| To: ChainSaw who started this subject | 7/3/2001 11:28:53 PM | | From: jmhollen | | | | <PAGE>
ANY ACQUISITIONS WE MAKE MAY POSE A NUMBER OF RISKS THAT COULD MATERIALLY
ADVERSELY AFFECT OUR STRATEGY.
To the extent that we complete acquisitions, such acquisitions could pose a
number of special risks, including the diversion of management's attention, the
assimilation of the operation and personnel of the acquired companies, the
integration of acquired assets with existing assets, adverse short-term effect
on reported operating results, the amortization of acquired intangible assets
and the loss of key employees. Additionally, with respect to potential future
acquisitions by us, our stockholders are not expected to have the right to vote
on such acquisitions.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY AND THIS COULD
DEPRESS OUR STOCK PRICE.
Nevada corporate law and our amended and restated certificate of
incorporation and our by-laws contain provisions that could have the effect of
delaying, deferring or preventing a change in control of booktech.com or a
change of our management that stockholders may consider favorable or beneficial.
These provisions could discourage proxy contests and make it more difficult for
you and other stockholders to elect directors and take other corporate actions.
These provisions could also limit the price that investors might be willing to
pay in the future for shares of our common stock. These provisions include those
which:
o Authorize the issuance of "blank check" preferred stock, which is
preferred stock that can be created and issued by the Board of
Directors without prior stockholder approval, with rights senior to
those of common stock;
o Provide for a staggered Board of Directors, so that it would take
three successive annual meetings to replace all directors;
o Prohibit stockholder action by written consent; and
o Establish advance notice requirements for submitting nominations for
election to the Board of Directors and for proposing matters that can
be acted upon by stockholders at a meeting.
ITEM 7. FINANCIAL STATEMENTS
Incorporated by reference from the consolidated financial statements and
notes thereto of booktech.com, inc., which are attached hereto beginning on page
41.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The registrant filed a report on Form 8-K on May 15, 2000 which reported
that the Board of Directors of the Company approved the dismissal of Barry L.
Friedman P.C. as its independent auditor and appointed Deloitte & Touche LLP.
There were no disagreements between booktech.com, inc. and Barry L.
Friedman P.C. on any matter of accounting principle or practice, financial
statement disclosures, auditing scope or procedure which, if not resolved to his
satisfaction of would have caused Barry L. Friedman P.C. to make reference to
the subject matter of the disagreement in connection with their report. The
audit opinion of Barry L. Friedman P.C. contained an explanatory paragraph
emphasizing the Company's status as a development stage enterprise and
uncertainty regarding the Company's ability to continue as a going concern.
It should also be noted that Deloitte & Touche LLP provided independent
auditing services to booktechmass prior to the Merger.
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<PAGE>
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT
IDENTIFY DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Directors are elected by the stockholders or by affirmative vote of a
majority of the directors then in office, and hold office until the next annual
meeting of the stockholders. Officers and other employees serve at the will of
the Board of Directors. The following table sets forth certain information
regarding our directors and executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Directors and Executive Officers
William G. Christie 53 President, Chief Executive Officer, and Chairman
Morris A. Shepard, Ph.D.* 63 President, Chief Executive Officer, and Chairman
Joel Dumaresq 37 Director
Ajmal Khan 39 Director
Barry Romeril 56 Director
Sherry Turkle 52 Director
Ted Bernhardt 49 Chief Financial Officer, Treasurer and Secretary
Key employees
October Ivins 49 Chief Knowledge Officer
Steven Lewers 52 Chief Trade Book Officer
</TABLE>
Directors and Executive Officers
William G. Christie has been our President, Chief Executive Officer, and
Chairman of the Board since May 14, 2001. Immediately prior to these positions,
Mr. Christie was the Chief Operating Officer of !heyinc, with responsibility for
sales, business development, and shared responsibility for investment and
investor relations. In August, 1998, Mr. Christie was part of an investor group
which acquired Contact Dynamics. The company was renamed icontact.com and he
last served as Chief Executive Officer before it merged with hey Software to
form !heyinc. in August, 2000. From 1997 until 1998, Mr. Christie was the
principal of his own consulting firm, W. G. Christie Associates. The company
worked in the data warehousing/data mining and Internet applications areas. For
the preceding 12 years, he was responsible for MIS and Merchandising Support of
the CALDOR Corporation.
*Morris A. Shepard, Ph.D. was our Chairman of the Board of Directors, Chief
Executive Officer, and President from March 31, 2000 through May 11, 2001.
Immediately prior to holding those positions, Mr. Shepard had been President,
Director and Chief Executive Officer of booktech.com, inc., a Massachusetts
corporation ("booktechmass") since 1995, which formerly carried on the business
now carried on by our company. Prior to founding booktechmass in 1995, he taught
graduate and undergraduate courses in Boston and in Europe.
Joel Dumaresq was elected a Director on January 17, 2000. Mr. Dumaresq is
an experienced business executive and investment specialist. His experience
ranges from running public and private corporations to working for a national
investment-banking firm. From 1994 until its being sold in 1998, Mr. Dumaresq
was president of Westair Aviation Inc., a regional charter airline service. For
the past two years, he has worked with the Verus Group on public equity
financings and mergers and acquisitions. He holds a degree in economics from the
University of British Columbia.
