporate action may be taken.
Section 1.06 DETERMINATION OF STOCKHOLDERS OF RECORD.
(a) The Board of Directors may at any time fix a future date as a
record date for the determination of the stockholders entitled to notice of any
meeting or to vote or entitled to receive payment of any dividend or other
distribution or allotment of any rights or entitled to exercise any rights in
respect of any other lawful action. The record date so fixed shall not be more
than sixty (60) days nor less than ten (10) days prior to the date of such
meeting nor more than sixty (60) days nor less
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than ten (10) days prior to any other action. When a record date is so fixed,
only stockholders of record on that date are entitled to notice of and to vote
at the meeting or to receive the dividend, distribution or allotment of rights,
or to exercise their rights, as the case may be, notwithstanding any transfer of
any shares on the books of the corporation after the record date.
(b) If no record date is fixed by the Board of Directors, then
(1) the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived at the close of business on the day next preceding the day on which the
meeting is held; (2) the record date for action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day on
which written consent is given; and (3) the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto, or the
sixtieth (60th) days prior to he date of such other action, whichever is later.
Section 1.07 VOTING.
(a) Each stockholder of record, or such stockholder's duly
authorized proxy or attorney-in-fact shall be entitled to one (1) vote for each
share of voting stock standing registered in such stockholder's name on the
books of the corporation on the record date.
(b) Except as otherwise provided herein, all votes with respect
to share standing in the name of an individual on the record date (included
pledged shares) shall be cast only by that individual or such individual's duly
authorized proxy or attorney-in-fact. With respect to shares held by a
representative of the estate of a deceased stockholder, guardian, conservator,
custodian or trustee, votes may be cast by such holder upon proof of capacity,
even though the shares do not stand in the name of such holder. In the case of
shares under the control of a receiver, the receiver may cast in the name of the
receiver provided that the order of the court of competent jurisdiction which
appoints the receiver contains the authority to cast votes carried by such
shares. If shares stand in the name of a minor, votes may be cast only by the
duly appointed guardian of the estate of such minor if such guardian has
provided the corporation with written notice and proof of such appointment.
(c) With respect to shares standing in the name of a corporation
on the record dante, votes may be cast by such officer or agent as the bylaws of
such corporation prescribe or, in the absence of an applicable bylaw provision,
by such person as may be appointed by resolution of the Board of Directors of
such
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corporation. In the event no person is so appointed, such votes of the
corporation may be cast by any person (including the officer making the
authorization) authorized to do so by the Chairman of the Board of Directors,
President or any Vice-President of such corporation.
(d) Notwithstanding anything to the contrary herein contained, no
votes may be cast by shares owned by this corporation or its subsidiaries, if
any. If shares are held by this corporation or its subsidiaries, if any, in a
fiduciary capacity, no votes shall be cast with respect thereto on any matter
except to the extent that the beneficial owner thereof possesses and exercises
either a right to vote or to give the corporation holding the same binding
instructions on how to vote.
(e) With respect to shares standing in the name of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, husband and wife as community property, tenants by the entirety,
voting trustees, persons entitled to vote under a stockholder voting agreement
or otherwise and shares held b two or more persons (including proxy holders)
having the same fiduciary relationship respect in the same shares, votes may be
cast in the following manner:
(1) If only one person votes, the vote of such person binds
all.
(2) If more than one person casts votes, the act of the
majority so voting binds all.
(3) If more than one person casts votes, but the vote is
evenly split on a particular matter, the votes shall be deemed cast
proportionately, as split.
(f) Any holder of shares entitled to vote on any matter may cast
a portion of the votes in favor of such matter and refrain from casting the
remaining votes or cast the same against the proposal, except in the case of
elections of directors. If such holder entitled to vote fails to specify the
number of affirmative votes, it will be conclusively presumed that the holder is
casting affirmative votes with respect to all shares held.
(g) If a quorum is present, the affirmative vote of holders of
majority of the voting shares represented at the meeting and entitled to vote on
any matter shall be the act of the stockholders, unless a vote of greater number
of voting by classes is required by the laws of the State of Nevada, the
Articles of Incorporation or these Bylaws.
Section 1.08 QUORUM; ADJOURNED MEETINGS.
(a) At any meeting of the stockholders, a majority
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of the issued and outstanding voting shares of the corporation represented in
person or by proxy, shall constitute a quorum.
(b) If less than a majority of the issued and outstanding voting
shares are represented, a majority of shares so represented may adjourn from
time to time at the meeting, until holders of the amount of stock required to
constitute a quorum shall be in attendance. At any such adjourned meeting at
which a quorum shall be present, any business may be transacted which might have
been transacted as originally called. When a stockholder's meeting is adjourned
to another time or place, notice need not be given of the adjourned meeting if
the time and place thereof are announced to the meeting at which the adjournment
is taken, unless the adjournment is for more than ten (10) days in which event
notice thereof shall be given.
Section 1.09 PROXIES. At any meeting of stockholders, any holder of
share entitled to vote may authorize another person or persons to vote by proxy
with respect to the shares held by an instrument in writing and subscribed to by
the holder of such shares entitled to vote. No proxy shall be valid after the
expiration of six (6) months from or unless otherwise specified in the proxy. In
no event shall the term of a proxy exceed seven (7) years from the date of its
execution. Every proxy shall continue in full force and effect until its
expiration or revocation. Revocation may be effected by filing an instrument
revoking the same or a duly executed proxy bearing a later date with the
secretary of the corporation.
Section 1.10 ORDER OF BUSINESS. At the annual stockholder's meeting,
the regular order of business shall be as follows:
1. Determination of stockholders present and existence of quorum;
2. Reading and approval of the minutes of the previous meeting or
meetings;
3. Reports of the Board of Directors, the president, treasurer
and secretary of the corporation, in the order named;
4. Reports of committees;
5. Election of directors;
6. Unfinished business;
7. New business;
8. Adjournment.
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Section 1.11 ABSENTEES' CONSENT TO MEETINGS. Transactions of any
meeting of the stockholders are as valid as though had at a meeting duly held
after regular call and notice of a quorum is present, either in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote, not present in person or by proxy (and those who, although present,
either object at the beginning of the meeting to the transaction of any
business because the meeting has not been lawfully called or convened or
expressly object at the meeting to the consideration of matters not included in
the notice which are legally required to be included there), signs a written
waiver of notice and/or consent to the holding of the meeting or an approval of
the minutes thereof. All such waivers, consents, and approvals shall be filed
with the corporate records and made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person objects at the beginning of the meeting is not
lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters not included in
the notice if such objection is expressly made at the beginning. Neither the
business to be transacted at nor the purpose of any regular or special meeting
of stockholders need be specified in any written waiver of notice, except as
otherwise provided in Section 1.04(b) of these Bylaws.
Section 1.12 ACTION WITHOUT MEETING. Any action, except the election
of directors, which may be taken by the vote of the stockholders at a meeting
may be taken without a meeting if consented to by the holders of a majority of
the shares entitled to vote or such greater proportion as may be required by the
laws of the State of Nevada, the Articles of Incorporation, or these Bylaws.
Whenever action is taken by written consent, a meeting of stockholders need not
be called or noticed.
Section 1.13 TELEPHONIC MEETINGS. Meeting of the stockholders may be
held through the use of a conference telephone or similar communications
equipment so long as all members participating in such meeting can hear one
another at the time of such meeting. Participation in such meeting constitute
presence in person at such meeting.
ARTICLE II
DIRECTORS
Section 2.01 NUMBER, TENURE, AND QUALIFICATIONS. Except as otherwise
provided herein, the Board of Directors of the corporation shall consist of at
least three persons, who shall be elected at the annual meeting of the
stockholders of the corporation and who shall hold office for one (1) year or
until his or her successor or successors are elected and qualify. If, at any
time, the number of stockholders of the corporation is less than
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three (3) , the Board of Directors may consist of fewer persons, but shall not
be less than the number of stockholders. A director need not be a stockholder of
the corporation.
Section 2.02 RESIGNATION. Any director may resign effective upon
giving written notice to the chairman of the Board of Directors, the present or
the secretary of the corporation, unless the notice specified a later time for
effectiveness of such resignation. If the Board of Directors accepts the
resignation of a director tendered to take effect at a future date, the Board or
the stockholders may elect a successor to take office when the resignation
become effective.
Section 2.03 CHANGE IN NUMBER. Subject to the limitations in the laws
of the State of Nevada, the Articles of Incorporation or Section 2.01 of these
Bylaws, the number of directors may be changed from time to time by resolution
adopted by the Board of Directors.
Section 2.04 REDUCTION IN NUMBER. No reduction of the number of
directors shall have the effect of removing any director prior the expiration of
his term of office.
Section 2.05 REMOVAL.
(a) The Board of Directors of the corporation, by majority vote,
may declare vacant the office of a director who has been declared incompetent by
an order of a court of competent jurisdiction or convicted of a felony.
(b) Any director may be removed from office, with or without
cause, by the vote or written consent of stockholders representing not less than
two-thirds of the issued and outstanding voting capital stock of the
corporation.
Section 2.06 VACANCIES.
(a) A vacancy in the Board of Directors because of death,
resignation, removal, change in number of directors, or otherwise may be filled
by the stockholders at any regular or special meeting or any adjourned meeting
thereof (but not by written consent) or the remaining director(s) by the
affirmative vote of a majority thereof. Each successor so elected shall hold
office until the next annual meeting of stockholders or until a successor shall
have been duly elected and qualified.
(b) If, after the filling of any vacancy by the directors, the
directors then in office who have been elected by the stockholder shall
constitute less than a majority of the directors then in office, any holder or
holders of an aggregate of five percent (5%) or more the total number of shares
entitled to vote may call a special meeting of the stockholders to be held to
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elect the entire Board of Directors. The term of the office of any director
shall terminate upon such election of a successor.
Section 2.07 REGULAR MEETINGS. Immediately following the adjournment
of, and at the same place as, the annual meeting of the stockholders, the Board
of Directors, including directors newly elected, shall hold its annual meeting
without notice other than this provision, to elect officers of the corporation
and to transact such further business as may be necessary or appropriate. The
Board of Directors may provide by resolution the place, date, and hour for
holding additional regular meetings.
Section 2.08 SPECIAL MEETINGS. Special meeting of the Board of
Directors may be called by the chairman and shall be called by the Chairman upon
the request of any two (2) directors or the president of the corporation.
Section 2.09 PLACE OF MEETINGS. Any meeting of the directors of the
corporation may be held at its principal office in the State of Nevada or at
such other place in or out of the United States as the Board of Directors may
designate. A waiver of notice signed by the directors may designate any place
for the holding of such meeting.
Section 2.10 NOTICE OF MEETINGS. Except as otherwise provided in
Section 2.07, the Chairman shall deliver to all directors written or printed
notice of any special meeting, at least 48 hours before the time of such
meeting, by delivery of such notice personally or mailing such notice first
class mail or by telegram. If mailed, the notice shall be deemed delivered two
(2) business days following the date the same is deposited in the United States
mail, postage prepaid. Any director may waive notice of any meeting, and the
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, unless such attendance is for the express purpose of objecting to
the transaction of business thereat because the meeting is not properly called
or convened.
Section 2.11 QUORUM; ADJOURNED MEETINGS.
(a) A majority of the Board of Directors in office shall
constitute a quorum.
(b) At any meeting of the Board of Directors where a quorum is
not present, a majority of those present may adjourn, from time to time, until a
quorum is present, and no notice of such adjournment shall be required. At any
adjourned meeting where a quorum is present, any business may be transacted
which could have been transacted at the meeting originally called.
Section 2.12 ACTION WITHOUT MEETING. Any action required or permitted
to be taken at any meeting of the Board of
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Directors or any committee thereof may be taken without a meeting if a written
consent thereto is signed by all of the members of the Board of Directors or of
such committee. Such written consent or consents shall be filed with the minutes
of the proceedings of the Board of Directors or committee. Such action by
written consent shall have the same force and effect as the unanimous vote of
the Board of Directors or committee.
Section 2.13 TELEPHONIC MEETINGS. Meetings of the Board of Directors
may be held through the use of a conference telephone or similar communications
equipment so long as all member participating in such meeting can hear one
another at the time of such meeting. Participation in such a meeting constitutes
presence in person at such meeting. Each person participating in the meeting
shall sign the minutes thereof which may be in counterparts.
Section 2.14 BOARD DECISIONS. The affirmative vote of a majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors.
Section 2.15 POWERS AND DUTIES.
(a) Except as otherwise provided in the Articles of Incorporation
or the laws of the State of Nevada, the Board of Directors is invested with the
complete and unrestrained authority to manage the affairs of the corporation,
and is authorized to exercise for such purpose as the general agent of the
corporation, its entire corporate authority in such manner as it sees fit. The
Board of Directors may delegate any of its authority to manage, control or
conduct the current business of the corporation to any standing or special
committee or to any officer or agent and to appoint any persons to be agents of
the corporation which such powers, including the power to subdelegate, and upon
such terms as may be deemed fit.
(b) The Board of Directors shall present to the stockholder at
annual meetings of the stockholders, and when called for a majority vote of the
stockholders at a special meeting of the stockholders, a full and clear
statement of the condition of the corporation, and shall, at request, furnish
each of the stockholders with a true copy thereof.
(c) The Board of Directors, in its discretion, may submit any
contract or act for approval or ratification at any annual meeting of the
stockholders or any special meeting properly called for the purpose of
considering any such contract or act, provided a quorum is present. The contract
or act shall be valid and binding upon the corporation and upon all the
stockholders thereof, if approved and ratified by the affirmative vote of a
majority of the stockholders at such meeting.
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Section 2.16 COMPENSATION. The directors shall be allowed and paid all
necessary expenses incurred in attending any meetings of the Board, but shall
not receive any compensation for their services as directors until such time as
the corporation is able to declare and pay dividends on its capital stock.
Section 2.17 BOARD OFFICERS.
(a) At its annual meeting, the Board of Directors shall elect,
from among its members, a chairman to preside at meetings of the Board of
Directors. The Board of Directors may also elect such other board officers and
for such term as it may, from time to time, determine advisable
(b) Any vacancy in any board office because of death,
resignation, removal or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
Section 2.18 ORDER OF BUSINESS. The order of business at any meeting
of the Board of Directors shall be as follows:
1. Determination of members present and existence of quorum;
2. Reading and approval of the minutes of any previous meeting or
meetings;
3. Reports of officers and committeemen;
4. Election of officers (annual meeting);
5. Unfinished business;
6. New business;
7. Adjournment.
ARTICLE III
OFFICERS
Section 3.01 ELECTION. The Board of Directors, at its first meeting
following the annual meeting of stockholders, shall elect a president, a
secretary and a treasurer to hold office for a term of one (1) year and until
their successors are elected and qualify. Any person may hold two or more
offices. The Board of Directors may, from time to time, by resolution, appoint
one or more vice-presidents, assistant secretaries, assistant treasurers and
transfer agents of the corporation as it may deem advisable; prescribe their
duties; and fix their compensation.
Section 3.02 REMOVAL: RESIGNATION. Any officer or
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agent elected or appointed by the Board of Directors may be removed by it with
or without cause. Any officer may resign at any time upon written notice to the
corporation without prejudice to the rights, if any, of the corporation under
any contract to which the resigning officer is a party.
Section 3.03 VACANCIES. Any vacancy in any office because of death,
resignation, removal or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
Section 3.04 PRESIDENT. The President shall be the general manager and
executive officer of the corporation, subject to the supervision and control of
the Board of Directors, and shall direct the corporate affairs, with full power
to execute all resolutions and orders of the Board of Directors not especially
entrusted to some other officer of the corporation. The president shall preside
at all meetings of the stockholders and shall perform such other duties as shall
be prescribed by the Board of Directors.
Unless otherwise ordered by the Board of Directors, the President
shall have full power and authority on behalf of the corporation to attend and
to act and to vote at any meetings of the stockholders of any corporation in
which the corporation may hold stock and, at any such meetings, shall possess
and may exercise any and all rights and powers incident to the ownership of such
stock. The Board of Directors, by resolution from time to time, may confer like
powers on any person or persons in place of the President to represent the
corporation for these purposes.
Section 3.05 VICE-PRESIDENT. The Board of Directors may elect one or
more vice-presidents who shall be vested with all the powers and perform all the
duties of the president whenever the president is absent or unable to act,
including the signing of the certificates of stock issued by the corporation,
and the vice-president shall perform such other duties as shall be prescribed by
the Board of Directors.
Section 3.06 SECRETARY. The secretary shall keep the minutes of all
meetings of the stockholders and the Board of Directors in books provided for
that purpose. The secretary shall attend to the giving and service of all
notices of the corporation, may sign with the president in the name of the
corporation all contracts authorized by the Board of Directors or appropriate
committee, shall have the custody of the corporate seal, shall affix the
corporate seal to all certificates of stock duly issued by the corporation,
shall have charge of stock certificate books, transfer books and stock ledgers,
and such other books and papers as the Board of Directors or appropriate
committee may direct, and shall, in general, perform all duties incident to the
office of the secretary. All corporate books kept by the secretary shall be open
for examination by any director at any reasonable time.
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Section 3.07 ASSISTANT SECRETARY. The Board of Directors may appoint
an assistant secretary who shall have such powers and perform such duties as may
be prescribed for him by the secretary of the corporation or by the Board of
Directors.
Section 3.08 TREASURER. The treasurer shall be the chief financial
officer of the corporation, subject to the supervision and control of the Board
of Directors, and shall have custody of all the funds and securities of the
corporation. When necessary or proper, the treasurer shall endorse on behalf of
the corporation for collection checks, notes, and other obligations, and shall
deposit all monies to the credit of the corporation in such bank or banks or
other depository as the Board of Directors may designate, and shall sign all
receipts and vouchers for payments by the corporation. Unless otherwise
specified by the Board of Directors, the treasurer shall sign with the president
all bills of exchange and promissory notes of the corporation, shall also have
the care and custody of the stocks, bonds, certificates, vouchers, evidence of
debts, securities, and such other property belonging to the corporation as the
Board of Directors shall designate, and shall sign all papers required by law,
by these Bylaws, or by the Board of Directors to be signed by the treasurer. The
treasurer shall enter regularly in the books of the corporation, to be kept for
that purpose, full and accurate accounts of all monies received and paid on
account of the corporation and, whenever required by the Board of Directors, the
treasurer shall render a statement of any or all accounts. The treasurer shall
at all reasonable times exhibit the books of account to any directors of the
corporation and shall perform all acts incident to the position of treasurer
subject to the control of the Board of Directors.
The treasurer shall, if required by the Board of Directors, give bond
to the corporation in such sum and with such security as shall be approved by
the Board of Directors for the faithful performance of all the duties of
treasurer and for restoration to the corporation, in the event of the
treasurer's death, resignation, retirement or removal from office, of all books,
records, papers, vouchers, money and other property belonging to the
corporation. The expense of such bond shall be borne by the corporation.
Section 3.09 ASSISTANT TREASURER. The Board of Directors may appoint
an assistant treasurer who shall have such powers and perform such duties as may
be prescribed by the treasurer of the corporation or by the Board of Directors,
and the Board of Directors may require the assistant treasurer to give a bond to
the corporation in such sum and with such security as it may approve, for the
faithful performance of the duties of assistant treasurer, and for restoration
to the corporation, in the event of the assistant treasurer's death,
resignation, retirement or removal from office, of all books, records, papers,
vouchers,
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money and other property belonging to the corporation. The expense of such bond
shall be borne by the corporation.
ARTICLE IV
CAPITAL STOCK
Section 4.01 ISSUANCE. Shares of capital stock of the corporation
shall be issued in such manner and at such times and upon such conditions as
shall be prescribed by the Board of Directors.
Section 4.02 CERTIFICATES. Ownership in the corporation shall be
evidenced by certificates for shares of stock in such form as shall be
prescribed by the Board of Directors, shall be under the seal of the corporation
and shall be signed by the president or a vice-president and also by the
secretary or an assistant secretary. Each certificate shall contain the them
name of the record holder, the number, designation, if any, class or series of
shares represented, a statement of summary of any applicable rights,
preferences, privileges or restrictions thereon, and a statement that the shares
are assessable, if applicable. All certificates shall be consecutively numbered.
The name, address and federal tax identification number of the stockholder, the
number of shares, and the date of issue shall be entered on the stock transfer
books of the corporation.
Section 4.03 SURRENDER; LOST OF DESTROYED CERTIFICATES. All
certificates surrendered to the corporation, except those representing shares or
treasury stock, shall be canceled and no new certificate shall be issued until
the former certificate for a like number of shares shall have been canceled,
except that in case of a lost, stolen, destroyed or mutilated certificate, a new
one may be issued therefor. However, any stockholder applying for the issuance
of a stock certificate in lieu of one alleged to have been lost, stolen,
destroyed or mutilated shall, prior to the issuance of a replacement, provide
the corporation with his, her or its affidavit of the facts surrounding the
loss, theft, destruction or mutilation and if required by the Board of
Directors, an indemnity bond in an amount and upon such terms as the treasurer,
or the Board of Directors, shall require. In no case shall the bond be in an
amount less than twice the current market value of the stock and it shall
indemnify the corporation against any loss, damage, cost or inconvenience
arising as a consequence of the issuance of a replacement certificate.
Section 4.04 REPLACEMENT CERTIFICATE. When the Articles of
Incorporation are amended in any way affecting the statements contained in the
certificates for outstanding shares of capital stock of the corporation or it
becomes desirable for any reason, including, without limitation, the merger or
consolidation of the corporation with another corporation or the reorganization
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of the corporation, to cancel any outstanding certificate for shares and issue a
new certificates for shares to surrender and exchange the same for new
certificates within a reasonable time to be fixed by the Board of Directors. The
order may provide that a holder of any certificate(s) ordered to be surrendered
shall not be entitled to vote, receive dividends or exercise any other rights of
stockholders until the holder has complied with the order provided that such
order operates to suspend such rights only after notice and until compliance.
Section 4.05 TRANSFER OF SHARES. No transfer of stock shall be valid
as against the corporation except on surrender and cancellation of the
certificates therefor accompanied by an assignment or transfer by the registered
owner made either in person or under assignment. Whenever any transfer shall be
expressly made for collateral security and not absolutely, the collateral nature
of the transfer shall be reflected in the entry of transfer on the books of the
corporation.
Section 4.06 TRANSFER AGENT. The Board of Directors may appoint one or
more transfer agents and registrars of transfer and may require all certificates
for shares of stock to bear the signature of such transfer agent and such
registrar of transfer.
Section 4.07 STOCK TRANSFER BOOKS. The stock transfer books shall be
closed for a period of at least ten (10) days prior to all meetings of the
stockholders and shall be closed for the payment of dividends as provided in
Article V hereof and during such periods as, from time to time, may be fixed by
the Board of Directors, and, during such periods, no stock shall be
transferable.
Section 4.08 MISCELLANEOUS. The Board of Directors shall have the
power and authority to make such rules and regulations not inconsistent herewith
as it may deem expedient concerning the issue, transfer, and registration of
certificates for shares of the capital stock of the corporation.
ARTICLE V
DIVIDENDS
Section 5.01 Dividends may be declared, subject to the provisions of
the laws of the State of Nevada and the Articles of Incorporation, by the Board
of Directors at any regular or special meeting and may be paid in cash,
property, shares of the corporation stock, or any other medium. The Board of
Directors may fix in advance a record date, as provided in Section 1.06 of these
Bylaws, prior to the dividend payment for the purpose of determining
stockholders entitled to receive payment of any dividend. The Board of Directors
may close the stock transfer
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books for such purpose for a period of not more than ten (10) days prior to the
payment date of such dividend.
ARTICLE VI
OFFICES; RECORDS, REPORTS; SEAL AND FINANCIAL MATTERS
Section 6.01 PRINCIPAL OFFICE. The principal office of the corporation
in the State of Nevada shall be at 401 Ryland Street, Suite 330, Reno, Nevada
89502.
The Board of Directors may from time to time, by resolution, change the
location of the principal office within the State of Nevada. The corporation may
also maintain an office or offices at such other place or places, either within
or without the State of Nevada, as may be resolved, from time to time, by the
Board of Directors.
Section 6.02 RECORDS. The stock transfer books and a certified copy of
the Bylaws, Articles of Incorporation, any amendments thereto, and the minutes
of the proceedings of stockholders, the Board of Directors, and Committees of
the Board of Directors shall be kept at the principal office of the corporation
for the inspection of all who have the right to see the same and for the
transfer of stock. All other books of the corporation shall be kept at such
places as may be prescribed by the Board of Directors.
Section 6.03 FINANCIAL REPORT ON REQUEST. Any stockholder or
stockholders holding at least five percent (5%) of the outstanding shares of any
class of stock may make a written request for an income statement of the
corporation for the three (3) month, six (6) month or nine (9) month period of
the current fiscal year ended more than thirty (30) days prior to the date of
the request and a balance sheet of the corporation as of the end of such period.
In addition, if no annual report of the last fiscal year has been sent to
stockholders, such stockholder or stockholders may make a request for a balance
sheet as of the end of such fiscal year and an income statement and statement of
changes in financial position for such fiscal year. The statements shall be
delivered or mailed to the person making the request within thirty (30) days
thereafter. A copy of the statements shall be kept on file in the principal
office of the corporation for twelve (12) months, and such copies shall be
exhibited at all reasonable times to any stockholder demanding an examination of
them or a copy shall be mailed to each stockholder. Upon request by any
stockholder, there shall be mailed to the stockholder a copy of the last annual,
semiannual or quarterly income statement which it has prepared and a balance
sheet as of the end of the period. The financial statements referred to in this
Section 6.03 shall be accompanied by the report thereon, if any, of any
independent accountants engaged by the corporation or the certificate of an
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authorized officer of the corporation that such financial statements were
prepared without audit from the books and records of the corporation.
Section 6.04 RIGHT OF INSPECTION.
(a) The accounting and records and minutes of proceedings of the
stockholders and the Board of Directors and committees of the Board of Directors
shall be open to inspection upon the written demand of any stockholder or holder
of a voting trust certificate at any reasonable time during usual business hours
for a purpose reasonably related to such holder's interest as a stockholder or
as the holder of such voting trust certificate. This right of inspection shall
extend to the records of the subsidiaries, if any, of the corporation. Such
inspection may be made in person or by agent or attorney, and the right of
inspection includes the right to copy and make extracts.
(b) Every director shall have the absolute right at any reasonable
time to inspect and copy all books, records, and documents of every kind and to
inspect the physical properties of the corporation and/or its subsidiary
corporations. Such inspection may be made in person or by agent or attorney, and
the right of inspection includes the right to copy and make extracts.
Section 6.05 CORPORATE SEAL. The Board of Directors may, by
resolution, authorize a seal, and the seal may be used by causing it, or a
facsimile, to be impressed or affixed or reproduced or otherwise. Except when
otherwise specifically provided herein, any officer of the corporation shall
have the authority to affix the seal to any document requiring it.
Section 6.06 FISCAL YEAR-END. The fiscal year-end of the
corporation shall be such date as may be fixed from time to time by
resolution by the Board of Directors.
Section 6.07 RESERVES. The Board of Directors may create, by
resolution, out of the earned surplus of the corporation such reserves as the
directors may, from time to time, in their discretion, think proper to
provide for contingencies, or to equalize dividends or to repair or maintain
any property of the corporation, or for such other purpose as the Board of
Directors may deem beneficial to the corporation, and the directors may
modify or abolish any such reserves in the manner in which they were created.
Section 6.08 PAYMENTS TO OFFICERS OR DIRECTORS. Any payments made to
an officer or director of the corporation, such as salary, commission, bonus,
interest, rent or entertainment expense, which shall be disallowed by the
Internal Revenue Service in whole or in part as a deductible expense by the
corporation, shall be reimbursed by such officer or director to the corporation
to the
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full extent of such disallowance. It shall be the duty of the Board of Directors
to enforce repayment of each such amount disallowed. In lieu of direct
reimbursement by such officer or director, the Board of Directors may withhold
future compensation to such officer or director until the amount owed to the
corporation has been recovered.
ARTICLE VII
INDEMNIFICATION
Section 7.01 IN GENERAL. Subject to Section 7.02, the corporation
shall indemnify any director, officer, employee or agent or the corporation, or
any person serving in any such capacity of any other entity or enterprise at the
request of the corporation, against any and all legal expenses (including
attorneys' fees), claims and/or liabilities arising out of any action, suit or
proceeding, except an action by or in the right of the corporation.
Section 7.02 LACK OF GOOD FAITH; CRIMINAL CONDUCT. The corporation
may, but shall not be required to, indemnify any person unless such person acted
in good faith an in a manner reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, where there was not reasonable cause to believe the conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order
or settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner reasonably believed to being or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, there was reasonable cause to believe that the conduct was unlawful.
Section 7.03 SUCCESSFUL DEFENSE OF ACTIONS. The corporation shall
reimburse or otherwise indemnify any director, officer, employee, or agent
against legal expenses (including attorneys' fees) actually and reasonably
incurred in connection with defense of any action, suit, or proceeding
hereinabove referred to, to the extent such person is successful on the merits
or otherwise.
Section 7.04 AUTHORIZATION. Indemnification shall be made by the
corporation only when authorized in the specific case and upon a determination
that indemnification if proper by:
(1) The stockholders;
(2) A majority vote of a quorum of the Board of Directors,
consisting of directors who were not parties to the action, suit, or proceeding;
or
17
<PAGE>
(3) Independent legal counsel in a written opinion, if a quorum
of disinterested directors orders or if a quorum of disinterested directors
cannot be obtained.
Section 7.05 ADVANCING EXPENSES. Expenses incurred in defending any
action, suit, or proceeding may be paid by the corporation in advance of the
final disposition, when authorized by the Board of Directors, upon receipt of an
undertaking by or on behalf of the person defending to repay such advances if
indemnification is not ultimately available under these provisions.
Section 7.06 CONTINUING INDEMNIFICATION. The indemnification provided
by these Bylaws shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
Section 7.07 INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the corporation or who is or was serving at the request of the
corporation in any capacity against any liability asserted.
ARTICLE VIII
BYLAWS
Section 8.01 AMENDMENT. These Bylaws may be altered, amended or
repealed at any regular meeting of the Board of Directors without prior notice,
or at any special meeting of the Board of Directors if notice of such
alteration, amendment or repeal be contained in the notice of such special
meeting. These Bylaws may also be altered, amended, or repealed at a meeting of
the Stockholders at which a quorum is present by the affirmative vote of the
holders of 51% of the capital stock of the corporation entitled to vote or by
the consent of the stockholders in accordance with Section 1.12 of these Bylaws.
The stockholders may provide by resolution that any Bylaw provision repealed,
amended, adopted or altered by them may not be repealed amended, adopted or
altered by the Board of Directors.
CERTIFICATION
I, the undersigned, being the duly elected secretary of the
corporation, do hereby certify that the foregoing Bylaws were adopted by the
Board of Directors the 7th day of December, 1993.
---------------------------------
Secretary
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<PAGE>
ARTICLES OF INCORPORATION
OF
RMA OF SAN FRANCISCO, INC.
ONE: The name of this corporation is RMA OF SAN FRANCISCO, INC.
TWO: The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business,
or the practice of a profession permitted to be incorporated by the California
Corporations Code.
THREE: The name and address in this state of this corporation's initial
agent for service of process is:
Ralph M. Amato
7825 Fay Avenue, Suite 200
La Jolla, California 92037
FOUR: This corporation is authorized to issue one class of shares, to be
designated as follows: 1,000 shares of common stock with each share having a par
value of $0.01.
FIVE: The corporation is authorized to provide indemnification of agents
(as defined in section 317 of the Corporations Code) for breach of duty to the
corporation and its stockholders through bylaw provisions or through agreements
with the agents, or both, in excess of the indemnification otherwise permitted
by section 317 of the Corporations Code, subject to the limits on such excess
indemnification set forth in section 204 of the Corporations Code.
/s/ Ralph M. Amato
- --------------------------------------
Ralph M. Amato, Incorporator
I declare that I am the person who executed the above instrument, and that
this instrument is my act and deed.
/s/ Ralph M. Amato
--------------------------------
Ralph M. Amato
1
<PAGE>
BY-LAWS
OF
RMA OF SAN FRANCISCO, INC.
ARTICLE I
OFFICES
SECTION 1. OFFICE. The office of the Corporation shall be established and
maintained at 7825 Fay Avenue, Suite 200, La Jolla, California 92037.
SECTION 2. OTHER OFFICES. The Corporation may have other offices, either
within or without the State of California, at such place or places as the Board
of Directors may, from time to time, appoint or the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for the
election of Directors and for such other business, as may be stated in the
notice of the meeting, shall be held at such place, either within or without the
State of California, and at such time and date as the Board of Directors, by
resolution, shall determine and as set forth in the notice of the meeting. In
the event the Board of Directors fails to so determine the time, date, and place
of meeting, the annual meeting of stockholders shall be held on the same date as
the annual meeting of the shareholders of Access HealthNet, Inc. after the close
of the Company's most recent fiscal year at such place as the Board of Directors
shall determine.
At each annual meeting, the stockholders entitled to vote shall elect a
Board of Directors, and they may transact such other corporate business as shall
be stated in the notice of the meeting.
SECTION 2. OTHER MEETINGS. Meetings of stockholders for any purpose other
than the election of Directors may be held at such time and place, within or
without the State of California, as shall be stated in the notice of the
meeting.
1
<PAGE>
SECTION 3. VOTING. Each stockholder entitled to vote in accordance with the
terms of the Certificate of Incorporation and in accordance with the provisions
of these By-Laws shall be entitled to one (1) vote, in person or by proxy, for
each share of stock entitled to vote held by such stockholder, but no proxy
shall be voted after three (3) years from its date unless such proxy provides
for a longer period. Upon the demand of any stockholder, the vote for Directors
and the vote upon any question before the meeting shall be by ballot. All
elections for Directors shall be decided by plurality vote; all other questions
shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of the State of California.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each and the
number of shares held by each shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof and may be inspected
by any stockholder who is present.
SECTION 4. QUORUM. Except as otherwise required by law, by the Certificate
of Incorporation or by these By-Laws, the presence, in person or by proxy, of
stockholders holding a majority of the stock of the Corporation entitled to vote
shall constitute a quorum at all meetings of the stockholders. In case a quorum
shall not be present at any meeting, a majority in interest of the stockholders
entitled to vote thereat, present in person or by proxy, shall have power to
adjourn the meeting, from time to time, without notice other than announcement
at the meeting, until the requisite amount of stock entitled to vote shall be
present. At any such adjourned meeting at which the requisite amount of stock
entitled to vote shall be represented, any business may be transacted which
might have been transacted at the meeting as originally noticed, but only those
stockholders entitled to vote at the meeting as originally noticed shall be
entitled to vote at any adjournment or adjournments thereof.
SECTION 5. SPECIAL MEETINGS. Special meetings of the stockholders for any
purpose or purposes may be called by the President or Secretary or by resolution
of the Directors.
SECTION 6. NOTICE OF MEETINGS. Written notice stating the place, date, and
time of the meeting and the general nature of the business to be considered
shall be given to each stockholder entitled to vote thereat at his address as it
appears on the records of the Corporation not less than ten (10) nor more than
fifty (50) days before the date of the meeting. No business other than that
stated in the notice shall be transacted at any meeting without the unanimous
consent of all the stockholders entitled to vote thereat.
2
<PAGE>
SECTION 7. ACTION WITHOUT MEETING. Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders or any action which may be taken at any annual
or special meeting may be taken without a meeting, without prior notice, and
without a vote, if a consent in writing setting forth the action so taken shall
be signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. The number of Directors shall be one (1). The
Directors shall be elected at the annual meeting of the stockholders, and each
Director shall be elected to serve until his successor shall be elected and
shall qualify. Directors need not be stockholders.
SECTION 2. RESIGNATIONS. Any Director, member of a committee, or other
Officer may resign at any time. Such resignation shall be made in writing and
shall take effect at the time specified therein, and if no time be specified, at
the time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES. If the office of any Director, member of a committee,
or other Officer becomes vacant, the remaining Directors in office, though less
than a quorum, by a majority vote, may appoint any qualified person to fill such
vacancy who shall hold office for the unexpired term and until his successor
shall be duly chosen.
SECTION 4. REMOVAL. Any Director or Directors may be removed, either for or
without cause, at any time by the affirmative vote of the holders of a majority
of all the shares of stock outstanding and entitled to vote at a special meeting
of the stockholders called for the purpose, and the vacancies thus created may
be filled at the meeting held for the purpose of removal by the affirmative vote
of a majority in interest of the stockholders entitled to vote.
3
<PAGE>
SECTION 5. INCREASE OF NUMBER. The number of Directors may be increased by
amendment of these By-Laws by the affirmative vote of a majority of the
Directors, though less than a quorum, or by the affirmative vote of a majority
in interest of the stockholders at the annual meeting or at a special meeting
called for that purpose, and by like vote, the additional Directors may be
chosen at such meeting to hold office until the next annual election and until
their successors are elected and qualify.
SECTION 6. POWERS. The Board of Directors shall exercise all of the powers
of the Corporation except such as are by law or by the Certificate of
Incorporation of the Corporation or by these By-Laws conferred upon or reserved
to the stockholders.
SECTION 7. COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board, designate one (1) or more
committees, each committee to consist of two (2) or more of the Directors of the
Corporation. The Board may designate one (1) or more Directors as alternate
members of any committee who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of any member
of such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board
of Directors or in these By-Laws, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation and may authorize the seal of the Corporation to be
affixed to all papers which may require it, but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease, or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-Laws of the Corporation, and, unless the resolution, these By-Laws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 8. MEETINGS. The newly elected Directors may hold their first
meeting for the purpose of organization and the transaction of business, if a
quorum be present, immediately after the annual meeting of the stockholders, or
the time and place of such meeting may be fixed by consent in writing of all the
Directors.
Regular meetings of the Directors may be held without notice at such places
and times as shall be determined, from time to time, by resolution of the
Directors.
4
<PAGE>
Special meetings of the Board may be called by the President or by the
Secretary on the written request of any two (2) Directors on at least two (2)
days' notice to each Director and shall be held at such place or places as may
be determined by the Directors, or as shall be stated in the call of the
meeting.
SECTION 9. QUORUM. A majority of the Directors shall constitute a quorum
for the transaction of business. If, at any meeting of the Board, there shall be
less than a quorum present, a majority of those present may adjourn the meeting,
from time to time, until a quorum is obtained, and no further notice thereof
need be given other than by announcement at the meeting which shall be so
adjourned.
SECTION 10. COMPENSATION. Directors shall not receive any stated salary for
their services as Directors or as members of committees, but by resolution of
the Board, a fixed fee and expenses of attendance may be allowed for attendance
at each meeting. Nothing herein contained shall be construed to preclude any
Director from serving the Corporation in any other capacity as an Officer,
agent, or otherwise, and receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting if, prior to such action, a written consent thereto
is signed by all members of the Board, or of such committee, as the case may be,
and such written consent is filed with the minutes of proceedings of the Board
or committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The Officers of the Corporation shall be a President,
a Treasurer, and a Secretary, all of whom shall be elected by the Board of
Directors and who shall hold office until their successors are elected and
qualified. In addition, the Board of Directors may elect a Chairman, one (1) or
more Vice Presidents, and such Assistant Secretaries and Assistant Treasurers as
they may deem proper. None of the Officers of the Corporation need be Directors.
The Officers shall be elected at the first meeting of the Board of Directors
after each annual meeting. More than two (2) offices may be held by the same
person.
SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors may appoint
such other Officers and agents as it may deem advisable, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined, from time to time, by the Board of Directors.
5
<PAGE>
SECTION 3. CHAIRMAN. The Chairman of the Board of Directors, if one be
elected, shall preside at all meetings of the Board of Directors, and he shall
have and perform such other duties as, from time to time, may be assigned to him
by the Board of Directors.
SECTION 4. PRESIDENT. The President shall be the Chief Executive Officer of
the Corporation and shall have the general powers and duties of supervision and
management usually vested in the office of President of a corporation. He shall
preside at all meetings of the stockholders if present thereat, and in the
absence or non-election of the Chairman of the Board of Directors, at all
meetings of the Board of Directors, and shall have general supervision,
direction, and control of the business of the Corporation. Except as the Board
of Directors shall authorize the execution thereof in some other manner, he
shall execute bonds, mortgages, and other contracts in behalf of the Corporation
and shall cause the seal to be affixed to any instrument requiring it, and when
so affixed, the seal shall be attested by the signature of the Secretary or the
Treasurer or an Assistant Secretary or an Assistant Treasurer.
SECTION 5. VICE PRESIDENT. Each Vice President shall have such powers and
shall perform such duties as shall be assigned to him by the Directors.
SECTION 6. TREASURER. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate account of receipts and
disbursements in books belonging to the Corporation. He shall deposit all moneys
and other valuables in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, or the President, taking proper vouchers for such
disbursements. He shall render to the President and Board of Directors at the
regular meetings of the Board of Directors, or whenever they may request it, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, he shall give the
Corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the Board shall prescribe.
6
<PAGE>
SECTION 7. SECRETARY. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and Directors and all other notices
required by law or by these By-Laws, and in case of his absence or refusal or
neglect to do so, any such notice may be given by any person thereunto directed
by the President or by the Directors or stockholders, upon whose requisition the
meeting is called as provided in these By-Laws. He shall record all the
proceedings of the meetings of the Corporation and of the Directors in a book to
be kept for that purpose and shall perform such other duties as may be assigned
to him by the Directors or the President. He shall have the custody of the seal
of the Corporation and shall affix the same to all instruments requiring it,
when authorized by the Directors or the President, and attest the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the Directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. A certificate of stock, signed by the
Chairman or Vice Chairman of the Board of Directors, if they be elected,
President or Vice President, and the Treasurer or an Assistant Treasurer, or
Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the Corporation. When such
certificates are countersigned (1) by a transfer agent other than the
Corporation or its employee, or (2) by a registrar other than the Corporation or
its employee, the signatures of such Officers may be facsimiles.
SECTION 2. LOST CERTIFICATES. A new certificate of stock may be issued in
the place of any certificate theretofore issued by the Corporation alleged to
have been lost or destroyed, and the Directors may, in their discretion, require
the owner of the lost or destroyed certificate, or his legal representatives, to
give the Corporation a bond, in such sum as they may direct, not exceeding
double the value of the stock, to indemnify the Corporation against any claim
that may be made against it on account of the alleged loss of any such
certificate or the issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES. The shares of stock of the Corporation shall
be transferable only upon its books by the holders thereof in person or by their
duly authorized attorneys or legal representatives, and upon such transfer, the
old certificates shall be surrendered to the Corporation by the delivery thereof
to the person in charge of the stock and transfer books and ledgers, or to such
other person as the Directors may designate, by whom they shall be cancelled,
and new certificates shall thereupon be issued. A record shall be made of each
transfer, and whenever a transfer shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer.
7
<PAGE>
SECTION 4. STOCKHOLDERS RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion, or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting, provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
SECTION 5. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the Corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the Corporation available
for dividends, such sum or sums as the Directors, from time to time, in their
discretion, deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
Directors shall deem conducive to the interests of the Corporation.
SECTION 6. SEAL. The corporate seal shall be circular in form and shall
contain the name of the Corporation, the year of its creation, and the words
"CORPORATE SEAL CALIFORNIA" Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS. All checks, drafts, or other orders for the payment of
money, notes, or other evidences or indebtedness issued in the name of the
Corporation shall be signed by such Officer or Officers, agent or agents of the
Corporation and in such manner as shall be determined, from time to time, by
resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required by
these By-Laws to be given, personal notice is not meant unless expressly so
stated, and any notice so required shall be deemed to be sufficient if given by
depositing the same in the United States Mail, postage prepaid, addressed to the
person entitled thereto at his address as it appears on the records of the
Corporation, and such notice shall be deemed to have been given on the day of
such mailing. Stockholders not entitled to vote shall not be entitled to receive
notice of any meetings except as otherwise provided by Statute.
8
<PAGE>
Whenever any notice whatever is required to be given under the provisions
of any law, or under the provisions of the Certificate of Incorporation of the
Corporation, or these By-Laws, a waiver thereof in writing signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed, and By-Laws may be made at any
annual meeting of the stockholders or at any special meeting thereof if notice
of the proposed alteration or repeal of the By-Law or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal of the By-Law or
By-Laws to be made, be contained in the notice of such special meeting.
9
<PAGE>
<TABLE>
<S><C>
- ----------------- -----------------
NUMBER SHARES
BT
- ----------------- -----------------
BOYSTOYS.COM, INC.
SEE REVERSE FOR
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
- -----------------------------------------------------------------------------------------------------------------------
COMMON STOCK CUSIP 103632 10 5
THIS CERTIFIES THAT:
SPECIMEN
IS OWNER OF
- -----------------------------------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF $.001 PAR VALUE EACH OF
- --------------------------------------------BOYSTOYS.COM, INC.---------------------------------------------
Transferable on the books of the Corporation in person or by attorney upon surrender of this certificate duly endorsed
or assigned. This certificate and the shares represented hereby are subject to the laws of the State of Delaware,
and to the Certificate of Incorporation and By-laws of the Corporation, as now or hereafter amended. This certificate
is not valid until countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
DATED: [SEAL]
COUNTERSIGNED:
OLDE MONMOUTH STOCK TRANSFER CO., INC.
77 MEMORIAL PARKWAY, ATLANTIC HIGHLANDS, NJ 07716
BY: TRANSFER AGENT
/s/ ILLEGIBLE
AUTHORIZED SIGNATURE
/s/ ILLEGIBLE /s/ ILLEGIBLE
SECRETARY PRESIDENT
</TABLE>
RESTRICTED
The shares represented by this certificate have not been registered under the
Securities Act of 1933, as amended, and may not be sold or transferred without
registration under said Act or an exemption therefrom.
<PAGE>
AGREEMENT FOR THE PURCHASE OF COMMON STOCK
AGREEMENT, made this January 15, 1998, by and between the undersigned
Shareholders of WAGG CORP. ("WAGG") and Alternative Entertainment, Inc.
("PURCHASER"), for the purpose of setting forth the terms and conditions upon
which the Shareholders will sell to PURCHASER shares of WAGG's common stock.
The information contained in the outline pages preceding this
Agreement is part of and intended to be merged into and made a part of this
Agreement.
In consideration of the mutual promises, covenants, and
representations contained herein, THE PARTIES HERETO AGREE AS FOLLOWS:
ARTICLE I
SALE OF SECURITIES
Subject to the terms and conditions of this Agreement, the
Shareholders agree to sell, and PURCHASER agrees to purchase, 4,821,997 shares
of the common stock of WAGG for $50,000.00. The shares to be sold by each
Shareholder and the consideration to be received by each Shareholders is
reflected in the following table:
<TABLE>
<CAPTION>
Shares Consideration
Shareholder to be sold to be received
<S> <C> <C>
Livingston Realty 1,225,896 $ 12,601.00
Morris Diamond 750,000 7,800.00
Shirley Diamond 760,000 7,904.00
Tramdot Development Corp. 1,000,000 10,400.00
Southward Investments 553,101 5,752.00
Rose Merzel 286,071 2,975.00
Martin Osber 246,929 2,568.00
Totals 4,821,997 $50,000.00
</TABLE>
At PURCHASER's option, subject to there being available, and upon
written notification to the Shareholders prior to closing, PURCHASER will have
the option to purchase from the Shareholders additional shares of WAGG's common
stock at a price to be negotiated. The additional shares to be purchased shall
be sold, and the additional consideration will be paid, on a pro rata basis
among the Shareholders. Each Shareholder hereby appoints Southward Investments
to receive and hold all consideration received from PURCHASER for the sale of
the shares described above.
Upon the execution of this Agreement, PURCHASER has
3
<PAGE>
tendered a check in the amount of $3,500 to the Shareholders. This amount will
be applied as an irrevocable performance deposit and will be applied at closing
towards the payment of the shares described above.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Shareholders, jointly and severally, represent and warrant to
PURCHASER that the following shall be true and correct in all respects as of the
closing (as defined in Article IV of this Agreement).
2.01 ORGANIZATION. WAGG is a corporation duly organized, validly
existing, and in good standing under the laws of Delaware, has all necessary
corporate powers to own properties and carry on a business, and is duly
qualified to do business and is in good standing in Delaware. All actions taken
by the Incorporators, Directors and/or shareholders of WAGG have been valid and
in accordance with the laws of the State of Delaware.
2.02 CAPITAL. The authorized capital stock of WAGG consists of
20,000,000 shares of common stock, $0.001 par value, of which 6,027,496 shares
are issued and outstanding. All outstanding shares are fully paid and non
assessable, free of liens, encumbrances, options and legal or equitable rights
of others not a party to this Agreement. At closing, there will be no
outstanding subscriptions, options, rights, warrants, convertible securities, or
other agreements or commitments obligating WAGG to issue or to transfer from
treasury any additional shares of its capital stock. None of the outstanding
shares of WAGG are subject to any stock restriction agreements. There are
approximately 715 bonafide shareholders of WAGG. All of such shareholders have
valid title to such shares and acquired their shares in a lawful transaction and
in accordance with Delaware corporate law. At least 80% of such shareholders
each own at least 100 shares of WAGG's common stock.
2.03 FINANCIAL STATEMENTS. Exhibit A to this Agreement includes the
balance sheets of WAGG as of January 20, 1998, and the related statements of
income and retained earnings for the period then ended. The financial statements
have been prepared in accordance with generally accepted accounting principles
consistently followed by WAGG throughout the periods indicated, and fairly
present the financial position of WAGG as of the date of the balance sheet
included in the financial statements, and the results of its operations for the
periods indicated.
2.04 ABSENCE OF CHANGES. Since January 20, 1998, there has not been
any change in the financial condition or operations of WAGG, except changes in
the ordinary course of business, which changes have not in the aggregate been
materially adverse.
2.05 LIABILITIES. WAGG did not as of January 20, 1998
4
<PAGE>
have any debt, liability, or obligation of any nature, whether accrued,
absolute, contingent, or otherwise, and whether due or to become due, that is
not reflected in WAGG's balance sheet as of January 20, 1998. The Shareholders
are not aware of any pending, threatened or asserted claims, lawsuits or
contingencies involving WAGG or its common stock. There is no dispute of any
kind between WAGG and any third party, and no such dispute will exist at the
closing of this Agreement. At closing, WAGG will be free from any and all
liabilities, liens, claims and/or commitments.
2.06 TAX RETURNS. Within the times and in the manner prescribed by
law, WAGG has filed all federal, state, and local tax returns required by law
and has paid all taxes, assessments, and penalties due and payable. No federal
income tax returns of WAGG have been audited by the Internal Revenue Service.
The provision for taxes, if any, reflected in WAGG's balance sheet as of January
20, 1998, is adequate for any and all federal, state, county, and local taxes
for the period ending on the date of that balance sheet and for all prior
periods, whether or not disputed. There are no present disputes as to taxes of
any nature payable by WAGG.
2.07 ABILITY TO CARRY OUT OBLIGATIONS. The Shareholders have the
right, power, and authority to enter into, and perform their obligations under
this Agreement. The execution and delivery of this Agreement by the Shareholders
and the performance by the Shareholders of their obligations hereunder will not
cause, constitute, or conflict with or result in (a) any breach or violation or
any of the provisions of or constitute a default under any license, indenture,
mortgage, charter, instrument, articles of incorporation, bylaw, or other
agreement or instrument to which WAGG or the Shareholders are a party, or by
which they may be bound, nor will any consents or authorizations of any party
other than those hereto be required, (b) an event that would cause WAGG to be
liable to any party, or (c) an event that would result in the creation or
imposition of any lien, charge, or encumbrance on any asset of WAGG or upon the
securities of WAGG to be acquired by PURCHASER.
2.08 FULL DISCLOSURE. None of representations and warranties made by
the Shareholders, or in any certificate or memorandum furnished or to be
furnished by the Shareholders, or on their behalf, contains or will contain any
untrue statement of a material fact, or omit any material fact the omission of
which would be misleading.
2.09 CONTRACTS AND LEASES. WAGG does not and has never carried on any
business. WAGG is not a party to any contract, agreement or lease. No person
holds a power of attorney from WAGG.
2.10 COMPLIANCE WITH LAWS. WAGG has complied with, and is not in
violation of any federal, state, or local statute, law, and/or regulation
pertaining to WAGG. WAGG has complied with
5
<PAGE>
all federal and state securities laws in connection with the offer, sale and
distribution of its securities. At the time WAGG filed its Form D with the
Securities and Exchange Commission, WAGG was entitled to use the exemption
provided by Section 504 of the Securities and Exchange Commission relative to
the exchange of its shares or any other transaction described in such Form D.
2.11 LITIGATION. WAGG is not (and has not been) a party to any suit,
action, arbitration, or legal, administrative, or other proceeding, or pending
governmental investigation. To the best knowledge of the Shareholders, there is
no basis for any such action or proceeding and no such action or proceeding is
threatened against WAGG. WAGG is not subject to or in default with respect to
any order, writ, injunction, or decree of any federal, state, local, or foreign
court, department, agency, or instrumentality.
2.12 CONDUCT OF BUSINESS. Prior to the closing, WAGG shall conduct its
business in the normal course, and shall not (without the prior written approval
of PURCHASER) (i) sell, pledge, or assign any assets (ii) amend its Articles of
Incorporation or Bylaws, (iii) declare dividends, redeem or sell stock or other
securities, (iv) incur any liabilities, (v) acquire or dispose of any assets,
enter into any contract, guarantee obligations of any third party, or (vi) enter
into any other transaction.
2.13 CORPORATE DOCUMENTS. Copies of each of the following documents,
which are true, complete and correct in all material respects, will be attached
to and made a part of this Agreement:
(i) Articles of Incorporation;
(ii) Bylaws;
(iii) Minutes of Shareholders Meetings;
(iv) Minutes of Directors Meetings;
(v) An Opinion Letter from our attorney attesting to the
validity and condition of the Corporation
(vi) List of Officers and Directors;
(vii) List of Shareholders;
(viii) Copy of Form D filed with Securities and Exchange
Commission;
(ix) Balance Sheet as of January 20, 1998, together with other
financial statements described in Section 2.03;
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<PAGE>
(x) Secretary of State Filing Receipt stamped on the Certificate
of Incorporation.
(xi) Copies of all federal and state income tax returns of WAGG;
(xii) Stock certificate records of WAGG and a current, accurate
list of WAGG shareholders;
(xiii) A copy of Form M-11 filed with the State of New York;
2.14 CLOSING DOCUMENTS. All minutes, consents or other documents
pertaining to WAGG to be delivered at closing shall be valid and in accordance
with the laws of Delaware.
2.15 TITLE. The Shareholders have good and marketable title to all of
the securities to be sold to PURCHASER pursuant to this Agreement. The
securities to be sold to PURCHASER will be, at closing, free and clear of all
liens, security interests, pledges, charges, claims or encumbrances of any kind.
None of such Shares are or will be subject to any voting trust or agreement. No
person holds or has the right to receive any proxy or similar instrument with
respect to such shares. Except as provided in this Agreement, the Shareholders
are not parties to any agreement which offers or grants to any person the right
to purchase or acquire any of the securities to be sold to PURCHASER. There is
no applicable local, state or federal law, rule, regulation, or decree which
would, as a result of the purchase of the Shares by PURCHASER, impair, restrict
or delay PURCHASER's voting rights with respect to the Shares.
ARTICLE III
INVESTMENT INTENT
PURCHASER agrees that the securities being acquired pursuant to this
Agreement may be sold, pledged, assigned, hypothecated or otherwise transferred,
with or without consideration ("Transfer") only pursuant to an effective
registration statement under the Act, or pursuant to an exemption from
registration under the Act, the availability of which is to be established to
the satisfaction of WAGG. PURCHASER agrees, prior to any Transfer, to give
written notice to WAGG expressing his desire to effect the Transfer and
describing the proposed Transfer.
ARTICLE IV
CLOSING
The closing of this transaction will occur when all of the documents
and/or consideration described below have been delivered. Unless the closing of
this transaction takes place on or before February 15, 1998, then either party
may terminate this
7
<PAGE>
Agreement. If this Agreement is terminated due to the failure of the
Shareholders to provide the documents specified below, then all consideration
paid by PURCHASER shall be returned to PURCHASER. If this Agreement is
terminated by the Shareholders due to the failure of PURCHASER to provide the
consideration specified below, then all amounts previously paid by PURCHASER
will be forfeited to the Shareholders and PURCHASER will have no further
liability to the Shareholders. As part of the closing, the following documents,
in form reasonably acceptable to counsel to the parties, shall be delivered:
By the Shareholders:
A. A certificate or certificates for 4,821,997 shares of WAGG's common
stock, registered in the name of PURCHASER or its designees.
B. A certificate for such additional shares of WAGG's common stock as
PURCHASER may have elected to purchase in accordance with Article I of this
Agreement if applicable.
C. The resignation of all officers of WAGG.
D. A Board of Directors resolution appointing PURCHASER's designees as
directors of WAGG.
E. The resignation of all the directors of WAGG, except PURCHASER's
designees, dated subsequent to the resolution described in D. above.
F. Certified financial statements of WAGG, which shall include a balance
sheet dated as of January 31, 1998 and statements of operations, stockholders'
equity and cash flows for the twelve month period then ended.
The financial statements of WAGG shall be covered by a report of a
certified public accountant. The accountant's report shall state that the
accountant conducted his audit in accordance with generally accepted auditing
standards, that his audit provided a reasonable basis for his opinion, and that
in his opinion, the financial statements covered by the report present fairly,
in all material respects, the financial position of WAGG as of January 31, 1998,
and the results of its operations and its cash flows for the twelve months ended
January 31, 1998, in conformity with generally accepted accounting principles.
Such report will not be qualified or limited in any respect.
The accountant reporting on such financial statements will submit
proof to PURCHASER, on or before closing, that the accountant has a standard
professional liability policy (which provides coverage for the audit report on
WAGG's financial statements) with policy limits of at least $1,000,000 for each
occurrence or claim.
G. All of the business and corporate records of WAGG, including but not
limited to correspondence files, bank statements, checkbooks, savings account
books, minutes of shareholder
8
<PAGE>
and directors meetings, financial statements, shareholder listings, stock
transfer records, agreements and contracts.
H. Such other minutes of WAGG's shareholders or directors as may reasonably
be required by PURCHASER.
By PURCHASER:
A. A check in the amount of $21,500.00, representing the balance of the
cash payment due for the 4,821,997 shares of WAGG's common stock.
B. A check for any additional shares which PURCHASER elected to purchase in
accordance with Article I of this Agreement if applicable.
C. The amount of Twenty One Thousand, Five Hundred Dollars, ($21,500.00)
will be paid at Closing and the sum of Twenty Five Thousand Dollars,
($25,000.00) payable of which One Thousand Dollars, ($1,000.00) shall be due and
payable ninety days from the date of the closing and Two Thousand Dollars,
($2,000.00) to be paid before the tenth (10th) day of each month thereafter for
a period of Twelve (12) months.
D. Purchaser shall establish an escrow account acceptable to both parties
wherein the shares purchased will be held and installment payments are to be
deposited.
ARTICLE V
REMEDIES
5.01 ARBITRATION. Any controversy or claim arising out of, or relating
to, this Agreement, or the making, performance, or interpretation thereof, shall
be settled by arbitration in Rochester, New York in accordance with the Rules of
the American Arbitration Association then existing, and judgment on the
arbitration award may be entered in any court having jurisdiction over the
subject matter of the controversy.
5.02 TERMINATION. In addition to any other remedies, PURCHASER may on
or before the closing date terminate this Agreement, without liability.
(i) If any bonafide action or proceeding shall be pending against
the Shareholders or WAGG on the closing date that could result in an unfavorable
judgment, decree, or order that would prevent or make unlawful the carrying out
of this Agreement or if any agency of the federal or of any state government
shall have objected at or before the closing date to the acquisition of WAGG's
securities by PURCHASER or to any other action required by or in connection with
this Agreement;
(ii) If at the Closing the Shareholders failed to do all things
required to be completed pursuant to the terms of
9
<PAGE>
this agreement
5.03 INDEMNIFICATION. The Parties, jointly and severally agree to
indemnify the other against all actual losses, damages and expenses caused by
(i) any material breach of this Agreement or any material misrepresentation
contained herein or (ii) any misstatement of a material fact or omission to
state a material fact required to be stated herein or necessary to make the
statements herein not misleading.
ARTICLE VI
MISCELLANEOUS
6.01 CAPTIONS AND HEADINGS. The Article and paragraph headings
throughout this Agreement are for convenience and reference only, and shall in
no way be deemed to define, limit, or add to the meaning of any provision of
this Agreement.
6.02 NO ORAL CHANGE. This Agreement and any provision hereof, may
not be waived, changed, modified, or discharged orally, but only by an agreement
in writing signed by the party against whom enforcement of any waiver, change,
modification, or discharge is sought.
6.03 NON WAIVER. Except as otherwise expressly provided herein,
no waiver of any covenant, condition, or provision of this Agreement shall be
deemed to have been made unless expressly in writing and signed by the party
against whom such waiver is charged; and (i) the failure of any party to insist
in any one or more cases upon the performance of any of the provisions,
covenants, or conditions of this Agreement or to exercise any option herein
contained shall not be construed as a waiver or relinquishment for the future of
any such provisions, covenants, or conditions, (ii) the acceptance of
performance of anything required by this Agreement to be performed with
knowledge of the breach or failure of a covenant, condition, or provision hereof
shall not be deemed a waiver of such breach or failure, and (iii) no waiver by
any party of one breach by another party shall be construed as a waiver with
respect to any other or subsequent breach.
6.04 TIME OF ESSENCE. Time is of the essence of this Agreement
and of each and every provision hereof.
6.05 ENTIRE AGREEMENT. This Agreement contains the entire
Agreement and understanding between the parties hereto, and supersedes all prior
agreements and understandings.
6.06 COUNTERPARTS. This Agreement may be executed simultaneously
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
6.07 NOTICES. All notices, requests, demands, and other
10
<PAGE>
communications under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if served personally on the party to
whom notice is to be given, or on the third day after mailing if mailed to the
party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid, and properly addressed as follows:
The SHAREHOLDERS:
c/o Morris Diamond
Southward Investments
2541 Monroe Ave. Suite 301
Rochester, NY 14618
PURCHASER
Alternative Entertainment, Inc.
Ralph Amato: President
4275 Executive Square
Suite 800
La Jolla, Calif. 92037
6.08 BINDING EFFECT. This Agreement shall inure to and be binding
upon the heirs, executors, personal representatives, successors and assigns of
each of the parties to this Agreement.
6.9 EFFECT OF CLOSING. All representations, warranties,
covenants, and agreements of the parties contained in this Agreement, or in any
instrument, certificate, opinion, or other writing provided for in it, shall be
true and correct as of the closing and shall survive the closing of this
Agreement.
6.10 MUTUAL COOPERATION. The parties hereto shall cooperate with
each other to achieve the purpose of this Agreement, and shall execute such
other and further documents and take such other and further actions as may be
necessary or convenient to effect the transaction described herein.
6.11 The Buyer hereby acknowledges that with the exception of
those certificates to be issued to Buyer (or its nominee) hereunder and those to
be retained by Sellers, no stock certificates have been issued to the other
shareholders (a list of those entitled to same having been kept in book entry
form). Buyer further acknowledges its obligation to prepare and issue
certificates to the shareholders in the names and amounts appearing on the
shareholders list to be given to Buyer at the Closing.
AGREED AND ACCEPTED as of the date first above written.
PURCHASER
/s/ Ralph M. Amato
-------------------------------
Alternative Entertainment, Inc.
11
<PAGE>
Ralph Amato: President
/s/ Morris Diamond
-----------------------------------
Livingston Realty
Morris Diamond: President
/s/ Shirley Diamond
-----------------------------------
Tramdot Development Corp
Shirley Diamond: President
/s/ Morris Diamond
-----------------------------------
Southward Investment
Morris Diamond: C.O.O.
/s/ Morris Diamond
-----------------------------------
Morris Diamond
/s/ Shirley Diamond
-----------------------------------
Shirley Diamond
/s/ Rose Merzel Lichtman
-----------------------------------
Rose Merzel Lichtman
/s/ Martin Osber
-----------------------------------
Martin Osber
12
<PAGE>
FIRST CHOICE EXECUTIVE SUITES,
(A SUB LEASE)
1. PARTIES
This Lease, dated, June 1, 1999 for reference purposes only, is made by and
between LJMG, Inc. dba First Choice Executive Suites, hereinafter called "LJMG"
and BoysToys.com, Inc. hereinafter called "Tenant".
2. PREMISES
LJMG does hereby Lease to Tenant and Tenant hereby leases from LJMG that certain
office space known as #228 (herein called "premises") as delineated on the
attached floor plan as Exhibit A on the 2nd floor of the Merrill Lynch Building
at 7825 Fay Avenue, Suite 200, La Jolla, California 92037. This Lease is subject
to the terms, covenants and conditions set forth herein and Tenant covenants, as
a material part of the consideration for this Lease, to keep and perform each
and all of these terms, covenants and conditions by it to be kept and performed
and that this Lease is made upon the condition of such performance.
3. TERM
The term of this Lease shall be 3 months commencing on the 1st day of June,
1999. The term shall renew at maturity as specifically specified in 9. Option to
Extend, unless one party serves unto the other, a required sixty-day written
notice to terminate. Such term and any extension given with the express written
consent of LJMG, is hereinafter called "term".
4. ENTRY BY LANDLORD
LJMG has the right at any time, and upon reasonable notice, to enter the
premises to inspect them, to provide services to be furnished by LJMG, to make
repairs and alterations to the premises or other adjacent property of LJMG and
to show the premises to prospective tenants of the premises or prospective
purchasers of LJMG.
/s/ R.A.
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Initial
1
<PAGE>
5. POSSESSION
If LJMG, for any reason whatsoever, cannot deliver possession of the premises to
the Tenant at the commencement of the term, LJMG will not be liable for any
resulting damage, nor will this Lease be affected, except that Tenant will not
have to pay the rent (as hereafter defined) until LJMG can deliver possession.
No such failure of LJMG to deliver possession shall in any way affect or extend
the expiration date of the term of this Lease. In the event that LJMG should
permit Tenant to occupy the premises prior to the commencement date of the term,
such occupancy will be subject to all of the provisions of this Lease,
including, but not limited to, payment of rent at the rate provided in section
6, but shall not advance the termination date of the term.
6. RENT
Tenant agrees to pay to LJMG a base rent of SEVENTEEN HUNDRED Dollars and 10/100
Dollars ($1,700.10) per month*, for the premises. Rent shall be payable monthly
in lawful money of the United States, and shall be DUE AND PAYABLE IN ADVANCE ON
THE FIRST DAY OF THE MONTH BEFORE 5:00 PM. Your rent is critical! No excuses
will be accepted for non-payment. FAILURE TO PAY RENT AS STATED BELOW, AT THE
LOCATION INDICATED IN THIS LEASE, WILL RESULT IN IMMEDIATE TERMINATION OF THIS
RENTAL AGREEMENT AND EVICTION. Rent can be paid by check unless any check is
returned unpaid for any reason. Afterwards, rent can only be paid by money order
or cash.
*RENT IS DUE ON THE FIRST OF THE MONTH AND IS CONSIDERED LATE IF NOT PAID BY
4:00 P.M. ON THE 5TH OF THE MONTH. AFTER WHICH LATE CHARGES AS BELOW WILL BE
INCURRED.
The rent for the first month of this Lease shall be paid upon execution of this
Lease. If the term does not commence on the first day of the month, rental for
the first fraction of the month shall be prorated and shall be payable together
with the first full month's rent. The rent shall be payable to LJMG and shall be
paid to the manager's office or to any agent designated in writing by LJMG on
the first day of the month for which such fee is due, without any deduction or
offset and without any notice or demand. A 3-Day Notice to Pay or Quit will be
served on the 6th of the month if payment is not received by the 5th. Tenant
shall pay a late charge of five percent (5%) of any amount that is due
hereunder, provided that said late charge shall not be less than $5.00. LJMG and
Tenant agree that such late charges are fair and reasonable compensation for
costs incurred by LJMG where there is default in payment under this Lease. Such
costs are extremely difficult to estimate and ascertain, but such costs include
processing and accounting charges. Notwithstanding payment of such late charge,
Tenant shall not be excused from any default nor shall there by any waiver of
any default by LJMG under this Lease. There is a $25.00 fee for any returned
check, plus applicable bank charges. There is a $195.00 reinstatement fee if
service has been discontinued due to non-payment or late payment of rent or
/s/ R.A.
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Initial 2
<PAGE>
charges.
7. SECURITY DEPOSIT
Upon the execution of this Lease, Tenant shall deposit with LJMG or its agent
NINETEEN HUNDRED AND SEVENTY DOLLARS and 00/100 Dollars ($1,970.00), as
security, for the full and faithful performance of each and every term,
condition, covenant and provision of this Lease on Tenant's part to be
performed. In the event Tenant defaults in the performance of any of the terms
hereof, or abandons the premises, LJMG may use, apply or retain the whole or any
part of such security for the payment of any rent or any other payment to be
made by Tenant hereunder which is in default or of any other sum which LJMG may
spend or be required to spend by reason of Tenant's default. If Tenant, at the
end of the term hereof, has fully and faithfully complied with all of the terms
and provisions of this Lease, the security, or any balance thereof, shall then
be returned to Tenant. Tenant shall not be entitled to interest on any such
security deposit. Should LJMG be required to resort to the security deposit as a
result of default by Tenant hereunder and should Tenant continue to occupy the
premises after such default, Tenant agrees to deposit such funds as are
necessary to replenish the security deposit to the amount herein contained
within ten (10) days of receipt from LJMG of written notice of the amount
required to so replenish such deposit.
8. USE
Tenant shall use the premises for general office purposes and to house Tenants
phone systems and for no other purpose without the prior written consent of
LJMG. Tenant agrees that Tenant will not offer or use the premises to provide to
others services provided by LJMG to LJMG's tenants, or make or permit any use of
the premises which is forbidden by law or regulation, may be hazardous or
unsafe, may invalidate or increase the premium of any policy of insurance
carried by LJMG or may tend to impair the character, reputation, appearance or
operation of the premises. Tenant shall not do or permit anything to be done in
or about the premises which will in any way obstruct or interfere with the
rights of other tenants or occupants of the building or injure or annoy them or
use or allow the premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance
in, on or about the premises. Tenant shall not commit or suffer to be committed
any waste in or about the premises.
9. OPTIONS TO EXTEND
Tenant shall have the option to rent Suite #228 for an additional 9 months at
the rate of
/s/ R.A.
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Initial 3
<PAGE>
$1710.00. Tenant will inform Landlord on or before July 1, 1997, whether Tenant
will exercise this option otherwise this extension will be automatically in
effect.
/s/ R.A.
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Initial 4
<PAGE>
10. SERVICES
For the time the lease is in effect and, provided there are no defaults thereof,
LJMG agrees to make available access to the following services, at the stated
monthly fixed charge. All services not contracted for monthly shall be charged
at the then published rates schedule on a pay as needed basis.
<TABLE>
<S> <C>
PHONE LINE & EQUIPMENT RENTAL (1).......................................$140.00
VoiceMail (2)...........................................................Included
Telephone Secretary (unlimited in-coming calls).........................Included
Modem/Fax Line (1)......................................................$30.00
Conference Room Rental (4 Hours per month)..............................Included
(Each additional hour is $20.00. billed in 15 minutes increments)
Reception Services......................................................Included
Parking (2 spaces)......................................................$100.00
TOTAL MONTHLY CONTRACT........................................$270.00
=======
</TABLE>
Tenant contracts for the above services for the duration of this lease. All
other services are excluded from the service contract and shall be charged at
the then published price schedule. Total Service Contract charges for purpose of
this lease will be considered additional rent, and are due on the first day of
the month before 4:00 p.m. (refer to Article 6., Rent).
10a. SETUP & INSTALLATION
A one-time Setup & Installation fee in the amount of $635.00, as well as all
other charges noted on the accompanying Opening Invoice, will be paid to LJMG by
Tenant upon execution of this Lease Agreement.
Setup & Installation fee is non-refundable and includes, but is not limited to
telephone installation, messaging system setup, credit verification and
administrative functions as required to process Lease Agreement and related
paperwork.
11. ALTERATIONS, ADDITIONS AND REPAIRS
Except as may be expressly provided in this Lease, LJMG has made no promise to
alter or improve the premises nor has any representation been made concerning
the condition thereof. By taking possession of the premises, Tenant acknowledges
that they are in good, sanitary order, condition and repair and shall not place
a load upon any floor of the premises which exceeds the
/s/ R.A.
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Initial 5
<PAGE>
load per square foot which such floor was designed to carry and which is allowed
by law. Tenant shall not mark, or drive nails, screw or drill into, the
partitions, woodwork or plaster or in any way deface such premises or any part
thereof except as may be reasonably required to install or hang decorative
items. Tenant shall make no alterations or additions to the premises without
LJMG's prior written consent. Tenant shall return the premises at the end of the
term in as good condition and repair as when Tenant received the premises,
normal wear and tear excepted.
LJMG may, but is not required to, make repairs or replacement required due to
Tenant's use of facility not consistent with normal wear and tear and Tenant
shall pay to LJMG all costs and expenses thereof upon demand. Upon termination
of this Lease, whether upon expiration of the term hereof or sooner.
12. ASSIGNMENT AND SUBLETTING
Neither Tenant nor anyone claiming by, through or under Tenant shall mortgage or
assign this Lease or sublet the premises or any part thereof or permit the use
of the premises by any person other than Tenant or employees or independent
contractor hired by Tenant, without the prior written consent of LJMG, which
consent shall not be unreasonably withheld. A consent to one assignment,
subletting, occupation or use by any person other than Tenant shall not be
deemed to be consent to any subsequent assignment, subletting, occupation or use
by another person.
13. HOLD HARMLESS
Tenant shall indemnify and hold LJMG harmless against and from any and all
claims arising from use of the premises for the conduct of business or from any
activity, work or other thing done, permitted or suffered in or about the
building, and shall further indemnify and hold harmless LJMG against and from
any and all claims arising from any breach or default in the performance of any
obligation on Tenant's part to be performed under the terms of this Lease, or
arising from any act or negligence of Tenant, or any officer, agent, employee,
guest, or invitee of Tenant, and from all and against all costs, attorney's
fees, expense and liabilities incurred in or about any such claim or any action
or proceeding brought thereon, and, if any case, action or proceeding be brought
against LJMG by reason of any such claim, Tenant upon notice from LJMG shall
defend the same at Tenant's expense.
Landlord shall indemnify and hold Tenant harmless against and from any and all
claims arising from Landlord's conduct of business or from any activity, work or
other thing done, permitted or suffered by Landlord in or about the building,
and shall further indemnify and hold harmless Tenant against and from any and
all claims arising from any act or negligence of Landlord, or any officer,
agent, employee, guest, or invitee of Landlord, and from all and against all
costs, attorney's fees, expense and liabilities incurred in or about any such
claim or action or proceeding brought thereon, and, if in any case, action or
proceeding be brought against Tenant by reason of
/s/ R.A.
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Initial 6
<PAGE>
any such claim, Landlord upon notice from Tenant shall defend the same at
Landlord's expense.
The Tenant hereby assumes all risk of damage to property or injury to persons,
in, upon or about the premises (refer to Article 2), from any cause other than
LJMG's negligence, and Tenant hereby waives all claims in respect thereof
against LJMG. LJMG or its agents shall not be liable for any damage to property
entrusted to employees of the building, nor for loss or damage to any property
by theft or otherwise, nor for any injury to or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, building or from
the pipes, appliances or plumbing works therein or from the roof, street, or
subsurface or from any other place resulting from dampness or from any other
cause whatsoever, unless caused by or due to the negligence of LJMG, its agents,
servants or employees. Further, LJMG shall not be liable for loss of business by
Tenant, nor shall LJMG be liable for any latent defect in the premises in the
premises or in the building. Tenant shall give prompt notice to LJMG in case of
fire or accidents in the premises or in the building or of defects therein or in
the fixtures or equipment.
14. LIABILITY INSURANCE
Tenant shall, at Tenant's sole expense, obtain and keep in force during the term
of this Lease a policy of comprehensive public liability insurance, with bodily
injury and property damage aggregate limits in an amount not less than three
hundred thousand dollars ($300,000), insuring LJMG and Tenant against any
liability arising out of the use, occupancy or maintenance of the premises and
all areas that are appurtenant thereto. The limit of said insurance shall not,
however, limit the liability of Tenant hereunder.
15. UTILITIES
Provided Tenant shall not be in default as set forth in articles 6 and 18
hereunder, LJMG agrees to furnish in reasonable quantities based on recognized
normal business hours of 7:30 a.m. to 5:30 p.m., on generally recognized
business days and subject to the rules and regulations of the building, electric
current for lighting and normal office use only, common restroom facilities with
hot and cold water, heating and/or air conditioning. LJMG will provide the
aforementioned utilities as provided in its master lease agreement at no
additional cost to tenant if use does not exceed the provisions discussed in
this paragraph above. LJMG shall not be liable to Tenant for any damage or
failure to furnish such services, as specified above, when such failure is
caused by breakage, repairs, strikes, lockouts, or by any other cause, similar
or dissimilar, beyond the reasonable control of LJMG.
IF, AT ANY TIME DURING THE TERM OF THIS LEASE, TENANT DECIDES WITH LJMG'S
APPROVAL, TO BRING IN HIS/HER OWN COPIER, TENANT WILL BE CHARGED $50.00 PER
MONTH FOR ADDITIONAL SDG&E CHARGES, TO BE INCLUDED IN THE SERVICES AS OUTLINED
IN PARAGRAPH 10.
/s/ R.A.
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<PAGE>
* Janitorial service is included as part of the tenancy & Monday-Friday.
16. USE OF ADDRESS
Subject to the provisions of this section (16), Tenant is hereby authorized to
use the address of LJMG as Tenant's business address. In the event that this
Lease terminates or any or all charges are not kept current, LJMG may terminate
Tenant's right to use the address. LJMG agrees that for a period of thirty (30)
days after notification to Tenant or termination of this Lease, LJMG will, at no
charge to Tenant, either (i) hold Tenant's mail at the premises or (ii) return
all mail to sender. LJMG further agrees to hold all such mail beyond the thirty
(30) day period, and for such period as Tenant elects, provided that Tenant pays
to LJMG a monthly service fee. Landlord permits Tenant's use of address in
Yellow Page Advertisement.
17. EMPLOYEES
Tenant recognizes that LJMG, in order to provide services to Tenant and other
lessees similar to Tenant, must expend significant time and money in training
LJMG employees. Tenant, therefore, agrees that during the term of this Lease and
for six (6) months after its termination, Tenant will not offer employment to or
hire any employee currently employed with LJMG, any former employee that has
previously terminated their relationship with LJMG for a period of not less than
120 days. Unless Tenant obtains an express written waiver from LJMG of the
provisions of this section, Tenant shall be liable to LJMG for damages in the
sum of twenty-five percent (25%) of the annual compensation of any employee, or
former employee hired by Tenant in violation of this paragraph. LJMG will
provide a list of current and former employees to Tenant prior to Lease
signature and thereafter when changes in LJMG employees occur. Tenant and LJMG
agree that this provision for liquidated damages is reasonable and the actual
damage that would be sustained by LJMG as the result of failure to honor this
paragraph would be, from the nature of the case, impracticable or extremely
difficult to fix.
18. DEFAULT
The occurrence of any one or more of the following events shall constitute a
default and breach of this Lease by Tenant.
(i) The failure of Tenant to comply with all laws, and other
requirements regulating the
/s/ R.A.
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<PAGE>
conduct of Tenant's business;
(ii) The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant hereunder as and when due,
where such failure shall continue for a period of three (3) days
after written notice thereof by LJMG to Tenant;
(iii) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed
by Tenant, where such failure shall continue for a period of thirty
(30) days after written notice thereof by LJMG to Tenant or;
(iv) The abandonment of the premises by Tenant.
19. REMEDIES IN DEFAULT
In the event of any default with cure periods provided in paragraph 18 above, or
breach by Tenant, LJMG may at any time thereafter, with or without notice or
demand and without limiting LJMG in the exercise of a right or remedy which LJMG
may have by reason of such default or breach:
19(a). Terminate Tenant's right to possession of the premises by any lawful
means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the premises to LJMG. In such an
event, LJMG shall be entitled to recover from Tenant all damages incurred
by LJMG by reason of Tenant's default including, but not limited to, the
cost of recovering possession of the premises; expenses of reletting,
including necessary renovation and alteration of the premises; reasonable
attorney's fees; the worth at the time of award by the court having
jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of
such rental loss for the same period that Tenant proves could be
reasonably avoided. Unpaid installments of rent or other sums shall bear
interest from the date due at the allowable maximum rate provided by law.
In the event Tenant shall have abandoned the premises, LJMG shall have
the option of (a) taking possession of the premises and recovering from
Tenant the amount specified in this paragraph, or (b) proceeding under
the provisions of the following subsection 19(b).
19(b). Maintain Tenant's right to possession, in which case this Lease shall
continue in effect whether or not Tenant shall have abandoned the
premises. In such an event, LJMG shall be entitled to enforce all of
LJMG's rights and remedies under this Lease, including the right to
recover the rent as it becomes due hereunder.
19(c). Pursue any other remedy now or hereafter available to LJMG under the laws
or judicial decisions of the State of California.
/s/ R.A.
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<PAGE>
20. HOLDING OVER
Should Tenant continue in possession of the premises after expiration or any
other termination of the term and without LJMG written consent, such possession
shall be under the provisions of this Lease, except that such occupancy shall be
a tenancy from month to month at a rental in an amount equal to 150% of the last
monthly rental, plus all other charges payable hereunder, shall continue at such
rate until possession is surrendered, and shall be governed by all other terms
herein applicable to a month to month tenancy. LJMG shall be entitled to
exercise all remedies available to LJMG on account of such continued possession,
and Tenant's obligation to pay rent and all other charges payable hereunder
shall be in addition, and without prejudice, to such remedies.
21. BUILDING MASTER LEASE
Tenant hereby acknowledges that LJMG is a Tenant pursuant to a Master Lease with
Manufacturers Life Insurance Company dated January 1, 1994, with respect to the
premises herein leased. A copy of the building rules and regulations are
contained in Exhibit B. Tenant understands the occupancy of the premises is
subject to, in addition to this Lease, the provisions of the Master Lease.
Tenant will comply with all rules, regulations and requirements of the building
in which the premises are located and with other reasonable rules and
regulations established by LJMG and relating to the premises and Tenant's use
thereof. LJMG will have no responsibility to Tenant for violation of any Lease
provisions or rules and regulations by any other Tenant of LJMG. Termination of
the Master Lease will terminate this Lease and all of LJMG's obligation
hereunder.
22. ATTORNEY'S FEES
In the event of any legal action or proceeding by Tenant or LJMG against the
other under the terms of this Lease, the prevailing party shall be entitled to
recover all expenses and costs, including reasonable attorneys' fees and costs
of appeal, if any.
23. NOTICE
All notices by Tenant or LJMG to the other must be in writing. Notices to Tenant
will be considered given if delivered personally to Tenant or one of Tenant's
officers or mailed by registered or certified mail, postage prepaid, addressed
to Tenant at the address appearing below Tenant's signature herein. Notices to
LJMG will be considered given if personally delivered to the Owner or Leasing
Manager, mailed by registered or certified mail, postage prepaid, to LJMG at
LJMG's address set forth below signature herein. Either party may change the
address to
/s/ R.A.
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<PAGE>
which it is to receive notice hereunder by designating such new address in
writing pursuant to the provisions of this section 23.
24. SUCCESSORS AND ASSIGNS
All the terms, covenants and conditions of this Lease shall inure to the benefit
of and be binding upon the successors and assigns of LJMG and, subject to the
restrictions on assignment herein contained, the successors and assigns of
Tenant to the same extent that said terms, covenants and conditions inure to the
benefit of and are binding upon LJMG and Tenant respectively.
25. TIME
Time is of the essence of this Lease and each and all of its provisions in which
performance is a factor.
26. SEPARABILITY
The invalidity or unenforceability of any provision hereof shall not affect or
impair the validity of any other provision. No waiver of any default of tenant
shall be implied by any failure of LJMG to take action with respect to such
default.
27. TELEPHONE SYSTEM
Landlord shall provide Tenant access to a telephone system and telephone
devices. The number and nature of telephone devices to be installed upon the
demised premises shall be determined by Landlord. It shall be Landlord's
responsibility to obtain and install such telephone devices and provide access
to the telephone system servicing the building. In consideration therefore,
Tenant shall pay to Landlord an installation, set-up and programming fee as
delineated in 10a. Tenant shall pay to Landlord monthly rental and service
charges unless specifically included in the rent. Such sums shall be paid by
Tenant to Landlord on the first day of the month before 4:00 p.m., after
Landlord submits to Tenant a statement, in writing, setting forth the amount of
such fees and charges. Upon notice from Tenant, Landlord shall refer the new
telephone number for 30 days at no charge, after which Landlord can continue to
provide a forwarding number at $60.00 per month.
28. SALE, LEASE OR ASSIGNMENT OF LJMG
The term "Landlord" as used in this Lease, means only the owner for the time
being of the right
/s/ R.A.
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<PAGE>
to possession of the 2nd Floor of the Merrill Lynch Building, so that in the
event of any sale or transfer or transfers of the 2nd Floor or the making of any
lease or leases thereof, or the sale or the transfer or transfers or the
assignment or assignments of any such lease or leases, previous landlords shall
be and hereby are relieved of all covenants and obligations of Landlord
hereunder. It shall be deemed and construed without further agreement between
the parties, or their successors in interest, or between the parties and the
transferee or acquiror, at any such sale, transfer or assignment, or lessee on
the making of such lease, that the transferee, acquiror or lessee has assumed
and agreed to carry out any and all of the covenants and obligations of the
Landlord hereunder to Landlord's exoneration, and Tenant shall thereafter be
bound to and shall attorn to such transferee, acquiror or lessee, as the case
may be, as Landlord under this Lease.
29. PRIOR AGREEMENTS
This agreement supersedes any prior agreement and embodies the entire agreement
between Tenant and LJMG relative to its subject matter, and may not be modified,
changed or altered in any way except in writing signed by each of the parties.
This Lease shall be interpreted and enforced in accordance with the Laws of the
State of California.
30. RECOVERING COSTS BEYOND LANDLORD'S CONTROL
If services included in the rent determined by outside vendors or governmental
agencies increase (for example parking), Landlord reserves the right to pass the
increase through to Tenant by Notifying Tenant with a written 30 day notice.
/s/ R.A.
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<PAGE>
31. SPECIAL PROVISIONS
By insertion of Exhibit listings in the following space provided in this
section, Landlord and Tenant acknowledge that Exhibits listed are attached
hereto and made a part hereof. If nothing is set forth in the following space
provided in this section, it is conclusive that no additional provisions or
Exhibits are part of this Lease.
The following listing of Exhibits are considered a part of this Lease
Agreement: EXHIBIT "A", FLOOR PLAN; EXHIBIT "B", RULES AND REGULATIONS;
EXHIBIT "C", PAYMENT TERMS; EXHIBIT "D", PRICE LIST. INITIAL FOR RECEIPT OF
EXHIBITS.
LANDLORD TENANT
LJMG, INC., BoysToys.com, Inc.
a California corporation
Address: 7825 Fay Avenue Address: 7825 Fay Avenue, Suite
Suite 200 La Jolla, CA 92037
La Jolla, CA 92037
BY: /s/ Catharina M.L. Hamilton BY: /s/ Ralph Amato
------------------------------------- ----------------------------------
Catharina M.L. Hamilton TITLE: CEO
TITLE: Its President/CEO -------------------------------
NAME: Ralph Amato
--------------------------------
(Please Print)
DATE: 7/6/99 DATE: 6-1-99
----------------------------------- --------------------------------
/s/ R.A.
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<PAGE>
408 - 412 BROADWAY
SAN FRANCISCO, CALIFORNIA
LEASE
THIS LEASE is made and entered into this 1 day of August, 1994, by and
between ROMA CAFE, INC., a California corporation, (collectively "Landlord") and
BOYS TOYS, INC., a California corporation ("Tenant").
ARTICLE 1
PREMISES
For and in consideration of the Rent to be paid, the covenants to be
performed and the agreements to be kept by Tenant, Landlord hereby leases to
Tenant and Tenant hereby leases from Landlord that certain real property
commonly known as 408 and 412 Broadway Street, San Francisco, California (the
"Premises"). The Premises consist of an entire building consisting of two (2)
floors and an alleyway along the west-side of the building.
ARTICLE 2
TERM
2.1 TERM. The term of this Lease shall commence upon the opening of the
Premises to the public for business as provided in Article 6 below, (the
"Commencement Date") and continue thereafter, for a period of ten (10)
consecutive years, at which time this Lease shall end, unless sooner terminated
pursuant to the provisions of this Lease, or extended as provided in Paragraph
2.2, below. Provided, however, that notwithstanding when Tenant opens the
Premises for business, the Commencement Date hereof shall be no later than
February 1, 1995. The parties agree that they will execute an addendum to this
Lease at such time as the actual Commencement Date becomes known setting forth
specifically the Commencement Date and the date the initial lease term shall
expire.
2.2 OPTION TO EXTEND. Provided Tenant is not in default of any of the terms,
covenants, conditions and restrictions herein agreed to, Tenant is hereby
granted two successive options to extend the term of the Lease for a period of
five (5) years each. Each such option period is herein referred to as an
"Extended Term". Tenant shall extend the term of this Lease, if at all, by
written notice given to Landlord not less than one hundred eighty (180) days
prior to termination of the initial term of this Lease or, with respect to the
Second Extended Term, not less than one hundred eighty (180) days prior to
expiration of the First Extended Term. Upon extension of the term hereof, this
Lease shall remain in full force and effect, in accordance with all the terms
and conditions set forth herein, provided that the Monthly Rent payable shall be
determined in accordance with the provisions of Section 3.2 below.
2.3 POSSESSION. Notwithstanding the Commencement Date set forth above, Tenant
shall take possession of the Premises, and Landlord shall deliver same, upon
execution of this Lease by all parties. The parties contemplate that Tenant will
undertake, at Tenant's expense, certain Tenant improvements to the Premises as
set forth more fully at Paragraph
<PAGE>
9.1 below. During the time period beginning upon possession of the Premises
being delivered to Tenant and ending on the Commencement Date, Tenant shall
perform, and be responsible for, each and every covenant, condition, obligation
and agreement imposed upon Tenant by this Lease, save and accept payment of any
monthly rental amount for the Premises. Tenant's obligation to pay rent shall
not begin until the Commencement Date.
2.4 BUSINESS LICENSING. Notwithstanding any term herein to the contrary,
should Tenant be unable to secure all governmental licensing necessary to
operate Tenant's intended business as described in Article 6 by August 31, 1994,
this Lease shall terminate at the option of Tenant.
ARTICLE 3
RENT
3.1 MONTHLY RENT. Tenant shall pay to Landlord as Monthly Rent for the
Premises in advance on the first (1st) day of each calendar month throughout
the term of this Lease without any prior notice, demand, deduction or offset,
the sum determined in accordance with the following schedule. For purposes of
determining the Monthly Rent below, each "year shall be defined as each
twelve (12) month period during the term hereof beginning on the Commencement
Date.
<TABLE>
<S> <C> <C>
Years One $11,000 per month
Years Two and Three $11,500 per month
Years Four and Five $12,000 per month
Years Six and Seven $12,500 per month
Year Eight $13,000 per month
Year Nine $13,500 per month
Year Ten $14,000 per month
</TABLE>
The obligation to pay Monthly Rent hereunder shall commence on the
Commencement Date as defined herein. If the Commencement occurs other than on
the first day of a calendar month, then the first month's rent due hereunder
on the Commencement Date shall be prorated in direct proportion as the
remaining number of days in the month bears to the total number of days in
that month. Said partial month shall count as the first (1st) month in
determining the Monthly Rent due under the above schedule.
3.2 EXTENDED TERM RENT. The Monthly Rent payable during each Extended Term
of the Lease shall be subject to adjustment at the commencement of the
Extended Term and each year, thereafter ("the adjustment date") as follows:
The base for computing the adjustment is the Consumer Price Index,
published by the United States Department of Labor, Bureau of Labor Statistics
for the San Francisco/Northern California region ("Index"), which is published
for the end of the month twelve (12) months prior to the adjustment date
("Beginning Index"). If the Index published nearest the adjustment date
("Extension Index") has increased over the Beginning Index, the Monthly Rent for
the following year (until the next rent adjustment) shall be set by multiplying
the
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<PAGE>
Monthly Rent due the month prior to the adjustment date by a fraction, the
numerator of which is the Extension Index and the denominator of which is the
Beginning Index. In no case shall the Monthly Rent be less than the Monthly Rent
due in the month prior to the adjustment date. On adjustment of the Monthly Rent
as provided in this Lease, the parties shall immediately execute an amendment to
the Lease stating the new Monthly Rent.
If the index is changed so that the base year differs from that used as
of the end of the month immediately preceding the month in which the term
commences, the Index shall be converted in accordance with the conversion factor
published by the United States Department of Labor, Bureau of Labor Statistics.
If the Index is discontinued or revised during the term, such other government
index or computation with which it is replaced shall be used in order to obtain
substantially the same result as would be obtained if the Index had not been
discontinued or revised.
3.3 LATE CHARGE. If Tenant fails to pay within ten (10) days after the due
date thereof any Monthly Rent charges or other amounts payable to Landlord by
Tenant under the terms of this Lease, Tenant shall immediately pay to Landlord a
late charge equal to five percent (5%) of the delinquent amount. Tenant
acknowledges that such late payment by Tenant will cause Landlord to incur costs
and expenses not contemplated under this Lease, the exact amount of which could
be impracticable or extremely difficult to fix. Such costs and expenses will
include, without limitation, administrative and collection costs and processing
and accounting expenses. Landlord and Tenant agree that this late charge
represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for its loss suffered by Tenant's failure to make
timely payment. Landlord's acceptance of this late charge shall not constitute a
waiver of Tenant's default with respect to nonpayment by Tenant nor prevent
Landlord from exercising all other rights and remedies available to Landlord
under this Lease.
ARTICLE 4
SECURITY DEPOSIT
Within two (2) business days following execution hereof, Tenant shall
deposit with Landlord the sum of Eleven Thousand Dollars ($11,000) which sum
shall be held, applied and considered as the first month's rent due hereunder.
Within ninety (90) days following execution hereof, Tenant shall deposit with
Landlord an additional Fourteen Thousand Dollars ($14,000) which sum shall be
held as security for the full and faithful performance of every provision of
this Lease to be performed by Tenant. If Tenant fails to pay rent or other
charges due hereunder, or otherwise breaches its obligations under any provision
of this Lease, Landlord may use, apply or retain all or any portion of the
deposit for the payment of any rent or other charge in default or for the
payment of any other sum to which Landlord may become obligated by reason of
Tenant's breach, or to compensate Landlord for any loss or damage which Landlord
may suffer thereby. If Landlord so uses or applies all or a portion of the
Security Deposit, Tenant shall, within five (5) days after demand therefore,
deposit cash with Landlord in an amount sufficient to completely restore the
Security Deposit, and Tenant's failure to do so shall be a breach of this Lease.
If Tenant performs all of Tenant's obligations hereunder, the Security Deposit
or any balance thereof shall be applied toward the rental amount due for the
last month for which Tenant is obligated to pay rent hereunder. The exercise by
Landlord of any of its rights under this Article 4 shall be without prejudice to
the exercise by Landlord of any other rights or remedies to which Landlord may
be entitled.
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<PAGE>
ARTICLE 5
TAXES
5.1 REAL PROPERTY TAXES. Tenant shall pay before delinquent all Real Property
Taxes, as defined below, assessed against the Premises during the term of this
Lease. "Real Property Taxes" shall be defined as any form of real estate tax or
assessment, general, special, ordinary or extraordinary, including any business
license fee, commercial rental tax, improvement bond or bonds, levy or tax, but
shall not include any municipal, county, state or federal income or franchise
tax of any municipal, county or state. If at any time during the term of the
Lease, the laws concerning the methods of real property taxation are changed so
that a tax or excise on rents or other such tax, fee, levy, assessment or
charge, however described, is levied or assessed against Landlord as a direct
substitution in whole or in part for any Real Property Taxes, then Tenant shall
pay before delinquency Tenant's proportionate share of such substitute tax,
excise or other amount.
Tenant shall not be obligated to pay any increase in Real Property Taxes
that result from a change in ownership of the Premises.
Tenant shall pay to Landlord the Real Property Taxes assessed against the
Premises in twelve (12) equal monthly installments for each year of the Lease
term commencing on the Commencement Date. Landlord shall provide to Tenant
reasonable documentation evidencing the amount of Real Property Taxes payable
with respect to calendar year 1994, and the calculation of the monthly Real
Property Taxes payable by Tenant to Landlord commencing on the Commencement
Date. In the event that the amount actually paid to Landlord for any calendar
year is less than the amount Tenant is obligated to pay hereunder, then Tenant
shall within thirty (30) days after receipt of such documentation from Landlord,
pay the difference to Landlord. Further, in the event Tenant has paid more to
Landlord than obligated hereunder, then the excess shall be credited against
future payments of Real Property Taxes by Tenant to Landlord; provided that,
upon expiration of this Lease, Landlord shall immediately reimburse to Tenant
any such excess.