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<PAGE>
Ajmal Khan was elected a Director on March 31, 2000. Since 1992, Mr. Khan
has been the President of Verus International Group Ltd., a diversified
investment group, which he founded in 1990. Verus International Group Ltd.. is
involved in the ownership of hotels, venture capital financing, corporate
acquisitions, and several joint venture interests, including Barakaat Holdings
Ltd., a sports marketing company.
Barry Romeril was elected a Director on March 31, 2000. From 1993 to the
present, he has served as Chief Financial Officer of Xerox Corporation
("Xerox"). In April 1999, he was elected to the Board of Directors of Xerox and
was named its vice chairman. Mr. Romeril is responsible for all finance,
treasury, tax and audit activities at Xerox as well as its internal services and
real estate operations. In addition, he is responsible for (a) Xerox Technology
Enterprises, which oversees emerging businesses; (b) Xerox's intellectual
property unit and (c) Xerox Engineering Services.
Sherry Turkle was elected a Director on March 31, 2000. From 1999 to the
present, she has served as the Abby Rockefeller Mauze Professor in the Program
in Science, Technology, and Society at the Massachusetts Institute of Technology
("MIT"). From 1991 through 1999, Ms. Turkle served as Professor of the Sociology
of Science at MIT. She has published books and articles on a variety of subjects
and is a frequent speaker on the digital revolution.
Ted Bernhardt has been our Chief Financial Officer and Treasurer since
March 31, 2000, and Secretary since September, 2000. From June 1999 to March 31,
2000, he was Chief Financial Officer of booktechmass. From 1998 to May 1999, he
provided financial and business development consulting services for INSO
Corporation and Custom Communications Partners. From 1993 to 1998, Mr. Bernhardt
was Chief Financial Officer of the custom publishing division of Cadmus
Communications Corporation. He received his bachelor's degree in Finance from
Boston College and his Masters in Business Administration from Suffolk Business
School.
October Ivins has been our Chief Knowledge Officer since March 6, 2000.
From June 1998 to December 1999, Ms. Ivins served as Director of Strategic
Relationships for PubList.com, an on-line directory of publications and related
services. From 1995 to 1998, she taught courses on information access and
Internet use as a doctoral student at the University of Texas at Austin. Ms.
Ivins brings 20 years of experience in academic libraries at Louisiana State
University and the University of North Carolina at Chapel Hill where she earned
her Bachelor of Arts degree and her Masters in Library Sciences.
Steven Lewers has been our Chief Trade Book Officer since January 31, 2000.
Immediately prior to joining the Company, he managed Steven Lewers & Associates,
a consulting firm for the consumer book industry, which he founded in 1999. He
also serves as Vice President of the Waldorf School of Lexington (MA). From 1997
to 1999, he served as Vice President, Marketing and Strategic Planning for the
On-Demand Machine Corporation. From 1990 to 1997, Mr. Lewers served as Vice
President, Director of Sales, Marketing and New Business development for
Houghton Mifflin Co. He received his bachelors degree in Economics from Harvard
University.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
No present director or officer of the Company: (1) has had any petition
filed, within the past five years, in Federal Bankruptcy or state insolvency
proceedings on such person's behalf or on behalf of any entity of which such
person was an officer or general partner either at the time of the bankruptcy or
within two years prior to that time; or (2) has been convicted in a criminal
proceeding within the past five years or is currently a named subject of a
pending criminal proceeding (excluding traffic violations and other minor
offenses); or (3) has been the subject, within the past five years, of any
order, judgment, decree or finding (not subsequently reversed, suspended, or
vacated) of any court or regulatory authority involving violation of securities
or commodities laws, or barring, suspending, enjoining or limiting any activity
relating to securities, commodities or other business practice.
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<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who own
more than 10% of the Company's common shares to file with the Securities and
Exchange Commission initial statements of beneficial ownership, reports of
changes in ownership and annual reports concerning their ownership of Common
Shares and other equity securities of the Company, on Form 3, 4, and 5,
respectively.
To the best of our knowledge, all executive officers, directors and persons
owning more than 10% of our common stock filed the required reports in a timely
manner, with the exception of the following:
Name Number of Late Reports
---- ----------------------
William G. Christie 1(1)
Ajmal Khan 1(2)
Joel Dumaresq 1(2)
Sherry Turkle 1(3)
----------
(1) Mr. Christie did not timely file a Form 3- Initial Statement of Beneficial
Ownership. However, Mr. Christie filed a Form 3- Initial Statement of
Beneficial Ownership and a Form 4- Statement of Changes in Beneficial
Ownership on June 21, 2001.
(2) The named director did not timely file a Form 3- Initial Statement of
Beneficial Ownership. However, the named director subsequently late filed a
Form 3- Initial Statement of Beneficial Ownership and Form 5- Annual
Statement of Changes in Beneficial Ownership on June 21, 2001.