Real Property Taxes shall be subject to proration in determining Tenant's
share thereof on the basis of a three hundred sixty-five (365) day year, in
order to account for any Lease Year of less than twelve (12) full calendar
months.
5.2 PERSONAL PROPERTY TAXES. Tenant shall pay, before delinquency, all taxes,
assessments, license fees, and public charges levied, assessed, or imposed upon
its business operation, as well as upon all trade fixtures, leasehold
improvements, merchandise, and other personal property in, on, upon or about the
Premises. If any taxes on Tenant's personal property are levied against Landlord
or Landlord's property, or if the assessed value of the Premises is increased by
the inclusion of a value placed on Tenant's personal property, and if Landlord
pays the taxes on any of these items or taxes based on the increased assessment
of these items, which Landlord shall have the right to do regardless of the
validity of such assessment or levy, Tenant shall immediately reimburse Landlord
for the sum of such taxes levied against Landlord or the proportion of the taxes
resulting from the increase in Landlord's assessment upon receipt by Tenant of a
statement therefor accompanied by supporting data showing Landlord's calculation
and determination thereof.
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<PAGE>
ARTICLE 6
USE
6.1 USE OF THE PREMISES; TRADE NAME. Tenant shall use the Premises as an
upscale gentleman's club, including lunch and dinner dining facilities, an
alcohol-related beverage lounge and live entertainment. Tenant shall not use the
Premises for any other use without the prior written consent of Landlord.
6.2 COMPLIANCE WITH LAW. Tenant shall not use the Premises or permit anything
to be done in or about the Premises that will in any way violate any law,
statute, ordinance, or governmental rule or regulation or requirement of
duly-constituted public authorities now or hereinafter in force, including
without limitation any applicable zoning ordinances, building codes, or any
requirements of any board of fire underwriters or other similar body. Tenant
shall at its sole cost and expense determine whether it is in compliance with
the foregoing and shall obtain all necessary government approvals and permits.
Tenant shall promptly comply with all applicable laws, statutes, ordinances,
judgements, orders, rules, regulations, and other requirements now or hereafter
in force and with the requirements of any board of fire underwriters which now
or hereafter relate to or affect the condition, use, or occupancy of the
Premises. Nothing herein shall obligate or entitle the Tenant to make any
structural changes to the Premises or do any other improvements or acts which
are the responsibility of or which would otherwise require the consent of
Landlord hereunder.
6.3 USES PROHIBITED.
(a) Tenant shall not, at any time during the term of this Lease, make any
use of, attach anything to, paint or cover any portion of the exterior of the
Premises, other than for the attachment of any signs or construction of any
other improvements as may be specifically permitted hereunder.
(b) Tenant shall not at any time during the term of this Lease, carry any
stock of goods or do anything on or about the Premises, that will in any way
tend to increase the insurance rates payable with respect to the Premises.
(c) The Premises shall not be overloaded beyond the maximum floor load
capacity of the Premises. In the event Landlord determines that the floor load
capacity has been exceeded, Landlord shall notify Tenant of such condition and
Tenant shall immediately correct such condition.
(d) Tenant shall not cause, maintain, or permit any nuisance in, on, or
about the Premises. Tenant shall not commit or suffer to be committed any waste
in or upon the Premises.
ARTICLE 7
UTILITIES
Landlord agrees that it will cause to be made available to Tenant upon
the Premises facilities for the delivery to and distribution within the Premises
of water, electricity, telephones, and for the removal of sewage. In the event
the initial Tenant Improvements set forth in Article 9.1 require an increase in
the electrical supply or addition of a larger transformer for the Premises, then
Landlord shall be responsible for the cost to provide such electrical supply
increase and/or larger transformer.
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<PAGE>
Tenant shall pay, prior to delinquency, for all water, gas, electricity,
telephone, sewage, janitorial service, all other services, materials, and
utilities supplied to the Premises.
Tenant shall store all trash and garbage in good quality containers
within the Premises and arrange for the regular pickup of such trash and garbage
at Tenant's expense. Tenant shall not allow refuse, garbage, or trash to
accumulate outside the Premises, except on the date of scheduled pickup service,
and then only in areas designated by Landlord.
Landlord shall not be liable to Tenant or any other person for, and
neither Tenant nor any other person shall be entitled to, any abatement or
reduction of rent or any damages because of any reduction or suspension in
utility service resulting from the act or failure to act of Tenant, or to the
extent that any such reduction or suspension is for a period of not greater than
twenty-four (24) hours. Landlord's failure to furnish any of the foregoing
service and utility items when such failure is caused by (i) accident, breakage,
or repairs, (ii) strikes, lockouts or other labor disturbance or labor dispute
of any character, (iii) governmental regulation, moratorium or other
governmental action, (iv) inability despite the exercise of reasonable diligence
to obtain electricity, water or fuel, or by (v) any other cause beyond
Landlord's reasonable control, shall not result in any liability to Landlord. In
the event of any failure, stoppage or interruption thereof, Landlord shall
diligently attempt to resume service promptly. No such stoppage of service shall
entitle Tenant to terminate this Lease.
ARTICLE 8
REPAIRS AND MAINTENANCE
8.1 TENANT'S DUTIES. Excepting only matters to be repaired by Landlord as
hereinafter provided, Tenant during the entire term of this Lease shall keep and
maintain at its sole cost and expense the Premises in good, neat, clean and
sanitary order, condition, and repair. Without limiting the generality of the
foregoing, Tenant shall maintain in clean good operating condition and repair
its plumbing lines and drains, sprinkler systems, mechanical ducks, electrical
and lighting facilities and equipment within the Premises, fixtures, interior
walls and interior surface of exterior walls, ceilings, floors, floor coverings,
showcases, skylights, entrances and vestibules, Tenant's exterior signs, all
heat, ventilating and air conditioning equipment, as well as its metal work,
doors and the interior and exterior of all windows in the Premises, including
but not limited to replacement of all broken glass and plate glass, in the
Premises. Tenant shall paint the interior walls and interior surfaces of
exterior walls as often as may be required to keep the Premises neat and
attractive. In the event Landlord determines that the Premises or any windows
for which Tenant is responsible are not being kept or maintained as required by
this Lease, it shall have the right, following the giving of five (5) day's
advance notice, to repair, maintain or clean the Premises or such windows, all
at Tenant's sole cost and expense. Landlord shall have no liability to Tenant
for any damage, inconvenience or interference with the use of the Premises by
Tenant as a result of performing any such work. Nothing herein shall obligate or
entitle the Tenant to make any structural changes to the Premises or do any
other improvements or acts which are the responsibility of or which would
otherwise require the consent of the Landlord hereunder.
8.2 SURRENDER. Upon termination of the Lease by lapse of time, or otherwise
Tenant shall deliver the Premises in good operating condition and repair, broom
clean, ordinary wear and tear and damage by casualty alone excepted. Tenant at
its sole cost and expense shall
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repair any damage relating to the removal of any articles of personal property,
business or trade fixtures, machinery, equipment, cabinet work, furniture,
moveable partitions or improvements or alterations, including the repair of the
floor and walls as required by Landlord in Landlord's reasonable judgment.
8.3 LANDLORD'S DUTIES. Subject to the other provisions of this Lease
regarding any duty of Tenant to indemnify Landlord, Landlord shall at its sole
cost and expense keep in good order, condition and repair only the foundations,
all structural portions of the Premises, exterior walls and roof of the
Premises.
ARTICLE 9
ALTERATIONS AND ADDITIONS
9.1 INITIAL IMPROVEMENTS. Tenant shall construct Tenant Improvements to the
Premises as set forth in Exhibit "A" hereto. Said Tenant Improvements shall be
constructed, at Tenant's sole cost, in accordance with professionally prepared
plans and specifications which Landlord shall have the right to review, inspect
and approve prior to any improvements being commenced; provided, however, that
Landlord shall bear the cost of installing all necessary roofing surfaces on the
existing Premises and any Tenant Improvements constructed by Tenant hereunder.
Landlord may use a contractor of its choice to perform said work. Landlord's
consent shall be required prior to the performance of any Tenant improvement
contemplated pursuant to this Paragraph, which approval shall not be
unreasonably withheld. All Tenant Improvements performed under this Paragraph
9.1 shall also be done in compliance with the provisions of Paragraph 9.2.
9.2 ADDITIONAL ALTERATIONS. Except as provided in paragraph 9.1 above, Tenant
shall not make any alterations, additions, improvements or utility installations
(collectively and singularly referred to as "Work(s) of Improvement" in, on or
about the Premises without the prior written consent of Landlord, except for
non-structural alterations, not exceeding Twenty Thousand Dollars ($20,000) in
cost, which do not involve the exterior of the Premises. The Landlord shall not
unreasonably withhold or delay the granting of consent to such Work of
Improvements, and shall respond to a request for consent within five (5)
business' days. The term "utility installations" as used herein shall be defined
the installation, addition, or alteration of any utility connections or services
including without limitation ducting, power panels, fixtures, switched, space
heaters, and wiring. If consent of Landlord to any proposed Work of Improvement
by Tenant shall have been obtained. Tenant agrees to advise Landlord in writing
in advance of the date upon which such Work of Improvement will commence in
order to permit Landlord to post a timely notice of non-responsibility as set
forth in Article 10 herein. Tenant shall submit to Landlord all plans and
specifications with respect to any such Work of Improvement, including without
limitation the names of all contractors performing such work.
All Works of Improvement must be performed by a licensed Contractor, be
done in a good and workmanlike manner and diligently prosecuted to completion.
Upon completion of such work, Tenant shall file a Notice of Completion as
permitted by law. Any such Work of Improvement shall be performed and done
strictly in accordance with the laws and ordinances relating thereto. Landlord
shall have the right, but not the obligation to inspect the Work of Improvement.
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All Works of Improvement shall at the expiration or earlier termination
of the Lease become the property of the Landlord and remain upon and be
surrendered with the Premises; provided, however, that the personal property,
business and trade fixtures, cabinet work, furniture, removable partitions,
machinery and equipment (other than that which is affixed to the Premises so
that it cannot be removed without material damage to the Premises) shall remain
the property of Tenant and may be removed by Tenant at any time during the term
of this Lease, subject to any restrictions on such removal which may be imposed
by other provisions of this Lease.
ARTICLE 10
LIENS
Tenant shall keep the Premises free from any liens arising out of work
performed, materials or services, supplied or claimed to have been supplied to
Tenant, or anyone holding the Premises, or any part thereof through or under
Tenant. If any such lien shall at anytime be filed against the Premises, Tenant
shall either cause the same to be discharged of record within ten (10) days
after the date of filing same or if Tenant, in Tenant's discretion and in good
faith, determines that such liens should be contested, shall furnish such
security as may be necessary or required to (i) prevent any foreclosure
proceeding against the Premises during pendency of such contest, and (ii) cause
a mutually satisfactory title company to remove such lien affecting title to the
Premises. In the event that Tenant shall not, within said ten (10) day period
cause such lien to be released of record, Landlord shall have, in addition to
all other remedies provided herein and by law, the right, but not the
obligation, to cause the same to be released by such means as it shall deem
proper, including payment of the claim giving rise to such lien. All such sums
paid by Landlord and all expenses incurred by it in connection therewith,
including but not limited to, attorneys' fee and Landlord's costs and expenses,
shall be payable to Landlord by Tenant on demand with interest at the Overdue
Rate. Nothing contained herein shall imply any consent or agreement on the part
of Landlord to subject the Premises to liability under any mechanic's or other
lien law. Landlord shall have the right at all times to post and keep posted on
the Premises any notices permitted or required by law, or that Landlord shall
deem proper, for the protection of Landlord and the Premises, and any other
party having an interest therein, from mechanic's and materialmen's liens;
Tenant shall give to Landlord at least fifteen (15) business' days prior written
notice of the expected date of commencement of any Work of Improvement.
ARTICLE 11
ENTRY BY LANDLORD
Landlord and its authorized representatives shall have free access to
the Premises at all reasonable times during normal business hours upon not
less than forty-eight (48) hours' notice (i) to inspect the Premises, (ii) to
exhibit the same to prospective purchasers, mortgagees, or tenants, (iii) to
determine whether Tenant is complying with all of Tenant's obligations
hereunder, (iv) to supply any service to be provided by Landlord to Tenant
hereunder, (v) to post notices of non-responsibility or other notices that
may be permitted hereunder, and (vi) to make repairs required or permitted to
be made by Landlord under the terms hereof. Notwithstanding the above,
Landlord shall have the right to enter the Premises at any time in order to
make any and all emergency repairs. As used herein, emergency shall mean
circumstances which have caused or may cause material damage to the Premises
or its value or circumstances in which Tenant is in default under the terms of
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the Lease. Tenant hereby waives any claim for damages for any injury,
inconvenience to or interference with Tenant's business or any loss of occupancy
or quiet enjoyment of the Premises, which result from Landlord's entry into the
Premises or any work performed therein by Landlord under the terms of this
Lease; provided, Landlord shall use reasonable efforts to minimize the impact
any such entry may have upon Tenant and the business of Tenant. Landlord shall
at all times have and retain a key with which to unlock the doors in, on or
about the Premises (excluding Tenant's vaults, safes, and similar areas
designated in writing by Tenant in advance) and Landlord shall have the right to
use any and all means which Landlord may deem proper to open such doors in an
emergency in order to obtain entry into the Premises. Any entry to the Premises
obtained by Landlord by any of said means or otherwise, shall not under any
circumstances be construed as unlawful entry into or unlawful detainer of the
Premises or an eviction (actual or constructive) of Tenant from the Premises or
any portion thereof.
ARTICLE 12
INDEMNITY AND EXEMPTION OF LANDLORD FROM LIABILITY
Tenant shall indemnify, defend and hold Landlord harmless from all
claims arising from Tenant's use of the Premises or the conduct of its
business or from any activity, work, or thing done, permitted or suffered by
Tenant in or about the Premises. Tenant shall further indemnify, defend and
hold Landlord harmless from all claims arising from any breach or default in
the performance of any obligation to be performed by tenant under the terms
of this Lease, or arising from any act, neglect, fault or omission of Tenant
or of its agents or employees, and from and against all costs, attorney's
fees, expenses and liabilities incurred in or about such claim or any action
or proceeding brought thereon. In case any action or proceeding brought
against Landlord by reason of any such claim, Tenant upon notice from
Landlord shall defend the same at Tenant's expense by counsel approved in
writing by Landlord. Tenant, as a material part of the consideration to
Landlord, hereby assumes all risk of damage to property or injury to person
in, upon or about the Premises from any cause whatsoever, except that which
is caused by the failure of Landlord to observe any of the terms and
conditions of this Lease where such failure has persisted for any
unreasonable period of time after written notice of such failure. Tenant
hereby waives all its claims in respect thereof against Landlord.
ARTICLE 13
INSURANCE
13.1 TENANT'S POLICIES OF INSURANCE. From and after the date Tenant takes
possession of the Premises and thereafter throughout the Lease term, Tenant
shall procure and maintain at its sole cost and expense, the following insurance
coverage.
(a) Comprehensive General Liability Insurance insuring Tenant and
Landlord against any liability arising out of Tenant's use, occupancy, repair or
maintenance of the Premises or its business operated in the Premises, with
combined single limit for bodily injury or death and property damage of not less
than Two Million Dollars ($2,000,000) per occurrence. Such comprehensive general
liability insurance shall include a contractual liability endorsement covering
tenant's obligations under Article 12 herein.
(b) Standard form fire insurance, providing protection against any peril
included within the classification of "Fire and Extended Coverage," including
but not limited to,
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insurance against sprinkler damage, vandalism, malicious mischief, and water
damage (from roof leakage, ground water are otherwise), covering (i) the whole
of the Building and real property upon which the Premises is located, including
all improvements thereto, (ii) Tenant's alterations, additions and improvements,
and (iii) Tenant's trade fixtures, merchandise, and personal property from time
to time in, on, or upon the Premises, all in an amount not less than the full
replacement value of said Building, improvements and fixtures. Tenant agrees to
carry such insurance, it being expressly understood and agreed that none of the
items to be insured by Tenant hereunder shall be insured by Landlord, nor shall
Landlord be required to re-install, reconstruct, or repair any of such items.
Any policy proceeds shall be used for the repair or replacement of the property
damaged or destroyed unless this Lease shall cease and terminate under the
provisions of Article 14 hereof.
(c) Disability insurance and workmen's compensation insurance in such
amounts as required by applicable law.
(d) Such other insurance and in such amounts as may from time to time be
reasonably required by Landlord against other insurable hazards which at the
time of such requirement are commonly insured against in the case of premises
which are situated, constructed, used and occupied in a manner similar to the
Premises.
(e) All policies of insurance which Tenant is required to obtain under
this Article 13 shall (i) be approved as to form and substance by Landlord,
which approval shall not be unreasonably withheld, (ii) be issued by
insurance companies which are qualified to do business in the state in which
the Premises are located and rated A or better in the most recent version of
BEST'S INSURANCE GUIDE, (iii) be issued in the names of Landlord and Tenant
for the mutual and joint benefit and protection of Landlord and Tenant, (iv)
give Landlord thirty (30) days prior written notice of any cancellation,
lapse or reduction in the amount of insurance, and (v) contain an endorsement
containing an express waiver of any right of subrogation by the insurance
company against Landlord (whether Landlord is named as an insured or not).
All policies to be carried by Tenant hereunder shall be written as primary
policies, not contributing with and not in excess of coverage that Landlord
may carry. Tenant shall have the right to provide such insurance coverage
pursuant to comprehensive policies obtained by Tenant provided such
comprehensive policies expressly afford coverage to the Premises, Landlord
and Tenant as required by this Lease. Each policy of insurance required to be
carried by Tenant or a duplicate or certificate thereof shall be delivered to
Landlord prior to the date the Premises are delivered to Tenant and with
respect to any renewal or replacement policy prior to the expiration of the
policy it renews or replaces. If Tenant shall fail to procure or maintain any
insurance required hereunder or shall fail to furnish to Landlord any such
policy, duplicate policy or certificate as required, Landlord may at
Landlord's option obtain such insurance for the benefit of Tenant and
Landlord, and any premium or cost paid by Landlord for such insurance shall
be paid by Tenant to Landlord promptly upon Landlord's demand therefor. Any
such payment by Landlord shall be subject to interest at the maximum legal
rate from the date of payment until such time as Tenant reimburses Landlord
for such payment.
(f) In addition to the foregoing Tenant insurance requirements, Tenant
shall also have in place during all times construction is occurring at the
Premises an all risk construction or builder's insurance policy in an amount and
scope sufficient to cover all risks created by the construction, as Landlord may
determine.
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13.2 LANDLORD'S INSURANCE. Landlord may in addition, but shall not be required
to, procure and maintain excess coverage liability insurance, earthquake
insurance, flood damage insurance and/or rental income insurance, at its
election or as required by its lender, if any, from time to time during the term
hereof in such amounts and with such limits as Landlord or its lender may deem
appropriate. Any policies obtained by Landlord with respect to the Premises
shall name the Tenant as a co-insured.
In addition to all other sums due hereunder, Tenant shall pay to Landlord
the cost of Landlord's insurance as described herein. During the term of the
Lease, Tenant shall pay to Landlord on a Monthly Basis one-twelfth (12th) of
such amount. Landlord shall provide to Tenant reasonable documentation
evidencing the cost of such insurance to be paid by Tenant hereunder.
13.3 WAIVER OF SUBROGATION. Landlord and Tenant hereby waive any and all
rights of recovery against the other or against the officers, employees, agents,
and representatives, of such other party or of such other tenant or occupant of
the Premises to the extent Landlord or Tenant shall be held responsible and
liable for the actions of the aforesaid individuals, for loss of or damage to
such waiving party or its property or the property of others under its control
arising from any cause insured against by Landlord's and Tenant's respective
insurance policies. Tenant shall obtain and furnish evidence to Landlord of the
waiver by Tenant's Worker's Compensation carrier of any right of subrogation
against Landlord. Each party will provide evidence to the other of their
respective insurer's agreement to this provision within fifteen (15) days of
receipt of a written request therefor.
ARTICLE 14
DAMAGE AND DESTRUCTION
In the event the Premises is damaged by fire or other perils covered by
insurance coverage provided for herein, Landlord shall (i) in the event of total
destruction, at Landlord's option, as soon as reasonably possible thereafter,
commence repair, reconstruction and restoration of the Premises and prosecute
the same diligently to completion, in which event this Lease shall remain in
full force and effect; or within ninety (90) days after such damage, elect not
to so repair, reconstruct or restore the Premises, in which event this Lease
shall terminate. In either event, Landlord shall give Tenant written notice of
its intention within said ninety (90) day period. In the event Landlord elects
not to restore the Premises, this Lease shall be deemed to have terminated as of
the date of such total destruction. (ii) In the event of a partial destruction
of the Premises, to an extent not exceeding 25% of the full insurable value
thereof, and if the damage thereto is such that the Premises may be repaired,
reconstructed or restored within a period of ninety (90) days from the date or
the happening of such casualty and if insurance proceeds from policies provided
for herein sufficient to cover the cost of such repairs are available, then
Landlord shall commence and proceed diligently with the work of repair,
reconstruction and restoration and this Lease shall continue in full force and
effect. If such work of repair, reconstruction and restoration shall require a
period longer than ninety (90) days or exceeds 25% of the full insurable value
thereof, or if said insurance proceeds will not be sufficient to cover the cost
of such repairs, then Landlord either may elect to so repair, reconstruct or
restore and the Lease shall continue in full force and effect or Landlord may
elect not to repair, reconstruct or restore and the Lease shall then terminate.
Under any of the conditions of this subparagraph, Landlord shall give written
notice to Tenant of its intention within said ninety (90) day
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period. In the event Landlord elects not to restore the Premises, this Lease
shall be deemed to have terminated as of the date of such partial destruction.
Upon any termination of this Lease under any of the provisions of this
Article, the parties shall be released without further obligation to the other
from the date possession of the Premises is surrendered to Landlord except for
items which have therefore accrued and are then unpaid.
In the event of repair, reconstruction and restoration by Landlord as
herein provided, the rental payable under this Lease shall be abated
proportionately with the degree to which Tenant's use of the Premises is
impaired during the period of such repair, reconstruction or restoration and for
a reasonable time thereafter, associated with Tenant's refixturization and
restoration of improvements originally provided by Tenant to the Premises.
Tenant shall not be entitled to any compensation or damages for loss in the use
of the whole or any part of the Premises and/or any inconvenience or annoyance
occasioned by such damage, repair, reconstruction or restoration.
Tenant shall not be released from any of its obligations under this
Lease, except to the extent and upon the conditions expressly stated in this
Article. Notwithstanding anything to the contrary contained in this Article, if
Landlord is delayed or prevented from repairing or restoring the damaged
Premises within one (1) year after the occurrence of such damage or destruction
by reason of acts of God, war, governmental restrictions, inability to procure
the necessary labor or materials, or other cause beyond the control of Landlord,
Landlord shall be relieved of its obligation to make such repairs or restoration
and Tenant shall be released from its obligations under this Lease as of the end
of said one (1) year period.
If damage is due to any cause other than fire or other peril covered by
extended coverage insurance secured by Tenant under paragraph 13.1, Landlord may
elect to terminate this Lease.
Notwithstanding anything to the contrary contained in this Article 14,
Landlord shall not have any obligation whatsoever to repair, reconstruct or
restore the Premises when the damage resulting from any casualty covered under
this Article 14 occurs during the last twenty-four (24) months of the term of
this Lease or any extension hereof.
The provisions of California Civil Code Section 1932, Subsection 2, and
Section 1933, Subsection 2, and Section 1933, Subsection 4, which permit
termination of a lease upon destruction of the Premises, are hereby waived by
Tenant; and the provisions of this Article shall govern in case of such
destruction.
ARTICLE 15
EMINENT DOMAIN
15.1 TOTAL OR PARTIAL TAKING.
(a) In the event that at any time during the term of this Lease, title to
the whole of the Premises shall be taken by the exercise of the right to
condemnation or eminent domain or by agreement between the Landlord and those
authorized to exercise such right, this Lease shall terminate and expire on the
date of such taking (herein called the "Taking
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Date") and the rent provided to be paid by the Tenant shall be apportioned and
paid to the Taking Date.
(b) If 25% or more of the Premises shall be taken, or all reasonable
means of ingress and egress to and from the Premises are permanently eliminated
by reason of such a taking, then and in any such events, Landlord and Tenant
shall each have the right to terminate this Lease on the next date for payment
of Monthly Rent.
In the event the Lease is not terminated as provided above, the Monthly
Rent shall be reduced in the proportion that the square footage of the portion
of the Premises taken bears to the square footage of the Floor Area of the
Premises prior to the taking. Landlord shall promptly at its expense restore the
portion of the Premises not so taken and Tenant shall be responsible for
restoring all the interior improvements.
In the event Landlord is advised of an impending condemnation, Landlord
shall give written notice of such fact to Tenant within five (5) business' days
thereafter, and Tenant at its election, shall be entitled to participate in any
negotiations or litigation with the condemning authority.
In the event that Tenant is advised of an impending condemnation then
Tenant shall give written notice of such fact to Landlord within five (5)
business' days, thereafter.
15.2 COMPENSATION. Landlord shall be entitled to any and all compensation,
damages, income, rent, awards, or any interest whatsoever which may be paid or
made in connection with such taking, including without limitation any leasehold
"bonus value", and Tenant shall have no claim against Landlord for the value of
any unexpired term of the Lease. Notwithstanding the foregoing Tenant, at its
costs and expense, shall be entitled to separately claim, in any condemnation
proceeding, any damages payable for movable trade fixtures paid for and
installed by Tenant (or any persons claiming under Tenant) without any
contribution or reimbursement therefor by Landlord, and Tenant's loss of
business, and for Tenant's relocation costs.
ARTICLE 16
HAZARDOUS MATERIALS
16.1 DEFINITION. The term "Hazardous Materials" shall be defined as any so
defined and hazardous or toxic substance, material or waste, which is or becomes
so defined or regulated by any local governmental authority, the State of
California or the United States government.
16.2 OBLIGATION OF TENANT. Except as used in accordance with law and in
ordinary course of business, Tenant shall not cause or permit any hazardous
materials to be brought upon, kept or used in or about the Premises, whether by
Tenant, its agents, its employees, contractors or invitees. In the event, that
Tenant shall breach this obligation then Tenant shall indemnify, defend and hold
the Landlord harmless from any and all claims, judgments, damages, penalties,
fines, costs, expenses, liabilities and losses (including without limitation
diminution in value of the Premises and damages from the loss or restriction on
use of the Premises) and including reasonable attorneys' fees incurred by
Landlord in connection with such breach.
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16.3 LANDLORD'S OBLIGATION. Landlord shall be responsible for any Hazardous
Materials existing on the Premises prior to the date of this Lease.
ARTICLE 17
ASSIGNMENT AND SUBLETTING
17.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily, by operation
of law or otherwise, assign this Lease or enter into license or concession
agreements, sublet all or any part of the Premises, or otherwise transfer,
mortgage, pledge, hypothecate, or encumber all or any part of Tenant's interest
in this Lease or in the Premises or any part thereof, or suffer or permit the
Premises or any part thereof to be used by any third party other than Tenant,
its authorized agents, employees, invitees, and visitors, without Landlord's
prior written consent, and any attempt to do so without such consent being first
had and obtained shall be wholly void and shall constitute a breach of this
Lease. Landlord shall not unreasonably withhold or delay such consent. A period
of fifteen (15) days for the granting or denial of such consent shall not be
deemed to be an unreasonable delay.
Notwithstanding the foregoing, Tenant may assign or sublet all or any
portion of the Premises to a corporation affiliated with Tenant; provided that,
Tenant shall remain obligated to perform all of the obligations to be performed
by Tenant under the Lease. For purposes of the preceding sentence, a corporation
shall be deemed affiliated with Tenant if a majority of its outstanding capital
stock is owned by Tenant or by the same individuals that own a majority of the
outstanding capital stock of Tenant.
If Tenant requests Landlord to consent to a proposed assignment or
subletting, Tenant shall pay to Landlord, whether or not consent is ultimately
given, Landlord's administrative and legal fees and expenses incurred in
connection with any such request to a maximum of Seven Hundred Fifty Dollars
($750).
In the event of a subletting or assignment of the Premises pursuant to
which Tenant receives or contracts to receive an amount in excess of its
monetary obligations to Landlord, such excess less the cost associated with the
subletting or assignment, shall be deemed "profit". All profit, whether received
in monthly payments or as lump sum consideration shall be shared equally with
the Landlord on a fifty (50) fifty (50) basis as consideration for the consent
of Landlord to such subletting or assignment.
17.2 NO RELEASE OF TENANT. No consent by Landlord to any assignment of this
Lease or subletting of the Premises by Tenant shall relieve Tenant of any
obligation to be performed by Tenant under this Lease, whether occurring before
or after such consent to assignment or subletting of the Premises. The consent
by Landlord to any such assignment or subletting shall not relieve Tenant from
the obligation to obtain Landlord's express written consent to any other
subsequent assignment or subletting. The acceptance of rent by Landlord from any
other person shall not be deemed a waiver by Landlord of any provision of this
Lease or to be a consent to any other assignment or subletting. Consent to one
assignment or subletting shall not be deemed to constitute consent to any
subsequent assignment or subletting.
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ARTICLE 18
SUBORDINATION; QUIET ENJOYMENT; ATTORNMENT
18.1 SUBORDINATION. This Lease shall, at Landlord's option, be subject and
subordinate to ail ground or underlying leases that now or hereafter exist which
affect the Premises or the land upon which the Premises are situated or both,
and to the lien of any mortgages or deeds of trust in any amount or amounts
whatsoever now or hereafter placed on or against the Premises or improvements
thereon or on or against Landlord's interest or estate therein, without the
necessity of the execution and delivery of any further instruments on the part
of Tenant to effectuate such subordination. If any mortgagee, trustee, or ground
lessor shall elect to have this Lease prior to the lien of its mortgage, deed of
trust, or ground lease, and shall give written notice thereof to Tenant, this
Lease shall be deemed prior to such mortgage, deed of trust, or ground lease,
whether this Lease is dated prior or subsequent to the date of said mortgage,
deed of trust, or ground lease, or the date of the recording thereof. Tenant
covenants and agrees to execute and deliver upon demand without charge therefor
such further instrument evidencing such subordination of this Lease to such
ground or underlying leases and to the lien of any such mortgage or deeds of
trust as may be required by Landlord, provided, that Landlord first obtains from
the Lender a written agreement that provides substantially that as long as
Tenant performs its obligations under this Lease and is not in breach hereof (i)
no foreclosure, deed given in lieu of foreclosure, power of sale, or steps or
procedures taken under the encumbrance (collectively referred to as
"Foreclosure"), shall affect Tenant's rights under the Lease, and (ii) the
provisions of this Lease concerning the disposition of insurance proceeds
resulting from the destruction of the Premises, and the disposition of any
condemnation award, shall prevail over any conflicting provisions in the
encumbrance.
18.2 ATTORNMENT. In the event any proceedings are brought for default under
any ground or underlying lease or in the event of Foreclosure, Tenant shall
attorn to the ground or master lessor or the Foreclosure purchaser and recognize
such person as the Landlord, provided said person expressly agrees in writing to
be bound by the terms of the Lease.
18.3 ESTOPPEL CERTIFICATE. Tenant shall within ten (10) days after receipt of
written request from Landlord execute and deliver to Landlord, a certificate
stating (i) that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this Lease
as modified is in full force and effect) and the dates to which Monthly Rent and
other charges are paid in advance, if any, (ii) that Landlord is not in default
under the Lease, or stating the nature of any alleged default, and (iii) such
other matters as may be reasonably requested. Tenant's failure to deliver such
statement within such time shall constitute a material breach of this Lease and
shall be conclusive upon Tenant (i) that this Lease is in full force and effect
without modification, except as may be represented by Landlord, (ii) that there
are no uncured defaults in Landlord's performance, (iii) that not more than one
month's Monthly Rent has been paid in advance, and (iv) as to such other matters
as may be specified in the request from Landlord.
18.4 QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon
Tenant paying said rent and performing all the covenants and conditions
aforesaid on Tenant's part to be observed and performed, Tenant shall and may
peaceably and quietly have, hold and enjoy the Premises hereby demised, for the
term aforesaid; subject, however, to the terms of this Lease and of the ground
leases, underlying leases and mortgages hereinabove mentioned.
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ARTICLE 19
SIGNS
Tenant may, during the term of this Lease, upon obtaining any and all
necessary permits from governmental authorities and provided that Tenant is and
shall be in compliance with the provisions of this Lease, erect and maintain, at
its cost and expense, signs of such dimensions and materials as it may
reasonably deem appropriate in or about the Premises. Such signs shall, at the
option of Landlord, be removed by Tenant upon the termination of its occupancy
of the Premises at its sole expense without damage to the Premises.
ARTICLE 20
DEFAULT REMEDIES
20.1 DEFAULTS BY TENANT. The occurrence of any of the following shall
constitute a material default and breach of this Lease by Tenant (i) any failure
by Tenant to pay rent or any other monetary sums required to be paid hereunder
where such failure continues for three (3) days after written notice has been
given to Tenant, (ii) the abandonment or vacation of the Premises by Tenant, or
(iii) a failure by Tenant to observe and perform any other express or implied
covenants or provisions of this Lease to be observed and performed by Tenant,
where such failure continues for ten (10) days after written notice thereof by
Landlord to Tenant; provided, however, that if the nature of the default is such
that the same cannot reasonably be cured within said ten (10) day period, Tenant
shall not be deemed to be in default if Tenant shall within such period commence
such cure and thereafter diligently prosecute the same to completion. Any such
notice of default shall be in lieu of, and not in addition to, any notice
required by law.
(a) REMEDIES. In the event of any such default or breach by Tenant,
Landlord may at any time thereafter, without limiting Landlord in the exercise
of any right or remedy at law or in equity that Landlord may have by reason of
such default or breach:
(i) Maintain this Lease in full force and effect and recover the rent
and other monetary charges as they become due, without terminating Tenant's
right to possession, pursuant to California Civil Code Section 1951.4; or,
(ii) Terminate Tenant's right to possession by any lawful means, in
which case this Lease shall terminate and Tenant shall immediately surrender
possession of the Premises to Landlord. In such event Landlord shall be entitled
to recover from Tenant all damages incurred by Landlord by reason of Tenant's
default as more particularly set forth in California Civil Code Section 1951.2,
including the worth at the time any judgment is obtained against Tenant of the
amount by which the unpaid rent for the balance of the term of the Lease exceeds
the amount of such rental loss for the same period that the Tenant proves could
reasonably have been avoided.
In addition, Landlord shall also be entitled to recover all leasing
commissions, costs of preparing the Premises for reletting and any other costs
and expenses in lieu of any of the foregoing or in addition thereto as may be
permitted from time to time by the laws of the State of California.
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For all purposes of this Article 20, the term "rent" shall be deemed to
be Monthly Rent and all other sums required to be paid by Tenant pursuant to the
terms of this Lease.
In the event of default and in the event that Landlord elects the remedy
set forth in Paragraph 20.1 (a)(i), Tenant shall have the right to assign
Tenant's interest in the Lease so long as Tenant obtains Landlord's written
consent thereto, which consent will not unreasonably be withheld. Landlord's
reasonable determination regarding consent for such assignment will be based on
certain facts and circumstances which shall include, but shall not be limited to
the proposed assignee's ability to comply with all of the terms and conditions
of the Lease, the proposed assignee's financial responsibility or stability, and
the suitability of the Premises for the intended use of the proposed assignee.
Pursuant to the provisions of California Civil Code Section 1951.4 the
following acts by Landlord shall not constitute a termination of Tenant's right
to possession (i) acts of maintenance or preservation or efforts to let the
Property, and (ii) the appointment of a receiver upon initiative of Landlord to
protect Landlord's interest under the Lease.
(b) ADDITIONAL RIGHTS OF LANDLORD. In the event of default, Tenant's
fixtures, furniture, equipment, improvements, additions, alterations and other
personal property shall at Landlord's option be removed from or left on the
Premises during the length of such default. Landlord shall have the right to
take the exclusive possession of all such property and to use same rent or
charge free, until all defaults are cured.
The remedies given to Landlord in this Article shall be in addition
and supplemental to all other rights or remedies that Landlord may have under
the laws then in force. Landlord shall be under no obligation to observe or
perform any covenant of this Lease that accrues after the date of any default by
Tenant hereunder.
The waiver by Landlord of any breach of any term, covenant, or condition
in this Lease shall not be deemed to be a waiver of any subsequent breach of the
same or any other term, covenant, or condition. The subsequent acceptance of
rent or any other sum owed hereunder by Landlord shall not be deemed to be a
waiver of any preceding breach by Tenant of any term, covenant, or condition of
this Lease, other than the failure of Tenant to pay the particular rent or sum
owed so accepted, regardless of Landlord's knowledge of such preceding breach at
the time of acceptance of such rent or sum owed nor shall acceptance of rent or
any other payment after termination of this Lease constitute a reinstatement,
extension or renewal of this Lease or revocation of any notice or other act by
Landlord. No covenant, term, or condition of this Lease shall be deemed to have
been waived by Landlord unless such waiver is in writing signed by Landlord.
20.2 RIGHTS AND OBLIGATIONS UNDER THE BANKRUPTCY CODE.
(a) Upon the filing of a petition by or against Tenant under the United
States Bankruptcy Code, Tenant, as debtor in possession, and any trustee who may
be appointed agree as follows:
(i) to perform each and every obligation of Tenant under this Lease
until such time as this Lease is either rejected or assumed by order of the
United States Bankruptcy Court;
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(ii) to pay monthly in advance on the first day of each month
reasonable compensation for use and occupancy of the Premises in an amount equal
to all rent, and other charges otherwise due pursuant to this Lease;
(iii) to reject or assume this Lease within sixty (60) days of the
filing of such petition under Chapter 7 of the Bankruptcy Code or within one
hundred twenty (120) days (or such shorter term as Landlord, in its reasonable
judgment, may deem reasonable so long as notice of such period is given) of the
filing of a petition under any other Chapter;
(iv) to give Landlord at least forty-five (45) days prior written
notice of any abandonment of the Premises, any such abandonment to be deemed a
rejection of this Lease;
(v) to do all other things of benefit to Landlord otherwise
required under the Bankruptcy Code;
(vi) NO to be deemed to have rejected this Lease in the event of
the failure to comply with any of the above; and,
(vii) to have consented to the entry of an order by an appropriate
United States Bankruptcy Court providing all of the above, waiving notice and
hearing of the entry of same.
(b) No default under this Lease by Tenant, either prior to or subsequent
to the filing of such a petition, shall be deemed to have been waived unless
expressly done so in writing by Landlord.
ARTICLE 21
LIMITATION OF LANDLORD'S LIABILITY.
In the event that Landlord is in default of this Lease, and as a
consequence thereof Tenant recovers a money judgement against Landlord, such
judgement shall be satisfied only out of the proceeds of sale received on
execution of the judgement and a levy against the right, title and interest of
Landlord in the Premises and out of rent or other income from the Premises
receivable by Landlord or out of the consideration received by Landlord from the
sale or other disposition of all or any part of Landlord's right, title, and
interest in the Premises. Neither Landlord nor, if Landlord is a partnership its
partners (either general or limited), or if Landlord is a corporation its
directors, officers or shareholders shall be personally liable for any such
judgement. Any lien obtained to enforce any judgement against Landlord and any
levy of execution thereon shall be subject and subordinate to the rights of any
lessor under a ground lease or other underlying lease or the mortgagee or
beneficiary under any mortgage or deed of trust encumbering the Premises or any
part thereof.
ARTICLE 22
RIGHT OF FIRST REFUSAL
In the event Landlord shall receive an acceptable and bona fide written
offer to purchase the Premises from an independent purchaser, Landlord shall
give written notice to Tenant of such potential sale of Premises. Such notice
shall set forth the price and the terms of the proposed sale of the Premises.
Tenant shall have the right to purchase the
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Premises for the price and upon the terms set forth in such notice, and must
exercise such right, if at all, by written notice given to Landlord of its
intent to purchase the Premises, which notice must be given no later than thirty
(30) days following the date of the notice of the proposed sale. Escrow for sale
of the Premises to the Tenant shall close not more than six (6) months following
the date on which the Tenant exercises its right to purchase hereunder. In the
event Tenant does not exercise this first right of refusal in the manner set
forth above, Landlord shall have the right to sell the Premises for the price
and upon the terms set forth in the notice of the proposed sale referenced
above, free and clear of any further right of first refusal hereunder; provided,
such sale by Landlord is completed within six (6) months following the
expiration of the period during which Tenant could exercise its first right of
refusal hereunder. Upon sale of the Premises, all rights of the Tenant provided
for in this Article 22 shall terminate, and thereafter Tenant shall have no
further option or right of first refusal to purchase the Premises hereunder.
ARTICLE 23
ADDITIONAL PROVISIONS
23.1 TRANSFER OF LANDLORD'S INTEREST. In the event of a sale or conveyance by
Landlord of Landlord's interest in the Premises other than a transfer for
security purposes only, Landlord shall be relieved from and after the date
specified in any such notice of transfer of all obligations and liabilities
accruing thereafter on the part of Landlord, provided that any funds in the
hands of Landlord at the time of transfer in which Tenant has an interest shall
be delivered to the successor of Landlord. This Lease shall not be affected by
any such sale and Tenant agrees to attorn to the purchaser or assignee, provided
all Landlord's obligations hereunder are assumed in writing by the transferee.
23.2 CAPTIONS, ATTACHMENTS; DEFINED TERMS. The captions of the Articles and
Sections of this Lease are for convenience only and shall not be deemed to be
relevant in resolving any question of interpretation or construction of any
section of this Lease. Exhibits attached hereto, and addendums and schedules
initialed by the parties, are deemed by attachment to constitute part of this
Lease and are incorporated herein. The words "Landlord" and "Tenant" as used
herein shall include the plural as well as the singular. Words used in neuter
gender include the masculine and feminine, and words in the masculine or
feminine gender include the neuter. If there be more than one Landlord, the
obligations hereunder imposed upon Landlord shall be joint and several. The term
"Landlord" shall mean only the owner or owners at the time in question of the
fee title or a tenant's interest in a ground lease of the Premises or the
Premises. The obligations contained in this Lease to be performed by Landlord
shall be binding on Landlord's successors and assigns only during their
respective periods of ownership.
23.3 NOTICES. Wherever in this Lease it shall be required or permitted that
notice or demand be given or served by either party to this Lease to or on the
other, such notice or demand shall be given or served, and shall not be deemed
to have been duly given or served unless in writing and served personally or
forwarded by certified or registered mail, return receipt requested, addressed
to the addresses of the parties specified on the signature page hereto. Any
notice sent by certified or registered mail shall be deemed delivered on the
earlier of the third (3rd) day following deposit thereof with the United States
Postal Service or on the delivery date shown on the returned receipt prepared in
connection therewith. The delivery of any notice by the United States Postal
Service in the manner herein described shall have the same force and effect as
personal delivery thereof, and Tenant hereby waives
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the benefit of any statute, ordinance or judicial decision, now or hereafter in
effect, which requires that any notice be personally served or delivered to
Tenant. Either party may change such address by written notice to the other.
23.4 SEVERABILITY. If any term or provision of this Lease shall to any extent
be determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby, and
each term and provision of this Lease shall be valid and enforceable to the
fullest extent permitted by law; it is the intention of the parties hereto that
if any provision of this Lease is capable of two constructions, one of which
would render the provision void and the other of which would render the
provision valid, then the provision shall have the meaning that renders it
valid.
23.5 ATTORNEY'S FEES. In any dispute between the parties, whether or not
resulting in litigation or any appeal therefrom, the prevailing party shall be
entitled to recover from the other party all reasonable costs, including without
limitation reasonable attorney's fees. "Prevailing parties" shall include
without limitation (i) the party who dismisses an action in exchange for sums
allegedly due, (ii) the party who receives performance from the other party of
an alleged breach of covenant or a desired remedy where such performance is
substantially equal to the relief sought in an action, or (iii) the party
determined to be the prevailing party by a court of law.
23.6 TIME; JOINT AND SEVERAL LIABILITY. Time is of the essence of this Lease
and each and every provision hereof, except as to the conditions relating to the
delivery of possession of the Premises to Tenant. All the terms, covenants, and
conditions contained in this Lease to be performed by Tenant shall be deemed to
be joint and several obligations of each Tenant, and all rights and remedies of
the parties shall be cumulative and nonexclusive of any other remedy at law or
in equity.
23.7 BINDING EFFECT; CHOICE OF LAW. The parties hereto agree that all the
provisions hereof are to be construed as both covenants and conditions as though
the words importing such covenants and conditions were used in each separate
paragraph hereof. Subject to any provisions hereof restricting assignment or
subletting by Tenant and subject to Section 22.1 hereof, all of the provisions
hereof shall bind and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors, and assigns. This Lease
shall be governed by the laws of the State of California.
23.8 WAIVER. No covenant, term, condition or the breach thereof shall be
deemed waived, except by written consent of the party against whom the waiver is
claimed, and any waiver of the breach of any covenant, term, or condition shall
not be deemed to be a waiver of any other covenant, term, or condition.
Acceptance by Landlord of any performance by Tenant after the time the same
shall have become due shall not constitute a waiver by Landlord of the breach or
default of any covenant, term, or condition, unless otherwise expressly agreed
to by Landlord in writing.
23.9 SURRENDER OF PREMISES. The voluntary or other surrender of this Lease by
Tenant or a mutual cancellation thereof shall not work a merger, and shall, at
the option of Landlord, terminate all or any existing subleases or subtenancies,
or may, at the option of Landlord, operate as an assignment to it of any or all
such subleases or subtenancies.
23.10 HOLDING OVER. If Tenant or anyone claiming under Tenant shall, with or
without the written consent of Landlord, hold over after the expiration or
earlier termination of the term
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of this Lease or any extended term, such tenancy shall be a month-to-month
tenancy, which tenancy may be terminated as provided by law. During such tenancy
Tenant agrees to be bound by all of the terms, covenants, and conditions as
herein specified and to pay to Landlord (i) 150% of the then current rent under
the Lease, plus (ii) all other sums due under this Lease.
23.11 FORCE MAJEURE. Any prevention, delay, or stoppage due to strikes,
lockouts, labor disputes, acts of God, inability to obtain labor or materials or
reasonable substitutes therefor, governmental restrictions, governmental
regulations, governmental controls, enemy or hostile governmental action, civil
commotion, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, shall excuse the performance by such
party for a period equal to any such prevention, delay, or stoppage, except the
obligations imposed with regard to rent and other charges to be paid by Tenant
pursuant to this Lease.
23.12 RECORDING. Tenant shall not record this Lease without the prior written
consent of Landlord, which Landlord may withhold in its sole discretion. Tenant
agrees to execute and acknowledge a short form lease in recordable form at
Landlord's request, which may be recorded by Landlord.
23.13 LANDLORD'S CONSENT. Landlord's consent to or approval of any act by
Tenant requiring Landlord's consent or approval shall not be deemed to render
unnecessary the obtaining of Landlord's consent to or approval of any subsequent
act by Tenant, whether or not similar to the acts previously consented to or
approved. Except as otherwise specifically provided, whenever Landlord's consent
is required under this Lease, Landlord may grant or withhold such consent in the
exercise of Landlord's sole discretion. No standard of reasonableness shall
apply to Landlord in granting or denying such consent.
23.14 RELATIONSHIPS. Nothing in this Lease shall be construed as creating the
relationship of principal and agent or a partnership or of a joint venture
between Landlord and Tenant, it being understood and agreed that neither the
method of computation of rent, nor any other provision contained herein, nor any
acts of the parties, shall be deemed to create any relationship between the
parties other than the relationship of Landlord and Tenant.
23.15 PAYMENTS AND INTEREST. All payments hereunder shall be made in lawful
money of the United States. All payments requiring proration shall be prorated
on the basis of a thirty (30) day month. As used in this Lease, the term
"Overdue Rate" means a per annum interest rate equal to the maximum interest
rate allowed under the usury laws of the state in which the Premises are located
in effect as of the date such interest rate is to be calculated. Landlord shall
be entitled to collect interest at the Overdue Rate on any delinquent rent,
charges or other amounts payable by Tenant under this Lease, from the due date
thereof (or in the case of payments made by Landlord on behalf of Tenant,
including but not only limited to Real Property Taxes, Common Area Expenses and
Landlord's Insurance, on the date of payment by Landlord) until the date such
rent, charges or other amounts are actually paid by Tenant.
23.16 SURVIVAL OF TENANT'S OBLIGATIONS. All of Tenant's indemnities, waivers,
assumptions of liability, duties and obligations hereunder shall survive the
expiration or other termination of this Lease, whether by expiration of time,
operation of law or otherwise, to the extent required for the full observance
and performance thereof.
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23.17 ENTIRE AGREEMENT. THIS INSTRUMENT ALONG WITH ANY EXHIBITS AND ATTACHMENTS
HERETO CONSTITUTES THE ENTIRE AGREEMENT BETWEEN LANDLORD AND TENANT RELATIVE TO
THE PREMISES AND THIS AGREEMENT, AND THE EXHIBITS AND ATTACHMENTS MAY BE
ALTERED, AMENDED, OR REVOKED ONLY BY AN INSTRUMENT IN WRITING SIGNED BY BOTH
LANDLORD AND TENANT. IT IS UNDERSTOOD THAT THERE ARE NO ORAL AGREEMENTS OR
REPRESENTATIONS BETWEEN THE PARTIES HERETO AFFECTING THIS LEASE, AND THIS LEASE
SUPERSEDES AND CANCELS ANY AND ALL PREVIOUS NEGOTIATIONS, ARRANGEMENTS,
BROCHURES, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, IF ANY, BETWEEN THE
PARTIES HERETO, AND NONE THEREOF SHALL BE USED TO INTERPRET OR CONSTRUE THIS
LEASE. THERE ARE NO OTHER REPRESENTATIONS OR WARRANTIES BETWEEN THE PARTIES OR
THE PARTIES AND THEIR AGENTS 0R REPRESENTATIVES AND ALL RELIANCE WITH RESPECT TO
REPRESENTATIONS IS SOLELY UPON THE REPRESENTATIONS AND AGREEMENTS CONTAINED IN
THIS DOCUMENT.
ARTICLE 24
BROKER COMMISSIONS
Both Landlord and Tenant warrant to one another that no commission is
owed to or claimed by any person as a result of this Lease, other than to Al
Cooper, real estate agent. Landlord and Tenant agree to indemnify, defend and
hold harmless the other party against all liability, damages, costs and
attorneys' fees arising from any claim for commissions made by any person
through them.
ARTICLE 25
REMOVAL OF TENANT'S PERSONAL PROPERTY
Provided Tenant is not then in default hereunder, Tenant shall have the
right, at any time during the term of this Lease, to remove "Tenant's Property,"
consisting of machinery, trade equipment, business and trade fixtures, and other
trade equipment placed, installed, supplied or made by it in or on the Premises
at Tenant's cost and expense (without any contribution or reimbursement therefor
by Landlord), and which may be removed without material injury to the Premises;
provided, however, that any damage to the Premises or any part thereof
occasioned by such removal shall be repaired by Tenant at Tenant's cost and
expense. As used herein and hereafter, the term "Tenant's Property" shall not
include or be deemed to include any item now or hereafter installed in or on the
Premises that is an integral part of the building, including without limiting
the generality of the foregoing, heating, ventilating, and air-conditioning
plants and systems, electrical and plumbing fixtures and systems and other like
equipment and fixtures, if any.
TENANT: LANDLORD:
BOYS TOYS, INC.,
A CALIFORNIA CORPORATION CAFE ROMA, INC.
By: /s/ [ILLEGIBLE] By: /s/ Lewis Chin
----------------------------------- ---------------------------------
President Lewis Chin
Address: 8910 University Ctr Ln. Address: 17 Jacqueline Ct
------------------------------ ----------------------------
Suite 300 Daly City CA
------------------------------ ----------------------------
San Diego, Ca 92128 94014
------------------------------ ----------------------------
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EXHIBIT "A"
INITIAL TENANT IMPROVEMENTS
<PAGE>
EXHIBIT "A"
TENANT IMPROVEMENTS TO
412 BROADWAY, SAN FRANCISCO, CALIFORNIA
Prior to the build-out, demolition of a substantial portion of what exists
within the Premises shall be necessary and involve the following:
1. Removal of all mechanical and electrical systems.
2. Removal of most of the above slab plumbing and gas piping systems
back to the point of service entry.
3. Removal of most of the fire sprinkler system back to the
standpipe.
4. Removal of a portion of existing raised platforms, all bars and
food service fixtures, and all stairs, walls and partitions
throughout, with minor exceptions.
5. Removal of the entire roof structure over the single story bay of
the building.
6. Portions of the facade of the building and specific walls or roof
areas where new means of support shall be constructed so as to
remove obstacles to the effective operation of the club.
Improvements made during the build-out shall include but not be limited to the
following:
7. A complete renovation of 100% of the post demolition structural
shell.
8. New second floor areas totalling approximately 1998 square feet.
9. A new facade and entry for the building which is to be two stories
in height across its full width.
10. New entry lobby, display platforms, an elevator accessible to the
handicapped and 2 fire-rated stairways for second floor egress.
11. Structural improvements throughout the building to meet current
seismic upgrade requirements.
12. New kitchen and bar facilities with vent hood, walk-in cooler,
dishwashing and prep areas, storage and service stations.
<PAGE>
13. New seating areas with platforms and stages, built-in seating,
handrails and low partitions.
14. A DJ booth that will control lighting and sound for the entire
Premises and four stages.
15. Ceiling, wall and floor finishes throughout the Premises.
16. Locker facilities and toilet rooms for male and female staff as
well as for entertainers.
17. New restrooms for the public and individual handicapped accessible
restrooms for both sexes.
18. A new service stair for staff use between floors.
19. New HVAC systems that will provide heating and cooling for the
entire Premises.
20. New electrical system including all house and stage lighting,
power distribution for all equipment and subsystems beyond the
transformer.
21. New plumbing and fire sprinkler piping for the entire club,
including a grease trap.
22. New doors, windows, skylights, hardware and emergency exit
lighting throughout the Premises.
23. New drywall walls, carpentry, millwork, etc. throughout the
Premises.
24. New telephone security, video surveillance point of sale, lighting
and environmental control systems.
The owner/landlord will be responsible for the following during the construction
phase:
25. New transformer room and transformer to be installed by PG&E at
the front of, and within the existing shell.
26. New roof over the entire Premises area, including repairs as might
be needed to existing structure as well as new constructions.
2
<PAGE>
AMENDMENT TO BAYSIDE VILLAGE RESIDENTIAL LEASE
THIS AMENDMENT TO BAYSIDE VILLAGE RESIDENTIAL LEASE is made and entered
into as of APRIL 21, 1999, by and between BAYSIDE VILLAGE ASSOCIATES, a
partnership ("Bayside Village") and Boysztoys.com, INC. BY RALPH AMATO AND
MICHAEL POTTER ("Resident").
Bayside Village and Resident have entered into that certain Bayside
Village Residential Lease dated MARCH 11, 1999 (the "Lease") with respect to
Suite No. 406 at FOUR BAYSIDE VILLAGE PLACE, San Francisco, California. Terms
used herein that are defined in the Lease shall have the meanings therein
defined. Bayside Village and Resident desire to amend the Lease in the manner
hereinafter provided, and, accordingly Bayside Village and Resident hereby agree
as follows:
1. AMENDMENT TO PARAGRAPH 4.
Paragraph 4 of the Lease is hereby amended to read as follows:
"4. PARKING: Commencing on APRIL 21, 1999, and continuing during the term
of this Lease, Resident shall have the right to occupy 1 parking space(s)
located in the underground parking garage. Bayside Village reserves the
right to change from time to time the location of Resident's designated
parking space. Resident agrees to pay as additional rent the sum of ONE
HUNDRED FIFTY Dollars ($150.00) per month to Bayside Village for rent for
such parking space. Such rent shall be paid at the time and in the manner
provided for payment of rent under paragraph 3 of the Lease. Resident may
terminate rental of this parking space by giving Bayside Village not less
than 3O DAYS' WRITTEN NOTICE of such termination. Use of said parking
space shall be at the sole risk of Resident, and without limiting the
generality of the foregoing, to the maximum extent permitted by law,
Bayside Village shall not have, and Resident agrees to indemnify Bayside
Village against, any liability to Resident or any other person, including
attorney's fees, for any damage to or loss or theft of any automobile or
other property (including property of Resident), or injury to or death of
any person (including Resident and Resident's family, agents, employees,
visitors or licensees), arising directly or indirectly out of or in any
way in connection with the use by Resident or Resident's family, agents,
employees, visitors or licensees of such parking space or any part of the
parking garage."
Except as specifically amended by the foregoing, the Lease remains in
full force and effect in accordance with its terms, unaffected hereby.
IN WITNESS WHEREOF, Bayside Village and Resident have executed duplicate
originals of the within Amendment to Bayside Village Residential Lease as of the
day and year first above written. Resident acknowledges receipt of a duplicate
original of this Amendment.
/s/ Ralph Amato 4-21-99
- ------------------------------------- ---------------------------------------
Resident CEO Boystoys.com Date Resident Date
- ------------------------------------- ---------------------------------------
Resident Date Resident Date
BAYSIDE VILLAGE ASSOCIATES,
a partnership
By /s/ Susan Schwartz 4-21-99
-----------------------------------
Date
<PAGE>
- --------------------------------------------------------------------------------
BAYSIDE VILLAGE RESIDENTIAL LEASE
- --------------------------------------------------------------------------------
THIS RESIDENTIAL LEASE, dated March 11, 1999, for purposes of reference only,
is made and entered into by and between BAYSIDE VILLAGE ASSOCIATES, a
partnership "(Bayside Village)", and BoysToys.com, Inc. by Ralph Amato and
Michael Potter ("Resident").
1. PREMISES: Bayside Village hereby leases to Resident, and Resident hereby
leases from Bayside Village, those certain premises ("suite"), located in the
Bayside Village complex, described as Suite No. 406 at Four Bayside Village
Place, San Francisco, California.
2. TERM: The term of this Lease shall be for a period of -6- months, commencing
on April 6, 1999 and ending on October 5, 1999, unless sooner terminated as
herein provided. If Bayside Village is unable to give possession of the suite on
the above commencement date for any reason whatsoever, Bayside Village shall
not be subject to any liability, nor shall the validity of this Lease be
affected nor the term thereof extended, but under such circumstances the rent
hereunder shall not commence until the possession of the suite is tendered to
Resident; provided, however, that in the event that possession of the suite is
not tendered by Bayside Village to Resident within 30 days following the above
commencement date, then at any time after the 30-day period and prior to tender
by Bayside Village of possession, Resident may terminate this Lease by written
notice to Bayside Village, and thereupon all rights and obligations hereunder of
both parties shall cease.
3. RENT: Resident shall pay to Bayside Village at the Bayside Village
management office at Three Bayside Village Place, San Francisco, California,
or to such other place as Bayside Village may from time to time designate by
written notice to Resident, without deduction or offset of any kind, as rent
for the use and occupancy of the suite, the sum of Twenty-Two Hundred
Seventy-Five Dollars ($2,275.00) per month payable in advance on the first
day of each and every calendar month, and a proportionate part of that sum
for any fraction of a calendar month of the term. Rent for the first full
calendar month shall be paid at the time of execution of this Lease by
Resident, and in the event that the term hereof commences (or if under the
terms of paragraph 2 rent commences) other than on the first day of a
calendar month, then the rent for the fractional month will be payable on the
first day of the immediately following calendar month. RESIDENT AGREES THAT
ALL RENTAL AND OTHER PAYMENTS SHALL BE BY PERSONAL CHECK, CASHIER'S CHECK,
CERTIFIED CHECK OR MONEY ORDER, AND THAT NO CASH WILL BE ACCEPTED FOR RENTAL
PAYMENTS.
4. PARKING: During the term of this Lease, Resident shall have the right to
occupy -0- parking space(s) located in the underground parking garage. Bayside
Village reserves the right to change from time to time the location of
Resident's designated parking space. Resident agrees to pay as additional rent
the sum of N/A Dollars ($N/A) per month to Bayside Village for rent for such
parking space. Such rent shall be paid at the time and in the manner provided
for payment of rent under paragraph 3 above. Resident may terminate rental of
this parking space by giving Bayside Village not less than 30 days' written
notice of such termination. Use of said parking space shall be at the sole risk
of Resident, and without limiting the generality of the foregoing, to the
maximum extent permitted by law, Bayside Village shall not have, and Resident
agrees to indemnify Bayside against, any liability to Resident or any other
person, including attorneys' fees, for any damage to or loss or theft of any
automobile or other property (including property of Resident), or injury to or
death of any person (including Resident and Resident's family, agents,
employees, visitors, or licensees), arising directly or indirectly out of or in
any way in connection with the use by Resident or Resident's family, agents,
employees, visitors or licensees of such parking space or any part of the
parking garage.
5. LATE CHARGES - DISHONORED CHECKS: Resident agrees to pay promptly a late
charge of $25.00 in the event any monthly installment of rent is not received
within 3 days of its due date. This late charge does not establish a grace
period; Bayside Village may make written demand for payment if rent is not paid
on its due date. Bayside Village and Resident agree that the late charge is
presumed to be the damages sustained by Bayside Village because of Resident's
late payment of rent, and that it is impracticable or extremely difficult to fix
the actual damages. In the event any check in payment of Resident's rent or
other charges is dishonored by the bank, Resident agrees to immediately deliver
to Bayside Village a cashier's check, certified check or money order in the
amount of the dishonored check plus a service charge of $25.00 and a late
charge, if applicable. If such dishonor occurs more than once during the term of
this Lease, or any extension thereof, then, if Bayside Village shall so require
by notice in writing to Resident, all future rent and other charges must be paid
only in the form of a cashier's check, certified check or money order.
6. SECURITY DEPOSIT: Prior to the commencement of the term and before occupancy
of the suite, Resident shall deposit with Bayside Village the sum of Eight
Hundred Dollars ($800.00), as security for the faithful performance of all
Resident's obligations under this Lease, including, but not limited to, payment
of rent, and cleaning and repair of the suite after their surrender. THIS
SECURITY DEPOSIT SHALL NOT CONSTITUTE PAYMENT OF THE LAST MONTH'S RENT
HEREUNDER. Bayside Village shall have the right to the extent permitted by law,
but not the obligation, to apply the security deposit to any payment, in the
making of which Resident shall be in default hereunder, and to the cost of
performing any of Resident's obligations under this Lease, and if Bayside
Village does so apply the deposit, Resident shall, upon demand, immediately
deposit with Bayside Village all amounts necessary to restore the Security
Deposit to its original amount so that Resident shall at all times have on
deposit with Bayside Village the amount herein specified as security. Resident's
failure to replenish such amount within ten days after written demand by Bayside
Village will constitute a material breach of this Lease. Within three weeks
after Resident has vacated the suite, Bayside Village will furnish Resident with
an itemized written statement of the amount of the security deposit received, of
the disposition of the security deposit and the basis for any such disposition
of the security deposit; Bayside Village will return any remaining portion of
the security deposit to Resident.
7. CONDITION AND MAINTENANCE OF PREMISES: The taking possession of the suite by
Resident shall be conclusive evidence that the suite, including all equipment
and fixtures, were then clean and sanitary and in good order and condition.
Resident shall, throughout the term hereof, keep the suite in good, clean and
sanitary order and condition and surrender them to Bayside Village in as good
condition as they are on the date of this Lease, reasonable wear and tear and
damage by the elements excepted. Resident agrees to notify Bayside Village of
any defects, dilapidations or dangerous conditions in and about the suite and
to promptly reimburse Bayside Village for the cost of any repairs to said suite,
or the equipment or personal property subject to this Lease, caused by
negligence or misuse of the suite of or by Resident or of any of Resident's
invitees, licensees or guests. Bayside Village may make, when needed in Bayside
Village's opinion, any repairs, replacements or restorations in and about the
suite or to any of its fixtures or equipment. Resident shall not, without the
prior written consent of Bayside Village, make any such repairs, replacements or
restorations. Bayside Village shall not be required to make any repairs except
as expressly provided by law, and Bayside Village shall in no event have any
duty to make any repairs prior to the expiration of a reasonable time following
receipt of written notice from Resident of the need therefor.
8. USE OF PREMISES: This suite is to be occupied by no more than four
persons. (a) The premises shall be used solely and exclusively for private
residence purposes, and shall be occupied only by the persons specified in
Resident's latest Lease/Rental Application approved by Bayside Village. (b)
Resident will not make or permit any use of the suite, or do or permit any
act, including the keeping of anything, in or about the suite, which,
directly or indirectly, will tend to injure the reputation of Bayside
Village, disturb any resident of the building in which the suite is located
or the neighborhood, violate any law, ordinance or regulation, or violate the
terms of or cause any increase in the rate under any insurance policy
governing or relating to the building in which the suite is located. (c)
Resident shall comply with all laws, ordinances and governmental regulations,
and with any direction of any public officer, pursuant to law, which shall
impose any duty upon or provide for or refer to any obligation of Resident
with respect to the suite or the occupation thereof.
9. RULES AND REGULATIONS: Resident agrees to comply with and observe all
building Rules and Regulations, a copy of which is attached to this Lease and
incorporated by reference in paragraph 29.
10. ALTERATIONS: Resident shall make no alterations (including painting and
decorating) in or additions of any kind to the suite or its fixtures or
equipment without Bayside Village's prior written consent, which Bayside Village
may condition in any manner, or may refuse, in accordance with its sole
determination, which shall be conclusive. All such alterations or additions
which may be approved by Bayside Village shall be at the sole cost of Resident,
and Resident agrees to hold Bayside Village harmless from all liabilities in any
way connected therewith. All additions, hardware, fixtures and improvements
placed in the suite by Resident or Bayside Village, shall be Bayside
Village's property and shall remain upon the suite upon any termination of
the term hereof, unless Bayside Village as a condition of consenting to such
alteration or addition required that at the conclusion of the term hereof the
suite be restored to the condition existing prior to such alteration or
addition, in which event Resident sahll comply with such condition.
11. RIGHT OF ENTRY BY BAYSIDE VILLAGE: On not less than 24 hours' advance notice
to Resident by Bayside Village, unless otherwise agreed to by Resident, Bayside
Village shall have the right to enter the suite during normal business hours for
the purpose of: (a) Making necessary or agreed repairs, decorations, alterations
or improvements; (b) Supplying necessary or agreed services; or (c) Showing the
suite to prospective or actual purchasers, mortgagees, tenants, workmen or
contractors. In case of emergency, or Resident's abandonment or surrender of
the suite, Bayside Village or its agent may enter the suite at any time without
securing Resident's prior permission. Bayside Village currently has a key to the
suite. Resident may not change the locks or add a lock without Bayside Village's
prior written consent. Any damage resulting from emergency entry shall be the
responsibility of the Resident if locks are changed or added and no key is
provided to Bayside Village.
12. PETS: Resident may keep no bird, animal, or reptile or pet of any kind in or
about the suite or the common areas.
13. UNTENANTABILITY: If the suite or the building in which the suite is located
is made untenantable by fire or other casualty, Bayside Village may elect: (a)
To terminate this Lease as of the date of the fire or other casualty by notice
to Resident within 30 days after that date, or (b) To repair and restore the
building or the suite. In such event the Lease shall not terminate and, unless
such fire or other casualty is due to the negligence or misconduct of Resident
or any other person in the suite with Resident's permission, such repair and
restoration shall be at the expense of Bayside Village and rent shall be abated
on a per diem basis while the suite is untenantable.
Page 1 of 2
<PAGE>
14. INDEMNIFICATION OF BAYSIDE VILLAGE: Bayside Village shall not be liable, and
resident, to the maximum extent permitted by law, waives all claims, and agrees
to indemnify Bayside Village for any liability arising before termination of
this Lease, and any loss, claim, cause of action, cost or expense, including
attorneys' fees, for personal injuries or property damage caused by the
negligent, willful, or intentional conduct of Resident or any other occupant of
the suite or of their guests or invitees. This indemnification agreement does
not waive Bayside Village's duty of care to prevent personal injury or property
damage to the extent that duty is imposed by law.
15. SUBLETTING OR ASSIGNMENT: Resident shall not assign this Lease or any
interest under it, or sublet the suite or any part thereof, or permit the use or
occupancy of the suite or any part thereof by any one other than Resident and
the other occupants named in Resident's latest Lease/Rental Application approved
by Bayside Village.
16. UTILITIES AND SERVICES: (a) Resident shall arrange for and pay all charges
incurred for the furnishing of electrical, cable television and telephone
service to the suite, including any deposits required for such services. (b) In
the event of any failure or interruption of any service in or to the suite, or
in or to the building in which the suite is located, for any reason beyond the
reasonable control of Bayside Village, then, to the maximum extent permitted by
law, any such failure or interruption of service shall never be deemed an
eviction or disturbance of Resident's use and possession of the suite, or render
Bayside Village liable to Resident for damages, or relieve Resident from
performance of Resident's obligations under this Lease, or entitle Resident to
an abatement of rent or parking rent.
17. JOINT AND SEVERAL TENANCY: If more than one person executes this Lease as
Resident, their obligation hereunder are joint and several, whether or not such
Resident is in actual possession of the suite, and any act or notice of or to,
or refund to, or the signature of, any one or more of them, in relation to the
extension or termination of this Lease, or under or with respect to any of the
terms hereof, shall be fully binding upon each and all of the persons executing
this Lease as Resident.
18. EVENTS OF DEFAULT: Resident shall be guilty of a material breach of this
Lease should Resident: (a) Fail to pay any rent or other sum payable under this
Lease on the date it becomes due; (b) Default in the performance of or breach
any provision, term, covenant or condition of this Lease; (c) Vacate or abandon
said suite before expiration of the full term of this Lease, or any extension
thereof; (d) Permit the leasehold interest of Resident to be levied upon or
attached by process of law; or (e) Make an assignment for the benefit of
creditors.
19. REMEDIES: In the event Resident is guilty of a material breach of this Lease
as defined in paragraph 18 of this Lease, Bayside Village, in addition to any
other right or remedy allowed by law or provided for in any other section of
this Lease, may, if Bayside Village so elects, forthwith terminate Resident's
right to possession of the suite and terminate this Lease. In the event Bayside
Village commences litigation against resident to enforce any of the provisions
of this agreement, resident shall pay to Bayside Village reasonable attorneys'
fees and court costs actually incurred, whether or not the matter is pursued to
Judgment. Upon any termination of this Lease, whether by operation of law or at
the election of Bayside Village, as above provided, Bayside Village may recover
from Resident all sums to which Bayside Village is entitled under section 1951.2
of the California Civil Code and otherwise, including the worth at the time of
the award thereof to Bayside Village, computed as provided in said section
1951.2, of the amount by which the unpaid rent for the balance of the full term
hereof after the time of such award exceeds the amount of such rental loss for
the same period that Bayside Village proves could be reasonably avoided. If
Resident abandons or vacates the suite, while in default of the payment of rent,
Bayside Village may consider any property left in the suite to be abandoned and
may dispose of the same in any manner allowed by law.
20. NO WAIVER: The failure of Bayside Village in any case to enforce or insist
upon strict performance of any provision of this Lease, including the building
Rules and Regulations, shall not prevent a subsequent act, which would have
originally constituted a violation or default hereunder from having all the
force and effect of an original violation or default. The receipt by Bayside
Village of rent with knowledge of the breach of any provision of this Lease,
including the building Rules and Regulations, shall not be deemed a waiver of
such breach. No provision of this Lease shall be deemed to have been waived by
any act or conduct by Bayside Village, unless such waiver be in writing signed
by Bayside Village. No payment by Resident or receipt by Bayside Village of a
lesser amount than the monthly installment of rent herein stipulated shall be
deemed to be other than on account of the rent earliest due, and Bayside Village
may accept any payment without prejudice to Bayside Village's right to recover
any other sums due from Resident or pursue any other remedy provided in this
Lease, regardless of any endorsement or statement accompanying such payment.
21. SUBORDINATION: This Lease is subordinate to all recorded covenants and
conditions which now affect, and to all ground or underlying leases, mortgages
or deeds of trust which may now or hereafter affect, the real property of which
the suite forms a part, including leases, mortgages and deeds of trust which
cover said real property and other suites as a blanket lien or otherwise, and to
all renewals, modifications, consolidations, replacements and extensions
thereof. This cause shall be self-operative and no further instrument or act
shall be required effectuate such subordination, but in confirmation of such
subordination, Resident shall execute promptly any certificate or other document
which Bayside Village may request.
22. SMOKE DETECTOR: Resident acknowledges that the suite is supplied with a
smoke detection device. During the term of this Lease, and any extensions, it
shall be Resident's responsibility to regularly test said device to ensure that
it is in operable condition. Resident shall promptly inform Bayside Village in
writing of any defects, malfunction, or failure of said device and upon receipt
of said notice, Bayside Village shall promptly make any repairs necessary to
maintain said device in proper working order, at no charge to Resident.
23. NOTICES: Except as otherwise in this Lease provided, any notice by Bayside
Village to Resident shall be in writing and shall be deemed to be duly given if
and when it is delivered personally to Resident, or sent by registered or
certified mail addressed to Resident at the suite, or left at the suite. Any
notice by Resident to Bayside Village shall be in writing and shall be deemed to
be duly given if it is signed by Resident and delivered personally to Bayside
Village's manager at the management office at Bayside Village at THREE BAYSIDE
VILLAGE PLACE, San Francisco, California, or sent by registered or certified
mail addressed to Bayside Village at said management office. Bayside Village may
change its address for purposes of this paragraph by giving written notice of
the change to Resident in the manner provided in this paragraph.
24. BINDING ON HEIRS AND SUCCESSORS: This Lease shall be binding on and shall
inure to the benefit of the heirs, executors, administrators, and successors of
the parties hereto, but nothing in this paragraph shall be construed as a
consent by Bayside Village to any assignment or subletting of this Lease by
Resident.
25. MISCELLANEOUS: (a) Each and every term, covenant and agreement herein
contained shall be deemed a condition hereof. (b) All amounts (other than
rent and late charges) owed by Resident to Bayside Village hereunder shall be
paid within 10 days from the date Bayside Village renders statements of
account therefor. All amounts (other than rent and late charges) owed by
Resident to Bayside Village, if not paid when due, shall bear interest from
the due date until paid at the rate of 10% per annum, or if a higher rate is
legally permissible, at the highest rate legally permitted. (c) Any riders
attached to this Lease and signed by Bayside Village and Resident are hereby
made a part of this Lease as though inserted in this lease. (d) This Lease,
including provisions and riders above made a part hereof, contains the entire
agreement between the parties and all prior negotiations and agreements are
merged herein. Neither Bayside Village nor Bayside Village's agents have made
any representations or promises, with respect to the suite or the building in
which the suite is located or otherwise, except as expressly set forth in the
Lease. This Lease may be modified in writing only, signed by Bayside Village
and Resident.
26. CONVERSION TO A MONTH-TO-MONTH TENANCY: IMMEDIATELY UPON THE EXPIRATION OF
THE TERM OF THIS LEASE, THE TENANCY SHALL AUTOMATICALLY CONVERT TO A
MONTH-TO-MONTH TENANCY UNLESS EITHER PARTY PRIOR TO SUCH EXPIRATION OF THE TERM
OF THE LEASE, GIVES THE OTHER PARTY AT LEAST 30 DAYS' NOTICE IN WRITING THAT
SUCH PARTY WILL NOT RENEW THE TENANCY ON A MONTH-TO-MONTH BASIS. ANY HOLDING
OVER AFTER EXPIRATION OF THE TERM OF THIS LEASE, WITH THE CONSENT OF BAYSIDE
VILLAGE, SHALL BE CONSTRUED AS A MONTH-TO-MONTH TENANCY IN ACCORDANCE WITH THE
TERMS HEREOF, AS APPLICABLE. AT LEAST 30 DAYS PRIOR TO THE EXPIRATION OF THIS
LEASE, BAYSIDE VILLAGE SHALL NOTIFY THE RESIDENT IN WRITING OF ANY POTENTIAL
CHANGES IN THE RENTAL RATE OR ANY OTHER TERMS OF THIS LEASE.
27. MONTH-TO-MONTH TENANCY: IN THE EVENT RESIDENT BECOMES A MONTH-TO-MONTH
TENANT, SAID TENANCY MAY BE TERMINATED BY THE RESIDENT ONLY BY GIVING THIRTY
(30) DAYS WRITTEN NOTICE OF INTENT TO TERMINATE THE TENANCY.
28. MANAGER AND AGENT OF BAYSIDE VILLAGE: The person authorized to manage the
premises is JAMES GREENE, THREE BAYSIDE VILLAGE PLACE, SAN FRANCISCO,
CALIFORNIA. The person authorized to act for and on behalf of Bayside Village
for the purpose of service of process and for the purpose of receiving and
receipting for all notices and demands is JAMES GREENE, RESIDENT MANAGER,
BAYSIDE VILLAGE, THREE BAYSIDE VILLAGE PLACE, SAN FRANCISCO, CALIFORNIA.
29. INCORPORATED INSTRUMENTS: This Lease incorporates by reference as if written
herein other terms and conditions contained in the following instruments,
receipt of a copy of each of which instruments Resident hereby acknowledges: _X_
Lease Agreement, _X_ Suite Move-In Condition Form, _X_ Rules and Regulations,
___ Addendum to Residential Lease, _X_ Resident Handbook, ___
____________________________________.
NOTICE: THIS LEASE CONTAINS A PROVISION FOR THE AUTOMATIC RENEWAL OR EXTENSION
OF YOUR TENANCY.
IN WITNESS WHEREOF, Bayside Village and Resident have executed duplicate
originals of this Lease on the respective dates set forth below and Resident
acknowledges receipt of a duplicate original of this Lease.
/s/ Ralph Amato 4/2/99 /s/ Michael Potter 4-1-99
- ----------------------------------- ------------------------------------
Ralph Amato, Date Michael Potter, Date
C.E.O. Secretary
- ----------------------------------- ------------------------------------
Resident Date Resident Date
BAYSIDE VILLAGE ASSOCIATES, a partnership
By /s/ Susan Schwartz Date: 4-6-99
-------------------------------- ------
Bayside Village Associates
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<PAGE>
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BAYSIDE VILLAGE RESIDENTIAL LEASE
- --------------------------------------------------------------------------------
THIS RESIDENTIAL LEASE, dated April 21, 1999, for purposes of reference only, is
made and entered into by and between BAYSIDE VILLAGE ASSOCIATES, a partnership
"(Bayside Village)", and BoysToys.Com, Inc. By Ralph Amato and Michael Potter
("Resident").
1. PREMISES: Bayside Village hereby leases to Resident, and Resident hereby
leases from Bayside Village, those certain premises ("suite"), located in the
Bayside Village complex, described as Suite No. 217 at 180 Brannan Street, San
Francisco, California.
2. TERM: The term of this Lease shall be for a period of -6- months, commencing
on May 7, 1999 and ending on November 6, 1999, unless sooner terminated as
herein provided. If Bayside Village is unable to give possession of the suite on
the above commencement date for any reason whatsoever, Bayside Village shall not
be subject to any liability, nor shall the validity of this Lease be affected
nor the term thereof extended, but under such circumstances the rent hereunder
shall not commence until the possession of the suite is tendered to Resident;
provided, however, that in the event that possession of the suite is not
tendered by Bayside Village to Resident within 30 days following the above
commencement date, then at any time after the 30-day period and prior to tender
by Bayside Village of possession, Resident may terminate this Lease by written
notice to Bayside Village, and thereupon all rights and obligations hereunder of
both parties shall cease.
3. RENT: Resident shall pay to Bayside Village at the Bayside Village management
office at Three Bayside Village Place, San Francisco, California, or to such
other place as Bayside Village may from time to time designate by written notice
to Resident, without deduction or offset of any kind, as rent for the use and
occupancy of the suite, the sum of Twenty Two Hundred Forty Five Dollars
($2245.00) per month payable in advance on the first day of each and every
calendar month, and a proportionate part of that sum for any fraction of a
calendar month of the term. Rent for the first full calendar month shall be paid
at the time of execution of this Lease by Resident, and in the event that the
term hereof commences (or if under the terms of paragraph 2 rent commences)
other than on the first day of a calendar month, then the rent for the
fractional month will be payable on the first day of the immediately following
calendar month. RESIDENT AGREES THAT ALL RENTAL AND OTHER PAYMENTS SHALL BE BY
PERSONAL CHECK, CASHIER'S CHECK, CERTIFIED CHECK OR MONEY ORDER, AND THAT NO
CASH WILL BE ACCEPTED FOR RENTAL PAYMENTS.
4. PARKING: During the term of this Lease, Resident shall have the right to
occupy -1- parking space(s) located in the underground parking garage. Bayside
Village reserves the right to change from time to time the location of
Resident's designated parking space. Resident agrees to pay as additional rent
the sum of One Hundred Fifty Dollars ($150.00) per month to Bayside Village
for rent for such parking space. Such rent shall be paid at the time and in the
manner provided for payment of rent under paragraph 3 above. Resident may
terminate rental of this parking space by giving Bayside Village not less than
30 days' written notice of such termination. Use of said parking space shall be
at the sole risk of Resident, and without limiting the generality of the
foregoing, to the maximum extent permitted by law, Bayside Village shall not
have, and Resident agrees to indemnify Bayside against, any liability to
Resident or any other person, including attorneys' fees, for any damage to or
loss or theft of any automobile or other property (including property of
Resident), or injury to or death of any person (including Resident and
Resident's family, agents, employees, visitors, or licensees), arising directly
or indirectly out of or in any way in connection with the use by Resident or
Resident's family, agents, employees, visitors or licensees of such parking
space or any part of the parking garage.
5. LATE CHARGES - DISHONORED CHECKS: Resident agrees to pay promptly a late
charge of $25.00 in the event any monthly installment of rent is not received
within 3 days of its due date. This late charge does not establish a grace
period; Bayside Village may make written demand for payment if rent is not paid
on its due date. Bayside Village and Resident agree that the late charge is
presumed to be the damages sustained by Bayside Village because of Resident's
late payment of rent, and that it is impracticable or extremely difficult to fix
the actual damages. In the event any check in payment of Resident's rent or
other charges is dishonored by the bank, Resident agrees to immediately deliver
to Bayside Village a cashier's check, certified check or money order in the
amount of the dishonored check plus a service charge of $25.00 and a late
charge, if applicable. If such dishonor occurs more than once during the term of
this Lease, or any extension thereof, then, if Bayside Village shall so require
by notice in writing to Resident, all future rent and other charges must be paid
only in the form of a cashier's check, certified check or money order.
6. SECURITY DEPOSIT: Prior to the commencement of the term and before
occupancy of the suite, Resident shall deposit with Bayside Village the sum
of Eight Hundred Dollars ($800.00), as security for the faithful performance
of all Resident's obligations under this Lease, including, but not limited
to, payment of rent, and cleaning and repair of the suite after their
surrender. THIS SECURITY DEPOSIT SHALL NOT CONSTITUTE PAYMENT OF THE LAST
MONTH'S RENT HEREUNDER. Bayside Village shall have the right to the extent
permitted by law, but not the obligation, to apply the security deposit to
any payment, in the making of which Resident shall be in default hereunder,
and to the cost of performing any of Resident's obligations under this Lease,
and if Bayside Village does so apply the deposit, Resident shall, upon
demand, immediately deposit with Bayside Village all amounts necessary to
restore the Security Deposit to its original amount so that Resident shall at
all times have on deposit with Bayside Village the amount herein specified as
security. Resident's failure to replenish such amount within ten days after
written demand by Bayside Village will constitute a material breach of this
Lease. Within three weeks after Resident has vacated the suite, Bayside
Village will furnish Resident with an itemized written statement of the
amount of the security deposit received, of the disposition of the security
deposit and the basis for any such disposition of the security deposit;
Bayside Village will return any remaining portion of the security deposit to
Resident.
7. CONDITION AND MAINTENANCE OF PREMISES: The taking possession of the suite
by Resident shall be conclusive evidence that the suite, including all
equipment and fixtures, were then clean and sanitary and in good order and
condition. Resident shall, throughout the term hereof, keep the suite in
good, clean and sanitary order and condition and surrender them to Bayside
Village in as good condition as they are on the date of this Lease,
reasonable wear and tear and damage by the elements excepted. Resident agrees
to notify Bayside Village of any defects, dilapidations or dangerous
conditions in and about the suite and to promptly reimburse Bayside Village
for the cost of any repairs to said suite, or the equipment or personal
property subject to this Lease, caused by negligence or misuse of the suite
of or by Resident or of any of Resident's invitees, licensees or guests.
Bayside Village may make, when needed in Bayside Village's opinion, any
repairs, replacements or restorations in and about the suite or to any of its
fixtures or equipment. Resident shall not, without the prior written consent
of Bayside Village, make any such repairs, replacements or restorations.
Bayside Village shall not be required to make any repairs except as expressly
provided by law, and Bayside Village shall in no event have any duty to make
any repairs prior to the expiration of a reasonable time following receipt of
written notice from Resident of the need therefor.
8. USE OF PREMISES: This suite is to be occupied by no more than four
persons. (a) The premises shall be used solely and exclusively for private
residence purposes, and shall be occupied only by the persons specified in
Resident's latest Lease/Rental Application approved by Bayside Village. (b)
Resident will not make or permit any use of the suite, or do or permit any
act, including the keeping of anything, in or about the suite, which,
directly or indirectly, will tend to injure the reputation of Bayside
Village, disturb any resident of the building in which the suite is located
or the neighborhood, violate any law, ordinance or regulation, or violate the
terms of or cause any increase in the rate under any insurance policy
governing or relating to the building in which the suite is located. (c)
Resident shall comply with all laws, ordinances and governmental regulations,
and with any direction of any public officer, pursuant to law, which shall
impose any duty upon or provide for or refer to any obligation of Resident
with respect to the suite or the occupation thereof.
9. RULES AND REGULATIONS: Resident agrees to comply with and observe all
building Rules and Regulations, a copy of which is attached to this Lease and
incorporated by reference in paragraph 29.
10. ALTERATIONS: Resident shall make no alterations (including painting and
decorating) in or additions of any kind to the suite or its fixtures or
equipment without Bayside Village's prior written consent, which Bayside Village
may condition in any manner, or may refuse, in accordance with its sole
determination, which shall be conclusive. All such alterations or additions
which may be approved by Bayside Village shall be at the sole cost of Resident,
and Resident agrees to hold Bayside Village harmless from all liabilities in any
way connected therewith. All additions, hardware, fixtures and improvements
placed in the suite by Resident or Bayside Village, shall Bayside Village's
property and shall remain upon the suite upon any termination of the term
hereof, unless Bayside Village as a condition of consenting to such
alteration or addition required that at the conclusion of the term hereof the
suite be restored to the condition existing prior to such alteration or
addition, in which event Resident shall comply with such condition.
11. RIGHT OF ENTRY BY BAYSIDE VILLAGE: On not less than 24 hours' advance notice
to Resident by Bayside Village, unless otherwise agreed to by Resident, Bayside
Village shall have the right to enter the suite during normal business hours for
the purpose of: (a) Making necessary or agreed repairs, decorations, alterations
or improvements; (b) Supplying necessary or agreed services; or (c) Showing the
suite to prospective or actual purchasers, mortgagees, tenants, workmen or
contractors. In case of emergency, or Resident's abandonment or surrender of
the suite, Bayside Village or its agent may enter the suite at any time without
securing Resident's prior permission. Bayside Village currently has a key to the
suite. Resident may not change the locks or add a lock without Bayside Village's
prior written consent. Any damage resulting from emergency entry shall be the
responsibility of the Resident if locks are changed or added and no key is
provided to Bayside Village.
12. PETS: Resident may keep no bird, animal, or reptile or pet of any kind in or
about the suite or the common areas.
13. UNTENANTABILITY: If the suite or the building in which the suite is located
is made untenantable by fire or other casualty, Bayside Village may elect: (a)
To terminate this Lease as of the date of the fire or other casualty by notice
to Resident within 30 days after that date, or (b) To repair and restore the
building or the suite. In such event the Lease shall not terminate and, unless
such fire or other casualty is due to the negligence or misconduct of Resident
or any other person in the suite with Resident's permission, such repair and
restoration shall be at the expense of Bayside Village and rent shall be abated
on a per diem basis while the suite is untenantable.
Page 1 of 2
<PAGE>
14. INDEMNIFICATION OF BAYSIDE VILLAGE: Bayside Village shall not be liable, and
resident, to the maximum extent permitted by law, waives all claims, and agrees
to indemnify Bayside Village for any liability arising before termination of
this Lease, and any loss, claim, cause of action, cost or expense, including
attorneys' fees, for personal injuries or property damage caused by the
negligent, willful, or intentional conduct of Resident or any other occupant of
the suite or of their guests or invitees. This indemnification agreement does
not waive Bayside Village's duty of care to prevent personal injury or property
damage to the extent that duty is imposed by law.
15. SUBLETTING OR ASSIGNMENT: Resident shall not assign this Lease or any
interest under it, or sublet the suite or any part thereof, or permit the use or
occupancy of the suite or any part thereof by any one other than Resident and
the other occupants named in Resident's latest Lease/Rental Application approved
by Bayside Village.
16. UTILITIES AND SERVICES: (a) Resident shall arrange for and pay all charges
incurred for the furnishing of electrical, cable television and telephone
service to the suite, including any deposits required for such services. (b) In
the event of any failure or interruption of any service in or to the suite, or
in or to the building in which the suite is located, for any reason beyond the
reasonable control of Bayside Village, then, to the maximum extent permitted by
law, any such failure or interruption of service shall never be deemed an
eviction or disturbance of Resident's use and possession of the suite, or render
Bayside Village liable to Resident for damages, or relieve Resident from
performance of Resident's obligations under this Lease, or entitle Resident to
an abatement of rent or parking rent.
17. JOINT AND SEVERAL TENANCY: If more than one person executes this Lease as
Resident, their obligation hereunder are joint and several, whether or not such
Resident is in actual possession of the suite, and any act or notice of or to,
or refund to, or the signature of, any one or more of them, in relation to the
extension or termination of this Lease, or under or with respect to any of the
terms hereof, shall be fully binding upon each and all of the persons executing
this Lease as Resident.
18. EVENTS OF DEFAULT: Resident shall be guilty of a material breach of this
Lease should Resident: (a) Fail to pay any rent or other sum payable under this
Lease on the date it becomes due; (b) Default in the performance of or breach
any provision, term, covenant or condition of this Lease; (c) Vacate or abandon
said suite before expiration of the full term of this Lease, or any extension
thereof; (d) Permit the leasehold interest of Resident to be levied upon or
attached by process of law; or (e) Make an assignment for the benefit of
creditors.
19. REMEDIES: In the event Resident is guilty of a material breach of this Lease
as defined in paragraph 18 of this Lease, Bayside Village, in addition to any
other right or remedy allowed by law or provided for in any other section of
this Lease, may, if Bayside Village so elects, forthwith terminate Resident's
right to possession of the suite and terminate this Lease. In the event Bayside
Village commences litigation against resident to enforce any of the provisions
of this agreement, resident shall pay to Bayside Village reasonable attorneys'
fees and court costs actually incurred, whether or not the matter is pursued to
Judgment. Upon any termination of this Lease, whether by operation of law or at
the election of Bayside Village, as above provided, Bayside Village may recover
from Resident all sums to which Bayside Village is entitled under section 1951.2
of the California Civil Code and otherwise, including the worth at the time of
the award thereof to Bayside Village, computed as provided in said section
1951.2, of the amount by which the unpaid rent for the balance of the full term
hereof after the time of such award exceeds the amount of such rental loss for
the same period that Bayside Village proves could be reasonably avoided. If
Resident abandons or vacates the suite, while in default of the payment of rent,
Bayside Village may consider any property left in the suite to be abandoned and
may dispose of the same in any manner allowed by law.
20. NO WAIVER: The failure of Bayside Village in any case to enforce or insist
upon strict performance of any provision of this Lease, including the building
Rules and Regulations, shall not prevent a subsequent act, which would have
originally constituted a violation or default hereunder from having all the
force and effect of an original violation or default. The receipt by Bayside
Village of rent with knowledge of the breach of any provision of this Lease,
including the building Rules and Regulations, shall not be deemed a waiver of
such breach. No provision of this Lease shall be deemed to have been waived by
any act or conduct by Bayside Village, unless such waiver be in writing signed
by Bayside Village. No payment by Resident or receipt by Bayside Village of a
lesser amount than the monthly installment of rent herein stipulated shall be
deemed to be other than on account of the rent earliest due, and Bayside Village
may accept any payment without prejudice to Bayside Village's right to recover
any other sums due from Resident or pursue any other remedy provided in this
Lease, regardless of any endorsement or statement accompanying such payment.
21. SUBORDINATION: This Lease is subordinate to all recorded covenants and
conditions which now affect, and to all ground or underlying leases, mortgages
or deeds of trust which may now or hereafter affect, the real property of which
the suite forms a part, including leases, mortgages and deeds of trust which
cover said real property and other suites as a blanket lien or otherwise, and to
all renewals, modifications, consolidations, replacements and extensions
thereof. This cause shall be self-operative and no further instrument or act
shall be required effectuate such subordination, but in confirmation of such
subordination, Resident shall execute promptly any certificate or other document
which Bayside Village may request.
22. SMOKE DETECTOR: Resident acknowledges that the suite is supplied with a
smoke detection device. During the term of this Lease, and any extensions, it
shall be Resident's responsibility to regularly test said device to ensure that
it is in operable condition. Resident shall promptly inform Bayside Village in
writing of any defects, malfunction, or failure of said device and upon receipt
of said notice, Bayside Village shall promptly make any repairs necessary to
maintain said device in proper working order, at no charge to Resident.
23. NOTICES: Except as otherwise in this Lease provided, any notice by Bayside
Village to Resident shall be in writing and shall be deemed to be duly given if
and when it is delivered personally to Resident, or sent by registered or
certified mail addressed to Resident at the suite, or left at the suite. Any
notice by Resident to Bayside Village shall be in writing and shall be deemed to
be duly given if it is signed by Resident and delivered personally to Bayside
Village's manager at the management office at Bayside Village at Three Bayside
Village Place, San Francisco, California, or sent by registered or certified
mail addressed to Bayside Village at said management office. Bayside Village may
change its address for purposes of this paragraph by giving written notice of
the change to Resident in the manner provided in this paragraph.
24. BINDING ON HEIRS AND SUCCESSORS: This Lease shall be binding on and shall
inure to the benefit of the heirs, executors, administrators, and successors of
the parties hereto, but nothing in this paragraph shall be construed as a
consent by Bayside Village to any assignment or subletting of this Lease by
Resident.
25. MISCELLANEOUS: (a) Each and every term, covenant and agreement herein
contained shall be deemed a condition hereof. (b) All amounts (other than
rent and late charges) owed by Resident to Bayside Village hereunder shall be
paid within 10 days from the date Bayside Village renders statements of
account therefor. All amounts (other than rent and late charges) owed by
Resident to Bayside Village, if not paid when due, shall bear interest from
the due date until paid at the rate of 10% per annum, or if a higher rate is
legally permissible, at the highest rate legally permitted. (c) Any riders
attached to this Lease and signed by Bayside Village and Resident are hereby
made a part of this Lease as though inserted in this lease. (d) This Lease,
including provisions and riders above made a part hereof, contains the entire
agreement between the parties and all prior negotiations and agreements are
merged herein. Neither Bayside Village nor Bayside Village's agents have made
any representations or promises, with respect to the suite or the building in
which the suite is located or otherwise, except as expressly set forth in the
Lease. This Lease may be modified in writing only, signed by Bayside Village
and Resident.
26. CONVERSION TO A MONTH-TO-MONTH TENANCY: IMMEDIATELY UPON THE EXPIRATION OF
THE TERM OF THIS LEASE, THE TENANCY SHALL AUTOMATICALLY CONVERT TO A
MONTH-TO-MONTH TENANCY UNLESS EITHER PARTY PRIOR TO SUCH EXPIRATION OF THE TERM
OF THE LEASE, GIVES THE OTHER PARTY AT LEAST 30 DAYS' NOTICE IN WRITING THAT
SUCH PARTY WILL NOT RENEW THE TENANCY ON A MONTH-TO-MONTH BASIS. ANY HOLDING
OVER AFTER EXPIRATION OF THE TERM OF THIS LEASE, WITH THE CONSENT OF BAYSIDE
VILLAGE, SHALL BE CONSTRUED AS A MONTH-TO-MONTH TENANCY IN ACCORDANCE WITH THE
TERMS HEREOF, AS APPLICABLE. AT LEAST 30 DAYS PRIOR TO THE EXPIRATION OF THIS
LEASE, BAYSIDE VILLAGE SHALL NOTIFY THE RESIDENT IN WRITING OF ANY POTENTIAL
CHANGES IN THE RENTAL RATE OR ANY OTHER TERMS OF THIS LEASE.