(3) The named director did not file a Form 3- Initial Statement of Beneficial
Ownership. However, we expect that the named director will file the
appropriate forms within ten (10) days of the date of this report.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the total compensation paid to our Chief
Executive Officer and our two most highly compensated executive officers, other
than our Chief Executive Officer, for the year ended December 31, 2000, whose
salary and bonus for such fiscal year was greater than $100,000:
<TABLE>
<CAPTION>
Long Term Compensation
Period --------------------------------------- (2)
For the Compensation (1) $Restricted Securities All
Name and Principal Period ------------------- Stock Underlying $ LTP Other
Position Ended $ Salary $ Bonus Awards Options/SARs Payouts Comp.
-------- ------- -------- ------- ------ ------------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Morris A. Shepard 12/31/2000 $155,953 -- -- 66,667 -- $2,960
President, CEO (3)
Joel Dumaresq (4) 12/31/2000 -- -- -- -- -- --
Ted Bernhardt 12/31/2000 118,746 -- -- 344,828 -- 7,200
CFO
Thomas F. Delano 12/31/2000 116,365 -- -- 344,828 -- 7,200
Chief Business
Development Officer
</TABLE>
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<PAGE>
(1) Salary compensation for the year ended December 31, 2000 represents paid
compensation only, reported amounts exclude accrued but unpaid salaries for
the year ended December 31, 2000 as follows: Shepard, $27,692; Bernhardt,
$23,078; and Delano, $23,078.
(2) All other compensation represents automobile allowances paid to executives.
(3) Dr. Shepard resigned as President, Chief Executive Officer and Chairman of
the Board of Directors on May 11, 2001.
(4) Mr. Dumaresq served from January 17, 2000 until March 31, 2000 as the
President of Ebony and Gold Ventures, Inc. prior to the Merger.
Our 2000 Stock Option Plan (the "Plan") allows us to grant stock options,
restricted stock and other stock-based awards, including stock appreciation
rights to employees, officers, directors, consultants and advisors of the
Company. The maximum number of shares of common stock that may be issued under
the Plan is 5,000,000. The Plan is administered by the Board of Directors, which
has the authority to designate the nature of the award, the number of shares and
the vesting period, among other terms. The stock options expire no later than
ten years from the date of grant. As of December 31, 2000, there were 2,883,853
shares of common stock available for future issuance under the Plan.
The following table sets forth information concerning individual grants,
including adjustments resulting from the Merger, of stock options made to each
of the executive officers and key employees in 2000:
<TABLE>
<CAPTION>
Fair
Number of Market Potential Realizable
Securities Percent of Value at Value at Assumed
Underlying Total Options/ Option Date of Annual Rates of
Options SARs Granted Exercise Grant Stock Appreciation Option
SARs To Employees Price Per or For the Option Term Expiration
Name Granted In 2000 Share Adjustment 5% 10% Date
---- ------- ------- ----- ----- -- --- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Morris A. Shepard 66,667 3.8% $1.50 $ .72 $ -- $ -- 3/31/06
Ted Bernhardt 344,828 19.4 .29 .72 177,084 207,658 6/30/02
Thomas F. Delano 344,828 19.4 .58 .72 68,172 88,626 11/8/01
October Ivins 330,334 18.6 .66 .72 48,455 78,962 6/30/02
Steven Lewers 344,828 19.4 .58 .72 104,250 169,333 3/31/04
Joseph Short, Ph.D. 166,667 9.4 1.25 .72 -- -- 1/17/03
</TABLE>
None of the named executives exercised any stock options in the year ended
December 31, 2000. The following table sets forth information concerning the
unexercised options / SARs for each of the above named executives at December
31, 2000. The Value of the Unexercised In-The-Money-Options is based on the
closing sales price ($1.125) of the Company's common stock on the American Stock
Exchange on December 31, 2000.
<TABLE>
<CAPTION>
Shares
Acquired Number of Securities Underlying Value of Unexercised
On Value Unexercised Options In-The-Money Options
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Morris A. Shepard -- $ -- -- 66,667 $ -- $ --
Ted Bernhardt -- -- 344,828 -- 287,931 --
Thomas F. Delano -- -- 344,828 -- 187,931 --
October Ivins -- -- -- 330,334 -- 153,605
Steven Lewers -- -- 344,828 -- 187,931 --
Joseph Short, Ph.D. -- -- -- 166,667 -- --
</TABLE>
In connection with the Merger on March 31, 2000, the Company adjusted the
number and exercise price of the unexercised options previously granted to Mr.
Delano and Mr. Lewers.
33
<PAGE>
The Company also cancelled a previously issued stock option to Mr.
Bernhardt and issued to Mr. Bernhardt a new option with a cashless exercise
feature. The following table sets forth information concerning the adjustment of
the unexercised options for each of the executives.