27. MONTH-TO-MONTH TENANCY: IN THE EVENT RESIDENT BECOMES A MONTH-TO-MONTH
TENANT, SAID TENANCY MAY BE TERMINATED BY THE RESIDENT ONLY BY GIVING THIRTY
(30) DAYS WRITTEN NOTICE OF INTENT TO TERMINATE THE TENANCY.
28. MANAGER AND AGENT OF BAYSIDE VILLAGE: The person authorized to manage the
premises is James Greene, Three Bayside Village Place, San Francisco,
California. The person authorized to act for and on behalf of Bayside Village
for the purpose of service of process and for the purpose of receiving and
receipting for all notices and demands is James Greene, Resident Manager,
Bayside Village, Three Bayside Village Place, San Francisco, California.
29. INCORPORATED INSTRUMENTS: This Lease incorporates by reference as if written
herein other terms and conditions contained in the following instruments,
receipt of a copy of each of which instruments Resident hereby acknowledges: _X_
Lease Agreement, _X_ Suite Move-In Condition Form, _X_ Rules and
Regulations, ___ Addendum to Residential Lease, _X_ Resident Handbook, ___
_____________________________________.
NOTICE: THIS LEASE CONTAINS A PROVISION FOR THE AUTOMATIC RENEWAL OR EXTENSION
OF YOUR TENANCY.
IN WITNESS WHEREOF, Bayside Village and Resident have executed duplicate
originals of this Lease on the respective dates set forth below and Resident
acknowledges receipt of a duplicate original of this Lease.
<TABLE>
<CAPTION>
<S> <C>
/s/ Ralph Amato - CEO 5-3-99 /s/ Michael Potter, Secretary 5/3/99
- --------------------------------------------- ------------------------------------
Ralph Amato - Chief Executive Officer Date Michael Potter - Date
Secretary
- --------------------------------------------- ------------------------------------
Resident Date Resident Date
BAYSIDE VILLAGE ASSOCIATES, a partnership
By /s/ Susan Schwartz Date: 5-7-99
------------------------------------------ ------
Bayside Village Associates
</TABLE>
Page 2 of 2
<PAGE>
DIRECTOR'S INDEMNIFICATION AGREEMENT
THIS DIRECTOR'S INDEMNIFICATION AGREEMENT ("Agreement") is made and
entered into as of this 10th day of December, 1993, by and between Ralph Amato,
an individual ("Director") and ALTERNATIVE ENTERTAINMENT, INC., a Nevada
corporation (the "Company").
R E C I T A L S
WHEREAS, Director is a duly elected member of the Company's board of
directors; and
WHEREAS, as consideration for the Director's service on the Company's
board of directors, and in order to secure Director's continued service on the
Company's board of directors, the Company desires to indemnify and hold harmless
Director from and against and in respect of certain losses, damage, deficiency,
expense or cost which may be incurred or suffered by Director as a result of
Director serving as a member of the Company's board of directors.
NOW, THEREFORE, in consideration of the premises and the covenants
herein contained, and for other good and valuable consideration had and
received, the parties hereto agree as follows:
1. INDEMNIFICATION. The Company hereby agrees to indemnify, defend and
hold harmless Director from and against and in respect of any and all loss,
damage, deficiency, expense or cost (including reasonable attorneys' fees),
which is incurred or suffered by, asserted against, or imposed upon, Director,
arising directly or indirectly from, on account of, or in connection with
Director serving as a member of the Company's board of directors and/or
exercising all rights and responsibilities of Director as a member of the board
of directors of the Company.
2. INDEMNIFICATION PROCEDURE. Director hereby covenants and agrees
that he will give the Company prompt written notice of any claim against
himself, of which he receives notice, and which might give rise to a claim by
Director against the Company under the terms of this Agreement, stating the
nature, basis and an estimate of the amount thereof. The Company shall have the
right to be represented, at its own expense, by advisory counsel and
accountants, in case of any suit claimed by any governmental body, or legal,
administrative or arbitration proceeding with respect to which the Company may
have liability under the terms of this Agreement. Director shall make available
to the Company, its attorneys and accountants, at all reasonable
<PAGE>
times during normal business hours, all books and records of the business
related to such suit, claim or proceeding, and Director and the Company will
render to each other such assistance as they may reasonably require of each
other in order to insure proper and adequate defense of any such suit, claim or
proceeding. Director will not make any settlement of any claim which might give
rise to liability of the Company under the terms of this Agreement without the
Company's written consent, which consent shall not be unreasonably withheld. The
Company shall have the right initially to defend against any such suit, claim or
proceeding; provided, however, that the Company may consent to an undertaking by
Director to defend against such suit, claim or proceeding, in which case,
Director shall have the right to initially defend. If Director shall desire to
effect a compromise or settlement of any such suit, claim or proceeding and the
Company shall refuse to consent to such compromise or settlement, then Director
shall be excused from the defense and the Company shall bear all further
responsibility for the defense of any such suit, claim or proceeding.
3. ERRORS AND OMISSIONS INSURANCE. The Company shall, as soon as
reasonably prudent and possible, obtain errors and omissions insurance for
members of its board of directors, and shall have Director listed as an
additional insured. The amount of the insurance coverage hereunder shall be not
less than One Million dollars ($1,000,000), and coverage shall be by a reputable
national insurance company.
4. NOTICES AND WAIVERS. Any notice, waiver, demand or other
communication required or permitted by this Agreement must be in writing and
shall be deemed to have been given and received (i) if delivered by messenger,
when delivered, or (ii) if mailed, on the third business day after deposit in
the United States mail, certified or registered postage prepaid, return receipt
requested, or (iii) if telexed or telegraphed, six hours after being dispatched
by telegram or telex.
5. FURTHER ASSURANCES. From time to time after the date of this
Agreement, each party hereto shall execute and deliver to the other party such
further assurances and other instruments as the other party may reasonably
request in order to vest and confirm in the requesting party the rights
conferred by this Agreement.
6. ATTORNEYS' FEES. In the event that any party to this Agreement
shall resort to legal action in order to enforce the provisions of this
Agreement, or shall defend such actions, the prevailing party shall be entitled
to receive reimbursement from the nonprevailing party for all reasonable
attorneys' fees and all other costs incurred in commencing or defending such
actions.
7. GOVERNING LAW. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the State of Nevada.
2
<PAGE>
8. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the respective successors and assigns of each of the parties hereto.
9. ENTIRE AGREEMENT. This Agreement embodies the entire understanding
among the parties and merges all prior discussions among them with respect to
the subject matter hereof. The provisions of this Agreement may only be waived
in or by a writing signed by the party against whom enforcement of any waiver is
sought.
10. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ALTERNATIVE ENTERTAINMENT, INC.
By: /s/ Ralph Amato
--------------------------------
Its: CEO
-------------------------------
DIRECTOR
/s/ Ralph Amato
-----------------------------------
3
<PAGE>
EXHIBIT 10.5
ITEX Corporation
[Letterhead]
PURCHASE AGREEMENT
This Agreement, made in Virginia this 18th day of February, 1998, when
signed by both parties, will serve as an agreement between ITEX CORPORATION, a
Nevada Corporation whose address is 10300 Southwest Greenberg Road, Suite 370,
Portland, Oregon 97223 (hereinafter referred to as "ITEX") [BY ITS DULY
AUTHORIZED AGENT ITEX USA, Inc., a Virginia Corporation, hereinafter referred to
as "ITEX USA"] and ALTERNATIVE ENTERTAINMENT, INC. (hereinafter referred to as
"SELLER"), with its principal offices at: 4275 Executive Square, Suite 800, La
Jolla, California 92307, Contact: Mr. Ralph Amato, President. Tel: (619)
546-2882 FAX: (619) 546-2881.
1. PURCHASE AND SALE OF STOCK.
Subject to the terms and conditions of this Agreement, ITEX agrees to
purchase, and SELLER agrees to sell and issue to ITEX, 100,000 shares of
SELLER's Common Stock (THE "STOCK") in exchange for $5.30 per share for a total
of $530,000 ITEX CASH EQUIVALENT CREDIT (THE "CASH CREDIT"). The Cash Equivalent
Credit may be redeemed by SELLER in accordance with the terms and conditions of
this Agreement as partial payment toward the purchase of various merchandise,
goods and services offered by and through ITEX.
2. BILL OF SALE.
This Agreement is considered by the parties to be a Bill of Sale, whereby
SELLER hereby warrants and represents it is the rightful owner of the Stock,
free and clear of any encumbrance, and title to the Stock is hereby conveyed
from SELLER to ITEX.
3. SELLER'S USE OF CASH CREDIT.
The Cash Credit that SELLER has earned hereunder, may be used at any time
after the signing hereof by SELLER toward the purchase of a very wide array of
goods and/or services through ITEX, in accordance with ITEX's reasonable
instructions based on the nature of the goods and/or services requested and the
industries from which those goods and/or services are to be secured. Over the
life of the Cash Credit, Seller shall in good faith submit to ITEX written
purchase requests which total the amount of the Cash Credit issued herein to
Seller.
<PAGE>
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 2
4. PURCHASE REQUESTS.
To utilize its Cash Credit, SELLER must identify to ITEX, in writing, those
specific Stock and /or services it wishes to purchase. All said purchase
requests must be forwarded only to ITEX's duly authorized Agent ITEX USA. ITEX
must take prompt and timely action to carry out its obligations under this
Agreement.
FORWARD ALL PURCHASE REQUESTS ONLY TO:
ITEX USA, INC.
321 Greenhill Street
Great Falls, Virginia 22066
Telephone: (703) 757-5100
FAX: (703) 757-5121
5. THE PURCHASE REQUEST MEMORANDUM ("PRM").
ITEX will provide SELLER with ITEX Purchase Request Memorandums ("PRM") for
use by SELLER in its submission of its written purchase requests. A reasonable
and legitimate purchase request should include as much detail as possible to
assist ITEX in completing said purchase requests on behalf of SELLER, including:
quantity, brands, delivery or storage requirements, delivery timing, model
numbers, current verifiable price, current bids or quotes, current or preferred
vendor's name and other vendor information if needed by ITEX. SELLER understands
that ITEX cannot begin its efforts to fulfill SELLER's purchase request(s) until
such time as SELLER provides ITEX with this information. Since time is of the
essence in transactions involving ITEX Cash Credit, SELLER agrees to provide
ITEX with as much lead time as possible to work on SELLER's PRMs. ITEX will
assist SELLER by reviewing each such PRM and providing SELLER in a timely
fashion notice of any further information needed by ITEX to fulfil the request.
6. BENCHMARK PRICE.
The purchase prices of the goods/services requested by SELLER will be
determined by the lowest price that is verified in written form as available to
SELLER through its third party vendors, suppliers or sources (the "Benchmark
Price"). SELLER agrees to provide ITEX with that information or documentation
asked of SELLER by ITEX in its effort to perform under its obligation to SELLER
to successfully complete any legitimate purchase request. Any purchase request
not accompanied by that information or documents and /or forms needed by ITEX
does not constitute a reasonable or legitimate purchase request as contemplated
by this Agreement.
<PAGE>
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 3
7. PERCENTAGE OF CASH AND ITEX CASH CREDIT.
SELLER understands that the purchases made by SELLER with its Cash Credit
will require a certain percentage of U.S. Dollars as part of the total purchase
price of the merchandise, goods and/or services requested by SELLER. ITEX cannot
warrant or represent that it has the ability to complete each and every purchase
request made by SELLER and SELLER understands that the actual percentage of U.S.
Dollars required in each purchase made by SELLER with Cash Credit could vary
widely from one purchase to another. ITEX will exert best efforts to accomplish
as many purchase requests that are acceptable to SELLER as are reasonably
possible with regard to the use of SELLER's Cash Credit and SELLER agrees that
it will carry out its obligations under this Agreement in good faith. ITEX will
not unreasonably delay taking action upon Seller's PRM's.
8. SELLER'S FAILURE TO MAKE PURCHASE REQUESTS.
SELLER understands that the successful redemption of the SELLER's Cash
Credit earned hereunder relies directly upon SELLER's obligation and
responsibility to make purchase requests of ITEX by the submission of PRMs to
ITEX under this Agreement. Any failure by SELLER to make purchase requests, or
to submit PRMs to ITEX in accordance with the terms and conditions set forth
herein, will under no circumstances, at any time or in any way inure to the
detriment of ITEX.
9. LIFE OF THE CASH CREDIT.
ITEX's obligation to SELLER, represented in this Agreement, will expire
fully and finally sixty (60) months from the date hereof, or at such earlier
time as SELLER's Cash Credit is fully exhausted by charges in accordance with
the terms and conditions of this Agreement. Notwithstanding the foregoing, in
the event SELLER has, prior to expiration of the sixty (60) month term,
submitted to ITEX Purchase Request Memoranda which would, if fulfilled, result
in the use of $100,000 of the Cash Credit, then the balance of the Cash Credit
shall remain available for spending by SELLER for an additional sixty (60)
months.
10. TRANSACTION FEE.
When SELLER transfers, assigns, utilizes or spends any of its Cash Credit
earned hereby, SELLER agrees to pay a transaction fee to ITEX in an amount equal
to twelve percent (12%) of the amount of Cash Credit transferred, assigned,
utilized, or spent. This transaction fee will be payable to ITEX's duly
authorized Agent, ITEX USA, payable net upon receipt of ITEX USA's invoice or as
required of SELLER in the PRM Acceptance Memorandum.
<PAGE>
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 4
11. CLOSING.
The purchase and sale of the shares of SELLER's Common Stock being
purchased by ITEX shall take place at the office of ITEX USA, Inc., 321
Greenhill Street, Great Falls, Virginia 22066, and simultaneously at the office
of Alternative Entertainment, 4275 Executive Square, Suite 800, La Jolla,
California 92307, upon execution of this Agreement (which time, date, and place
are referred to in this Agreement as THE "CLOSING"). Upon execution of this
Agreement, SELLER shall issue in the name of ITEX Corporation the certificates
representing the shares of the Stock that ITEX is purchasing, and shall deliver
the same by forwarding the Stock Certificates to ITEX USA, Inc., c/o John M.
Ballenger, Attorney at Law, Escrow Agent, 124 South Royal Street, Alexandria,
Virginia 22314, by one day overnight air express. In consideration and payment
for the Stock, the sufficiency of which is hereby acknowledged, ITEX does hereby
agree to credit SELLER with an ITEX Cash Credit in an amount equal to the
purchase price of the Stock.
12. REPRESENTATIONS AND WARRANTIES OF SELLER.
SELLER hereby makes the following representations and warranties to ITEX:
12.1. ORGANIZATION AND STANDING. SELLER is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Nevada,
has all requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted, and is duly qualified as a foreign
corporation and is in good standing in all other jurisdictions in which such
qualification is required; provided, however, that SELLER need not be qualified
in a jurisdiction in which its failure to qualify would not have a material
adverse effect on its operation or financial condition. On or prior to Closing,
SELLER shall provide ITEX with a Certificate of Good Standing from the Secretary
of State for the State of Nevada.
12.2. CAPITALIZATION. The authorized capital of SELLER consists of
approximately 3,100,000 shares of Common Stock outstanding prior to the Closing
of an intended Merger to become a Publicly Traded Company. SELLER intends to
proceed with a Rule 504 Offering to raise $1,000,000 and will subsequently
undertake additional Offerings as needed. Such offerings will result in dilution
of the Common Shares of stock and to the ITEX Shareholders.
12.3. RIGHTS. There are no options, warrants, conversion privileges,
preemptive rights or other rights which will interfere to the detriment of ITEX
with the fulfillment of this Agreement.
12.4. HOLDERS. A list of the holders of SELLER's outstanding Common Stock
shall be delivered to counsel for ITEX. Such a list shall be a complete and
correct list of the record
<PAGE>
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 5
owners and (to the best of SELLER's knowledge) beneficial owners of all of
SELLER's outstanding capital stock (including the amounts of Common Stock owned
by each such owner) as of the date of this Agreement.
12.5. SUBSIDIARIES. SELLER does not presently own or control, directly or
indirectly, any other corporation, association, joint venture, partnership, or
other business entity, with the exception of Boys Toys Cabarets, Inc., a
California corporation, which is a wholly owned subsidiary of SELLER.
12.6. AUTHORIZATION. All corporate action on the part of SELLER and its
officers, directors, and shareholders necessary for the authorization,
execution, delivery, and performance of all obligations of SELLER under this
Agreement and for the authorization, issuance, and delivery of the Stock being
sold under this Agreement has been (or will be) taken prior to the Closing. This
Agreement, when executed and delivered, shall constitute a valid and legally
binding obligation of SELLER enforceable in accordance with its terms.
12.7. VALIDITY OF STOCK. The Stock, when issued, sold, and delivered in
accordance with the terms of this Agreement, shall be duly and validly issued,
fully paid, and nonassessable.
12.8. GOVERNMENTAL CONSENTS. All consents, approvals, orders or
authorizations of, or registrations, qualifications, designations, declarations,
or filings with any federal or state governmental authority on the part of
SELLER required in connection with the consummation of the transactions
contemplated by this Agreement shall have been obtained prior to, and be
effective as of, the Closing, except that any notices of sale required to be
filed with the Securities and Exchange Commission pursuant to Regulation D
promulgated under the Securities Act of 1933 or any state securities law
authority pursuant to applicable blue sky laws may be filed within the
applicable periods therefor.
12.9. COMPLIANCE WITH OTHER INSTRUMENTS. SELLER is not in violation of any
provisions of its Articles of Incorporation or Bylaws as amended and in effect
on and as of the Closing, or, in any material respect, of any provision of any
material mortgage, indenture, agreement, instrument or contract to which it is a
party, or, to the best of its knowledge, of any provision of any federal or
state judgment, writ, decree, order statute, rule or governmental regulation
applicable to SELLER. The execution, delivery and performance of this Agreement
will not result in any such violation or be in conflict with or constitute a
default under any such provision. There is not such provision that materially
and adversely affects, or in the future may (so far as SELLER can now foresee)
materially and adversely affect, SELLER's business, prospects, conditions,
affairs, operations, properties or assets.
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STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 6
12.10. MISLEADING STATEMENTS. No representation or warranty by SELLER in
this Agreement or in any written statement or certificate furnished or to be
furnished to ITEX pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement, when taken together, contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements made not misleading.
12.11. LITIGATION. There is no action, proceeding or investigation pending
or threatened against SELLER or any of its employees before any court or
administrative agency (or any basis therefore known to SELLER), that might
result, either individually or in the aggregate, in any material adverse change
in the business, prospects, condition, affairs, operations, properties or assets
of SELLER or in any material liability on the part of SELLER. The foregoing
includes, without limiting its generality, actions pending or threatened (or any
basis therefor known to SELLER) involving the prior employment of any of
SELLER's employees or their use in connection with SELLER's business of any
information or techniques allegedly proprietary to any of their former
employers.
12.12. PATENTS; TRADEMARKS. To the best of its knowledge (but without
having conducted any special investigation or patent search), SELLER owns or
possesses, has access to, or can become licensed on reasonable terms under, all
patents, inventions, trademarks, trade names, copyrights, licenses, information,
proprietary rights and processes necessary for the lawful conduct of its
business as now conducted and as proposed to be conducted, without any
infringement of or conflict with the rights of others. SELLER has not received
any notice of infringement of or conflict with the asserted rights of others.
12.13. TAXES. SELLER has accurately prepared and timely filed all United
States income tax returns and all state and municipal tax returns that are
required to be filed by it and has paid or made provision for the payment of all
taxes that have become due pursuant to such returns, with the exception of
unpaid taxes in the amount of $16,000. The United States income tax returns of
SELLER have not been audited by the Internal Revenue Service. Except as set
forth above, no deficiency assessment or proposed adjustment of SELLER's United
States income tax or state or municipal taxes is pending and SELLER has no
knowledge of any proposed liability for any tax to be imposed upon its
properties or assets for which there is not an adequate reserve reflected in the
Financial Statements.
12.14. EMPLOYEES. SELLER does not have any employment contracts with any of
its employees not terminable at will and does not have any collective bargaining
agreements covering any of its employees. Other than as disclosed to ITEX in
writing, there have been no, nor are there proposed to be any, material
transactions between SELLER and any of its officers,
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STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 7
directors or holders of five percent (5%) or more of any class or series of its
capital stock or any of their affiliates.
12.15. INSURANCE. SELLER has fire and casualty insurance policies, with
extended coverage, sufficient in amount (subject to reasonable deductibles) to
allow it to replace any of its properties that might be damaged or destroyed.
13. REPRESENTATIONS AND WARRANTIES OF ITEX.
ITEX hereby makes the following representations and warranties to SELLER:
13.1. ORGANIZATION AND STANDING. ITEX is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Nevada,
has all requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted, and is duly qualified as a foreign
corporation and is in good standing in all other jurisdictions in which such
qualification is required; provided, however, that ITEX need not be qualified in
a jurisdiction in which its failure to qualify would not have a material adverse
effect on its operation or financial condition.
13.2. AUTHORIZATION. All corporate action on the part of ITEX and its
officers, directors, and shareholders necessary for the authorization,
execution, delivery, and performance of all obligations of ITEX under this
Agreement and for the purchase and receipt of the Stock being sold under this
Agreement has been (or will be) taken prior to the Closing. This Agreement, when
executed and delivered, shall constitute a valid and legally binding obligation
of SELLER enforceable in accordance with its terms.
13.3. MISLEADING STATEMENTS. No representation or warranty by ITEX in this
Agreement or in any written statement or certificate furnished or to be
furnished to SELLER pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement, when taken together, contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements made not misleading.
14. FEDERAL AND OTHER SECURITIES LAWS.
14.1. INVESTMENT REPRESENTATION.
14.1.1. This Agreement is made with ITEX in reliance upon ITEX's
representation to SELLER, which by its acceptance hereof ITEX confirms, that the
shares of the Stock to be received by it will be acquired for investment for its
own account, not as a nominee or agent,
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STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 8
and not with a view to the sale or distribution of any part thereof, and that it
has no present intention of selling, granting participations in, or otherwise
distributing the same, but subject nevertheless to any requirement of law that
the disposition of its property shall at all times be within its control. By
executing this Agreement, ITEX further represents that it does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person, or to any third person, with
respect to any of the shares of the Stock.
14.1.2. ITEX understands that the Stock is not registered under the 1933
Act on the ground that the sale provided for in this Agreement and the issuance
of securities hereunder is exempt from registration under the 1933 Act pursuant
to section 4(2) thereof, and that SELLER's reliance on such exemption is
predicated on ITEX's representations set forth herein. ITEX realizes that the
basis for the exemption may not be present if, notwithstanding such
representations, ITEX has in mind merely acquiring shares of the Stock for a
fixed or determinable period in the future, or for a market rise, or for sale if
the market does not rise. ITEX has no such intention.
14.1.3. ITEX represents that it is experienced in evaluating and investing
in companies such as SELLER, is able to fend for itself in the transactions
contemplated by this Agreement, has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of its
investment, and has the ability to bear the economic risks of its investment.
ITEX further represents that it has had access, during the course of the
transaction and prior to its purchase of its shares of the Stock, to the same
kind of information that would be provided in a registration statement filed by
SELLER under the 1933 Act and that it has had, during the course of the
transaction and prior to its purchase of its shares of the Stock, the
opportunity to ask questions of, and receive answers from, SELLER concerning the
terms and conditions of the offering and to obtain additional information (to
the extent SELLER possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify the accuracy of any
information furnished to it or to which it had access.
14.1.4. ITEX understands that the Stock may not be sold, transferred or
otherwise disposed of without registration under the 1933 Act or an exemption
therefrom, and that in the absence of an effective registration statement
covering the Stock or an available exemption from registration under the 1933
Act, the Stock must be held indefinitely. In particular, ITEX is aware that the
Stock may not be sold pursuant to Rule 144 promulgated under the 1933 Act unless
all of the conditions of that Rule are met. Among the conditions for use of Rule
144 is the availability of current information to the public about SELLER. Such
information is not now available and SELLER has no present plans to make such
information available.
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STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 9
14.1.5. ITEX agrees not to make, without the prior written consent of
SELLER, any public offering or sale of the Stock, although permitted to do so
pursuant to Rule 144(k) promulgated under the Securities Act, until the earlier
of (i) the date on which SELLER effects its initial registered public offering
pursuant to the Securities Act or (ii) the date on which it becomes a registered
SELLER pursuant to Section 12(g) of the Securities Exchange Act of 1934.
14.2. LEGENDS; STOP TRANSFER.
14.2.1. All certificates for shares of the Stock may bear, at SELLER's
option, the following legend:
These securities have not been registered under the United States
Securities Act of 1933, as amended, and may not be sold, transferred,
assigned, pledged or hypothecated absent an effective registration thereof
under such Act or compliance with Rule 144 promulgated under such Act, or
unless Alternative Entertainment, Inc., has received an opinion of counsel,
satisfactory to Alternative Entertainment, Inc., and its counsel, that such
registration is not required.
14.2.2. The certificates for shares of the Stock shall also bear any legend
required by any applicable state securities law.
14.2.3. In addition, SELLER shall make a notation regarding the
restrictions on transfer of the Stock in its stockbooks, and shares of the Stock
shall be transferred on the books of SELLER only if transferred or sold pursuant
to an effective registration statement under the 1933 Act covering such shares
or pursuant to and in compliance with the provisions of this Agreement.
15. REGISTRATION RIGHTS.
15.1. CERTAIN DEFINITIONS. For purposes of this Section, the following
terms shall have the meanings set forth below:
i. "Closing" shall mean the date of the sale of the Common Stock which is
the subject of this Agreement.
ii. "Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
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STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 10
iii. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
iv. "Holder" shall mean any Investor who holds Registrable Securities and
any holder of Registerable Securities to whom the registration rights conferred
by this Agreement have been transferred in compliance with this Agreement.
v. "Investor" shall mean ITEX, its successors and permitted assigns.
vi. "Other Stockholders" shall mean persons other than Holders who, by
virtue of agreements with the SELLER, are entitled to include their securities
in certain registrations hereunder.
vii. "Registerable Securities" shall mean (i) shares of Common Stock
issued pursuant to this Agreement and (ii) any Common Stock issued as a
dividend or other distribution with respect to or in exchange for or in
replacement of the shares referenced in (i) above, provided, however, that
Registerable Securities shall not include any shares of Common Stock which
have previously been registered or which have been sold to the public.
viii. The term "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
ix. "Registration Expenses" shall mean all expenses incurred in effecting
any registration pursuant to this Agreement, including, without limitation, all
registration, qualification, and filing fees, printing expenses, escrow fees,
fees and disbursement of counsel for the SELLER, blue sky fees and expenses, and
expenses of any regular or special audits incident to or required by any such
registration, but shall not include Selling Expenses and fees and disbursements
of counsel for the Holders (but excluding the compensation of regular employees
of the SELLER, which shall be paid in any event by the SELLER).
x. "Rule 144" shall mean Rule 144 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
xi. "Rule 145" shall mean Rule 145 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
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STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 11
xii. "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
xiii. "Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of the Registerable Securities and all fees
and disbursements of counsel for any Holder (other than the fees and
disbursements of counsel included in Registration Expenses).
xiv. "Shares" shall mean the SELLER's Common Stock.
15.2. SELLER REGISTRATION.
If the SELLER shall determine to register any of its securities either for
its own account or the account of a security holder or holders exercising their
demand registration rights, other than a registration relating solely to
employee benefit plans, or a registration relating solely to a Rule 145
transaction, or a registration on any registration from that does not permit
secondary sales, the SELLER will:
i. Promptly give to each Holder written notice thereof; and
ii. Include in such registration (and any related qualification under blue
sky laws or other compliance), and in any underwriting involved therein, all of
the Registerable Securities issued pursuant to this Agreement.
15.3. UNDERWRITING. If the registration of which the SELLER gives notice is
for a registered public offering involving an underwriting, the SELLER shall so
advise the Holders as a part of the written notice given pursuant to the
foregoing Subparagraph. In such event, the right of any Holder to registration
pursuant to this Subparagraph shall be conditioned upon such Holder's
participation in such underwriting. All Holders proposing to distribute their
securities through such underwriting shall (together with the SELLER and the
other holders of securities of the SELLER with registration rights to
participate therein distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected by the SELLER.
15.4. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Section hereof shall be borne by the SELLER.
15.5. REGISTRATION PROCEDURES. In the case of any registration effected by
the SELLER pursuant to this Section, the SELLER will keep each Holder advised in
writing as to the
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STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 12
initiation of each registration and as to the completion thereof. At its
expense, the SELLER will use its best efforts to:
i. Keep such registration effective for a period of one hundred twenty
(120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that such 120-day period shall be extended for a
period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the SELLER;
ii. Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement;
iii. Furnish such numbered prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a
Holder from time to time may reasonably request;
iv. Notify each seller of Registerable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or incomplete in the light of
the circumstances then existing, and at the request of any such seller,
prepare and furnish to such seller a reasonable number of copies of a
supplement to or any amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such shares, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading or incomplete in the light of the
circumstances then existing;
v. Cause all such Registerable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar
securities issued by the SELLER are then listed;
vi. Provide a transfer agent and registrar for all Registerable
Securities registered pursuant to such registration statement, in each case
not later than the effective date of such registration; and
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STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 13
vii. Otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve months, but not more than eighteen months, beginning with the first
month after the effective date of the Registration Statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act.
15.6. INDEMNIFICATION.
i. The SELLER will indemnify each Holder, each of its officers, directors
and partners, legal counsel, and accountants and each person controlling such
Holder within the meaning of Section 15 of the Securities Act, with respect to
which registration, qualification, or compliance has been effected pursuant to
this Paragraph, and each underwriter, if any, and each person who controls,
within the meaning of Section 15 of the Securities Act, any underwriter, against
all expenses, claims, losses, damages, and liabilities (or actions, proceedings
or settlements) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular, or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the SELLER of the Securities Act or
any rule or regulation thereunder applicable to the SELLER and relating to
action or inaction required of the SELLER in connection with any such
registration, qualification or compliance, and will reimburse each such Holder,
each of its officers, directors, partners, legal counsel and accountants and
each person controlling such Holder, each such underwriter, and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending or settling any such
claim, loss, damage, liability or action, provided that the SELLER will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the SELLER by such Holder
or underwriter and stated to be specifically for use therein. It is agreed that
the indemnify agreement contained in this Subparagraph shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the SELLER (which consent
has not been unreasonably withheld).
ii. Each Holder will, if Registerable Securities held by him are included
in the securities as to which such registration, qualification or compliance is
being effected, indemnify the SELLER, each of its directors, officers, partners,
legal counsel and accountants and each underwriter, if any, of the SELLER's
securities covered by such a registration statement, each person who controls
the SELLER or such underwriter within the meaning of Section 15 of the
Securities Act, each other such Holder and Other Stockholder, and each of their
officers,
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STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 14
directors and partners, and each person controlling such Holder or Other
Stockholder, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the SELLER and such Holders, Other Stockholders, directors, officers, partners,
legal counsel and accountants, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with investigating
or defending such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the SELLER by such Holder;
provided, however, that the obligations of such Holder hereunder shall not apply
to amounts paid in settlement of any such claims, losses, damages or liabilities
(or actions in respect thereof) if such settlement is made without the consent
of such Holder (which consent shall not be unreasonably withheld).
iii. Each party entitled to indemnification under this Subparagraph (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified party (whose approval shall not
unreasonably be withheld), and the Indemnified party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section, to the extent such
failure is not prejudicial. No Indemnifying party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
iv. If the indemnification provided for in this Subparagraph is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable
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STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 15
by such Indemnified Party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
v. Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.
15.7. INFORMATION BY HOLDER. Each Holder of Registrable Securities shall
furnish to the SELLER such information regarding such Holder and the
distribution proposed by such Holder as the SELLER may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Section.
15.8. LIMITATION ON REGISTRATION OF ISSUES OF SECURITIES. From and after
the date of this Agreement, the SELLER shall not, without the prior written
consent of a majority in interest of the Holders, enter into any agreement with
any holder or prospective holder of any securities of the SELLER giving such
holder or prospective holder any registration rights the terms of which are more
favorable than the registration rights granted to the Holders hereunder.
15.9. TRANSFER OF REGISTRATION RIGHTS. The registration rights of ITEX
under this Section may be transferred to any transferee who acquires at least
five percent (5%) of the Shares or an equivalent amount of Registrable
Securities; provided, however, that the SELLER is given written notice by the
Holder at the time of such transfer stating the name and address of the
transferee and identifying the securities with respect to which the rights under
this Paragraph are being assigned.
15.10. LOCKUP AGREEMENT. The parties hereby agree to lockup the shares
acquired by ITEX Corporation in accordance with the provisions of "THE AGREEMENT
TO LOCKUP STOCKHOLDINGS" shown as Exhibit A attached hereto and incorporated by
reference here.
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STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 16
15.11. DELAY OF REGISTRATION. No Holder shall have any right to take any
action to restrain, enjoin or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Section.
15.12. TERMINATION OF THE SELLER'S OBLIGATIONS. The SELLER's obligations
pursuant to this Section shall expire three (3) years after the SELLER first
becomes subject to the reporting requirements of Section 13 of the Securities
Exchange Act of 1934.
16. COVENANTS OF THE SELLER.
16.1. ANNUAL SEC REPORTS. From the date Seller becomes subject to the
reporting requirements of the Exchange Act (which shall include any successor
federal statute), SELLER shall deliver to ITEX copies of its annual reports on
Form 10-K and its quarterly reports on Form 10-Q, respectively.
16.2. TRADE SECRETS AND CONFIDENTIAL INFORMATION. Nothing in this Agreement
shall confer upon ITEX the right to have access to any trade secrets or
classified information of the SELLER. ITEX hereby agrees to hold in confidence
and trust and not to misuse or disclose any confidential information provided
pursuant to this Agreement. The SELLER shall not be required to comply with
Sections 16(d) if the SELLER reasonably determines ITEX to be a competitor or an
officer, employee, director or greater than 10% stockholder of a competitor.
16.3. PROMPT PAYMENT OF TAXES, ETC. The SELLER will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the SELLER or any subsidiary; provided,
however, that any such tax, assessment charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the SELLER shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the SELLER will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefor. The SELLER will promptly pay or cause to be paid when due, or in
conformance with customary trade terms or otherwise in accordance with policies
related thereto adopted by the SELLER's Board of Directors, all other
indebtedness incident to operations of the SELLER.
16.4. MAINTENANCE OF PROPERTY AND LEASES. The SELLER will keep its
properties and those of its subsidiaries in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and the SELLER and its subsidiaries will at all times comply with each
material provision of all leases to which any of them is a party or under which
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STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 17
any of them occupies property if the breach of such provision might have a
material and adverse effect on the condition, financial or otherwise, or
operations of the SELLER.
16.5. INSURANCE. Except as otherwise decided in accordance with policies
adopted by the SELLER's Board of Directors, the SELLER will keep its assets and
those of its subsidiaries which are of an insurable character insured by
financially sound and reputable insurers against loss or damage by fire,
explosion and other risks customarily insured against by companies in the
SELLER's line of business, and the SELLER will maintain, with financially sound
and reputable insurers, insurance against other hazards and risks and liability
to persons and property to the extent and in the manner customary for companies
in similar businesses similarly situated.
16.6. ACCOUNTS AND RECORDS. The SELLER will keep true records and books of
account in which full, true and correct entries will be made of all dealings or
transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
16.7. COMPLIANCE WITH REQUIREMENTS OF GOVERNMENTAL AUTHORITIES. The SELLER
and all its subsidiaries shall duly observe and conform to all valid
requirements of governmental authorities relating to the conduct of their
businesses or to their properties or assets.
16.8. MAINTENANCE OF CORPORATE EXISTENCE, ETC. The SELLER shall maintain in
full force and effect its corporate existence, rights and franchises and all
licenses and other rights in or to use patents, processes, licenses, trademarks,
trade names or copyrights owned or possessed by it or any subsidiary and deemed
by the SELLER to be necessary to the conduct of their business.
16.9. PROPRIETARY INFORMATION AND INVENTION AGREEMENTS. The SELLER will
cause each person now or hereafter employed by it or any subsidiary with access
to confidential information to enter into a proprietary information and
inventions agreement substantially in the form approved by the Board of
Directors.
16.10. EMPLOYEE AND OFFICER STOCK ARRANGEMENTS. The SELLER will not,
without the approval of the Board of Directors, issue any of its capital stock,
or grant an option or rights to subscribe for, purchase or acquire any of its
capital stock, to any employee, consultant, officer or director of the SELLER or
a subsidiary except for (a) the issuance of shares of Common Stock pursuant to
any currently outstanding stock options. Each acquisition of any shares of
capital stock of the SELLER or any option or right to acquire any shares of
capital stock of the SELLER by an employee, officer or director of the SELLER
will be conditioned upon the execution and delivery by the SELLER and such
employee, officer or director of an agreement substantially in a form approved
by the Board of Directors of the SELLER.
<PAGE>
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 18
16.11. TERMINATION OF COVENANTS. The covenants set forth in this Section 16
shall terminate and be of no further force and effect after the time of
effectiveness of the SELLER's first firm commitment underwritten public offering
registered under the Securities Act.
17. MUTUAL FORCE MAJEURE.
Should either party hereto be unable to provide Stock (if SELLER) or goods
and/or services (if ITEX) to the other hereunder by reason of: acts of God,
labor or materials shortages, Stock breakdown, air or ground delays or other
traffic problems, fires, explosions, breakdown of facilities, strikes, or civil
authority or any other causes which are beyond the control of either party,
hereinafter referred to as "Force Majeure", ITEX or SELLER shall give prompt
notice to the other party, and the obligations of the party giving notice
hereunder will be suspended to the extent made necessary by such Force Majeure.
Said party shall use its best efforts to eliminate and correct the effect of
such Force Majeure as completely as is reasonably possible or practicable, and
shall use its best efforts to make up any deficiencies in the delivery of said
Stock or goods, and/or services caused thereby, as soon as possible after the
termination of the Force Majeure.
18. ITEX USA, INC. SUPPORTS ITEX OBLIGATIONS UNDER THIS AGREEMENT.
ITEX has contracted with ITEX USA, Inc., a Virginia Corporation, with its
principal offices at 321 Greenhill Street, Great Falls, Virginia 22066-3516, to
act as ITEX's duly authorized agent hereunder in all communication, interaction
and liaison between ITEX and SELLER on behalf of ITEX. ITEX USA will provide all
of the contract management and logistical support of ITEX's performance
obligations under this Agreement, including but not limited to, the re-sale of
the Stock purchased from SELLER by ITEX, the issuance to SELLER of the shipping
instructions of the Stock, the servicing of SELLER's PRMs and Cash Credit
spending activity, the billing and collection of ITEX Transaction Fees and other
U.S. Dollar amounts due to ITEX, and any enforcement of ITEX's rights and
interests hereunder. ITEX USA under its Exclusive Agency Agreement with ITEX, is
authorized to sign this Agreement on behalf of ITEX and to bind ITEX to the
terms and conditions hereunder as ITEX's "duly authorized agent".
19. MISCELLANEOUS.
19.1. HEADINGS. Section and subsection headings are for convenience of
reference only and shall not affect the meanings or interpretation of the
contents hereof.
<PAGE>
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 19
19.2. COMPLETE UNDERSTANDING. This Agreement represents the complete
understanding between the parties hereto with respect to the subject matter
hereof and thereof and supersede all prior negotiations, representations,
warranties, statements or agreements, either written or oral, as to the subject
matter hereof and thereof. This Agreement may be amended only by a written
instrument signed by the party to be charged. No requirement, obligation, remedy
or provision of this Agreement shall be deemed to have been waived, unless so
waived expressly in writing or waived pursuant to other provisions of this
Agreement, and any such waiver of any such provision shall not be considered a
waiver of any right to enforce such provision thereafter.
19.3. NOTICES. All notices authorized or required herein shall be in
writing and shall be delivered by hand and evidenced by a written receipt or
sent by Express Mail or other similar overnight delivery service and evidenced
by written receipt, with provision made for payment by the sender, or by
certified mail, return receipt requested and postage prepaid, to SELLER and to
ITEX at their respective addresses as set forth above or to such other address
as may be designated by notice duly given. Notices shall be deemed to have been
given when received, if delivered by hand or by overnight delivery service, or
48 hours after mailing, if mailed.
19.4. APPLICABLE LAW. This transaction occurs in the Commonwealth of
Virginia and this Agreement will be interpreted and construed in accordance with
the laws of the Commonwealth of Virginia.
19.5. COVENANTS BINDING. The covenants, agreements and conditions herein
contained shall apply to and bind the successors of the parties hereto and inure
to the permitted assigns of ITEX and SELLER.
19.6. REPRESENTATIONS. The representations, warranties, covenants and
agreements contained herein shall be deemed to be material and to have been
relied upon by the party to whom they have been made.
19.7. NON-MERGER. Except as otherwise specifically provided herein, the
provisions of this Agreement shall survive the Closing hereunder, and the
execution and delivery of the Stock, and shall not be merged therein.
19.8. COUNTERPART ORIGINALS. This Agreement may be executed in multiple
original counterparts, each of which shall be an original, but all of which
shall constitute one and the same contract.
19.9. LITIGATION. In the event that any party is required to resort to
litigation to enforce its rights under this Contract, ITEX and SELLER agree that
any judgment awarded to the
<PAGE>
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 20
prevailing party may include all litigation expenses of the prevailing party,
including, without limitation, actual attorneys' fees and court costs. The
Circuit Court of the City of San Diego or the U.S. District Court for the
Southern District of California (San Diego Division) shall have exclusive
jurisdiction over any litigation arising out of or in any way relating to the
enforcement or construction of this Agreement. Process shall be served in
accordance with California law. In the event SELLER shall initiate litigation,
SELLER shall forward a complete copy of the suit and all attachments by
certified mail, return receipt requested, postage prepaid, to ITEX USA, Inc.,
321 Greenhill Street, Great Falls, Virginia 22066. Notice by mail to ITEX USA,
Inc., shall be in addition to and not in lieu of service of process upon ITEX
Corporation under California law.
19.10. GOOD FAITH AND FAIR DEALING. In carrying out their respective
obligations under this Agreement, the parties shall act in good faith and deal
fairly with one another.
19.11. MULTIPLE ORIGINALS. This Agreement may be signed in one or more
original counterparts each of which shall be deemed on original instrument and
together shall constitute the entire Agreement.
19.12. PARTIAL INVALIDITY. Should any provision of this Agreement become or
be deemed invalid, the same shall not invalidate the entire agreement, but only
that particular clause or provision involved.
19.13. HEADINGS. Headings of this Agreement are inserted solely for the
purposes of convenience of reference, and are in no manner to be construed as
part of this Agreement.
In witness whereof, the parties have duly executed this Agreement on the
date and year first written above.
AGREED, UNDERSTOOD, AND ACCEPTED
SELLER:
ALTERNATIVE ENTERTAINMENT, INC.,
By: /s/ Ralph Amato (SEAL)
--------------------------------------
Title: President
-----------------------------------
Date: 2/28/98
------------------------------------
<PAGE>
STOCK PURCHASE AGREEMENT
ITEX CORPORATION/ALTERNATIVE ENTERTAINMENT, INC.
PAGE 21
ITEX CORPORATION
BY ITS DULY AUTHORIZED AGENT
ITEX, USA, INC.
By: /s/ Melinda G. Houser (SEAL)
--------------------------------------
Title: Executive V.P.
-----------------------------------
Date: 3-23-98
------------------------------------
<PAGE>
ATTACHMENT TO PURCHASE AGREEMENT OF FEBRUARY 18, 1998
EXHIBIT A
AGREEMENT TO LOCK-UP STOCKHOLDINGS
THIS AGREEMENT TO LOCK-UP STOCKHOLDINGS (the "Agreement") is entered into
this 18th day of February 1998 by and between ITEX Corporation, a Nevada
corporation, with principal offices at 10300 Southwest Greenberg Road, Suite
370, Portland, Oregon 97223 ("Stockholder") and Alternative Entertainment, Inc.,
a Nevada corporation, with principal offices at 4275 Executive Square Suite 800,
La Jolla, California 92037 (the "Company").
WHEREAS:
A. The Company and Stockholder are parties to that certain Purchase
Agreement, dated February 18, 1998 (the "Purchase Agreement").
B. Subject to the terms and conditions of the Purchase Agreement,
Stockholder is acquiring One Hundred Thousand (100,000) shares (the
"Shares") of the Company's Common Stock (par value $0.01).
C. The Company anticipates that it will complete a tax-free
reorganization which will result in the Company becoming a publicly-held
company with trading planned on the Over-The-Counter Electronic Bulletin
Board.
D. The Company seeks to establish an orderly market in connection with
the planned trading of its common stock (the "Common Stock").
E. Both the Stockholder and the Company acknowledge and agree that the
parties believe that the Shares have a value of Five Dollars ($5.00) per
Share.
F. Stockholder is willing, subject to the terms and conditions of this
Agreement, to deposit the Shares and forego any opportunity to sell,
transfer, or assign the Shares as provided by this Agreement.
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NOW THEREFORE THE PARTIES AGREE AS FOLLOWS:
1.00 LOCK-UP OF SHARES BY STOCKHOLDER. In consideration of the Company's
undertakings to Stockholder as set forth in the Purchase Agreement, together
with other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Stockholder hereby agrees that neither the Stockholder
nor any entity controlled by Stockholder will sell, contract to sell or make any
other disposition of, or grant any purchase option for the sale of, any of the
Shares. Stockholder's right to sell, transfer, assign, or dispose of the Shares
shall be limited as follows:
1.01. AFTER EXPIRATION OF FIFTEEN MONTHS. After the expiration of fifteen
(15) months from and after the date at which the Company completes a
reorganization and merger with a publicly-held company (the "Merger Date"),
Stockholder shall have the right to sell or transfer up to twenty-five
percent (25%) of the Shares;
1.02. AFTER THE EXPIRATION OF EIGHTEEN MONTHS. After the expiration of
eighteen (18) months from and after the date at which the Company completes
a reorganization and merger with a publicly-held company (the "Merger
Date"), Stockholder shall have the right to sell or transfer up to an
additional twenty-five percent (25%) of the Shares;
1.03. AFTER THE EXPIRATION OF TWENTY-ONE MONTHS. After the expiration of
twenty-one (21) months from and after the date at which the Company
completes a reorganization and merger with a publicly-held company (the
"Merger Date"), Stockholder shall have the right to sell or transfer up to
an additional twenty-five percent (25%) of the Shares; and
1.04. AFTER THE EXPIRATION OF TWENTY-FOUR MONTHS. After the expiration of
twenty-four (24) months from and after the date at which the Company
completes a reorganization and merger with a publicly-held company (the
"Merger Date"), Stockholder shall have the right to sell or transfer up to
an additional twenty-five percent (25%) of the Shares.
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2.00 REPRESENTATIONS OF STOCKHOLDER RE: DOCUMENTS PROVIDED STOCKHOLDER.
Stockholder acknowledges and agrees that prior to Stockholder's execution of
this Agreement, Stockholder received the following information from the Company:
1.) a copy of the Company's Business Plan, dated Jan 1998;
2.) a copy of the Company's unaudited financial statements, dated
12/31/97;
3.) a copy of the Agreement for the Purchase of Common Stock between
the Company and the shareholders of Wagg Corp.;
4.) a copy of the Company's prospectus, dated July 3, 1996; and
5.) a copy of any other information, documents, and materials about
the Company requested by Stockholder.
3.00 FACTORS THAT MAY AFFECT THE VALUE OF THE STOCK TO BE ACQUIRED BY
STOCKHOLDER. Stockholder acknowledges and agrees that he understands and fully
appreciates that its purchase of the Shares is subject to certain risks,
including:
3.01 DEVELOPMENT STAGE COMPANY. Stockholder understands fully that the
Company is a development-stage company. There can be no assurance that the
Company will generate any revenues, or if revenues are generated, that the
Company can sustain revenues for any period of time or otherwise achieve or
maintain profitability.
3.02 USE OF PROCEEDS. Stockholder understands that upon the Company's
receipt of goods and services to be invested by Stockholder will be used
for the construction of a planned gentlemen's club in San Francisco,
California. In the event that the Company is not successful in raising
significant and substantial amounts of additional capital, any proceeds
received by the Company from the sale of other securities and the Shares
issued to Stockholder will be of little value to Stockholder.
3.03 NO MINIMUM OFFERING, NO ESCROW ACCOUNT & NO FIRM COMMITMENT.
Stockholder understands that there is no minimum offering and no escrow
account is or will be established in connection with the sale of the Shares
to Stockholder or the funds that the Company receives, if any, from any
other offering of securities. Any funds the Company receives from the sale
of the Shares or other securities to other investors will be immediately
released to the Company. The Company does not have any firm commitment of
any underwriter for the sale of any securities and there can be no
assurance that the Company will be successful in obtaining any firm
commitment from any underwriter to raise any capital.
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3.04. LACK OF INDEPENDENT EVALUATION OF BUSINESS PLAN & PROPOSED STRATEGY.
Stockholder acknowledges that he understands that the Company has not
obtained any independent evaluation of the Company's Business Plan and the
Company's proposed business strategy. There can be no assurance that the
Company's planned business or proposed strategy will generate any revenues,
or if revenues can be generated, that they can be generated at a level to
maintain profitability.
3.05 LACK OF EXPERIENCED MANAGEMENT. Stockholder understands that the
Company's sole officer, Ralph M. Amato, has no substantial recent
experience in acquiring, establishing, developing, or operating clubs that
feature female exotic dance entertainment. In the event that the Company is
successful in raising sufficient additional capital, the Company will need
to secure the services of others who possess the management skill,
experience, and industry knowledge needed to implement the Company's
Business Plan. There can be no assurance that the Company can secure and
retain the necessary management to complete these efforts.
3.06 PRIOR SALE OF SECURITIES & POTENTIAL LIABILITIES. The Company has,
since inception, issued nearly two million dollars ($2,000,000) in
securities. While these securities were sold upon claims of exemption from
the registration requirement and otherwise upon claims that each of them
have been offered and sold in conformity with the requirements of state and
federal securities laws, there can be no assurance that the Company's prior
offering and sale of securities did not comply with the obligations imposed
under state and federal securities laws, all investors in this Note
Offering may lose all or nearly of their investment.
3.07 DILUTION. Stockholder acknowledges that upon purchase of the Shares
issued hereby, Stockholder will incur immediate and substantial dilution
equal to more than 90% of its investment.
3.08 SUBORDINATE TO CURRENT & FUTURE INDEBTEDNESS. Stockholder acknowledges
that the Shares are subordinate to the claims of the Company's existing and
future creditors.
3.09 DEPENDENCE UPON RALPH M. AMATO, LIMITED MANAGEMENT, & ABSENCE OF
INSURANCE. Stockholder acknowledges that the Company's success will depend,
to a significant extent, on the efforts and abilities of Ralph M. Amato.
The Company has no other full time staff or management. The Company has no
"key man" insurance on the life of Ralph M. Amato. The loss of Mr. Amato
could have a material adverse effect on the Company. The Company also does
not have any property, casualty, general liability, or workers'
compensation insurance.
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In the event that the Company loses the services of Mr. Amato or otherwise
incurs uninsured losses, the Company will likely incur substantial and
protracted losses thereby.
3.10 CONTROL BY MANAGEMENT. In the event that the Company is successful in
raising a sufficient amount of additional capital to implement its business
plan, control of the Company will likely remain in the hands of its current
officer and directors.
3.11 NO PLANNED DIVIDENDS. The Company does not anticipate that it will pay
any dividends on the Company's Common Stock at any time in the foreseeable
future.
3.12 NO ESTABLISHED TRADING MARKET & LOW-PRICED STOCKS. Upon the Company's
completion of its planned merger and reorganization with an existing public
company, the Company seeks to commence trading in the Company's common
stock. As a result, prior to commencement of trading in the Company's
Common Stock, there has existed no established trading market for the
Company's Common Stock and there can be no assurance that a liquid market
for the Company's Common Stock will ever develop. Trading in the Company's
Common Shares, if at all, will likely be very limited. Consequently, a
shareholder may find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Company's securities. In the absence of
a security being quoted on NASDAQ, or the Company having $2,000,000 in net
tangible assets, trading in the Common Stock is covered by Rule 3a51-1
promulgated under the Securities Exchange Act of 1934 for non-NASDAQ and
non-exchange listed securities. Under such rules, broker/dealers who
recommend such securities to persons other than established customers and
accredited investors (generally institutions with assets in excess of
$5,000,000 or individuals with net worth in excess of $1,000,000 or an
annual income exceeding $200,000 or $300,000 jointly with their spouse)
must make a special written suitability determination for the purchaser and
receive the purchaser's written agreement to a transaction prior to sale.
Securities are also exempt from this rule if the market price is at least
$5.00 per share, or for warrants, if the warrants have an exercise price of
at least $5.00 per share. The Securities Enforcement and Penny Stock Reform
Act of 1990 requires additional disclosure related to the market for penny
stocks and for trades in any stock defined as a penny stock. The Commission
has recently adopted regulations under such Act which define a penny stock
to be any NASDAQ or non-NASDAQ equity security that has a market price or
exercise price of less than $5.00 per share and allow for the enforcement
against violators of the proposed rules.
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In addition, unless exempt, the rules require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule prepared by
the Commission explaining important concepts involving a penny stock
market, the nature of such market, terms used in such market, the
broker/dealer's duties to the customer, a toll-free telephone number for
inquiries about the broker/dealer's disciplinary history, and the
customer's rights and remedies in case of fraud or abuse in the sale.
Disclosure also must be made about commissions payable to both the
broker/dealer and the registered representative, current quotations for the
securities, and, if the broker/dealer is the sole market-maker, the
broker/dealer must disclose this fact and its control over the market.
Monthly statements must be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in
penny stocks. While many NASDAQ stocks are covered by the proposed
definition of penny stock, transactions in NASDAQ stock are exempt from all
but the sole market-maker provision for (i) issuers who have $2,000,000 in
tangible assets ($5,000,000 if the issuer has not been in continuous
operation for three years), (ii) transactions in which the customer is an
institutional accredited investor and (iii) transactions that are not
recommended by the broker/dealer. In addition, transactions in a NASDAQ
security directly with the NASDAQ market-maker for such securities, are
subject only to the sole market-maker disclosure, and the disclosure with
regard to commissions to be paid to the broker/dealer and the registered
representatives. Finally, all NASDAQ securities are exempt if NASDAQ raised
its requirements for continued listing so that any issuer with less than
$2,000,000 in net tangible assets or stockholder's equity would be subject
to delisting. These criteria are more stringent than the proposed increase
in NASDAQ's maintenance requirements. The Company's securities are subject
to the above rules on penny stocks and the market liquidity for the
Company's securities could be SEVERELY AFFECTED by limiting the ability of
broker/dealers to sell the Company's securities.
3.13 GOVERNMENT REGULATION & EXOTIC ENTERTAINMENT INDUSTRY. The Company
seeks to operate establishments that offer "female exotic entertainment."
This business routinely suffers severe and unfavorable regulatory burdens,
adverse zoning ordinances, and other oppressive government regulations
which may result in the Company incurring substantial losses and
significant delays in connection with the development of any establishment.
3.14 LACK OF DIVERSIFICATION. The Company's proposed business involving the
proposed operation of establishments offering "female exotic entertainment"
will not provide any diversification. If the Company is successful, all of
the Company's business and assets will be concentrated in the same
industry.
3.15 QUESTIONS & RESPONSES TO STOCKHOLDER. Stockholder has personally met
with the Company's President and has had an opportunity to ask questions of
and receive answers to questions regarding the Company's affairs, the
Company's proposed business, and all other aspects of the Company's current
and proposed operations.
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3.16 STATUS OF STOCKHOLDER. Stockholder is a sophisticated and experienced
in venture capital and investments. Stockholder understands that the
representations contained herein are made for the purpose of satisfying the
Company that it understands and is capable of understanding the merits and
risks inherent in making the Investment. In connection with this Investment
Agreement, Stockholder has been advised and understands that immediately
prior to the offer and purchase of the Shares pursuant to this Agreement:
3.16.01 Stockholder had such knowledge and experience in financial and
business matters that the subscriber was capable of evaluating the
merits and risks of the prospective investment; and
3.16.02 Stockholder is able to bear the economic risk of the
investment;
3.16.03 Stockholder has consulted with such legal, tax, and other
counsel, each of whom it has found necessary to consult concerning
this transaction, and such consultation has included an examination of
applicable documents and an analysis of all tax, financial, corporate,
and securities law aspects. Stockholder, its counsel, its advisors,
and such other persons with whom he found it necessary to consult,
have sufficient knowledge and experience in such matters to evaluate
the information and the risks of the investment and to make an
informed investment decision with respect thereto; and
3.16.04 With respect to the tax aspects of its investment, Stockholder
is relying solely upon the advice of its own personal tax advisors and
upon its own knowledge with respect thereto. Stockholder is aware that
any Federal Income Tax benefits which may be available to it may be
lost through adoption of new laws or regulations, amendments to
existing laws and regulations, or changes in the interpretation of
existing laws and regulations.
4.00. MISCELLANEOUS.
4.01 NOTICE TO COMPANY & FURTHER ASSURANCES. Each of the parties shall
hereafter execute all documents and do all acts reasonably necessary to
effect the provisions of this Agreement. Stockholder agrees to promptly
inform the Company of any proposed transfer, sale, assignment, or
disposition of the Shares and to cooperate with the Company to allow for an
orderly sale of the Shares without unnecessary interruption of the trading
of the Company's Common Stock.
4.02 SUCCESSORS. The provisions of this Agreement shall be deemed to
obligate, extend to and inure to the benefit of the successors, assigns,
transferees, grantees, and indemnitees of each of the parties to this
Agreement.
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4.03 INDEPENDENT COUNSEL. Each of the parties to this Agreement
acknowledges and agrees that it has been represented by independent counsel
of its own choice throughout all negotiations which preceded the execution
of this Agreement and the transactions referred to in this Agreement, and
each has executed this Agreement with the consent and upon the advice of
said independent counsel. Each party represents that he or it fully
understands the provisions of this Agreement, has consulted with counsel
concerning its terms and executes this Agreement of his or its own free
choice without reference to any representations, promises or expectations
not set forth herein.
4.04 INTEGRATION. This Agreement with the Purchase Agreement, after full
execution, acknowledgment and delivery, memorializes and constitutes the
entire agreement and understanding between the parties and supersedes and
replaces all prior negotiations and agreements of the parties, whether
written or unwritten. Each of the parties to this Agreement acknowledges
that no other party, nor any agent or attorney of any other party has made
any promises, representations, or warranty whatsoever, express or implied,
which is not expressly contained in this Agreement; and each party further
acknowledges that he or it has not executed this Agreement in reliance upon
any belief as to any fact not expressly recited hereinabove.
4.05 ATTORNEYS FEES. In the event of a dispute between the parties
concerning the enforcement or interpretation of this Agreement, the
prevailing party in such dispute, whether by legal proceedings or
otherwise, shall be reimbursed immediately for the reasonably incurred
attorneys' fees and other costs and expenses by the other parties to the
dispute.
4.06 INTERPRETATION. Wherever the context so requires: the singular number
shall include the plural; the plural shall include the singular; and the
masculine gender shall include the feminine and neuter genders.
4.07 CAPTIONS. The captions by which the sections and subsections of this
Agreement are identified are for convenience only, and shall have no effect
whatsoever upon its interpretation.
4.08 SEVERANCE. If any provision of this Agreement is held to be illegal or
invalid by a court of competent jurisdiction, such provision shall be
deemed to be severed and deleted; and neither such provision, nor its
severance and deletion, shall affect the validity of the remaining
provisions.
4.09 COUNTERPARTS. This Agreement may be executed in any number of
counterparts.
4.10 EXPENSES ASSOCIATED WITH THIS AGREEMENT. Each of the parties hereto
agrees to bear its own costs, attorneys fees and related expenses
associated with this Agreement.
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4.11 ARBITRATION. Any dispute or claim arising to or in any way related to
this Agreement shall be settled by arbitration in San Diego, California.
All arbitration shall be conducted in accordance with the rules and
regulations of the America Arbitration Association ("AAA"). AAA shall
designate an arbitrator from an approved list of arbitrators following
both parties' review and deletion of those arbitrators on the approved
list having a conflict of interest with either party. Each party shall pay
its own expenses associated with such arbitration (except as set forth in
Section 4.05 Above).
A demand for arbitration shall be made within a reasonable time after the
claim, dispute or other matter has arisen and in no event shall such demand
be made after the date when institution of legal or equitable proceedings
based on such claim, dispute or other matter in question would be barred by
the applicable statutes of limitations. The decision of the arbitrators
shall be rendered within 60 days of submission of any claim or dispute,
shall be in writing and mailed to all the parties included in the
arbitration. the decision of the arbitrator shall be binding upon the
parties and judgement in accordance with that decision may be entered in
any court having jurisdiction thereof.
4.12 POWER TO BIND. A responsible officer of the Stockholder has read and
understands the contents of this Agreement and is empowered and duly
authorized on behalf of the Company to execute it.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth above.
FOR THE COMPANY: FOR STOCKHOLDER:
ITEX CORPORATION
By Its duly authorized Agent
ITEX USA, Inc.
By: /s/ Ralph M. Amato By: /s/ Melinda G. Houser
----------------------------- --------------------------------
Ralph M. Amato
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is effective the 25th day of
March 1999 by and between BoysToys.com, Inc., a Delaware corporation, with
principal offices at 7825 Fay Avenue, Suite 200, La Jolla, California 92037(the
"Company"), and Gary Marlin with principal address at 412 Broadway, San
Francisco, California ("Executive").
WHEREAS:
A. The Company and the Executive acknowledge and agree that each party
seeks to revoke all prior oral and written agreements, understandings, and
arrangements between the Company and the Executive in connection with
Executive's employment by the Company.
B. The Company desires to be assured of the continued association and
services of Executive for the Company.
C. Executive is willing and desires to be employed by the Company, and the
Company is willing to employ Executive, upon the terms, covenants and conditions
hereinafter set forth.
NOW THEREFORE THE PARTIES AGREE AS FOLLOWS:
1.00. EMPLOYMENT. The Company hereby employs Executive, subject to the
supervision and direction of the Company's President. Executive shall hold the
title of General Manager of the Company's planned San Francisco, California
gentlemen's club (the "Club").
2.00. TERM OF EMPLOYMENT. The initial term (the "Initial Term") of
Executive's employment shall be for the period commencing on April 15, 1999 and
terminating ninety (90) days thereafter. The term of employment shall be
automatically renewed for a period of six (6) years (the "Renewal Term")
following the close of the Initial Term unless the Company gives written notice
to Executive no later than the close of the Initial Term. However,
notwithstanding the above provisions, the term of Executive's employment may be
terminated earlier pursuant to Sections 7.00., 8.00., or 9.00. below. However,
that Executive's obligations in Sections 12.00 and 13.00, and the sub-sections
thereto below shall continue in effect after any such termination.
3.00. COMPENSATION & REIMBURSEMENT. The Company and the Executive agree
that during the term of this Agreement the Company shall pay Executive a salary,
compensation, benefits, and reimbursement for allowable expenses as follows:
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3.01. SALARY. Subject to the conditions set forth in Section 3.00, for all
services rendered by Executive under this Agreement, the Company shall pay
Executive a base salary of Seventy-Two Thousand Dollars ($72,000) per annum,
payable on a bi-weekly basis in equal installments (the "Base Salary") minus,
during the term of this agreement, any amounts paid by the Company for rental of
an apartment for Executive. The amount of the Base Salary shall be increased by
Twelve Thousand Dollars ($12,000) each year, commencing on the second
anniversary of this Agreement and each year thereafter. In addition, the Base
Salary may be increased at any time and from time to time by the Board of
Directors of the Company, and may be adjusted annually to reflect changes in the
Consumer Price Index for the San Francisco, California base area. No such change
shall in any way abrogate, alter, terminate or otherwise effect the other terms
of this Agreement.
3.02. CASH BONUSES. In addition and within sixty (60) days following the
close of each calendar year, if the Company's planned Club generates Earnings
Before Interest, Depreciation, and Taxes ("EBIDTA") in excess of twenty percent
(20%) of the annual Club's sales revenues (the "Base Amount"), then Executive
shall be entitled to receive the following cash bonuses (the "Cash Bonuses"),
said bonuses being freely assignable by him to any third party:
(i) a Cash Bonus equal to two percent (2%) of the first One Hundred
Thousand Dollars ($100,000) (the "First Tier") of EBIDTA in excess of the Base
Amount (the "First Tier Bonus");
(ii) a Cash Bonus equal to four percent (4%) of the next One Hundred
Thousand Dollars ($100,000) (the "Second Tier") of EBIDTA in excess of the First
Tier (the "Second Tier Bonus");
(iii) a Cash Bonus equal to six percent (6%) of the next One Hundred
Thousand Dollars ($100,000) (the "Third Tier") of EBIDTA in excess of the Second
Tier (the "Third Tier Bonus");
(iv) a Cash Bonus equal to eight percent (8%) of the next One Hundred
Thousand Dollars ($100,000) (the "Fourth Tier") of EBIDTA in excess of the Third
Tier (the "Fourth Tier Bonus"); and
(v) a Cash Bonus equal to ten percent (10%) of all additional EBIDTA in
excess of the Fourth Tier.
For purposes of this Section 3.02, the calculation of EBIDTA shall be
calculated so that it shall be equal to the Club's Gross Revenues, including all
miscellaneous Club revenue generating resources minus, taxes and all other
reasonable operating expenses incurred by the Club. In the event the Executive
disputes the calculation of EBIDTA by the Company, the Executive shall be given
reasonable opportunity to inspect the books and records of the Company, and he
shall give the company, in writing, 10 days notice of his
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intent to review the books and records of the Club, in order to make his own
determination that the calculation of EBITA is correct. This inspection shall
be conducted during the hours of between 9:00 AM and 5:00 PM weekdays, and the
Company shall provide reasonable access during these hours, including providing
the use of a desk and office equipment for this inspection. Further, the
executive may appoint an accountant and/or attorney of his choosing to conduct
this financial audit. If thereafter, the Company and Executive continue to
disagree on EBIDTA, then the parties shall submit this issue to binding
arbitration, through an independent, neutral arbitrator selected by the American
Arbitration Association. The arbitrator shall have the right to consider, as
part of any finding he may render: (1) the appropriateness of the any expense
and/or any salary charged by the Company to its revenues; (2) whether the
expense is wholly allocable to the Club's operations, and not to any other
enterprise run by the Company.
3.03 STOCK AWARD. In addition, the Company and Executive agree that during
the term of Executive's employment, Executive (or his assigns) shall receive:
(i) an initial ten thousand (10,000) shares of the Company's Common Stock (the
"Initial Stock Award") within thirty (30) days after the close of the Initial
Term; and (ii) within thirty (30) days after each anniversary of this Agreement,
Executive shall receive a stock award of Ten Thousand (10,000) shares of the
Company's unrestricted Common Stock (the "Stock Award"), which, at the option of
employee, shall be assignable by him.
3.04. STOCK OPTION. In addition, the Company and Executive agree that
Executive shall be granted, upon execution of this Agreement, an option to
purchase Shares of the Company's Common Stock (the "Shares") as shown on Exhibit
A attached to this Agreement (the "Option"). However, notwithstanding any
provision provided by this Agreement or the Option, in the event that Ralph M.
Amato resigns or is otherwise no longer employed by the Company, all shares that
are subject to the Option shall be deemed immediately vested and exercisable by
Executive.
3.05. ADDITIONAL BENEFITS & VACATION. Subject to the conditions set forth
in Section 3.00 and in addition to the Base Salary, Executive shall be entitled
to all other benefits of employment as established from time to time and
provided to the other officers and directors of the Company or its subsidiaries
(including, full major medical and dental insurance for Executive, Executive's
wife and children, payment of cellular telephone and pager charges, all of said
items up to an amount not exceeding six hundred and fifty dollars ($650.00 per
month), or any additional amounts approved by the President of the Company.
Executive shall be entitled to receive the following weeks of vacation (with
payment of Executive's Base Salary): (i) after Executive completes the first
year of employment, Executive shall be entitled to receive two (2) weeks of
vacation; (ii) after Executive completes two years of employment, Executive
shall be entitled to receive two (2) weeks of vacation; (iii) after executive
completes three (3) years of employment, Executive shall be entitled to receive
three (3) weeks of vacation; (iv) after Executive completes four (4) years of
employment and any year thereafter, Executive shall be entitled to receive four
(4) weeks of vacation for each said year. All vacation time shall not accrue to
the extent that Executive
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does not receive vacation. The Company agrees to reimburse Executive for all
moving expenses up to a maximum of four thousand dollars ($4,000).
3.06. REIMBURSEMENT. Executive shall be reimbursed for all reasonable
"out-of-pocket" business expenses for business travel and business entertainment
incurred in connection with the performance of his duties under this Agreement
so long as: (i.) such expenses constitute business deductions from taxable
income for the Company and are excludable from taxable income to the Executive
under the governing laws and regulations of the Internal Revenue Code (provided,
however, that Executive shall be entitled to full reimbursement in any case
where the Internal Revenue Service may, under Section 274(n) of the Internal
Revenue Code, disallow to the Company 20% of meals and entertainment expenses);
(ii) to the extent such expenses do not exceed the amounts allocable for such
expenses in budgets that are approved from time to time by the Company; and
(iii) to the extent that Executive can provide sufficient receipts, vouchers,
and documentation to reasonably support the Company's reimbursement of
Executive. The reimbursement of Executive's business expenses shall be upon
monthly presentation to and approval by the Company of valid receipts and other
appropriate documentation for such expenses.
4.00. SCOPE OF DUTIES. The scope of Executive's duties to the Company
include the following:
4.01. ASSIGNMENT OF DUTIES. Executive shall have such duties as may be
assigned to him from time to time by the Company's President commensurate with
his experience and responsibilities in the position for which he is employed
pursuant to Section 1.00. above. Such duties shall be exercised subject to the
control and supervision of the Company's President.
4.02. GENERAL SPECIFICATION OF DUTIES. Executive's duties shall include,
but not be limited to the duties as follows:
4.02.01. Serve as General Manager of the Company's planned Club with full
responsibility for the operations and profitability of the planned Club (the
"Activities") on behalf of and for the sole benefit of the Company as directed
by the Company's President. The foregoing specifications are not intended as a
complete itemization of the duties which Executive shall perform and undertake
on behalf of the Company in satisfaction of his employment obligations under
this Agreement. However, Executive may not be reassigned or transferred to
another management position, as designated by the President of the Company,
which does not provide the same level of responsibility as his present job
duties, in accordance with the terms and conditions of this Agreement.
5.00. EXECUTIVE'S DEVOTION OF TIME. Executive hereby agrees to devote his
full time, abilities and energy to the faithful performance of the duties
assigned to him and to the promotion and forwarding of the business affairs of
the Company, and not to divert any
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business opportunities from the Company to himself or to any other person or
business entity.
5.01. CONFLICTING ACTIVITIES. Executive shall not, during the term of this
Agreement, be engaged in any other business activity without the prior consent
of the Board of Directors of the Company; provided, however, that this
restriction shall not be construed as preventing Executive from investing his
personal assets in passive investments in business entities which are not in
competition with the Company.
5.02. FIDUCIARY DUTIES OF EXECUTIVE. Executive hereby agrees to promote
and develop all business opportunities that come to his attention relating to
current or anticipated future business of the Company, in a manner consistent
with the best interests of the Company and with his duties under this
Agreement. Should Executive discover a business opportunity while in the
employ of the Company using the Company's resources that relates to the
current or anticipated future business of the Company, he shall first offer
such opportunity to the Company. Should the Board of Directors of the Company
not exercise its right to pursue this business opportunity within a
reasonable period of time, not to exceed sixty (60) days, then Executive may
develop the business opportunity for himself; provided, however, that such
development may in no way conflict or interfere with the duties owed by
Executive to the Company under this Agreement. Further, Executive may develop
such business opportunities only on his own time, and may not use any
service, personnel, equipment, supplies, facility, or trade secrets of the
Company in their development. As used herein, the term "business opportunity"
shall not include business opportunities involving investment in publicly
traded stocks, bonds or other securities, or other investments of a personal
nature.
6.00. TERMINATION OF EMPLOYMENT. If the Executive becomes physically or
mentally disabled for a period exceeding thirty (30) days or dies while
employed by the Company, the Executive's employment shall automatically cease
and terminate. The Company's obligation to pay the Executive's Base Salary
pursuant to Section 3.01., Cash Bonuses pursuant to Section 3.02., the Stock
Award pursuant to Section 3.03, the Stock Option pursuant to Section 3.03,
the Additional Benefits pursuant to Section 3.04, and reimbursement of
expenses pursuant to Section 3.05 shall cease as of the date of Executive's
death or, in the case of disability, the date upon which Executive is deemed
to be disabled as defined herein. Termination of employment under this
Section shall be considered termination of employment by mutual agreement
between the parties and shall not require severance payments by the Company
and shall not be considered Termination for Cause by the Company or
Termination for Good Reason by the Executive as set forth in Section 8.00.
and 10.02., respectively. Further, the parties hereto agree that:
7.01. EXECUTIVE'S CURRENT CAPABILITIES. The parties acknowledge and
agree that the Executive is physically and mentally capable of performing the
duties required by this Agreement and that any physical or mental
disabilities that he may have at the present time are not deemed by the
Company to be disabling, as defined in this
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Agreement, as such disabilities may presently exist and affect the Executive's
mental and physical condition.
7.02 DEFINITION OF DISABILITY. DISABILITY. If, during the Employment
Term, Employee, because of physical or mental illness or incapacity, shall
become unable to perform substantially all of the duties and services
required of him under this Agreement for a period of sixty (60) days in the
aggregate during any twelve month period, the Company may, upon at least ten
(10) days' prior written notice given at any time after the expiration of
such sixty (60) day period, notify Employee of its intention to terminate
this Agreement as of the date set forth in the notice. In case of such
termination, Employee shall be entitled to receive salary, benefits and
reimbursable expenses owing to Employee through the date of termination.
8.00. TERMINATION FOR CAUSE. The Company may terminate this Agreement at
any time before the last day of the Term, or the last day of any Renewal
Term, if this Agreement is not renewed on the mutual agreement of the
parties, for "Cause." The term "Cause" as used herein shall mean:
8.01. The failure of the Executive to discharge or perform his duties
and obligations under this Agreement;
8.02. The refusal of the Executive to implement or adhere to lawful
reasonable policies or directives of the Company's President;
8.03. Conduct of a criminal nature for which charges have been filed
that may have an adverse impact on the Company's reputation and standing in
the community;
8.04. Conduct that is in violation of the Executive's fiduciary
responsibilities to the Company;
8.05. Fraudulent conduct in connection with the business affairs of the
Company, regardless of whether said conduct is designed to defraud the
Company or others;
8.06. Conduct that is in violation of any provision of this Agreement; or
8.07. If the Company's planned Club fails to achieve, in any calendar
year, EBIDTA equal to or in excess of twenty percent (20%) of the Club's
sales revenues, provided that the promotional expenses for the Club are at
least 5% of gross revenues.
The existence of cause shall be determined in good faith by the Board of
Directors of the Company. The President shall have the right, but not the
obligation, to provide written notification to the Executive of its
dissatisfaction with respect to sub-sections 8.01., 8.02., 8.06., and 8.07.,
above. If the Company provides such written notice to the Executive, the
Executive shall have thirty (30) business days from the date of receipt of
such notice to
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effect a cure of the dissatisfaction described therein and upon cure thereof
by the Executive to the reasonable satisfaction of the Board, such event
shall no longer constitute Termination For Cause for the purposes of this
Agreement. If the Executive's employment is terminated for any of the reasons
specified in sub-sections 8.03., 8.04., or 8.05., the Executive's employment
may be terminated immediately without any advance written notice.
9.00. TERMINATION WITHOUT CAUSE. Either party may terminate this
Agreement without cause upon thirty (30) days written notice. Upon such
termination, the Company shall be released from any and all further
obligations under this Agreement, except for any accrued Bonuses and/or
vested stock options, and any other rights to compensation provided in this
agreement, including, but not limited to those rights outlined in paragraph
10.02, including salary and benefits owing to Employee through the day on
which Employee's employment is terminated. If the Company terminates this
Agreement without cause as provided in subparagraph (a) above, Employee shall
receive the equivalent of one (1) month's salary for each month employed, up
to a maximum of nine (9) months. The parties hereto further agree that:
9.01. RIGHTS TO SEVERANCE PAY. If, however, the Executive's employment
is terminated pursuant to this Section 9.01., or pursuant to Section 6.00.,
or pursuant to Section 9.02. during any Term or Renewal Term, the Company
shall pay to the Executive the biweekly installments of the base salary
specified in Section 3.01, plus any additional sums which may be due pursuant
to 3.02, 3.03, 3.04 hereof, in accordance with all paragraphs in this section
(9.01, et seq.) Further, the Company's shall pay executive in accordance with
his next regularly scheduled pay day following the Executive's termination,
in accordance with the terms and conditions set forth within this Agreement.
9.02. NORMAL TERMINATION. This Agreement shall be terminated if the
parties mutually agree to terminate the term of Executive's employment or
Executive's employment is otherwise terminated in accordance with this
Agreement.
9.03. EXECUTIVE'S FINAL COMPENSATION PAYMENTS. Exception as otherwise
provided herein, the Company's obligation to pay Executive's base salary
pursuant to Section 3.01. shall terminate as of the last day of the Term, or
as of the last day of any Renewal Term if this Agreement is continued by the
mutual agreement of the parties hereto, or on the day properly specified in
any notice of termination issued pursuant to any of the preceding Sections of
this Agreement.
10.00. TERMINATION BY THE EXECUTIVE.
10.01. GENERAL. The Executive shall have the right to terminate this
Agreement at any time, in accordance with paragraph 9.00. The Executive
agrees to provide the Company with thirty (30) days prior written notice of
any such termination. Except as set forth below, the Company's obligation to
pay the Executive's base salary pursuant to Section 3.01. shall cease as of
the Executive's last day of work, with the exception of any
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unpaid bonuses and/or vested stock options.
10.02. TERMINATION FOR GOOD REASON. Notwithstanding the foregoing, in the
event that the Executive resigns for Good Reason (as defined below), the
Company shall be obligated to pay the Severance Pay on the terms set forth in
Section 9.00. above. As used herein for purposes of this Agreement, "Good
Reason" shall mean: (i) failure to pay the Executive's salary other than as
provided or permitted herein, or (ii) a reduction in Executive's benefits,
except a reduction which is applicable to all participants in such plans, or
(iii) a request by the Company to the Executive to take or fail to take some
action which would result in a violation of law or regulation by the Company
or the Executive, or (iv) failure of the Company to comply with any of the
terms and conditions of this Agreement. Unless the Executive provides written
notification of his intention to resign within 30 business days after the
Executive knows or has reason to know of the occurrence of any such event
constituting Good Reason, the Executive shall be deemed to have consented
thereto and such event shall no longer constitute Good Reason for purposes of
this Agreement. If the Executive provides such written notice to the Company,
the Company shall have 20 business days from the date of receipt of such
notice to effect a cure of the event described therein and, upon cure thereof
by the Company to the reasonable satisfaction of the Executive, such event
shall no longer constitute Good Reason for purposes of this Agreement.
11.00. EFFECT TO TERMINATION. Upon the termination of his employment
pursuant to this agreement by the Company for any reason whatsoever, or upon
the termination of this Employment Agreement by the Executive, except to the
extent that any salary, bonuses and/or vested stock options remain to be paid
and or provided to Executive, this Employment Agreement shall thereupon be
and become void and of no further force or effect, except that the Covenant
Not to Compete set forth in Section 12.00. and the Proprietary Information
provisions of Section 13.00. shall survive any said termination and shall
continue to bind the Executive for the period of time stated therein;
provided, however, that in the event that if Executive's termination of
employment is the result of a material breach of the terms and conditions of
this Agreement by the Company, the provisions of Sections 12.00. and 13.00.
of this Agreement shall be of no further force and effect and shall be
considered null and void and no longer enforceable by the Company against the
Executive. In addition, upon the termination of his employment pursuant to
this agreement by the Company pursuant to Section 8.00. or 9.00. (or any
sub-sections there under), the Severance Pay provisions of Section 9.01.
shall continue to bind the Company and the Executive. The Arbitration
provisions of Section 20.00. shall continue to govern any disputes arising
hereunder even after the termination of this Agreement. Any payments due
pursuant to the terms of this Agreement for services rendered prior to the
termination shall be made as provided in this Agreement.
12.00. COVENANT NOT TO COMPETE. The Executive acknowledges that he is the
Company's General Manager of the Club and in such capacity the Executive will
have access to corporate records, business plans, and all of the business
research conducted
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by or on behalf of the Company. The Executive also acknowledges that he will
have access to confidential information about the Company and its affairs and
that he will have access to other "proprietary information" (as defined in
Section 13.00. hereto) acquired by the Company at the expense of the Company
for use in its business. The Executive has industry knowledge and skills. The
Executive's services to the Company are special, unique and extraordinary.
Accordingly, by execution of this Agreement:
12.01. NON-COMPETITION BY EXECUTIVE. Executive agrees that during the
Employment Period and twelve months after the Executive's Employment Period
with the Company or any of its affiliates, successors or assigns, Executive
will not, unless acting with the Company's express written consent, directly
or indirectly own, manage, operate, join, control or participate in the
ownership, management, operation or control of or be connected as an officer,
employee, partner or otherwise with any business engaged in the development,
sale or distribution of products incorporating the business, products or
strategy of the Company. The Executive shall also not directly or indirectly
solicit any such business form any individual or entity which obtained such
products from the Company at any time during the Executive's Employment
Period or directly or indirectly solicit any such business from any
individual or entity previously solicited by the Executive on behalf of the
Company. This covenant not to compete, outlined with paragraph 12 and its
subparagraphs shall be geographically limited to a distance of 50 miles from
the location of the Club.
12.02. NEED FOR COVENANT, LEGAL REMEDIES. The Executive expressly agrees
and acknowledges that this Covenant Not to Compete is reasonably necessary
for the Company's Protection because of the nature and scope of the Company's
business and the Executive's position with and services for the Company.
Further, the Executive acknowledges that, in the event of his breach of this
Covenant Not to Compete, money damages will not sufficiently compensate the
Company for its injury caused thereby, the Executive accordingly agrees that
in addition to such money damages the Executive shall, if Company so elects,
be restrained and enjoined from any continuing breach of this Covenant Not to
Compete without any bond or other security being required by any court. The
Executive acknowledges that any breach of this Covenant Not to Compete would
result in irreparable damage to the Company.
12.03. ACKNOWLEDGMENTS BY EXECUTIVE. The Executive expressly agrees and
acknowledges as follows:
(1) This Covenant Not to Compete is reasonable as to time
and does not place any unreasonable burden upon him.
(2) The general public will not be harmed as a result of
enforcement of this Covenant Not to Compete.
(3) Executive has requested or has had the
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opportunity to request that his personal legal counsel review this
Covenant Not to Compete.
(4) The Executive understands and hereby agrees to each and
every term and condition of this Covenant Not to Compete.
Initials:
--------------------------------
12.04 This Covenant to Compete shall be of no force and effect, whatsoever,
if the Company terminates this employment contract.
13.00. PROPRIETARY INFORMATION
13.01. RETURN OF PROPRIETARY INFORMATION. Upon termination of this
Agreement for any reason, the Executive shall immediately turn over to the
Company any "Proprietary Information," as defined below. The Executive shall
have no right to retain any copies of any material qualifying as Proprietary
Information for any reason whatsoever after termination of his employment
hereunder without the express written consent of the Company.
13.02. NON-DISCLOSURE. It is understood and agreed that, in the course of
his employment hereunder and through his activities for and on behalf of the
Proprietary Information in trust and confidence for the Company. The Executive
agrees that he shall not, during the term of this Agreement or thereafter, in
any fashion, form or manner, directly or indirectly, retain use, make copies of,
divulge, disclose or communicate to any person, in any manner whatsoever, except
when necessary or required in the normal course of the Executive's employment
hereunder and for the benefit of the Company or with the express written consent
of the Company, any of the Company's Proprietary Information or any information
of any kind, nature, or description whatsoever concerning any matter affecting
or relating to the Company's business.
13.03. PROPRIETARY INFORMATION DEFINED. For purposes of this Agreement,
"Proprietary Information" means and includes the following: (1) any written,
typed or printed lists or other materials identifying the business, products, or
strategy conducted by or on behalf of the Company; (2) any financial or other
information supplied by customers of the Company; (3) any and all data or
information involving the techniques, programs, methods or contracts employed by
the Company in the conduct of its business; (4) any lists, documents, manuals,
records, forms, or other materials created and used by the Company in the
conduct of its business; (5) any descriptive materials describing the methods
and procedures employed by the Company in the conduct of its business; and (6)
any other secret or confidential information concerning the Company's business,
affairs or technology. The term "list", "document", or their equivalent, as used
in this
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Section, are not limited to a physical writing or compilation, but also include
computer software and any and all information whatsoever regarding the subject
matter in the "list" or "document" whether or not such compilation has been
reduced to writing. Notwithstanding the foregoing, Proprietary Information shall
cease to be protected hereunder once it has become part of the public domain, or
upon the written agreement of the Company.
14.00. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates and
supersedes any and all prior agreements and understandings between the parties
with respect to employment or with respect to the compensation of the Executive
by the Company.
15.00. ASSIGNMENT. This Agreement is personal in nature and neither of the
parties hereto shall, without the prior written consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder; provided,
however, that in the event of the merger, consolidation or transfer or sale of
all or substantially all of the assets of the Company with or to any other
individual or entity, this Agreement shall, subject to the provisions hereof, be
binding upon and inure to the benefit of such successor and such successor shall
discharge and perform all the promises, covenants, duties, and obligations of
the Company hereunder. Notwithstanding the foregoing, if Ralph M. Amato resigns
or otherwise leaves the employment of the Company, Executive shall have the
right to rescind or renegotiate this Agreement within thirty (30) days following
any said event.
16.00. NOTICE. Any notice under this Agreement must be in writing, may be
telecopied, sent by 24-hour express guaranteed courier, or hand-delivered, or
may be served by depositing the same in the United States mail, addressed to the
party to be notified, postage-prepaid and registered or certified with a return
receipt requested. The addresses of the parties for the receipt of notice shall
be as follows:
If to the Company:
BoysToys.com
7825 Fay Avenue
Suite 200
LaJolla, CA 92037
With a copy to:
William M. Aul, Esq.
4275 Executive Square, Suite 800
La Jolla, California 92037
FAX: 858-558-5960
If to the Executive:
Gary Marlin
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(At the Last Address in the Company's Payroll Records)
With a copy to:
Kenneth B. Whitman, Esq.
3020 Northeast 49th Street
Fort Lauderdale, FL 33308
FAX: 954-252-4222
Each notice given by registered or certified mail shall be deemed delivered and
effective on the date of delivery as shown on the return receipt, and each
notice delivered in any other manner shall be deemed to be effective as of the
time of actual delivery thereof. Each party may change its address for notice by
giving notice thereof in the manner specified above.
17.00. GOVERNING LAW. This Agreement and the documents referenced herein
and the legal relations thus created between the parties hereto shall be
governed by and construed under and in accordance with the laws of the State
of California.
18.00. ENTIRE AGREEMENT. This Agreement embodies the entire agreement of
the parties respecting the matters within its scope and may be modified only
in writing.
19.00. WAIVER. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such
term, covenant or condition, nor shall any waiver or relinquishment of, or
failure to insist upon strict compliance with, any right power hereunder at
any one time or times.
20.00. ARBITRATION. All claims, disputes and other matters in question
between the parties concerning or arising out of the employment relationship,
this Agreement and/or the termination of this Agreement shall be decided by
arbitration in accordance with the rules of the American Arbitration
Association, unless the parties mutually agree otherwise. The award by the
arbitrator shall be final, and judgment may be entered upon it in accordance
with applicable law in any California or Federal court having jurisdiction
thereof.
21.00. ATTORNEY'S FEES. The Executive and the Company agree that in any
arbitration or legal proceedings arising out of this Agreement, each party
shall pay his or its own legal fees and expenses.
22.00. EXHIBIT & COUNTERPARTS. Exhibit A attached to this Agreement is
incorporated into and is an integral part of this Agreement. This Agreement may
be executed in any number of counterparts.
23.00. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any law,
statute or public policy, then only the portions of this Agreement which violate
such statute or public policy shall be stricken. All portions of this Agreement
shall modify the stricken terms as narrowly
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as possible to give as much effect as possible to the intentions of the parties
under this Agreement.
24.00. ACKNOWLEDGEMENT. The parties to this Agreement understand and agree
that the Company has no operating history and that the industry in which the
Company operates is highly competitive an subject to risks that are beyond the
Company's control and influence. In the event the Company discontinues its
operations at any time for any or no reason whatsoever or becomes unable to
perform its duties and obligations as specified herein, the Executive agrees to
look solely to the Company for performance under this Agreement and will not
look to the Company's officers, directors, or shareholders.
IN WITNESS WHEREOF, the Company has caused this Employment Agreement to be
executed by its duly authorized officer, and the Executive has hereunto executed
this Agreement, effective the first day written above.
THE COMPANY
BY: /s/ Ralph M. Amato
--------------------------------
Ralph M. Amato, President
THE EXECUTIVE
/s/ Gary Marlin
-----------------------------------
Gary Marlin
Attachment to Employment Agreement of March 25, 1999
EXHIBIT A
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NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "Stock Option Agreement") is
entered into as of March 25, 1999 BY AND BETWEEN Gary Marlin ("Optionee") and
BoysToys.com, Inc., a Delaware corporation with principal offices at 4275
Executive Square, Suite 800, La Jolla, California 92037 (the "Company").
WHEREAS:
A. Company desires to grant common stock purchase options to Optionee as a
reward for employment performance and as an incentive to future employment
performance.
B. Optionee desires to accept the common stock purchase options granted by the
Company's Board of Directors and described in this Stock Option Agreement.
NOW THEREFORE THE PARTIES AGREE AS FOLLOWS:
1.0 GRANT OF OPTION. Subject to Sections 2 and 3 of this Stock Option Agreement,
the Company hereby grants to Optionee: (i.) an option (the "Option") to purchase
up to One Hundred Fifty Thousand (150,000) shares of the Company's Common Stock
($0.001 par value) (the "Shares") at an exercise price equal to the closing
marketing "asked" price of the Company's Common Stock as of April 15, 1999 (the
"Exercise Price"). The Option shall be earned at the rate of fifteen thousand
(15,000) Shares on the first anniversary of the date of Optionee's employment
with the Company (and subject to Optionee's continued employment with the
Company) and each anniversary date thereafter during the first five (5) said
years of Optionee's employment. In the event that Optionee is and remains in the
Company's employment on the sixth (6th) anniversary date of his employment with
the Company, Optionee shall earn the remaining seventy-five thousand (75,000)
Shares. Any portion of the Option shall be exercisable upon becoming earned, in
whole or in part, at any time and from time to time, prior to March 25, 2007
(the "Expiration Date").
2.0 EXERCISE PROCEDURES. Any portion of the Option that is vested in accordance
with Section 3.0 of this Stock Option Agreement, may be exercised by delivery of
written notice to the Company stating the number of Shares with respect to which
the Option is being exercised, together with full payment of the Exercise Price
therefor prior to the Expiration Time. Payment may be made in cash or in such
other form or combination of forms (including, without limitation, securities of
the Company or a note, with or without interest, secured or unsecured) as shall
be acceptable to Company.
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3.0 VESTING OF OPTION RIGHTS. Optionee's right to exercise any portion or all of
the Option to purchase the Company's Common Stock hereby shall accrue upon
vesting of the Option. Any portion of the Option shall become vested only upon
becoming earned by the Optionee.
4.0 RESERVED SHARES. The Company has duly reserved for issuance a number of
authorized but unissued Shares adequate to fulfill its obligations under this
Stock Option Agreement. During the term of this Stock Option Agreement the
Company shall take such action as may be necessary to maintain at all times an
adequate number of Shares reserved for issuance or treasury shares to fulfill
its obligations hereunder.
5.0 NO EARLY TERMINATION. If Optionee's employment is terminated for any
reason including disability, the Option granted hereunder shall not lapse to
the extent unexercised on the date of employment termination. If Optionee is
disabled within the meaning of Section 105(d) of the Internal Revenue Code of
1986, the Option granted hereunder shall not lapse to the extent unexercised
on the date of employment termination on account of such disability.
6.0 ASSIGNMENT. Optionee shall have the right to assign any portion of the
Option that is vested at any time after notice to the Company. If the Option, or
any portion thereof, are subsequently assigned by the Optionee, then all rights
herein granted to Optionee shall inure to the benefit of any such assignee.
7.0 COMPLIANCE WITH LAW. The Option described herein shall not be exercised, and
no Shares shall be issued in respect hereof, unless in compliance with federal
and applicable state securities laws.
7.1 LEGENDS. The certificates evidencing Shares purchased pursuant to the
Option shall bear any legends deemed necessary by the Company and which do
not conflict with the provisions of this Stock Option Agreement.
8.0 REPRESENTATIONS OF OPTIONEE. As a condition to the exercise of the Option,
Optionee shall deliver to the Company such signed representations as may be
necessary, in the opinion of counsel satisfactory to Company, for compliance
with applicable federal and state securities laws.
9.0 RESALE OF SHARES. Optionee's ability to transfer Shares purchased pursuant
to the Option or securities acquired in lieu thereof or in exchange therefor may
be restricted under federal or state securities laws. Optionee shall not resell
or offer for resale such Shares or securities unless they have been registered
or qualified for resale under all applicable federal and state securities laws
or an exemption from such registration or qualification is available in the
opinion of counsel satisfactory to Company.
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10.0 NOTICE. All notices or other communications desired to be given hereunder
shall be in writing and shall be deemed to have been duly given upon receipt, if
personally delivered, or on the third business day following mailing by United
States first class mail, postage prepaid, and addressed as follows:
If to Company:
BoysToys.com, Inc.
4275 Executive Square, Suite 800
La Jolla, California 92037
If to Optionee:
Gary Marlin
(At the Last Address shown in the Company's Payroll Records)
or to such other address as either party shall give to the other in the manner
set forth above.
11.0 ADJUSTMENT OF EXERCISE PRICE & NUMBER OF SHARES PURCHASABLE UPON EXERCISE.
11.1 RECAPITALIZATION. In the event that the Company shall, while the
Option remain unexercised, in whole or in part, and in force effects a
recapitalization of such character that the Shares purchasable hereunder
shall be changed into or become exchangeable for a different number of
Shares, then,
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after the date of record for effecting such recapitalization, the number of
Shares of the Company's Common Stock which the Optionee hereof shall be
entitled to purchase hereunder shall be increased in direct proportion to
the increase in the number of Shares of Common Stock by reason of such
recapitalization, and of the Exercise Prices, per Share, whether or not in
effect immediately prior to the time of such recapitalization, of such
recapitalized Common Stock shall in the case of an increase in the number
of such Shares be proportionately reduced. In the event that the Company in
force effects a recapitalization, which, after the record date for
effecting such recapitalization, there results a decrease in the number of
Shares of Common Stock by reason of such recapitalization, the number of
Shares of the Company's Common Stock which the Optionee hereof shall be
entitled to purchase hereunder by reason of such recapitalization shall be
decreased in direct proportion to the decrease in the number of Shares of
Common Stock by reason of such capitalization, and of the Exercise Prices,
per Share, per Share, whether or not in effect immediately prior to the
time of such recapitalization, such recapitalized Common Stock shall in the
case of a decrease in the number of such Shares be proportionately reduced.
For the purposes of this Section 11.1. a stock dividend, stock split-up,
or reverse split shall be considered as a recapitalization and as an
exchange for a larger or smaller number of Shares, as the case may be.
11.2 ISSUANCE OF STOCK. In the event that the Company shall, while the
Option remain unexercised, in whole or in part, and in force, issue
(otherwise than by stock dividend, or split-up or reverse split) or sell
Shares of its Common Stock (hereinafter the "Additional Shares"), then the
Exercise Price, per Share, the number of Shares purchasable upon exercise
of the options granted Executive under this Stock Option Agreement, and
both of them, shall not be adjusted or changed for any reason.
11.3 ISSUANCE OF OPTIONS, CONVERTIBLES, & EXCHANGEABLES. In the event
that the Company shall, while the Option remains unexercised, in whole or
in part, and in force, issue or grant any rights to subscribe for or to
purchase, or any option (other than employee stock options referred to
above) for the purchase of, (i) Common Stock, or (ii) any indebtedness or
shares of stock convertible into or exchangeable for Common Stock
(indebtedness or shares of stock convertible into or exchangeable for
Common Stock being hereinafter referred to as "Convertible Securities"), or
issue or sell Convertible Securities, then the Exercise Price, per Share,
the number of Shares purchasable upon exercise of the options granted
Executive under this Stock Option Agreement, and both of them, shall not be
adjusted or changed for any reason.