<TABLE>
<CAPTION>
Length of
Original
Number of Exercise Option Term
Securities Market Price Price at Remaining
Underlying of Stock at Time of at Date of
Options/SARs Time of Issue, Issue, New Issue,
Issued, Adjusted, Adjustment, Adjustment, Exercise Adjustment,
Name Date or Amended or Amendment or Amendment Price or Amendment
---- ---- ---------- ------------ ------------ ----- ------------
<S> <C> <C> <C> <C> <C> <C>
Ted Bernhardt 3/31/00 344,828 $ .72 $ .29 $ .29 27 months
Thomas F. Delano 3/31/00 344,828 .72 .58 .58 21 months
Steven Lewers 3/31/00 344,828 .72 .58 .58 36 months
</TABLE>
DIRECTORS' COMPENSATION
The Company's inside directors receive no compensation for their services
as members of the Board. Non-employee directors receive an annual retainer of
$10,000. In addition, non-employee directors annually receive 1,000 shares of
the Company's common stock and options to purchase 2,000 additional shares of
the Company's common stock. All directors receive reimbursement of their actual
expenses incurred in connection with attending each meeting of the Board and
each meeting of any committee of the Board.
The following table sets forth information concerning individual grants of
common stock and stock options made to the outside directors in 2000:
<TABLE>
<CAPTION>
Restricted Stock Grants Common Stock Option Grants
--------------------------- -----------------------------------------------------------
Number of Fair Market Number of Exercise Fair Market Option
Shares Value At Options / Price Per Value At Expiration
Name Granted Date of Grant SARs Granted Share Date of Grant Date
---- ------- ------------- ------------ --------- ------------- ----
<S> <C> <C> <C> <C> <C> <C>
Barry Romeril 1,500 $4,320 2,000 $ 2.88 $ 2.88 3/31/2006
Sherry Turkle 1,000 2,880 2,000 2.88 2.88 3/31/2006
</TABLE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee
The Audit Committee is responsible for making recommendations to the Board
of Directors as to the selection of our independent auditor, maintaining
communication between the Board and the independent auditor, reviewing the
annual audit report submitted by the independent auditor, and determining the
nature and extent of issues, if any, presented by such audit warranting
consideration by the Board. The current member of this Committee is Joel
Dumaresq.
The Compensation Committee
The Compensation Committee is responsible for determining the compensation
payable to officers and directors. The current members of the Compensation
Committee are Sherry Turkle, Ajmal Khan and Joel Dumaresq.
The Nominating Committee
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<PAGE>
The Nominating Committee is responsible for recommending candidates to the
stockholders for election to the Board of Directors. The current members of the
Nominating Committee are Sherry Turkle and Ajmal Khan..
EMPLOYMENT AGREEMENTS
William G. Christie was named President, Chief Executive Officer and
Chairman of the Board on May 14, 2001. Mr. Christie was appointed by the Board
upon his verbal acceptance of an offer of employment at an annual salary of
$250,000. We anticipate that an employment agreement with Mr. Christie will be
concluded within 30 days of the date of this report.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of April 30, 2001 by (i) each person
who is known to the Company to own beneficially more than 5% of the Company's
common stock on a fully diluted basis; (ii) all directors, officers and key
employees of the Company; and (iii) all directors, officers and key employees of
the Company as a group. The number of shares beneficially owned by each named
person and the number of shares of common stock outstanding used in calculating
the percentage for each named person assumes the conversion of all preferred
stock outstanding into common stock. The number of shares of common stock
outstanding used in calculating the percentage for each named person includes
the shares of common stock underlying options and warrants held by that person
which are exercisable within 60 days of April 30, 2001.
Shares Percent
of Common Stock of Common Stock
Name and Address of Beneficial Owner (1) Beneficially Owned Owned
---------------------------------------- ------------------ -----
Morris A. Shepard (2) 3,235,744 15.2%
Joel Dumaresq (3) 1,445,800 6.7%
Ruth Anne Shepard (4) 2,387,123 11.2%
Dennis Hershey (5) 2,858,544 13.6%
Ajmal Khan (6) 2,268,800 10.5%
Bonnie Hershey (7) 1,499,124 7.2%
Frank Challant (8) 1,202,184 5.8%
Ted Bernhardt (9) 344,828 1.6%
Thomas F. Delano (9) 344,828 1.6%
Steven Lewers (9) 344,828 1.6%
Joseph Short, Ph.D. (9) 166,667 *
October Ivins (9) 100,000 *
Barry Romeril (10) 6,500 *
Sherry Turkle (10) 6,000 *
All Officers, Directors and Key
Employees as a Group (10 persons) 6,978,195 29.6%
----
* Less than 1%
(1) The address for each individual is c/o booktech.com, inc., 42 Cummings
Park, Woburn Massachusetts 01801.
(2) Includes 2,387,123 shares jointly held with Ruth Anne Shepard; 848,621
shares held in trust for Aaron and Heather Shepard, the children of Morris
Shepard; and options to purchase 66,667 shares of common stock.
(3) Includes 60,000 shares held by his wife Marousa Dumaresq; 100,000 shares
held by Pashleth Investments; and 402,467 shares and warrants to purchase
883,333 held by Verus over which Joel Dumaresq has control.
(4) All shares jointly owned with Morris Shepard, including options to purchase
66,667 shares of common stock.