11.4 CONSOLIDATION & MERGER. In the event of any consolidation of the
Company with or merger of the Company into, any other company, or in the
case of any sale or conveyance of all or substantially all of the assets of
the Company other than in connection with a plan of complete liquidation of
the Company, then, as a condition of such consolidation, merger, or sale or
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conveyance, adequate provision shall be made whereby the Optionee shall
thereafter have the right to purchase and receive, upon the basis and upon
the terms and conditions specified in this Stock Option Agreement and in
lieu of Shares of Common Stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby, such Shares
of stock or securities as may be issued in connection with such
consolidation, merger, or sale or conveyance, with respect to or in
exchange for the number of outstanding shares of Common Stock equal to the
number of Shares of Common Stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby had such
consolidation, merger, sale, or conveyance, not taken place, and in any
such case appropriate provision shall be made with respect to the rights
and interests of the Optionee to the end that the provisions hereof shall
be applicable as nearly as may be in relation to any Shares of stock or
securities thereafter deliverable upon the exercise hereof.
12.0 REGISTRATION RIGHTS. The Company hereby does not grant Optionee any right
to include any Shares acquired by Optionee pursuant to this Stock Option
Agreement in any registration statement filed with the United States Securities
and Exchange Commission by the Company (the "Registration Statement") in
connection with issuance or sale of the Company's Common Stock. The parties
hereto agree that the term "Registration Statement" shall be broadly construed.
13.0 TAX TREATMENT. Optionee acknowledges that the tax treatment of this option,
Shares subject to this option or any events or transactions with respect thereto
may be dependent upon various factors or events which are not determined by this
Stock Option Agreement. The Company makes no representations with respect to and
hereby disclaims all responsibility as to such tax treatment.
14.0 NON-QUALIFIED STATUS. This Option is not intended to be an "Incentive Stock
Option" as defined in Section 422A of the Internal Revenue Code of 1986 and it
shall not be treated as an Incentive Stock Option, whether or not, by its terms,
it meets the requirements of Section 422A.
15.0 WITHHOLDING TAX. If the exercise of any rights granted in this Stock Option
Agreement or the disposition of shares following exercise of such rights results
in Optionee's realization of income which for federal, state or local income tax
purposes is, in the opinion of Company, subject to withholding of tax, Optionee
will pay to Company an amount equal to such withholding tax (or Company may
withhold such amount from Optionee's salary) prior to delivery of certificates
evidencing the shares purchased.
16.0 BINDING EFFECT. This Stock Option Agreement shall be binding upon and inure
to the benefit of the Company and Optionee and their respective heirs,
successors, and assigns.
17.0 STATE SECURITIES QUALIFICATION. The sale of the securities which are the
subject of this Stock Option Agreement have not been qualified with the
Department of Corporations of the State of California and the issuance of such
securities or the payment or receipt of any part of
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the consideration therefor prior to such qualification is unlawful, unless the
sale of securities is exempt from the qualification. The rights of all parties
to this Stock Option Agreement are expressly conditioned upon such qualification
being obtained, unless the sale is so exempt.
18.0 INTEGRATION; MODIFICATION; WAIVER. This Stock Option Agreement constitutes
the complete and final expression of the understanding of the parties relating
to the Options granted to Optionee. This Stock Option Agreement can not be
modified, or any of the terms hereof waived, except by an instrument in writing
(referring specifically to this Stock Option Agreement) executed by the party
against whom enforcement of the modification is sought.
19.0 ATTORNEY'S FEES. If any action at law or equity is necessary to enforce or
interpret the terms of this Stock Option Agreement or otherwise arises out of
this Stock Option Agreement, the prevailing party shall be entitled to
reasonable attorney's fees, costs, and necessary disbursements, in addition to
any other relief to which it may be entitled.
20.0 INDEPENDENT COUNSEL. Each of the parties to this Stock Option Agreement
acknowledges and agrees that it has been represented by independent counsel
of its own choice throughout all negotiations which preceded the execution of
this Stock Option Agreement and the transactions referred to in this Stock
Option Agreement, and each has executed this Stock Option Agreement with the
consent and upon the advice of said independent counsel. Each party
represents that he or it fully understands the provisions of this Stock
Option Agreement, has consulted with counsel concerning its terms and
executes this Stock Option Agreement of his or its own free choice without
reference to any representations, promises or expectations not set forth
herein.
21.0 ATTORNEYS FEES. In the event of a dispute between the parties concerning
the enforcement or interpretation of this Stock Option Agreement, the
prevailing party in such dispute, whether by legal proceedings or otherwise,
shall be reimbursed immediately for the reasonably incurred attorneys' fees
and other costs and expenses by the other parties to the dispute.
22.0 ARBITRATION. Any dispute or claim arising to or in any way related to this
Stock Option Agreement shall be settled by arbitration in San Diego, California
and this Stock Option Agreement and the interpretation of this Stock Option
Agreement shall be governed by California law. All arbitration shall be
conducted in accordance with the rules and regulations of the American
Arbitration Association ("AAA"). AAA shall designate an arbitrator from an
approved list of arbitrators following both parties' review and deletion of
those arbitrators on the approved list having a conflict of interest with either
party. Each party shall pay its own expenses associated with such arbitration
(except as set forth in Section 21.0 Above). A demand for arbitration shall be
made within a reasonable time after the claim, dispute or other matter has
arisen and in no event shall such demand be made after the date when institution
of legal or equitable proceedings based on such claim, dispute or other matter
in question would be barred by the applicable statutes of limitations. The
decision of the arbitrators shall be rendered within 60 days of submission of
any claim or dispute, shall be in writing and mailed to all the parties included
in the arbitration. The decision of the arbitrator shall be binding upon the
parties and judgement in accordance with that decision may be entered in any
court having jurisdiction thereof.
23.0 GOVERNING LAW. This Stock Option Agreement shall be governed by and
construed in accordance with the laws of the State of California as if this
Stock Option Agreement were fully
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executed and performed within the state of California.
24.0 EXPENSES ASSOCIATED WITH THIS STOCK OPTION AGREEMENT. Each of the party
hereto agrees to bear its own costs, attorneys fees and related expenses
associated with this Stock Option Agreement.
IN WITNESS WHEREOF, the Company and Optionee have executed this Stock
Option Agreement effective as of the date first set forth above.
FOR THE COMPANY:
By: /s/ Ralph M. Amato
-------------------------------
Ralph M. Amato, President
FOR OPTIONEE:
By: /s/ Gary Marlin
-------------------------------
Gary Marlin
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<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement"), is entered into and is effective
this 23rd day of June 1999 by and between Essex Capital Holdings, Ltd.
("Lender") and BoysToys.com, Inc., a Delaware corporation with principal offices
at 4275 Executive Square, Suite 800, La Jolla, California 92037 ("Borrower").
WHEREAS:
A. Borrower seeks to borrow up to One Million Dollars
($1,000,000) from Lender in connection with the construction
and operation of Borrower's planned upscale gentlemen's club
in San Francisco, California.
B. Lender is willing to lend up to One Million Dollars
($1,000,000) to Borrower.
C. Subject to the terms and conditions of this
Agreement, Lender agrees to loan up to One Million Dollars
($1,000,000) to Borrower pursuant to the terms of the
Unsecured Promissory Note (dated June 23, 1999) attached to
this Agreement and incorporated herein.
NOW THEREFORE THE PARTIES AGREE AS FOLLOWS:
1.00. OBLIGATIONS OF LENDER. Lender agrees that in accordance with the terms of
the Note, Lender agrees to loan up to One Million Dollars ($1,000,000) to
Borrower. The Lender shall loan such funds to the Borrower upon receiving a
request from Borrower and upon Lender's review and satisfactory approval of
Borrower's use of the funds to be provided Borrower by this Agreement.
2.00. OBLIGATIONS OF BORROWER. In addition to Borrower's obligations to Lender
as set forth in the Note, Borrower shall make available to Lender the following
information and documents: (i) Borrower's quarterly unaudited financial
statements; (ii) a description of the use and application of any funds to be
loaned to Borrower under this Agreement; and (iii) such information and
documents as Lender may reasonably request regarding Borrower's business,
financial and operating affairs. All said information and documents shall be
promptly delivered to Lender upon Borrower's receipt of a notice from Lender.
2.01. BORROWER'S OBLIGATIONS TO LENDER RE: USE OF FUNDS. Borrower agrees
that at all times the funds received from Lender as provided by Section
2.00 of this Agreement shall be used only as is consistent with the
statements and representations made by Borrower to Lender at the time that
funds are requested by Borrower.
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3.00. OBLIGATION OF BORROWER TO MAINTAIN FINANCIAL & BANK RECORDS. Borrower
agrees that: (i) it shall maintain complete and accurate financial, bank, and
accounting records (including all supporting documentation such as cancelled
checks, receipts, and the like) (the "Records") showing its use of the funds it
receives from Lender; (ii) it shall maintain and hold all said Records for a
period of at least five (5) years from the last date at which it receives funds
from Lender; (iii) it shall, upon five (5) days written notice from Lender,
provide Lender with full and unrestricted access to all Records, during regular
business hours; and (iv.) permit Lender to conduct an audit of the Records, at
Lender's sole expense.
3.01. EFFECT OF DEFICIENCY; LACK OF RECORDS TO SHOW SUFFICIENCY. In
the event that Borrower fails to pay any amounts due under this
Agreement or fails to maintain or retain the Records required by
Section 3.00 of this Agreement, then the same shall be considered a
material breach of this Agreement and without waiving any rights that
Lender may otherwise have under the Note or this Agreement, Lender
shall have the right to declare the Note in default with all rights
granted Lender as provided by the Note and by applicable law
thereunder.
4.00. OBLIGATION OF BORROWER TO DELIVER FINANCIAL REPORTS.
4.01. MONTHLY FINANCIAL REPORTS. Borrower agrees that it shall, after
Borrower's first issuance of the Note to Lender, provide Lender with a
monthly financial report (the "Monthly Financial Report") which shall
be delivered to Lender on or before the 20th day of each month. The
Monthly Financial Report shall include a complete description of all
revenues, expenses, and income accrued, received, or recorded by the
Borrower for the month immediately prior to the month in which the
Monthly Financial Report is delivered. The Lender shall also have the
right to receive, upon request, any additional supporting
documentation, including, but not limited to, copies of bank
statements, deposit records, cancelled checks, payroll records, state
and federal income tax returns, and related records (collectively,
"Documentation"). In the event that Lender requests any Documentation
from Borrower, Borrower shall deliver all said Documentation within
twenty (20) calendar days and Lender shall be responsible for any
photocopying and postage costs incurred by Borrower in connection with
providing all said Documentation. Borrower shall be responsible for
all other costs of providing the Documentation.
5.00. MISCELLANEOUS.
5.01. FURTHER ASSURANCES. Each of the parties shall hereafter execute all
documents and do all acts reasonably necessary to effect the provisions of
this Agreement.
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5.02. SUCCESSORS. The provisions of this Agreement shall be deemed to
obligate, extend to and inure to the benefit of the successors, assigns,
transferees, grantees, and indemnitees of each of the parties to this
Agreement.
5.03. OPPORTUNITY FOR SEPARATE COUNSEL. Each of the parties to this
Agreement acknowledges and agrees that it has had an opportunity to be
represented by independent counsel of its own choice throughout all
negotiations which preceded the execution of this Agreement and the
transactions referred to in this Agreement, and each has executed this
Agreement with the consent and upon the advice of said independent counsel,
if any. Each party represents that he or it fully understands the
provisions of this Agreement, has had an opportunity to consult with
counsel concerning its terms and executes this Agreement of his or its own
free choice without reference to any representations, promises or
expectations not set forth herein.
5.04. INTEGRATION. This Agreement, after full execution, acknowledgment and
delivery, memorializes and constitutes the entire agreement and
understanding between the parties and supersedes and replaces all prior
negotiations and agreements of the parties, whether written or unwritten.
Each of the parties to this Agreement acknowledges that no other party, nor
any agent or attorney of any other party has made any promises,
representations, or warranty whatsoever, express or implied, which is not
expressly contained in this Agreement; and each party further acknowledges
that he or it has not executed this Agreement in reliance upon any belief
as to any fact not expressly recited hereinabove.
5.05. ATTORNEYS FEES. In the event of a dispute between the parties
concerning the enforcement or interpretation of this Agreement, the
prevailing party in such dispute, whether by legal proceedings or
otherwise, shall be reimbursed immediately for the reasonably incurred
attorneys' fees and other costs and expenses by the other parties to the
dispute.
5.06. INTERPRETATION. Wherever the context so requires: the singular number
shall include the plural; the plural shall include the singular; and the
masculine gender shall include the feminine and neuter genders.
5.07. CAPTIONS. The captions by which the sections and subsections of this
Agreement are identified are for convenience only, and shall have no effect
whatsoever upon its interpretation.
5.08. SEVERANCE. If any provision of this Agreement is held to be illegal
or invalid by a court of competent jurisdiction, such provision shall be
deemed to be severed and deleted; and neither such provision, nor its
severance and deletion, shall affect the validity of the remaining
provisions.
5.09. INCORPORATION BY REFERENCE. The parties agree that the Unsecured
Promissory Note, dated June 23, 1999 as executed by the Borrower is an
integral part of this Agreement and is incorporated by reference herein.
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5.10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts.
5.11. EXPENSES ASSOCIATED WITH THIS AGREEMENT. Each of the parties hereto
agrees to bear its own costs, attorneys fees and related expenses
associated with this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
FOR THE LENDER: FOR THE BORROWER:
By: /s/ [Illegible] By: /s/ Ralph M. Amato
------------------------- -------------------------
Ralph M. Amato,
President & CEO
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<PAGE>
ATTACHMENT TO LOAN AGREEMENT OF JUNE 23, 1999
UNSECURED PROMISSORY NOTE
Grand Cayman, Cayman Islands
June 23, 1999
Page 1 of 4
FOR VALUE RECEIVED, the undersigned, BoysToys.com, Inc., a Delaware
corporation (hereinafter called "Maker"), promises to pay to the order of Essex
Capital Holdings, Ltd. (together with all subsequent holders of this Note,
hereinafter called "Payee"), or at such other place as Payee may from time to
time designate in writing, the principal sum of the amount that may be loaned to
Payee hereby which amount shall not exceed one million dollars ($1,000,000),
together with interest thereon calculated on a daily basis (based, at Payee's
option, on 360-day or 365/366-day years) from the date hereof on the principal
balance from time to time outstanding (the "Principal Amount") as hereinafter
provided, principal, interest and all other sums payable hereunder to be paid in
lawful money of the United States of America as follows:
A. Interest shall accrue at all times hereunder at the rate of twelve
percent (12%) per annum commencing upon the execution of this Note, and
shall be payable quarterly on or before the tenth day of the month of
September, December, March, and June and continuing thereafter until this
Note is paid in full.
B. The amount of the monthly payment shall be equal to the amount of
interest on the principal balance.
C. If not earlier due and payable, the unpaid principal balance, all
accrued and unpaid interest and all other amounts payable hereunder shall
be due and payable in full on or before January 23, 2001 (the "Maturity
Date").
D. Payee shall have the right, upon thirty (30) days notice to Maker,
to convert all or any portion of the then outstanding principal of this
Note and any accrued and unpaid interest thereon into shares of the Payee's
common stock (the "Shares") at a conversion price of forty cents ($0.40)
per Share.
E. Notwithstanding any other provision of this Note, Maker shall have
right to accelerate the Maturity Date and prepay all or any portion of the
principal due Payee under this Note upon payment to Payee of an amount
equal to the product of 1.25 multiplied by the then outstanding amount due
as Principal Amount. In the event that Payee elects to prepay this Note
pursuant to this Section "E.," Payee shall, upon payment of said amount,
pay all amounts of unpaid and accrued interest.
Maker agrees to an effective rate of interest that is the rate stated above
plus any additional rate of interest resulting from any other charges in the
nature of interest paid or to be paid by or on behalf of Maker, or any benefit
received or to be received by Payee, in connection with this Note.
<PAGE>
If any payment required under this Note is not paid within fifteen (15)
days after the date such payment is due, then, at the option of Payee, Maker
shall pay a "late charge" equal to two percent (2%) of the amount of that
payment to compensate Payee for administrative expenses and other costs of
delinquent payments. This late charge may be assessed without notice, shall be
immediately due and payable and shall be in addition to all other rights and
remedies available to Payee.
All payments on this Note shall be applied in such manner as Payee elects,
and may be applied first to the payment of any costs, penalties, late charges,
fees or other charges incurred in connection with the indebtedness evidenced
hereby, next to the payment of accrued interest and then to the reduction of the
principal balance.
This Note and all other documents or instruments relating to the
indebtedness evidenced by this Note or executed or delivered in connection with
the indebtedness evidenced by this Note are hereinafter called the "Loan
Documents."
Time is of the essence of this Note. At the option of Payee, the entire
unpaid principal balance, all accrued and unpaid interest and all other amounts
payable hereunder shall become immediately due and payable without notice upon
the failure to pay any sum due and owing hereunder as provided herein or upon
the occurrence of any Event of Default in any of the Loan Documents.
The occurrence of any of the following events or conditions shall
constitute and is hereby defined to be an "Event of Default":
(a) Any failure to pay any principal or interest or any other amount
due in connection with this Note when the same shall become due and
payable.
(b) Any failure or neglect to perform or observe any of the terms,
provisions, or covenants of any of the Loan Documents or any other document
or instrument executed or delivered in connection with the Note, and such
failure or neglect either cannot be remedied or, if it can be remedied, it
continues unremedied for a period of fifteen (15) days after notice thereof
to Maker.
(c) Any warranty, representation or statement contained in any of the
Loan Documents or any other document or instrument executed or delivered in
connection with this Note, or made or furnished by or on behalf of Maker,
that shall be or shall prove to have been false when made or furnished.
(d) The filing by Maker, any endorser of the Note or any guarantor of
this Note (or against Maker or such endorser or guarantor in which Maker or
such endorser or guarantor acquiesces or which is not dismissed within
forty-five (45) days after the filing thereof) of any proceeding under the
federal bankruptcy laws now or hereafter existing or any other similar
stature now or hereafter in effect; the entry of an order for relief under
such laws with respect to Maker or such endorser or guarantor; or the
appointment of a receiver, trustee, custodian or conservator of all or any
part of the assets of Maker or such endorser or guarantor.
<PAGE>
(e) The insolvency of Maker, any endorser of the Note or any guarantor
of this Note; or the execution by Maker or such endorser or guarantor of an
assignment for the benefit of creditors; or the convening by Maker or such
endorser or guarantor of a meeting of its creditors, or any class thereof,
for purposes of effecting a moratorium upon or extension or composition of
its debts; or the failure of Maker or such endorser or guarantor to pay its
debts as they mature; or if Maker or such endorser or guarantor is
generally not paying its debts as they mature.
(f) The admission in writing by Maker, any endorser of the Note or any
guarantor of this Note that it is unable to pay its debts as they mature or
that it is generally not paying its debts as they mature.
(g) The death or incapacity of Maker, any endorser of the Note or any
guarantor of this Note, if an individual, or the liquidation, termination
or dissolution of Maker or any such endorser or guarantor, if a
corporation, partnership or joint venture.
(h) The occurrence of any Event of Default under any of the Loan
Documents or any other document or instrument executed or delivered in
connection with this Note; and not otherwise specifically described in
other provisions of this Note.
(i) The occurrence of any adverse change in the financial condition of
Maker that Payee, in its reasonable discretion, deems material, or if Payee
in good faith shall believe that the prospect of payment or performance of
the Note is impaired.
After maturity, including maturity upon acceleration, the unpaid principal
balance, all accrued and unpaid interest and all other amounts payable hereunder
shall bear interest from the date of maturity until paid at the rate that is
five percent (5%) above the rate that would otherwise be payable under the terms
hereof. Maker shall pay all costs and expenses, including reasonable attorneys'
fees and court costs, incurred in the collection or enforcement of all or any
part of this Note. All such costs and expenses shall be secured by the Loan
Documents. In the event of any court proceedings, court costs and attorneys'
fees shall be set by the court and not by jury and shall be included in any
judgement obtained by Payee.
Upon the occurrence of an Event of Default under this Note or in any of the
other Loan Documents, Payee may proceed against any collateral securing this
Note or proceed against the undersigned in such order and manner as Payee, in
its sole discretion, shall determine, provided that under no circumstance shall
Payee be obligated to proceed against any collateral or against the undersigned
for collection of any sums due hereunder.
Failure of Payee to exercise any option hereunder shall not constitute a
waiver of the right to exercise the same in the event of any subsequent default
or in the event of the continuance of any existing default after demand for
strict performance hereof.
3
<PAGE>
Maker, sureties, guarantors and endorsers hereof: (a) agree to be jointly
and severally bound, (b) severally waive demand, diligence, presentment for
payment, protest and demand, and notice of extension, dishonor, protest, demand
and nonpayment of this Note, (c) consent that Payee may extend the time of
payment or otherwise modify the terms of payment of any part or the whole of the
debt evidenced by this Note, at the request of any other person primarily liable
hereon, and such consent shall not alter nor diminish the liability of any
person, and (d) agree that Payee may set off at any time any sums or property
owed to any of them by Payee.
No provision of this Note is intended to or shall require or permit Payee,
directly or indirectly, to take, collect or receive in money, goods or in any
other form, any interest (including amount deemed by law to be interest) in
excess of the maximum rate of interest permitted by applicable law. If any
amount due from or paid by Maker shall be determined by a court of competent
jurisdiction to be interest in excess of such maximum rate, Maker shall not be
obligated to pay such excess and, if paid, such excess shall be applied against
the unpaid principal balance of this Note, or if and to the extent that this
Note has been paid in full, such excess shall be remitted to Maker.
This Note shall be binding upon Maker and its successors and assigns and
shall inure to the benefit of Payee and its successors and assigns.
All notices required or permitted in connection with this Note shall be
given at the place and address as separately provided by each party to this
Note.
This Note shall be governed by and construed according to the laws of the
State of Delaware.
IN WITNESS WHEREOF, these presents are executed as of the date first
written above.
MAKER:
BOYSTOYS.COM, INC.
(a Delaware corporation)
By: /s/ Ralph M. Amato
--------------------------------------
Ralph M. Amato, President & CEO
Acknowledgement: /s/ [Illegible]
---------------------------------
For: Essex Capital Holdings, Ltd.
4
<PAGE>
Attachment to Investment Agreement of February, 1999
EXHIBIT A
UNSECURED NON-NEGOTIABLE PROMISSORY NOTE
C. Pallozzi
Principal Amount of this Note: $25,000 La Jolla, California
--------- Date of Note: 2/10, 1999
Page 1 of 3
FOR VALUE RECEIVED and subject to the terms and conditions of the
Investment Agreement attached hereto, the undersigned, Alternative
Entertainment, Inc. (hereinafter called "Maker"), promises to pay to the order
of the Investor whose name and address is shown on page 12 of the attached
Investment Agreement (together with all subsequent holders of this Note,
hereinafter called the "Payees"), or at such other place as Payee may from time
to time designate in writing, the principal sum of Twenty Five Thousand
Dollars ($25,000) together with interest thereon calculated on a daily basis
(based, at Payees' option, on a 360-day or 365/366-day years) from the date
hereof on the principal balance from time to time outstanding as hereinafter
provided, principal, interest and all other sums payable hereunder to be paid in
lawful money of the United States of America as follows:
A. Interest shall accrue at all times hereunder at the rate of
twelve percent (12%) per annum commencing upon the execution of this Note,
and shall be payable six (6) months from the date first stated above until
this Note is paid in full.
B. If not earlier due and payable, the unpaid principal balance,
all accrued and unpaid interest and all other amounts payable hereunder
shall be due and payable in full at the earlier of: (i.) six months from
the date first stated above; or (ii.) from the proceeds of the Additional
Capital (as defined in Recital "I" on page 2 of the Agreement) sought by
Maker (the "Maturity Date").
Maker agrees to an effective rate of interest that is the rate stated above
in connection with this Note. All payments on this Note shall be applied in such
manner as the Payee elects, and may be applied first to the payment of any
costs, penalties, late charges, fees or other charges incurred in connection
with the indebtedness evidenced hereby, next to the payment of accrued interest
and then to the reduction of the principal balance.
Time is of the essence of this Note. At the option of the Payee, the entire
unpaid principal balance, all accrued and unpaid interest and all other amounts
payable hereunder shall be paid in the form of shares of the Maker's Common
Stock (par value $0.01) (the "Shares") upon the failure to pay any sum due and
owing hereunder as provided herein or upon the occurrence of any Event of
Default. The Shares shall be valued at One Dollar ($1.00) per Share.
13
<PAGE>
The occurrence of any of the following events or conditions shall
constitute and is hereby defined to be an "Event of Default":
(a) Any failure to pay any principal or interest or any other amount
due in connection with this Note when the same shall become due and
payable.
(b) Any failure or neglect to perform or observe any of the terms,
provisions, or covenants of this Note, and such failure or neglect either
cannot be remedied or, if it can be remedied, it continues unremedied for a
period of fifteen (15) days after notice thereof to Maker.
(c) Any warranty, representation or statement contained in the or
delivered in connection with this Note, or made or furnished by or on
behalf of Maker, that shall be or shall prove to have been false when made
or furnished.
(d) The filing by Maker, any endorser of the Note or any guarantor
of this Note (or against Maker or such endorser or guarantor in which Maker
or such endorser or guarantor acquiesces or which is not dismissed within
forty-five (45) days after the filing thereof) of any proceeding under the
federal bankruptcy laws now or hereafter existing or any other similar
stature now or hereafter in effect; the entry of an order for relief under
such laws with respect to Maker or such endorser or guarantor; or the
appointment of a receiver, trustee, custodian or conservator of all or any
part of the assets of Maker or such endorser or guarantor.
(e) The insolvency of Maker, any endorser of the Note or any
guarantor of this Note; or the execution by Maker or such endorser or
guarantor of an assignment for the benefit of creditors; or the convening
by Maker or such endorser or guarantor of a meeting of its creditors, or
any class thereof, for purposes of effecting a moratorium upon or extension
or composition of its debts; or the failure of Maker or such endorser or
guarantor to pay its debts as they mature; or if Maker or such endorser or
guarantor is generally not paying its debts as they mature.
(f) The admission in writing by Maker, any endorser of the Note or
any guarantor of this Note that it is unable to pay its debts as they
mature or that it is generally not paying its debts as they mature.
(g) The death or incapacity of Maker, any endorser of the Note or
any guarantor of this Note, if an individual, or the liquidation,
termination or dissolution of Maker or any such endorser or guarantor, if a
corporation, partnership or joint venture.
(h) The occurrence of any Event of Default in connection with this
Note; and not otherwise specifically described in other provisions of this
Note.
(i) The occurrence of any adverse change in the financial condition
of Maker that the Payees (or either of them), in its reasonable discretion,
deems material, or if the Payees (or either of them) in good faith shall
believe that the prospect of payment or performance of the Note is
impaired.
After maturity, including maturity upon acceleration, the unpaid principal
balance, all accrued and unpaid interest and all other amounts payable hereunder
shall bear interest at twelve percent (12%) from the date of maturity until the
Shares due the Payee by this Note are paid in full.
14
<PAGE>
All said interest shall be paid in the form of additional Shares valued at
One Dollar ($1.00) per Share. Maker shall pay no other costs incurred in the
collection or enforcement of all or any part of this Note.
Upon the occurrence of an Event of Default under this Note, the Payee may
proceed against the Company and the Payee's sole and exclusive remedy is to
require the Company to promptly issue the Shares due Payee hereunder.
Failure of the Payee to exercise any option hereunder shall not constitute
a waiver of the right to exercise the same in the event of any subsequent
default or in the event of the continuance of any existing default after demand
for strict performance hereof.
Maker, sureties, guarantors and endorsers hereof: (a) agree to be
jointly and severally bound, (b) severally waive demand, diligence,
presentment for payment, protest and demand, and notice of extension,
dishonor, protest, demand and nonpayment of this Note, (c) consent that Payee
may extend the time of payment or otherwise modify the terms of payment of
any part or the whole of the debt evidenced by this Note, at the request of
any other person primarily liable hereon, and such consent shall not alter
nor diminish the liability of any person, and (d) agree that the Payee may
set off at any time any sums or property owed to any of them by the Payee.
No provision of this Note is intended to or shall require or permit the
Payee, directly or indirectly, to take, collect or receive in money, goods or
in any other form, any interest (including amount deemed by law to be
interest) in excess of the maximum rate of interest permitted by applicable
law. If any amount due from or paid by Maker shall be determined by a court
of competent jurisdiction to be interest in excess of such maximum rate,
Maker shall not be obligated to pay such excess and, if paid, such excess
shall a be applied against the unpaid principal balance of this Note, or if
and to the extent that this Note has been paid in full, such excess shall be
remitted to Maker.
This Note shall not be negotiable or assignable except upon the express
written consent of the Payee. Notwithstanding this provision, this Note shall be
binding upon Maker and his successors and assigns and shall inure to the benefit
of the Payee and its successors and assigns. This Note may be prepaid at any
time prior to the Maturity Date without penalty.
All notices required or given in connection with this Note shall be given
at the place and in the manner reasonably calculated to give notice by the party
giving such notice.
This Note shall be governed by and construed according to the laws of the
State of California.
IN WITNESS WHEREOF, these presents are executed as of the date first
written above.
PRINCIPAL SUM OF THIS NOTE: TWENTY FIVE THOUSAND DOLLARS ($25,000.00).
MAKER:
/s/ Ralph Amato
---------------------------
ALTERNATIVE ENTERTAINMENT, INC.
15
<PAGE>
SETTLEMENT AGREEMENT
This SETTLEMENT AGREEMENT ("Agreement") is entered into and is
effective as of this 2nd day of June 1999 by and between BoysToys.com, Inc.
(fka, Alternative Entertainment, Inc.), a Delaware corporation with principal
offices at 4275 Executive Square, Suite 800, La Jolla, California 92037 (the
"Debtor") and Bowne of Los Angeles, Inc. with principal offices at 2103 East
University Drive, Dominguez Hills, California 902220 (the "Creditor")
WHEREAS:
A. Debtor purchased certain printing services from Creditor for which
Debtor is indebted to Creditor in the amount of Forty Eight Thousand
One Hundred Sixty-Six Dollars and Seventy-Two Cents ($48,166.72) (the
"Settlement Amount").
B. Both Debtor and Creditor acknowledge and agree that this Agreement
is an accord and satisfaction of certain contested matters and that
neither this Agreement nor the actions to be taken by any party or
their agents under this Agreement shall be construed as an admission
of liability.
C. Subject to the terms and conditions of this Agreement, Debtor and
Creditor are willing to fully and final settle all outstanding claims
that each party has or may have against the other party.
NOW THEREFORE THE PARTIES AGREE AS FOLLOWS:
1. PAYMENT OF SETTLEMENT AMOUNT. In consideration of Creditor's (A) execution of
this Agreement; and (B) delivery of an executed copy of this Agreement to the
Law Offices of William M. Aul at 4275 Executive Square, Suite 800, La Jolla,
California 92037; together with other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Debtor agrees that it
shall make the following payments to Creditor in payment of the Settlement
Amount: (a) on or before June 10, 1999 Debtor shall remit a check, payable to
Creditor in the amount of Six Thousand Dollars ($6,000); (if) on or before the
10th day of the month for an additional five (5) months thereafter, Debtor
shall remit a check payable to Creditor in the amount of Six Thousand Dollars
($6,000); and (iii) on or before November 30, 1999 Debtor shall remit a check
payable to Creditor in the amount of Twelve Thousand One Hundred Sixty-Six
Dollars and Seventy-Two Cents ($12,166.72). Both parties agree that upon
Creditor's receipt of all said payments, Debtor shall have paid all amounts due
Creditor in payment of the Settlement Amount and that Creditor shall not be
entitled to the payment of any interest thereon. In the event that Debtor fails
to pay, within ten (10) days, any amounts due Creditor under this Agreement,
Debtor shall be in default of this Agreement and Creditor shall be entitled to
receive, in addition to any other amounts due hereunder, a late fee equal to
five percent (5%) of the amount of any said payment (the "Late Fee").
1
<PAGE>
2. RELEASE OF CLAIMS. Subject to Debtor's and Creditor's performance of their
respective obligations as recited in Section 1.00 of this Agreement, the
parties on their own behalf and on behalf of their successors in interest,
and assigns, hereby fully and forever release, acquit and discharge all other
parties to this Agreement, and their respective heirs, successors in
interest, officers, directors, shareholders, agents, employees, assigns,
subsidiaries, parent corporations, sister corporations, affiliates, trustees,
trustors, beneficiaries, attorneys, and each of them, of and from any and all
liabilities, claims, demands, actions, causes of action and rights
(contingent, accrued or otherwise) which said releasing parties may now have
against any or all parties released.
3. MUTUAL WAIVER OF STATUTORY RIGHTS. Subject to Debtor's and Creditor's
performance of their respective obligations as recited in Section 1.00 of this
Agreement, each of the parties to this Agreement hereby waives all rights which
may exist under Section 1542 of the Civil Code of the State of California, which
provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO
CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OF OR EXPECT TO EXIST IN HIS FAVOR
AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
4. INDEMNIFICATION AGAINST RELEASED CLAIMS. Each of the parties to this
Agreement shall indemnify each person and entity released and discharged, and
their respective heirs, successors in interest, officers, directors,
shareholders, agents, employees, assigns, subsidiaries, parent corporations,
sister corporations, affiliates, trustees, trustors, beneficiaries, attorneys
and each of them and shall hold them harmless from and against any and all loss,
expense and/or liability arising directly or indirectly out of the enforcement
or attempted enforcement by anyone against any such indemnitee of any of the
same liabilities, claims, demands, actions, causes of action and rights released
and discharged by each such indemnitor, respectively, including, but not limited
to, rescission of securities, grant of registration rights or any other
securities laws violation.
5. INTERPRETATION OF RELEASE. Notwithstanding anything herein set forth to the
contrary, no provision of this Agreement shall constitute or be construed as a
release or discharge of any obligations, claims or causes of action hereafter
arising out of the breach of any of the terms or provisions of this Agreement.
6. MISCELLANEOUS.
6.1 FURTHER ASSURANCE. Each of the parties shall hereafter execute all
documents and do all acts reasonably necessary to effect the provisions of
this Agreement.
6.2 SUCCESSORS. The provisions of this Agreement shall be deemed to
obligate, extend to and inure to the benefit of the successors, assigns,
transferees, grantees, and indemnitees of each of the parties to this
Agreement.
2
<PAGE>
6.3 INDEPENDENT COUNSEL. Each of the parties to this Agreement acknowledges
and agrees that it has been represented by independent counsel of its own
choice throughout all negotiations which preceded the execution of this
Agreement and the transactions referred to in this Agreement, and each has
executed this Agreement with the consent and upon the advice of said
independent counsel. Each party represents that he or it fully understands
the provisions of this Agreement, has consulted with counsel concerning its
terms and executes this Agreement of his or its own free choice without
reference to any representations, promises or expectations not set forth
herein.
6.4 INTEGRATION. This Agreement, after full execution, acknowledgment and
delivery, memorializes and constitutes the entire agreement and
understanding between the parties and supersedes and replaces all prior
negotiations and agreements of the parties. Each of the parties to this
Agreement acknowledges that no other party, nor any agent or attorney of
any other party has made any promises, representations, or warranty
whatsoever, express or implied, which is not expressly contained in this
Agreement; and each party further acknowledges that he or it has not
executed this Agreement in reliance upon any belief as to any fact not
expressly recited hereinabove.
6.5 ATTORNEYS FEES. In the event of a dispute between the parties
concerning the enforcement or interpretation of this Agreement, the
prevailing party in such dispute, whether by legal proceedings or
otherwise, shall be reimbursed immediately for the reasonably incurred
attorneys' fees and other costs and expenses by the other parties to the
dispute.
6.6 INTERPRETATION. Wherever the context so requires: the singular number
shall include the plural; the plural shall include the singular; and the
masculine gender shall include the feminine and neuter genders.
6.7 CAPTIONS. The captions by which the sections and subsections of this
Agreement are identified are for convenience only, and shall have no effect
whatsoever upon its interpretation.
6.8 SEVERANCE. If any provision of this Agreement is held to be illegal or
invalid by a court of competent jurisdiction, such provision shall be
deemed to be severed and deleted; and neither such provision, nor its
severance and deletion, shall affect the validity of the remaining
provisions.
6.09 COUNTERPARTS. This Agreement may be executed in any number of
counterparts.
3
<PAGE>
6.10 DISCLAIMER OF LIABILITY. The parties to this Agreement hereby
expressly recognize and agree that the terms and conditions of this
Agreement constitute an accord and satisfaction of contested matters and
neither the offer nor the acceptance of the terms and conditions hereof
represent an admission of liability or responsibility on the part of any
party, each party expressly disclaiming any such liability.
6.11 EXPENSES ASSOCIATED WITH THIS AGREEMENT. Each of the parties hereto
agrees to bear its own costs, attorneys fees and related expenses
associated with this Agreement.
6.12 ARBITRATION. Any dispute or claim arising to or in any way related to
this Agreement shall be settled by arbitration in San Diego, California.
All arbitration shall be conducted in accordance with the rules and
regulations of the American Arbitration Association ("AAA"). AAA shall
designate an arbitrator from an approved list of arbitrators following
both parties' review and deletion of those arbitrators on the approved list
having a conflict of interest with either party. Each party shall pay its
own expenses associated with such arbitration (except as set forth in
Section 6.5 Above). A demand for arbitration shall be made within a
reasonable time after the claim, dispute or other matter has arisen and in
no event shall such demand be made after the date when institution of legal
or equitable proceedings based on such claim, dispute or other matter in
question would be barred by the applicable statutes of limitations. The
decision of the arbitrators shall be rendered within 60 days of submission
of any claim or dispute, shall be in writing and mailed to all the parties
included in the arbitration. the decision of the arbitrator shall be
binding upon the parties and judgement in accordance with that decision may
be entered in any court having jurisdiction thereof.
6.13 POWER TO BIND. A responsible officer of Creditor has read and
understands the contents of this Agreement and is empowered and duly
authorized on behalf of Creditor to execute it.
6.14 CONFIDENTIALITY. The parties hereto agree that the terms of this
Agreement and all documents constituting parts of this transaction shall be
kept strictly confidential except to the extent necessary to protect the
rights of the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
FOR DEBTOR: FOR CREDITOR:
By: /s/ Ralph M. Amato By: /s/ James Barden
--------------------- ------------------
Ralph M. Amato James Barden, V.P.
4
<PAGE>
Attachment to Investment Agreement of 7-19, 1998
EXHIBIT A
UNSECURED NON-NEGOTIABLE PROMISSORY NOTE
Vincent Amato
Principal Amount of this Note: $28,400 La Jolla, California
--------- Date of Note: 7-19, 1998
Page 1 of 3
FOR VALUE RECEIVED and subject to the terms and conditions of the
Investment Agreement attached hereto, the undersigned, Alternative
Entertainment, Inc. (hereinafter called "Maker"), promises to pay to the
order of the Investor whose name and address is shown on page 12 of the
attached Investment Agreement (together with all subsequent holders of this
Note, hereinafter called the "Payees"), or at such other place as Payee may
from time to time designate in writing, the principal sum of Twenty Eight
Thousand Dollars ($28,400), together with interest thereon calculated on a
daily basis (based at Payees' option, on 360-day or 365/366-day years) from
the date hereof on the principal balance from time to time outstanding as
hereinafter provided, principal, interest and all other sums payable
hereunder to be paid in lawful money of the United States of America as
follows:
A. Interest shall accrue at all times hereunder at the rate of
twelve percent (12%) per annum commencing upon the execution of this Note,
and shall be payable six (6) months from the date first stated above until
this Note is paid in full.
B. If not earlier due and payable, the unpaid principal balance,
all accrued and unpaid interest and all other amounts payable hereunder
shall be due and payable in full at the earlier of: (i.) six months from
the date first stated above; or (ii.) from the proceeds of the Additional
Capital (as defined in Recital "I" on page 2 of the Agreement) sought by
Maker (the "Maturity Date").
Maker agrees to an effective rate of interest that is the rate stated above
in connection with this Note. All payments on this Note shall be applied in such
manner as the Payee elects, and may be applied first to the payment of any
costs, penalties, late charges, fees or other charges incurred in connection
with the indebtedness evidenced hereby, next to the payment of accrued interest
and then to the reduction of the principal balance.
Time is of the essence of this Note. At the option of the Payee, the entire
unpaid principal balance, all accrued and unpaid interest and all other amounts
payable hereunder shall be paid in the form of shares of the Maker's Common
Stock (par value $0.01) (the "Shares") upon the failure to pay any sum due and
owing hereunder as provided herein or upon the occurrence of any Event of
Default. The Shares shall be valued at One Dollar ($1.00) per Share.
13
<PAGE>
The occurrence of any of the following events or conditions shall
constitute and is hereby defined to be an "Event of Default":
(a) Any failure to pay any principal or interest or any other amount
due in connection with this Note when the same shall become due and
payable.
(b) Any failure or neglect to perform or observe any of the terms,
provisions, or covenants of this Note, and such failure or neglect either
cannot be remedied or, if it can be remedied, it continues unremedied for
a period of fifteen (15) days after notice thereof to Maker.
(c) Any warranty, representation or statement contained in the or
delivered in connection with this Note, or made or furnished by or on
behalf of Maker, that shall be or shall prove to have been false when made
or furnished.
(d) The filing by Maker, any endorser of the Note or any guarantor
of this Note (or against Maker or such endorser or guarantor in which Maker
or such endorser or guarantor acquiesces or which is not dismissed within
forty-five (45) days after the filing thereof) of any proceeding under the
federal bankruptcy laws now or hereafter existing or any other similar
stature now or hereafter in effect; the entry of an order for relief under
such laws with respect to Maker or such endorser or guarantor; or the
appointment of a receiver, trustee, custodian or conservator of all or any
part of the assets of Maker or such endorser or guarantor.
(e) The insolvency of Maker, any endorser of the Note or any
guarantor of this Note; or the execution by Maker or such endorser or
guarantor of an assignment for the benefit of creditors; or the convening
by Maker or such endorser or guarantor of a meeting of its creditors, or
any class thereof, for purposes of effecting a moratorium upon or extension
or composition of its debts; or the failure of Maker or such endorser or
guarantor to pay its debts as they mature; or if Maker or such endorser or
guarantor is generally not paying its debts as they mature.
(f) The admission in writing by Maker, any endorser of the Note or
any guarantor of this Note that it is unable to pay its debts as they
mature or that it is generally not paying its debts as they mature.
(g) The death or incapacity of Maker, any endorser of the Note or
any guarantor of this Note, if an individual, or the liquidation,
termination or dissolution of Maker or any such endorser or guarantor, if a
corporation, partnership or joint venture.
(h) The occurrence of any Event of Default in connection with this
Note; and not otherwise specifically described in other provisions of this
Note.
(i) The occurrence of any adverse change in the financial condition
of Maker that the Payees (or either of them), in its reasonable discretion,
deems material, or if the Payees (or either of them) in good faith shall
believe that the prospect of payment or performance of the Note is
impaired.
After maturity, including maturity upon acceleration, the unpaid principal
balance, all accrued and unpaid interest and all other amounts payable hereunder
shall bear interest at twelve percent 12%) from the date of maturity until the
Shares due the Payee by this Note are paid in full.
14
<PAGE>
All said interest shall be paid in the form of additional Shares valued at
One Dollar ($1.00) per Share. Maker shall pay no other costs incurred in the
collection or enforcement of all or any part of this Note.
Upon the occurrence of an Event of Default under this Note, the Payee may
proceed against the Company and the Payee's sole and exclusive remedy is to
require the Company to promptly issue the Shares due Payee hereunder.
Failure of the Payee to exercise any option hereunder shall not constitute
a waiver of the right to exercise the same in the event of any subsequent
default or in the event of the continuance of any existing default after demand
for strict performance hereof.
Maker, sureties, guarantors and endorsers hereof: (a) agree to be jointly
and severally bound, (b) severally waive demand, diligence, presentment for
payment, protest and demand, and notice of extension, dishonor, protest, demand
and nonpayment of this Note, (c) consent that Payee may extend the time of
payment or otherwise modify the terms of payment of any part or the whole of the
debt evidenced by this Note, at the request of any other person primarily liable
hereon, and such consent shall not alter nor diminish the liability of any
person, and (d) agree that the Payee may set off at any time any sums or
property owed to any of them by the Payee.
No provision of this Note is intended to or shall require or permit the
Payee, directly or indirectly, to take, collect or receive in money, goods or in
any other form, any interest (including amount deemed by law to be interest) in
excess of the maximum rate of interest permitted by applicable law. If any
amount due from or paid by Maker shall be determined by a court of competent
jurisdiction to be interest in excess of such maximum rate, Maker shall not be
obligated to pay such excess and, if paid, such excess shall be applied against
the unpaid principal balance of this Note, or if and to the extent that this
Note has been paid in full, such excess shall be remitted to Maker.
This Note shall not be negotiable or assignable except upon the express
written consent of the Payee. Notwithstanding this provision, this Note shall be
binding upon Maker and his successors and assigns and shall inure to the benefit
of the Payee and its successors and assigns. This Note may be prepaid at any
time prior to the Maturity Date without penalty.
All notices required or given in connection with this Note shall be given
at the place and in the manner reasonably calculated to give notice by the party
giving such notice.
This Note shall be governed by and construed according to the laws of the
State of California.
IN WITNESS WHEREOF, these presents are executed as of the date first
written above.
PRINCIPAL SUM OF THIS NOTE: TWENTY EIGHT THOUSAND DOLLARS (28,400).
MAKER:
/s/ [ILLEGIBLE]
---------------------------
ALTERNATIVE ENTERTAINMENT, INC.
15
<PAGE>
Attachment to Investment Agreement of ___________, 1998
EXHIBIT B
PLANNED USE OF PROCEEDS
The Company currently estimates that the proceeds received from the sale of
the Note and Stock to Investors in this Note Offering will be used in accordance
with the following planned allocations. To the extent that the Company can avoid
or reduce certain payments, any funds saved will be allocated to increase the
Company's working capital.
<TABLE>
<CAPTION>
Description or Category Dollar Amount
----------------------- -------------
<S> <C>
Gross Offering Amount...................... $500,000
Less:
Finder's Fees.............................. 50,000
--------
Net Offering Amount(1)..................... $450,000
Addition to Working Capital................ $450,000
--------
--------
</TABLE>
- -------------------------------------
Footnote:
1. The Company may pay a finder's fee of up to 10% of any funds received in
connection with the Offering and sale of the Notes offered hereby.
The payment of any finder's fee to any finder will require that the Company
receive sufficient assurances that the payment of the finder's fee will not
violate the requirements of the SECURITIES EXCHANGE ACT OF 1934 and applicable
state securities laws. The amounts shown do not include legal fees, fees
incurred for compliance with state securities laws, printing costs, postage, and
other costs incurred in connection with this Note Offering. There can be no
assurance that the Company will receive any funds from the sale of the Notes
offered hereby.
16
<PAGE>
Attachment to Investment Agreement of 1-8, 1999
EXHIBIT A
UNSECURED NON-NEGOTIABLE PROMISSORY NOTE
J. Amato
Principal Amount of this Note: $13,540.15 La Jolla, California
Date of Note: 1-8, 1999
Page 1 of 3
FOR VALUE RECEIVED and subject to the terms and conditions of the
Investment Agreement attached hereto, the undersigned, Alternative
Entertainment, Inc. (hereinafter called "Maker"), promises to pay to the
order of the Investor whose name and address is shown on page 12 of the
attached Investment Agreement (together with all subsequent holders of this
Note, hereinafter called the "Payees"), or at such other place as Payee may
from time to time designate in writing, the principal sum of Thirteen
Thousand Five Hundred Forty Dollars ($13,540.15) together with interest
thereon calculated on a daily basis (based, at Payees' option, on a 360-day
or 365/366-day years) from the date hereof on the principal balance from time
to time outstanding as hereinafter provided, principal, interest and all
other sums payable hereunder to be paid in lawful money of the United States
of America as follows:
A. Interest shall accrue at all times hereunder at the rate of
twelve percent (12%) per annum commencing upon the execution of this Note,
and shall be payable six (6) months from the date first stated above until
this Note is paid in full.
B. If not earlier due and payable, the unpaid principal balance,
all accrued and unpaid interest and all other amounts payable hereunder
shall be due and payable in full at the earlier of: (i.) six months from
the date first stated above; or (ii.) from the proceeds of the Additional
Capital (as defined in Recital "I" on page 2 of the Agreement) sought by
Maker (the "Maturity Date").
Maker agrees to an effective rate of interest that is the rate stated above
in connection with this Note. All payments on this Note shall be applied in such
manner as the Payee elects, and may be applied first to the payment of any
costs, penalties, late charges, fees or other charges incurred in connection
with the indebtedness evidenced hereby, next to the payment of accrued interest
and then to the reduction of the principal balance.
Time is of the essence of this Note. At the option of the Payee, the
entire unpaid principal balance, all accrued and unpaid interest and all
other amounts payable hereunder shall be paid in the form of shares of the
Maker's Common Stock (par value $0.01) (the "Shares") upon the failure to pay
any sum due and owing hereunder as provided herein or upon the occurrence of
any Event of Default. The Shares shall be valued at One Dollar ($1.00) per
Share.
13
<PAGE>
The occurrence of any of the following events or conditions shall
constitute and is hereby defined to be an "Event of Default":
(a) Any failure to pay any principal or interest or any other amount
due in connection with this Note when the same shall become due and
payable.
(b) Any failure or neglect to perform or observe any of the terms,
provisions, or covenants of this Note, and such failure or neglect either
cannot be remedied or, if it can be remedied, it continues unremedied for a
period of fifteen (15) days after notice thereof to Maker.
(c) Any warranty, representation or statement contained in the or
delivered in connection with this Note, or made or furnished by or on
behalf of Maker, that shall be or shall prove to have been false when made
or furnished.
(d) The filing by Maker, any endorser of the Note or any guarantor
of this Note (or against Maker or such endorser or guarantor in which Maker
or such endorser or guarantor acquiesces or which is not dismissed within
forty-five (45) days after the filing thereof) of any proceeding under the
federal bankruptcy laws now or hereafter existing or any other similar
stature now or hereafter in effect; the entry of an order for relief under
such laws with respect to Maker or such endorser or guarantor; or the
appointment of a receiver, trustee, custodian or conservator of all or any
part of the assets of Maker or such endorser or guarantor.
(e) The insolvency of Maker, any endorser of the Note or any
guarantor of this Note; or the execution by Maker or such endorser or
guarantor of an assignment for the benefit of creditors; or the convening
by Maker or such endorser or guarantor of a meeting of its creditors, or
any class thereof, for purposes of effecting a moratorium upon or extension
or composition of its debts; or the failure of Maker or such endorser or
guarantor to pay its debts as they mature; or if Maker or such endorser or
guarantor is generally not paying its debts as they mature.
(f) The admission in writing by Maker, any endorser of the Note or
any guarantor of this Note that it is unable to pay its debts as they
mature or that it is generally not paying its debts as they mature.
(g) The death or incapacity of Maker, any endorser of the Note or
any guarantor of this Note, if an individual, or the liquidation,
termination or dissolution of Maker or any such endorser or guarantor, if a
corporation, partnership or joint venture.
(h) The occurrence of any Event of Default in connection with this
Note; and not otherwise specifically described in other provisions of this
Note.
(i) The occurrence of any adverse change in the financial condition
of Maker that the Payees (or either of them), in its reasonable discretion,
deems material, or if the Payees (or either of them) in good faith shall
believe that the prospect of payment or performance of the Note is
impaired.
After maturity, including maturity upon acceleration, the unpaid principal
balance, all accrued and unpaid interest and all other amounts payable hereunder
shall bear interest at twelve percent (12%) from the date of maturity until the
Shares due the Payee by this Note are paid in full.
14
<PAGE>
All said interest shall be paid in the form of additional Shares valued at
One Dollar ($1.00) per Share. Maker shall pay no other costs incurred in the
collection or enforcement of all or any part of this Note.
Upon the occurrence of an Event of Default under this Note, the Payee may
proceed against the Company and the Payee's sole and exclusive remedy is to
require the Company to promptly issue the Shares due Payee hereunder.
Failure of the Payee to exercise any option hereunder shall not constitute
a waiver of the right to exercise the same in the event of any subsequent
default or in the event of the continuance of any existing default after demand
for strict performance hereof.
Maker, sureties, guarantors and endorsers hereof: (a) agree to be jointly
and severally bound, (b) severally waive demand, diligence, presentment for
payment, protest and demand, and notice of extension, dishonor, protest, demand
and nonpayment of this Note, (c) consent that Payee may extend the time of
payment or otherwise modify the terms of payment of any part or the whole of the
debt evidenced by this Note, at the request of any other person primarily liable
hereon, and such consent shall not alter nor diminish the liability of any
person, and (d) agree that the Payee may set off at any time any sums or
property owed to any of them by the Payee.
No provision of this Note is intended to or shall require or permit the
Payee, directly or indirectly, to take, collect or receive in money, goods or in
any other form, any interest (including amount deemed by law to be interest) in
excess of the maximum rate of interest permitted by applicable law. If any
amount due from or paid by Maker shall be determined by a court of competent
jurisdiction to be interest in excess of such maximum rate, Maker shall not be
obligated to pay such excess and, if paid, such excess shall be applied against
the unpaid principal balance of this Note, or if and to the extent that this
Note has been paid in full, such excess shall be remitted to Maker.
This Note shall not be negotiable or assignable except upon the express
written consent of the Payee. Notwithstanding this provision, this Note shall be
binding upon Maker and his successors and assigns and shall inure to the benefit
of the Payee and its successors and assigns. This Note may be prepaid at any
time prior to the Maturity Date without penalty.
All notices required or given in connection with this Note shall be given
at the place and in the manner reasonably calculated to give notice by the party
giving such notice.
This Note shall be governed by and construed according to the laws of the
State of California.
IN WITNESS WHEREOF, these presents are executed as of the date first
written above.
PRINCIPAL SUM OF THIS NOTE: THIRTEEN THOUSAND FIVE HUNDRED and FORTY DOLLARS
($13,540.15).
MAKER:
/s/ Ralph Amato
---------------------------
ALTERNATIVE ENTERTAINMENT, INC.
15
<PAGE>
Attachment to Investment Agreement of ______________, 1998
EXHIBIT B
PLANNED USE OF PROCEEDS
The Company currently estimates that the proceeds received from the sale of
the Note and Stock to Investors in this Note Offering will be used in accordance
with the following planned allocations. To the extent that the Company can avoid
or reduce certain payments, any funds saved will be allocated to increase the
Company's working capital.
<TABLE>
<CAPTION>
Description or Category Dollar Amount
----------------------- -------------
<S> <C>
Gross Offering Amount.............................. $500,000
Less:
Finder's Fees ..................................... 50,000
--------
Net Offering Amount(1)............................. $450,000
Addition to Working Capital........................ $450,000
--------
--------
</TABLE>
- ------------------------------------
Footnote:
1. The Company may pay a finder's fee of up to 10% of any funds received in
connection with the Offering and sale of the Notes offered hereby.
The payment of any finder's fee to any finder will require that the Company
receive sufficient assurances that the payment of the finder's fee will not
violate the requirements of the SECURITIES EXCHANGE ACT OF 1934 and applicable
state securities laws. The amounts shown do not include legal fees, fees
incurred for compliance with state securities laws, printing costs, postage, and
other costs incurred in connection with this Note Offering. There can be no
assurance that the Company will receive any funds from the sale of the Notes
offered hereby.
16
<PAGE>
SECURED PROMISSORY NOTE
$25,000 La Jolla, California
June 6, 1997
1. PAYMENT OF PRINCIPAL AND INTEREST
The undersigned, Alternative Entertainment, Inc., a Nevada corporation
having a principal place of business at 4275 Executive square ("Maker"),
promises to pay ROBERT SMITH (hereinafter referred to as "Holder"), or to its
successors or assigns, on the earlier of June 6, 1998 or sixty (60) days after
the date that Maker common Stock is first traded on any securities exchange or
in any over-the-counter broker related system/market (i.e., the NASDAQ Stock
Market, OTC Bulletin Board, etc.). at a place or location to designated by
Holder, the principal sum of Twenty-five Thousand Dollars ($25,000), bearing
simple interest on the unpaid principal at the rate of ten percent (10%) per
annum (computed on the basis of a 365-day year), principal and interest all
due and payable on demand. Interest to accrue from the date that Maker receives
from Holder the sum of $25,000.
2. SECURED BY PLEDGE
The obligations of Maker herein are secured by a pledge of 25,000
shares of common stock of Maker which are beneficially owned and held by Mr.
Ralph M. Amato, an individual ("Amato"). The pledge referenced herein is
evidenced by a Pledge Agreement of even date herewith by and between Maker and
Amato ("Pledge Agreement"). A copy of such Pledge Agreement is attached hereto
as Exhibit "A." Upon payment of monies due on this Secured Promissory Note
(hereinafter referred to as the "Note"), which amount of monies due are set
forth herein, Holder shall, under the terms of the Pledge Agreement, release and
reconvey any and all Maker common stock hold by Holder as security under the
Pledge Agreement.
3. DEFAULT
Should Maker default on any provision of this Note the whole sum of
the principal and interest shall become immediately due at the option of Holder.
Default shall include, but not be limited to, the failure of Maker to perform
any duties hereunder, the filing as to Maker, of a voluntary or involuntary
petition under the provisions of the Federal Bankruptcy Act, and the issuances
of any attachment or execution against any asset of Maker.
4. PREPAYMENT
Principal and interest on this Note may be prepaid at any time, in
whole or in part, without premium or penalty in lawful money of the United
States. Upon receipt of any prepayment of interest or principal, Holder hereof
shall make a notation on this Note of the payment received.
1
<PAGE>
5. WAIVER OF PRESENTMENT PROTEST AND NOTICE OF DISHONOR
Maker hereby waives presentment, protest, notice of dishonor, and all
other notices normally required by law, except for notices expressly provided
for in this Note.
6. TIME OF THE ESSENCE
Time is of the essence. Maker and Holder agree that time is of the
essence for the performance of each and every covenant and the satisfaction of
each and every condition contained in this Note.
7. EXTENSION OR RENEWAL
Holder may, from time to time, at his sole discretion extend or renew
this Note for any period regardless of whether the period is longer or shorter
than the original period of this Note, However, any such extension or renewal of
this Note shall not operate as a change or alteration of any other part of this
Note or of the obligation, in whole or in part, of Maker therein.
8. RELEASE OF PROMISSORY NOTE
Holder may grant releases or compromises of this Note to any party who
is liable to make payment on this Note, without notice or consent of Maker, and
without affecting the liability of Maker under this Note.
9. CHOICE OF LAW
This Note has been entered into in the State of California, and the
parties hereto expressly agree that this Note shall be construed in accordance
with the laws of the State of California.
10. SUCCESSORS AND ASSIGNS
All covenants and agreements herein shall be deemed material and shall
bind Maker and its successors and assigns whether so expressed or not, and all
such covenants and agreements shall inure to the benefit of Holder and his
nominees, successors and assigns, whether so expressed or not.
11. WAIVER
No course or dealing between Holder and Maker and no delay on the part
of Holder in exercising any rights under this Note shall operate as a waiver of
the rights of Holder. No covenant or other provision of this Note, nor any
default in connection therewith, may be
2
<PAGE>
waived unless such covenant or other provision or default is waived pursuant to
a written instrument signed by the parties hereto.
12. COSTS AND ATTORNEY'S FEES
In the event legal action is commenced to enforce or interpret any
part of this Note the prevailing party shall be entitled to recover as an
element of his and/or her costs of suit, and not as damages, reasonable
attorney's fees to be fixed by the court. The "prevailing party" shall be the
party who is entitled to recover his and/or her costs of suit, whether or not
the suit proceeds to final judgment. No sum for attorney's fees shall be counted
in calculating the amount of a judgment nor shall the amount of the judgment be
used in determining the reasonableness of the costs or attorney's fees.
WHEREFORE, this Promissory Note is executed as of June 6, 1997.
"HOLDER"
By: /s/ Robert Smith
------------------------------------
Robert Smith
"MAKER"
ALTERNATIVE ENTERTAINMENT, INC.
By: /s/ Ralph Amato
------------------------------------
Ralph Amato
Its: President
3
<PAGE>
SECURED PROMISSORY NOTE
$50,000 La Jolla, California
August 23, 1996
1. PAYMENT OF PRINCIPAL AND INTEREST
The undersigned, Alternative Entertainment, Inc., a Nevada corporation
having a principal place of business at 4275 Executive square ("Maker"),
promises to pay Ina L. Weeda Family Trust DTD 4/20/88, (hereinafter referred
to as "Holder"), or to its successors or assigns, on the earlier of August
23, 1997 or sixty (60) days after the date that Maker common Stock is first
traded on any securities exchange or in any over-the-counter broker related
system/market (i.e., the NASDAQ Stock Market, OTC Bulletin Board, etc.). at a
place or location to designated by Holder, the principal sum of Fifty
Thousand Dollars ($50,000), bearing simple interest on the unpaid principal
at the rate of ten percent (10%) per annum (computed on the basis of a
365-day year), principal and interest all due and payable on demand. Interest
to accrue from the date that Maker receives from Holder the sum of $50,000.
2. SECURED BY PLEDGE
The obligations of Maker herein are secured by a pledge of 50,000 shares of
common stock of Maker which are beneficially owned and held by Mr. Ralph M.
Amato, an individual ("Amato"). The pledge referenced herein is evidenced by a
Pledge Agreement of even date herewith by and between Maker and Amato ("Pledge
Agreement"). A copy of such Pledge Agreement is attached hereto as Exhibit "A."
Upon payment of monies due on this Secured Promissory Note (hereinafter referred
to as the "Note"), which amount of monies due are set forth herein, Holder
shall, under the terms of the Pledge Agreement, release and reconvey any and all
Maker common stock hold by Holder as security under the Pledge Agreement.
3. DEFAULT
Should Maker default on any provision of this Note the whole sum of the
principal and interest shall become immediately due at the option of Holder.
Default shall include, but not be limited to, the failure of Maker to perform
any duties hereunder, the filing as to Maker, of a voluntary or involuntary
petition under the provisions of the Federal Bankruptcy Act, and the issuances
of any attachment or execution against any asset of Maker.
4. PREPAYMENT
Principal and interest on this Note may be prepaid at any time, in whole or
in part, without premium or penalty in lawful money of the United States. Upon
receipt of any prepayment of interest or principal, Holder hereof shall make a
notation on this Note of the payment received.
1
<PAGE>
5. WAIVER OF PRESENTMENT PROTEST AND NOTICE OF DISHONOR
Maker hereby waives presentment, protest, notice of dishonor, and all other
notices normally required by law, except for notices expressly provided for in
this Note.
6. TIME OF THE ESSENCE
Time is of the essence. Maker and Holder agree that time is of the essence
for the performance of each and every covenant and the satisfaction of each and
every condition contained in this Note.
7. EXTENSION OR RENEWAL
Holder may, from time to time, at his sole discretion extend or renew this
Note for any period regardless of whether the period is longer or shorter than
the original period of this Note, However, any such extension or renewal of this
Note shall not operate as a change or alteration of any other part of this Note
or of the obligation, in whole or in part, of Maker therein.
8. RELEASE OF PROMISSORY NOTE
Holder may grant releases or compromises of this Note to any party who is
liable to make payment on this Note, without notice or consent of Maker, and
without affecting the liability of Maker under this Note.
9. CHOICE OF LAW
This Note has been entered into in the State of California, and the parties
hereto expressly agree that this Note shall be construed in accordance with the
laws of the State of California.
10. SUCCESSORS AND ASSIGNS
All covenants and agreements herein shall be deemed material and shall bind
Maker and its successors and assigns whether so expressed or not, and all such
covenants and agreements shall inure to the benefit of Holder and his nominees,
successors and assigns, whether so expressed or not.
11. WAIVER
No course or dealing between Holder and Maker and no delay on the part of
Holder in exercising any rights under this Note shall operate as a waiver of the
rights of Holder. No covenant or other provision of this Note, nor any default
in connection therewith, may be
2
<PAGE>
waived unless such covenant or other provision or default is waived pursuant to
a written instrument signed by the parties hereto.
12. COSTS AND ATTORNEY'S FEES
In the event legal action is commenced to enforce or interpret any part of
this Note the prevailing party shall be entitled to recover as an element of his
and/or her costs of suit, and not as damages, reasonable attorney's fees to be
fixed by the court. The "prevailing party" shall be the party who is entitled to
recover his and/or her costs of suit, whether or not the suit proceeds to final
judgment. No sum for attorney's fees shall be counted in calculating the amount
of a judgment nor shall the amount of the judgment be used in determining the
reasonableness of the costs or attorney's fees.
WHEREFORE, this Promissory Note is executed as of August 23, 1996.
"HOLDER"
By: /s/ Ina L. Weeda TTEE
---------------------------------------
Ina L. Weeda Family Trust DTD 4/20/88
"MAKER"
ALTERNATIVE ENTERTAINMENT, INC.
By: /s/ Ralph Amato
---------------------------------------
Ralph Amato
Its: President
3
<PAGE>
SECURED PROMISSORY NOTE
$25,000 La Jolla, California
November 14, 1996
1. PAYMENT OF PRINCIPAL AND INTEREST
The undersigned, Alternative Entertainment, Inc., a Nevada corporation
having a principal place of business at 4275 Executive square ("Maker"),
promises to pay Ina L. Weeda Family Trust DTD 4/20/88, (hereinafter referred to
as "Holder"), or to its successors or assigns, on the earlier of November 14,
1997 or sixty (60) days after the date that Maker common Stock is first traded
on any securities exchange or in any over-the-counter broker related
system/market (i.e., the NASDAQ Stock Market, OTC Bulletin Board, etc.). at a
place or location to designated by Holder, the principal sum of Twenty-five
Thousand Dollars ($25,000), bearing simple interest on the unpaid principal at
the rate of ten percent (10%) per annum (computed on the basis of a 365-day
year), principal and interest all due and payable on demand. Interest to accrue
from the date that Maker receives from Holder the sum of $25,000.
2. SECURED BY PLEDGE
The obligations of Maker herein are secured by a pledge of 25,000 shares of
common stock of Maker which are beneficially owned and held by Mr. Ralph M.
Amato, an individual ("Amato"). The pledge referenced herein is evidenced by a
Pledge Agreement of even date herewith by and between Maker and Amato ("Pledge
Agreement"). A copy of such Pledge Agreement is attached hereto as Exhibit "A."
Upon payment of monies due on this Secured Promissory Note (hereinafter referred
to as the "Note"), which amount of monies due are set forth herein, Holder
shall, under the terms of the Pledge Agreement, release and reconvey any and all
Maker common stock hold by Holder as security under the Pledge Agreement.
3. DEFAULT
Should Maker default on any provision of this Note the whole sum of the
principal and interest shall become immediately due at the option of Holder.
Default shall include, but not be limited to, the failure of Maker to perform
any duties hereunder, the filing as to Maker, of a voluntary or involuntary
petition under the provisions of the Federal Bankruptcy Act, and the issuances
of any attachment or execution against any asset of Maker.
4. PREPAYMENT
Principal and interest on this Note may be prepaid at any time, in whole or
in part, without premium or penalty in lawful money of the United States. Upon
receipt of any prepayment of interest or principal, Holder hereof shall make a
notation on this Note of the payment received.
1
<PAGE>
5. WAIVER OF PRESENTMENT PROTEST AND NOTICE OF DISHONOR
Maker hereby waives presentment, protest, notice of dishonor, and all other
notices normally required by law, except for notices expressly provided for in
this Note.
6. TIME OF THE ESSENCE
Time is of the essence. Maker and Holder agree that time is of the essence
for the performance of each and every covenant and the satisfaction of each and
every condition contained in this Note.
7. EXTENSION OR RENEWAL
Holder may, from time to time, at his sole discretion extend or renew this
Note for any period regardless of whether the period is longer or shorter than
the original period of this Note, However, any such extension or renewal of this
Note shall not operate as a change or alteration of any other part of this Note
or of the obligation, in whole or in part, of Maker therein.
8. RELEASE OF PROMISSORY NOTE
Holder may grant releases or compromises of this Note to any party who is
liable to make payment on this Note, without notice or consent of Maker, and
without affecting the liability of Maker under this Note.
9. CHOICE OF LAW
This Note has been entered into in the State of California, and the parties
hereto expressly agree that this Note shall be construed in accordance with the
laws of the State of California.
10. SUCCESSORS AND ASSIGNS
All covenants and agreements herein shall be deemed material and shall bind
Maker and its successors and assigns whether so expressed or not, and all such
covenants and agreements shall inure to the benefit of Holder and his nominees,
successors and assigns, whether so expressed or not.
11. WAIVER
No course or dealing between Holder and Maker and no delay on the part of
Holder in exercising any rights under this Note shall operate as a waiver of the
rights of Holder. No covenant or other provision of this Note, nor any default
in connection therewith, may be
2
<PAGE>
waived unless such covenant or other provision or default is waived pursuant to
a written instrument signed by the parties hereto.
12. COSTS AND ATTORNEY'S FEES
In the event legal action is commenced to enforce or interpret any part of
this Note the prevailing party shall be entitled to recover as an element of his
and/or her costs of suit, and not as damages, reasonable attorney's fees to be
fixed by the court. The "prevailing party" shall be the party who is entitled to
recover his and/or her costs of suit, whether or not the suit proceeds to final
judgment. No sum for attorney's fees shall be counted in calculating the amount
of a judgment nor shall the amount of the judgment be used in determining the
reasonableness of the costs or attorney's fees.
WHEREFORE, this Promissory Note is executed as of November 14, 1996.
"HOLDER"
By: /s/ Ina L. Weeda TTEE
-------------------------------------
Ina L. Weeda Family Trust DTD 4/20/88
"MAKER"
ALTERNATIVE ENTERTAINMENT, INC.
By: /s/ Ralph Amato
-------------------------------------
Ralph Amato
Its: President
3
<PAGE>
SECURED PROMISSORY NOTE
$10,000 La Jolla, California
June 28, 1996
1. PAYMENT OF PRINCIPAL AND INTEREST
The undersigned, Alternative Entertainment, Inc., a Nevada corporation
having a principal place of business at 4275 Executive square ("Maker"),
promises to pay Ken Marc, (hereinafter referred to as "Holder"), or to its
successors or assigns, on the earlier of June 28, 1997 or sixty (60) days after
the date that Maker common Stock is first traded on any securities exchange or
in any over-the-counter broker related system/market (i.e., the NASDAQ Stock
Market, OTC Bulletin Board, etc.). at a place or location to designated by
Holder, the principal sum of Ten Thousand Dollars ($10,000), bearing simple
interest on the unpaid principal at the rate of ten percent (10%) per annum
(computed on the basis of a 365-day year), principal and interest all due and
payable on demand. Interest to accrue from the date that Maker receives from
Holder the sum of $10,000.
2. SECURED BY PLEDGE
The obligations of Maker herein are secured by a pledge of 10,000 shares of
common stock of Maker which are beneficially owned and held by Mr. Ralph M.
Amato, an individual ("Amato"). The pledge referenced herein is evidenced by a
Pledge Agreement of even date herewith by and between Maker and Amato ("Pledge
Agreement") . A copy of such Pledge Agreement is attached hereto as Exhibit "A."
Upon payment of monies due on this Secured Promissory Note (hereinafter referred
to as the "Note"), which amount of monies due are set forth herein, Holder
shall, under the terms of the Pledge Agreement, release and reconvey any and all
Maker common stock hold by Holder as security under the Pledge Agreement.
3. DEFAULT
Should Maker default on any provision of this Note the whole sum of the
principal and interest shall become immediately due at the option of Holder.
Default shall include, but not be limited to, the failure of Maker to perform
any duties hereunder, the filing as to Maker, of a voluntary or involuntary
petition under the provisions of the Federal Bankruptcy Act, and the issuances
of any attachment or execution against any asset of Maker.
4. PREPAYMENT
Principal and interest on this Note may be prepaid at any time, in whole or
in part, without premium or penalty in lawful money of the United States. Upon
receipt of any prepayment of interest or principal, Holder hereof shall make a
notation on this Note of the payment received.
1
<PAGE>
5. WAIVER OF PRESENTMENT PROTEST AND NOTICE OF DISHONOR
Maker hereby waives presentment, protest, notice of dishonor, and all other
notices normally required by law, except for notices expressly provided for in
this Note.
6. TIME OF THE ESSENCE
Time is of the essence. Maker and Holder agree that time is of the essence
for the performance of each and every covenant and the satisfaction of each and
every condition contained in this Note.
7. EXTENSION OR RENEWAL
Holder may, from time to time, at his sole discretion extend or renew this
Note for any period regardless of whether the period is longer or shorter than
the original period of this Note, However, any such extension or renewal of this
Note shall not operate as a change or alteration of any other part of this Note
or of the obligation, in whole or in part, of Maker therein.
8. RELEASE OF PROMISSORY NOTE
Holder may grant releases or compromises of this Note to any party who is
liable to make payment on this Note, without notice or consent of Maker, and
without affecting the liability of Maker under this Note.
9. CHOICE OF LAW
This Note has been entered into in the State of California, and the parties
hereto expressly agree that this Note shall be construed in accordance with the
laws of the State of California.
10. SUCCESSORS AND ASSIGNS
All covenants and agreements herein shall be deemed material and shall bind
Maker and its successors and assigns whether so expressed or not, and all such
covenants and agreements shall inure to the benefit of Holder and his nominees,
successors and assigns, whether so expressed or not.
11. WAIVER
No course or dealing between Holder and Maker and no delay on the part of
Holder in exercising any rights under this Note shall operate as a waiver of the
rights of Holder. No covenant or other provision of this Note, nor any default
in connection therewith, may be
2
<PAGE>
No covenant or other provision of this Note, nor any default in connection
therewith, may be waived unless such covenant or other provision or default is
waived pursuant to a written instrument signed by the parties hereto.
12. COSTS AND ATTORNEY'S FEES
In the event legal action is commenced to enforce or interpret any part of
this Note the prevailing party shall be entitled to recover as an element of his
and/or her costs of suit, and not as damages, reasonable attorney's fees to be
fixed by the court. The "prevailing party" shall be the party who is entitled to
recover his and/or her costs of suit, whether or not the suit proceeds to final
judgment. No sum for attorney's fees shall be counted in calculating the amount
of a judgment nor shall the amount of the judgment be used in determining the
reasonableness of the costs or attorney's fees.
WHEREFORE, this Promissory Note is executed as of June 28, 1996.
"HOLDER"
By: /s/ Ken Marc
-------------------
"MAKER"
ALTERNATIVE ENTERTAINMENT, INC.
By: /s/ Ralph Amato
-------------------------------
Ralph Amato
Its: President
3
<PAGE>
SECURED PROMISSORY NOTE
$25,000 La Jolla, California
April 9,1996
1. PAYMENT OF PRINCIPAL AND INTEREST
The undersigned, Alternative Entertainment, Inc., a Nevada corporation
having a principal place of business at 4275 Executive square ("MAKER"),
promises to pay Geoffrey W. Smith and/or Susan M. Smith, (hereinafter
referred to as "Holder"), or to its successors or assigns, on the earlier of
April 9, 1997 or sixty (60) days after the date that Maker common Stock is
first traded on any securities exchange or in any over-the-counter broker
related system/market (i.e., the NASDAQ Stock Market, OTC Bulletin Board,
etc.). at a place or location to designated by Holder, the principal sum of
Twenty Five Thousand Dollars ($25,000), bearing simple interest on the unpaid
principal at the rate of ten percent (10%) per annum (computed on the basis
of a 365-day year), principal and interest all due and payable on demand.
Interest to accrue from the date that Maker receives from Holder the sum of
$25,000.
2. SECURED BY PLEDGE
The obligations of Maker herein are secured by a pledge of 25,000 shares of
common stock of Maker which are beneficially owned and held by Mr. Ralph M.
Amato, an individual ("Amato"). The pledge referenced herein is evidenced by a
Pledge Agreement of even date herewith by and between Maker and Amato ("Pledge
Agreement"). A copy of such Pledge Agreement is attached hereto as Exhibit "A."
Upon payment of monies due on this Secured Promissory Note (hereinafter referred
to as the "Note"), which amount of monies due are set forth herein, Holder
shall, under the terms of the Pledge Agreement, release and reconvey any and all
Maker common stock hold by Holder as security under the Pledge Agreement.
3. DEFAULT
Should Maker default on any provision of this Note the whole sum of the
principal and interest shall become immediately due at the option of Holder.
Default shall include, but not be limited to, the failure of Maker to perform
any duties hereunder, the filing as to Maker, of a voluntary or involuntary
petition under the provisions of the Federal Bankruptcy Act, and the issuances
of any attachment or execution against any asset of Maker.
4. PREPAYMENT
Principal and interest on this Note may be prepaid at any time, in whole or
in part, without premium or penalty in lawful money of the United States. Upon
receipt of any
1
<PAGE>
prepayment of interest or principal, Holder hereof shall make a notation on this
Note of the payment received.
5. WAIVER OF PRESENTMENT PROTEST AND NOTICE OF DISHONOR
Maker hereby waives presentment, protest, notice of dishonor, and all other
notices normally required by law, except for notices expressly provided for in
this Note.
6. TIME OF THE ESSENCE
Time is of the essence. Maker and Holder agree that time is of the essence
for the performance of each and every covenant and the satisfaction of each and
every condition contained in this Note.
7. EXTENSION OR RENEWAL
Holder may, from time to time, at his sole discretion extend or renew this
Note for any period regardless of whether the period is longer or shorter than
the original period of this Note, However, any such extension or renewal of this
Note shall not operate as a change or alteration of any other part of this Note
or of the obligation, in whole or in part, of Maker therein.
8. RELEASE OF PROMISSORY NOTE
Holder may grant releases or compromises of this Note to any party who is
liable to make payment on this Note, without notice or consent of Maker, and
without affecting the liability of Maker under this Note.
9. CHOICE OF LAW
This Note has been entered into in the State of California, and the parties
hereto expressly agree that this Note shall be construed in accordance with the
laws of the State of California.
10. SUCCESSORS AND ASSIGNS
All covenants and agreements herein shall be deemed material and shall bind
Maker and its successors and assigns whether so expressed or not, and all such
covenants and agreements shall inure to the benefit of Holder and his nominees,
successors and assigns, whether so expressed or not.
11. WAIVER
No course or dealing between Holder and Maker and no delay on the part of
Holder in exercising any rights under this Note shall operate as a waiver of the
rights of Holder.
2
<PAGE>
No covenant or other provision of this Note, nor any default in connection
therewith, may be waived unless such covenant or other provision or default is
waived pursuant to a written instrument signed by the parties hereto.
12. COSTS AND ATTORNEY'S FEES
In the event legal action is commenced to enforce or interpret any part of
this Note the prevailing party shall be entitled to recover as an element of his
and/or her costs of suit, and not as damages, reasonable attorney's fees to be
fixed by the court. The "prevailing party" shall be the party who is entitled to
recover his and/or her costs of suit, whether or not the suit proceeds to final
judgment. No sum for attorney's fees shall be counted in calculating the amount
of a judgment nor shall the amount of the judgment be used in determining the
reasonableness of the costs or attorney's fees.
WHEREFORE, this Promissory Note is executed as of April 9, 1996.
"HOLDER"
By: /s/ Geoffrey W. Smith
-----------------------------------
/s/ Susan M. Smith
"MAKER"
ALTERNATIVE ENTERTAINMENT, INC.
By: /s/ Ralph Amato
-----------------------------------
Ralph Amato
Its: President
3
<PAGE>
SECURED PROMISSORY NOTE
$20,000 La Jolla, California
February 20, 1996
1. PAYMENT OF PRINCIPAL AND INTEREST
The undersigned, Alternative Entertainment, Inc., a Nevada corporation
having a principal place of business at 4275 Executive square ("Maker"),
promises to pay Darien Hylton, (hereinafter referred to as "Holder"), or to
its successors or assigns, on the earlier of February 20, 1997 or sixty (60)
days after the date that Maker common Stock is first traded on any securities
exchange or in any over-the-counter broker related system/market (i.e., the
NASDAQ Stock Market, OTC Bulletin Board, etc.). at a place or location to
designated by Holder, the principal sum of Twenty Thousand Dollars ($20,000),
bearing simple interest on the unpaid principal at the rate of ten percent
(10%) per annum (computed on the basis of a 365-day year), principal and
interest all due and payable on demand. Interest to accrue from the date that
Maker receives from Holder the sum of $20,000.
2. SECURED BY PLEDGE
The obligations of Maker herein are secured by a pledge of 20,000 shares
of common stock of Maker which are beneficially owned and held by Mr. Ralph M.
Amato, an individual ("Amato"). The pledge referenced herein is evidenced by a
Pledge Agreement of even date herewith by and between Maker and Amato ("Pledge
Agreement"). A copy of such Pledge Agreement is attached hereto as Exhibit "A."
Upon payment of monies due on this Secured Promissory Note (hereinafter referred
to as the "Note"), which amount of monies due are set forth herein, Holder
shall, under the terms of the Pledge Agreement, release and reconvey any and all
Maker common stock hold by Holder as security under the Pledge Agreement.
3. DEFAULT
Should Maker default on any provision of this Note the whole sum of the
principal and interest shall become immediately due at the option of Holder.
Default shall include, but not be limited to, the failure of Maker to perform
any duties hereunder, the filing as to Maker, of a voluntary or involuntary
petition under the provisions of the Federal Bankruptcy Act, and the
issuances of any attachment or execution against any asset of Maker.
4. PREPAYMENT
Principal and interest on this Note may be prepaid at any time, in whole or
in part, without premium or penalty in lawful money of the United States. Upon
receipt of any
1
<PAGE>
prepayment of interest or principal, Holder hereof shall make a notation on this
Note of the payment received.
5. WAIVER OF PRESENTMENT PROTEST AND NOTICE OF DISHONOR
Maker hereby waives presentment, protest, notice of dishonor, and all other
notices normally required by law, except for notices expressly provided for in
this Note.
6. TIME OF THE ESSENCE
Time is of the essence. Maker and Holder agree that time is of the essence
for the performance of each and every covenant and the satisfaction of each and
every condition contained in this Note.
7. EXTENSION OR RENEWAL
Holder may, from time to time, at his sole discretion extend or renew this
Note for any period regardless of whether the period is longer or shorter than
the original period of this Note, However, any such extension or renewal of this
Note shall not operate as a change or alteration of any other part of this Note
or of the obligation, in whole or in part, of Maker therein.
8. RELEASE OF PROMISSORY NOTE
Holder may grant releases or compromises of this Note to any party who is
liable to make payment on this Note, without notice or consent of Maker, and
without affecting the liability of Maker under this Note.
9. CHOICE OF LAW
This Note has been entered into in the State of California, and the parties
hereto expressly agree that this Note shall be construed in accordance with the
laws of the State of California.
10. SUCCESSORS AND ASSIGNS
All covenants and agreements herein shall be deemed material and shall bind
Maker and its successors and assigns whether so expressed or not, and all such
covenants and agreements shall inure to the benefit of Holder and his nominees,
successors and assigns, whether so expressed or not.
11. WAIVER
No course or dealing between Holder and Maker and no delay on the part of
Holder in exercising any rights under this Note shall operate as a waiver of the
rights of Holder.
2
<PAGE>
No covenant or other provision of this Note, nor any default in connection
therewith, may be waived unless such covenant or other provision or default is
waived pursuant to a written instrument signed by the parties hereto.
12. COSTS AND ATTORNEY'S FEES
In the event legal action is commenced to enforce or interpret any part
of this Note the prevailing party shall be entitled to recover as an element
of his and/or her costs of suit, and not as damages, reasonable attorney's
fees to be fixed by the court. The "prevailing party" shall be the party who
is entitled to recover his and/or her costs of suit, whether or not the suit
proceeds to final judgment. No sum for attorney's fees shall be counted in
calculating the amount of a judgment nor shall the amount of the judgment be
used in determining the reasonableness of the costs or attorney's fees.
WHEREFORE, this Promissory Note is executed as February 20, 1996.
"HOLDER"
By: /s/ Darien Hylton
-----------------------------
"MAKER"
ALTERNATIVE ENTERTAINMENT, INC.
By: /s/ Ralph Amato
------------------------------
Ralph Amato
Its: President
3
<PAGE>
SECURED PROMISSORY NOTE
$120,000 La Jolla, California
June 28, 1996
1. PAYMENT OF PRINCIPAL AND INTEREST
The undersigned, Alternative Entertainment, Inc., a Nevada corporation
having a principal place of business at 4275 Executive square ("Maker"),
promises to pay Margaret Yonika, (hereinafter referred to as "Holder"), or to
its successors or assigns, on the earlier of June 28, 1997 or sixty (60) days
after the date that Maker common Stock is first traded on any securities
exchange or in any over-the-counter broker related system/market (i.e., the
NASDAQ Stock Market, OTC Bulletin Board, etc.). at a place or location to
designated by Holder, the principal sum of One Hundred Twenty Thousand Dollars
($120,000), bearing simple interest on the unpaid principal at the rate of ten
percent (10%) per annum (computed on the basis of a 365-day year), principal
and interest all due and payable on demand. Interest to accrue from the date
that Maker receives from Holder the sum of $120,000.
2. SECURED BY PLEDGE
The obligations of Maker herein are secured by a pledge of 120,000 shares
of common stock of Maker which are beneficially owned and held by Mr. Ralph M.
Amato, an individual ("Amato"). The pledge referenced herein is evidenced by a
Pledge Agreement of even date herewith by and between Maker and Amato ("Pledge
Agreement"). A copy of such Pledge Agreement is attached hereto as Exhibit "A."
Upon payment of monies due on this Secured Promissory Note (hereinafter referred
to as the "Note"), which amount of monies due are set forth herein, Holder
shall, under the terms of the Pledge Agreement, release and reconvey any and all
Maker common stock hold by Holder as security under the Pledge Agreement.
3. DEFAULT
Should Maker default on any provision of this Note the whole sum of the
principal and interest shall become immediately due at the option of Holder.
Default shall include, but not be limited to, the failure of Maker to perform
any duties hereunder, the filing as to Maker, of a voluntary or involuntary
petition under the provisions of the Federal Bankruptcy Act, and the issuances
of any attachment or execution against any asset of Maker.
4. PREPAYMENT
Principal and interest on this Note may be prepaid at any time, in whole or
in part, without premium or penalty in lawful money of the United States. Upon
receipt of any prepayment of interest or principal, Holder hereof shall make a
notation on this Note of the payment received.
1
<PAGE>
5. WAIVER OF PRESENTMENT PROTEST AND NOTICE OF DISHONOR
Maker hereby waives presentment, protest, notice of dishonor, and all other
notices normally required by law, except for notices expressly provided for in
this Note.
6. TIME OF THE ESSENCE
Time is of the essence. Maker and Holder agree that time is of the essence
for the performance of each and every covenant and the satisfaction of each and
every condition contained in this Note.
7. EXTENSION OR RENEWAL
Holder may, from time to time, at his sole discretion extend or renew this
Note for any period regardless of whether the period is longer or shorter than
the original period of this Note, However, any such extension or renewal of this
Note shall not operate as a change or alteration of any other part of this Note
or of the obligation, in whole or in part, of Maker therein.
8. RELEASE OF PROMISSORY NOTE
Holder may grant releases or compromises of this Note to any party who is
liable to make payment on this Note, without notice or consent of Maker, and
without affecting the liability of Maker under this Note.
9. CHOICE OF LAW
This Note has been entered into in the State of California, and the parties
hereto expressly agree that this Note shall be construed in accordance with the
laws of the State of California.
10. SUCCESSORS AND ASSIGNS
All covenants and agreements herein shall be deemed material and shall bind
Maker and its successors and assigns whether so expressed or not, and all such
covenants and agreements shall inure to the benefit of Holder and his nominees,
successors and assigns, whether so expressed or not.
11. WAIVER
No course or dealing between Holder and Maker and no delay on the part of
Holder in exercising any rights under this Note shall operate as a waiver of the
rights of Holder. No covenant or other provision of this Note, nor any default
in connection therewith, may be
2
<PAGE>
waived unless such covenant or other provision or default is waived pursuant to
a written instrument signed by the parties hereto.
12. COSTS AND ATTORNEY'S FEES
In the event legal action is commenced to enforce or interpret any part of
this Note the prevailing party shall be entitled to recover as an element of his
and/or her costs of suit, and not as damages, reasonable attorney's fees to be
fixed by the court. The "prevailing party" shall be the party who is entitled to
recover his and/or her costs of suit, whether or not the suit proceeds to final
judgment. No sum for attorney's fees shall be counted in calculating the amount
of a judgment nor shall the amount of the judgment be used in determining the
reasonableness of the costs or attorney's fees.
WHEREFORE, this Promissory Note is executed as of June 28, 1996.
"HOLDER"
By:
-------------------------------------
Margaret Yonika
"MAKER"
ALTERNATIVE ENTERTAINMENT, INC.
By: /s/ Ralph Amato
-------------------------------------
Ralph Amato
Its: President
3
<PAGE>
Attachment to Investment Agreement of September 1, 1998
EXHIBIT A
UNSECURED NON-NEGOTIABLE PROMISSORY NOTE
REED KAELAN
Principal Amount of this Note: $12,500 La Jolla, California
Date of Note: September 1, 1998
Page 1 of 3
FOR VALUE RECEIVED and subject to the terms and conditions of the
Investment Agreement attached hereto, the undersigned, Alternative
Entertainment, Inc. (hereinafter called "Maker"), promises to pay to the
order of the Investor whose name and address is shown on page 12 of the
attached Investment Agreement (together with all subsequent holders of this
Note, hereinafter called the "Payees"), or at such other place as Payee may
from time to time designate in writing, the principal sum of Twelve Thousand
Five Hundred Dollars ($12,500), together with interest thereon calculated on a
daily basis (based, at Payees' option, on a 360-day or 365/366-day years)
from the date hereof on the principal balance from time to time outstanding
as hereinafter provided, principal, interest and all other sums payable
hereunder to be paid in lawful money of the United States of America as
follows:
A. Interest shall accrue at all times hereunder at the rate of twelve
percent (12%) per annum commencing upon the execution of this Note, and
shall be payable six (6) months from the date first stated above until this
Note is paid in full.
B. If not earlier due and payable, the unpaid principal balance, all
accrued and unpaid interest and all other amounts payable hereunder shall
be due and payable in full at the earlier of: (i.) six months from the date
first stated above; or (ii.) from the proceeds of the Additional Capital
(as defined in Recital "I" on page 2 of the Agreement) sought by Maker (the
"Maturity Date").
Maker agrees to an effective rate of interest that is the rate stated above
in connection with this Note. All payments on this Note shall be applied in such
manner as the Payee elects, and may be applied first to the payment of any
costs, penalties, late charges, fees or other charges incurred in connection
with the indebtedness evidenced hereby, next to the payment of accrued interest
and then to the reduction of the principal balance.
Time is of the essence of this Note. At the option of the Payee, the entire
unpaid principal balance, all accrued and unpaid interest and all other amounts
payable hereunder shall be paid in the form of shares of the Maker's Common
Stock (par value $0.01) (the "Shares") upon the failure to pay any sum due and
owing hereunder as provided herein or upon the occurrence of any Event of
Default. The Shares shall be valued at One Dollar ($1.00) per Share.
13
<PAGE>
The occurrence of any of the following events or conditions shall
constitute and is hereby defined to be an "Event of Default":
(a) Any failure to pay any principal or interest or any other amount
due in connection with this Note when the same shall become due and
payable.
(b) Any failure or neglect to perform or observe any of the terms,
provisions, or covenants of this Note, and such failure or neglect either
cannot be remedied or, if it can be remedied, it continues unremedied for a
period of fifteen (15) days after notice thereof to Maker.
(c) Any warranty, representation or statement contained in the or
delivered in connection with this Note, or made or furnished by or on
behalf of Maker, that shall be or shall prove to have been false when made
or furnished.
(d) The filing by Maker, any endorser of the Note or any guarantor of
this Note (or against Maker or such endorser or guarantor in which Maker or
such endorser or guarantor acquiesces or which is not dismissed within
forty-five (45) days after the filing thereof) of any proceeding under the
federal bankruptcy laws now or hereafter existing or any other similar
stature now or hereafter in effect; the entry of an order for relief under
such laws with respect to Maker or such endorser or guarantor; or the
appointment of a receiver, trustee, custodian or conservator of all or any
part of the assets of Maker or such endorser or guarantor.
(e) The insolvency of Maker, any endorser of the Note or any guarantor
of this Note; or the execution by Maker or such endorser or guarantor of an
assignment for the benefit of creditors; or the convening by Maker or such
endorser or guarantor of a meeting of its creditors, or any class thereof,
for purposes of effecting a moratorium upon or extension or composition of
its debts; or the failure of Maker or such endorser or guarantor to pay its
debts as they mature; or if Maker or such endorser or guarantor is
generally not paying its debts as they mature.
(f) The admission in writing by Maker, any endorser of the Note or any
guarantor of this Note that it is unable to pay its debts as they mature or
that it is generally not paying its debts as they mature.
(g) The death or incapacity of Maker, any endorser of the Note or any
guarantor of this Note, if an individual, or the liquidation, termination
or dissolution of Maker or any such endorser or guarantor, if a
corporation, partnership or joint venture.
(h) The occurrence of any Event of Default in connection with this
Note; and not otherwise specifically described in other provisions of this
Note.
(i) The occurrence of any adverse change in the financial condition of
Maker that the Payees (or either of them), in its reasonable discretion,
deems material, or if the Payees (or either of them) in good faith shall
believe that the prospect of payment or performance of the Note is
impaired.
After maturity, including maturity upon acceleration, the unpaid principal
balance, all accrued and unpaid interest and all other amounts payable hereunder
shall bear interest at twelve percent (12%) from the date of maturity until the
Shares due the Payee by this Note are paid in full.
14
<PAGE>
All said interest shall be paid in the form of additional Shares valued
at One Dollar ($1.00) per Share. Maker shall pay no other costs incurred in
the collection or enforcement of all or any part of this Note.
Upon the occurrence of an Event of Default under this Note, the Payee may
proceed against the Company and the Payee's sole and exclusive remedy is to
require the Company to promptly issue the Shares due Payee hereunder.
Failure of the Payee to exercise any option hereunder shall not constitute
a waiver of the right to exercise the same in the event of any subsequent
default or in the event of the continuance of any existing default after demand
for strict performance hereof.
Maker, sureties, guarantors and endorsers hereof: (a) agree to be jointly
and severally bound, (b) severally waive demand, diligence, presentment for
payment, protest and demand, and notice of extension, dishonor, protest, demand
and nonpayment of this Note, (c) consent that Payee may extend the time of
payment or otherwise modify the terms of payment of any part or the whole of
the debt evidenced by this Note, at the request of any other person primarily
liable hereon, and such consent shall not alter nor diminish the liability of
any person, and (d) agree that the Payee may set off at any time any sums or
property owed to any of them by the Payee.
No provision of this Note is intended to or shall require or permit the
Payee, directly or indirectly, to take, collect or receive in money, goods or in
any other form, any interest (including amount deemed by law to be interest) in
excess of the maximum rate of interest permitted by applicable law. If any
amount due from or paid by Maker shall be determined by a court of competent
jurisdiction to be interest in excess of such maximum rate, Maker shall not be
obligated to pay such excess and, if paid, such excess shall be applied against
the unpaid principal balance of this Note, or if and to the extent that this
Note has been paid in full, such excess shall be remitted to Maker.
This Note shall not be negotiable or assignable except upon the express
written consent of the Payee. Notwithstanding this provision, this Note shall be
binding upon Maker and his successors and assigns and shall inure to the benefit
of the Payee and its successors and assigns. This Note may be prepaid at any
time prior to the Maturity Date without penalty.
All notices required or given in connection with this Note shall be
given at the place and in the manner reasonably calculated to give notice by
the party giving such notice.
This Note shall be governed by and construed according to the laws of the
State of California.
IN WITNESS WHEREOF, these presents are executed as of the date first
written above.
PRINCIPAL SUM OF THIS NOTE: TWELVE THOUSAND FIVE HUNDRED DOLLARS ($12,500).
"MAKER"
/s/ Ralph Amato
-----------------------------------------
ALTERNATIVE ENTERTAINMENT, INC.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> SEP-30-1999 DEC-31-1998
<PERIOD-START> SEP-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 DEC-31-1998
<CASH> 14,449 (12,556)
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 66,420 264,000
<PP&E> 2,378,393 538,350
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 2,646,601 974,865
<CURRENT-LIABILITIES> 1,992,182 2,152,784
<BONDS> 1,260,980 1,255,668
0 0
0 0
<COMMON> 58,233 35,418
<OTHER-SE> 8,070,636 2,112,996
<TOTAL-LIABILITY-AND-EQUITY> 2,646,601 974,865
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 3,687,492 836,492
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 460,025 139,098
<INCOME-PRETAX> (4,147,517) (975,590)
<INCOME-TAX> 600 800
<INCOME-CONTINUING> (4,147,517) (976,390)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,148,117) (976,390)
<EPS-BASIC> (0.81) (0.41)
<EPS-DILUTED> (0.81) (0.41)
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