35 |
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(5) Includes 409,728 shares held in trust for Noah B. Hershey, Julie A. Hershey
and Aaron M. Hershey, and 223,414 shares of common stock issuable upon
conversion of the Series A and Series B Preferred Stock held by the trusts
over which Dennis Hershey has voting control; and 463,276 shares of common
stock and 67,760 shares of common stock issuable upon conversion of Series
B Preferred Stock held by the Hershey Family Limited Partnership.
(6) Includes 583,000 shares held by Delta Realty Limited and 402,467 shares and
warrants to purchase 883,333 shares held by Verus Investments Holdings Ltd.
over which Mr. Khan has control.
(7) Includes 587,817 shares of common stock held by the Bonnie L. Hershey
Trust; 555,328 shares jointly held with Frank Challant, her husband, as
part of the Hershey Family Limited Partnership; 85,976 shares of common
stock issuable upon conversion of Series B Preferred Stock held by the
Bonnie L. Hershey Trust; and 81,224 shares of common stock issuable upon
conversion of Series B Preferred Stock jointly held with Mr. Challant as
part of the Hershey Family Limited Partnership.
(8) Includes 555,328 shares jointly held with Bonnie Hershey as part of the
Hershey Family Limited Partnership; and 81,224 shares of common stock
issuable upon conversion of Series B Preferred Stock jointly held with
Bonnie Hershey as part of the Hershey Family Limited Partnership.
(9) Consists of options to purchase shares of common stock, which are
immediately exercisable, as follows: Ted Bernhardt -- 344,828; Thomas F.
Delano -- 344,828, October Ivins -- 100,000; Steven Lewers -- 344,828, and
Joseph Short -- 166,667.
(10) Includes options to purchase 4,000 shares of common stock, which are
immediately exercisable.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH STOCKHOLDERS, DIRECTORS AND OFFICERS
During the year ended December 31, 2000, Verus Investments Holdings, Inc.
("Verus"), a British Virgin Islands corporation controlled by Ajmal Khan, one of
our directors, provided $2,639,261 in interim financing to fund the Company's
working capital needs. In connection with the Merger, $1,500,000 of the loans
provided in 2000 and $500,000 in Verus loans outstanding at December 31, 1999
were converted into 1,333,333 shares of common stock. The remaining loans of
$939,261 and $200,000 outstanding at December 31, 2000, are unsecured, mature
December 31, 2001 and November 22, 2001, respectively, and carry interest at a
rate of 8% and 10%, respectively per annum. $200,000 of these loans are
convertible at the option of the holder, into shares of common stock on the
earlier of (i) November 22, 2001 at a conversion rate of $2.35 per share or (ii)
at anytime at a conversion rate of $2.94 per share when the average price, as
defined in the convertible agreement, exceeds $3.675. In addition, Verus was
granted warrants to purchase 50,000 shares of our common stock at an exercise
price of $2.94 per share.
On March 31, 2000, the Company received $317,951 in advances from a
stockholder. During the twelve months ended December 31, 2000, the Company
repaid $456,710 in principal and accrued interest on loans from stockholders,
including the $317,951 received on March 31, 2000, using a portion of the
proceeds from the sale of the common stock in conjunction with the Merger.
On March 31, 2000, pursuant to the terms of the Merger Agreement, the
Company sold to certain investors 4,666,667 shares of its common stock and
warrants to purchase 833,333 shares of its common stock for an aggregate
purchase price of $7,000,000 including conversion of the notes payable, advances
and accrued interest owed to Verus. The Company received net proceeds of $5
million at the time of the Merger.
In conjunction with the Merger, a total of $2,815,000 in loans from
stockholders plus the related accrued interest of $401,171 (including $57,858
and $210,734 expensed during the years ended December 31, 2000 and 1999,
respectively) were converted into 2,135,301 shares of Series A preferred stock.
The following stockholders were involved in these transactions: Frank Challant,
Dennis Hershey, Bonnie Hershey, Morris A. Shepard and Ruth Anne Shepard.
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<PAGE>
On March 31, 2000, the Company entered into a consulting agreement with
Verus. The agreement provides for consulting fees to Verus of $15,000 per month
for a two-year period commencing March 31, 2000. The agreement was terminated
effective September 30, 2000. The Company paid $30,000 to Verus under this
agreement during the year ended December 31, 2000. The balance owed of $60,000
is included in accounts payable at December 31, 2000.
Barry Romeril, a member of the Company's Board of Directors, serves in an
executive capacity with Xerox Corporation ("Xerox"). The Company purchases
services from Xerox under an equipment supplier contract that expires on March
1, 2004. The Company paid $1,102,865, $99,074 and $391,030 to Xerox during the
year ended December 31, 2000, the five months ended December 31, 1999 and the
year ended July 31, 1999, respectively. At December 31, 1999, the Company was in
default under a promissory note. In April 2000, the Company repaid the note,
including related accrued interest, with a portion of the proceeds from the sale
of the common stock issued in conjunction with the Merger. On January 10, 2001,
the Company refinanced $455,627 of accounts payable due to Xerox under the
services agreement described in Note 9 to the consolidated financial statements
with a promissory note. The note is payable in monthly installments of $41,339,
including interest at a rate of 16% per annum, beginning on February 15, 2001.
The final payment will be due on January 10, 2002, unless the Company defaults
under the terms of the note, in which case, the promissory note becomes fully
due and payable. The Company has not made the required payments under the
promissory note in 2001 and, accordingly, the Company is in default under the
terms of the note.
Between February 19, 1997 and March 31, 2000, Dennis Hershey made loans to
the Company totaling $460,000. The notes carried interest at rates varying
between 8.0% and 8.25% per annum. On September 1, 1999, $200,000 of the notes
were converted into 2,000 shares of common stock and the Company paid the $2,063
of accrued interest in cash. On March 31, 2000, the balance of the notes plus
the related accrued interest of $79,656 was converted into 225,506 shares of
Series A Preferred Stock. In addition, Dennis Hershey controls the Aaron M.
Hershey Trust, the Julie A. Hershey Trust and the Noah B. Hershey Trust. These
trusts were involved in certain transactions with the Company as set forth
below.
Between January 14, 1999 and March 31, 2000, the Aaron M. Hershey Trust
made loans to the Company totaling $250,000. The notes carried interest at a
rate of 8.0% per annum. On September 1, 1999, $25,000 of the notes were
converted into 250 shares of common stock. On March 31, 2000, the balance of the
notes plus the related accrued interest of $17,170 were assigned to Morris A.
Shepard, the Company's Chief Executive Officer. The notes plus the related
accrued interest were converted into 160,783 shares of the Company's Series A
preferred Stock in conjunction with the Merger.
Between February 23, 1999 and March 31, 2000, the Julie A. Hershey Trust
made loans to the Company totaling $250,000. The notes carried interest at a
rate of 8.0% per annum. On September 1, 1999, $25,000 of the notes were
converted into 250 shares of common stock. On March 31, 2000, the balance of the
notes plus the related accrued interest of $16,940 were assigned to Morris A.
Shepard, the Company's Chief Executive Officer. The notes plus the related
accrued interest were converted into 160,631 shares of the Company's Series A
preferred Stock in conjunction with the Merger.
Between January 14, 1999 and March 31, 2000, the Noah B. Hershey Trust made
loans to the Company totaling $250,000. The notes carried interest at a rate of
8.0% per annum. On September 1, 1999, $25,000 of the notes were converted into
250 shares of common stock. On March 31, 2000, the balance of the notes plus the
related accrued interest of $17,379 were assigned to Morris A. Shepard, the
Company's Chief Executive Officer The notes plus the related accrued interest
were converted into 160,922 shares of the Company's Series A preferred Stock in
conjunction with the Merger.
Between September 5, 1996 and March 31, 2000, Aaron Shepard, the son of
Morris A. Shepard, made loans to the Company totaling $30,000. The notes carried
interest at rates varying between 8.0% and 8.25% per annum. As of November 10,
1999, $24,000 of the notes and $5,394 of accrued interest had been repaid. On
March 31, 2000, the balance of the notes plus the related accrued interest of
$3,806 was paid by the Company.
37
<PAGE>
Between March 5, 1997 and March 31, 2000, Barry J. Hershey made loans to
the Company totaling $300,000. The notes carried interest at a rate of 8.0% per
annum. On March 31, 2000, the notes plus the related accrued interest of $17,951
were purchased by the Aaron M Hershey, Julie A. Hershey and Noah B. Hershey
Trusts.
Between March 5, 1997 and March 31, 2000, Bonnie Hershey made loans to the
Company totaling $725,000. The notes carried interest at rates varying between
8.0% and 8.25% per annum. The Company paid a total of $1,040 in accrued
interest. On March 31, 2000, the notes and related accrued interest of $113,885
were converted into 556,958 shares of the Company's Series A Preferred Stock.
Between January 7, 1999 and March 31, 2000, Frank Challant made loans to
the Company totaling $120,000. The notes carried interest at a rate of 8.0% per
annum. On September 1, 1999, the notes were converted into 1,200 shares of
common stock. On March 31, 2000, the $6,111 of accrued interest outstanding on
the notes was converted into the Company's Series A Preferred Stock.
Between October 30, 1996 and March 31, 2000, Frank Challant made loans to
the Company totaling $635,000. The notes carried interest at rates varying
between 8.0% and 8.25% per annum. On September 1, 1999, $80,000 of the notes
were converted into 800 shares of common stock and $1,028 of related accrued
interest was paid in cash. On March 31, 2000, the balance of the notes plus the
related accrued interest was converted into 447,971 shares of the Company's
Series A Preferred Stock.
Between July 31, 1997 and March 31, 2000, Heather Shepard, the daughter of
Morris A. Shepard, made loans to the Company totaling $9,500. The notes carried
interest at a rate of 8.0% per annum. On March 31, 2000, the Company repaid the
notes plus the related accrued interest of $2,064.
Between April 1, 1997 and March 31, 2000, Leonard Beck made loans to the
Company totaling $25,000. The notes carried interest at rates varying between
8.0% and 8.25% per annum. On September 1, 1999, the notes were converted into
250 shares of common stock and $1,040 of related accrued interest was paid in
cash. On March 31, 2000, the balance of $3,929 in accrued interest was paid by
the Company.
TRANSACTIONS WITH PROMOTERS
None.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
<TABLE>
<CAPTION>
No. Description
--- -----------
<S> <C>
2.1 Agreement and Plan of Merger dated March 31, 2000 (1)
3.1(a) Certificate of Incorporation, as amended (1)
3.1(b) Certificate of Designation of Series A Preferred Stock (1)
3.1(c) Certificate of Designation of Series B Preferred Stock (1)
3.2 By-laws of the Company (2)
4.1 Specimen of Share of Company's Common Stock*
4.2 Form of Warrant (1)
10.1 2000 Stock Option Plan (3)
10.2 Oracle Software License and Services Agreement (3)
10.3 Oracle Time & Materials Contract Student Portal Development (3)
10.4 Oracle Time & Materials Contract FastForward ERP Development (3)
10.5 Oracle Time & Materials Contract Professor Portal Development (3)
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
10.6 Lease Agreement for Woburn, Massachusetts facility*
10.7 Consulting Agreement with Verus International Ltd. (3)
10.8 Asset Purchase Agreement, dated as of August 2, 2000, by and between
booktech.com, inc. and Copytron, Inc. (4)
10.9 Investment Agreement, dated as of March 22, 2001 by and between booktech.com
inc. and Cornell Capital Partners, L.P.*
10.10 Registration Rights Agreement, dated as of March 22, 2001 by and between
booktech.com, inc., Cornell Capital Partners, L.P. and Yorkeville Advisors
Management, LLC*
10.11 Resale Restriction Agreement, dated as of March 22, 2001 by and between
booktech.com, inc. and Yorkeville Advisors Management, LLC*
10.12 Loan Agreement, dated as of December 31, 2000 by and between booktech.com,
inc. and Verus Investments Holdings, Inc.*
10.13 Promissory Note, dated as of December 31, 2000 issued by booktech.com, inc. to
Verus Investments Holdings, Inc.*
10.14 Promissory Note, dated January 10, 2001 issued by booktech.com, inc. to Xerox
Corporation.*
11.1 Computation of Per Share Earnings.*
16.1 Letter Appointing Deloitte & Touche LLP as Independent Auditor (5)
21.1 List of Subsidiaries*
</TABLE>
--------------------
* filed herewith.
(1) Incorporated herein in its entirety by reference to the Company's Form 8-K,
as filed with the Securities and Exchange Commission on April 4, 2000.
(2) Incorporated herein in its entirety by reference to the Company's Form
10-SB, as filed with the Securities and Exchange Commission on August 2,
1999.
(3) Incorporated herein in its entirety by reference to the Company's Quarterly
Report on Form 10-QSB/A for the quarter ended March 31, 2000 as filed with
the Securities and Exchange Commission on August 10, 2000.
(4) Incorporated herein in its entirety by reference to the Company's Form 8-K,
as filed with the Securities and Exchange Commission on August 17, 2000.
(5) Incorporated herein in its entirety by reference to the Company's Form 8-K,
as filed with the Securities and Exchange Commission on May 15, 2000.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
2000.
On May 2, 2001, the Company filed a Form 8-K announcing the appointment of
William Christie as President, Chief Executive Officer and Chairman of the Board
of Directors. In addition, the Company announced that it would restate its
previous filings on Form 10-QSB for the quarters ended March 31, 2000, June 30,
2000 and September 30, 2000 as a result of stock compensation not recorded
during the quarters.
39
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
booktech.com, inc.
/s/
--------------------------
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ TED BERNHARDT Chief Financial Officer (Principal June 22, 2001
--------------------------- Financial and Accounting Officer),
Ted Bernhardt Secretary and Treasurer
/S/ JOEL DUMARESQ Director June 22, 2001
---------------------------
Joel Dumaresq
/S/ AJMAL KHAN Director June 22, 2001
---------------------------
Ajmal Khan
/S/ BARRY ROMERIL Director June 22, 2001
---------------------------
Barry Romeril
/S/ SHERRY TURKLE Director June 22, 2001
---------------------------
Sherry Turkle
</TABLE>
40
<PAGE>
BOOKTECH.COM, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report............................................... 42
Consolidated Statements of Operations for the Year Ended December 31, 2000,
the Five Months Ended December 31, 1999 and the Year Ended July 31,
1999..................................................................... 43
Consolidated Balance Sheets as of December 31, 2000 and 1999............... 44
Consolidated Statements of Stockholders' Equity (Deficiency) for the Year
Ended December 31, 2000, the Five Months Ended December 31, 1999 and the
Year Ended July 31, 1999................................................. 45
Consolidated Statements Of Cash Flows for the Year Ended December 31, 2000,
the Five Months Ended December 31, 1999 and the Year Ended July 31,
1999..................................................................... 46
Notes to Consolidated Financial Statements................................. 47
41
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
booktech.com, inc.
Woburn, Massachusetts
We have audited the accompanying consolidated balance sheets of booktech.com,
inc. (the "Company") as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for the year ended December 31, 2000, the five months ended December 31, 1999
and the year ended July 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2000
and 1999, and the results of its operations and its cash flows for the
above-stated periods, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has a negative working
capital position, is in default of several of its financing and other
contractual agreements, and is experiencing difficulty in generating sufficient
cash flow to meet its obligations and sustain its operations, which raises
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
June 29, 2001
42 |
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| To: ChainSaw who started this subject | 7/3/2001 11:33:52 PM | | From: jmhollen | | | | <PAGE>
BOOKTECH.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Five Months
Year Ended Ended Year Ended
December 31, December 31, July 31,
2000 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES .............................................................. $ 1,725,019 $ 1,024,866 $ 1,328,813
COST OF SALES .......................................................... 2,317,030 1,027,223 1,578,308
------------ ------------ ------------
Gross margin ................................................... (592,011) (2,357) (249,495)
------------ ------------ ------------
OPERATING EXPENSES:
Selling, marketing and general and administrative (excluding
stock-based compensation costs of $964,945 in 2000) ............ 6,314,304 932,540 1,718,300
Stock-based compensation .......................................... 964,945 -- --
------------ ------------ ------------
Total operating expenses ....................................... 7,279,249 932,540 1,718,300
------------ ------------ ------------
LOSS FROM OPERATIONS ................................................... (7,871,260) (934,897) (1,967,795)
------------ ------------ ------------
INTEREST EXPENSE TO RELATED PARTIES .................................... 83,950 83,422 209,795
OTHER INTEREST EXPENSE ................................................. 73,630 42,327 4,841
------------ ------------ ------------
Total interest expense ......................................... 157,580 125,749 214,636
------------ ------------ ------------
INTEREST INCOME ........................................................ 30,297 -- --
------------ ------------ ------------
NET LOSS ............................................................... (7,998,543) (1,060,646) (2,182,431)
ACCRUED DIVIDENDS ON PREFERRED STOCK ................................... 195,736 -- --
------------ ------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS ........................... $ (8,194,279) $ (1,060,646) $ (2,182,431)
============ ============ ============
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER
SHARE -- BASIC AND DILUTED ..................................... $ (0.51) $ (0.15) $ (0.36)
============ ============ ============
SHARES USED IN COMPUTING BASIC AND DILUTED NET
LOSS PER SHARE ................................................. 16,123,291 6,921,001 6,016,552
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
43
<PAGE>
BOOKTECH.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ............................................................................... $ 4,611 $ 82,753
Accounts receivable, less allowances for uncollectible accounts and returns
of $78,100 in 2000 and $91,700 in 1999 ......................................... 205,503 228,466
Other current assets ............................................................... 51,136 --
------------ ------------
Total current assets .................................................. 261,250 311,219
------------ ------------
PROPERTY AND EQUIPMENT, at cost ....................................................... 4,327,116 808,298
Accumulated depreciation .............................................................. (613,621) (73,928)
------------ ------------
Property and equipment, net ........................................... 3,713,495 734,370
------------ ------------
OTHER ASSETS:
Acquired technology and patent application ........................................... 993,103
Acquired customer list, net ........................................................... 944,138 --
Deposits and other .................................................................... 75,854 25,200
------------ ------------
Total other assets .................................................. 2,013,095 25,200
------------ ------------
TOTAL ................................................................. $ 5,987,840 $ 1,070,789
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Bank overdraft ..................................................................... $ 25,681 $ --
Current portion of long-term debt .................................................. 888,587 437,838
Current portion of long-term debt due to related parties ........................... 1,013,100 2,953,759
Accounts payable, including past due amounts ....................................... 4,009,090 1,282,385
Accrued payroll .................................................................... 344,041 143,423
Accrued interest expense to related parties ........................................ 17,660 354,130
Accrued other expenses ............................................................. 181,192 267,394
------------ ------------
Total current liabilities ............................................. 6,479,351 5,438,929
------------ ------------
LONG-TERM DEBT ........................................................................ 11,585 591,824
------------ ------------
DEFERRED LEASE OBLIGATION ............................................................. 101,250 146,250
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' DEFICIENCY:
Preferred stock, 5,000,000 shares authorized:
Convertible Series A, par value, $.00042,
2,135,301 shares issued and outstanding (liquidation value, $3,398,688) at
December 31, 2000; no shares issued or outstanding at December 31, 1999 ...... 897 --
Convertible Series B, par value, $.00042,
1,100,000 shares issued and outstanding at December 31, 2000; no shares
issued or outstanding at December 31, 1999 ................................... 462 --
Common stock, authorized, 54,523,810 shares, $.00042 par value, 19,146,546
shares issued and outstanding at December 31, 2000; no par value,
68,965,600 shares authorized; 9,655,184 shares issued and
8,620,700 shares outstanding at December 31, 1999 ............................... 8,041 760,000
Dividends payable in shares of common stock ........................................ 195,736 --
Additional paid-in capital ......................................................... 12,883,890
Deferred compensation .............................................................. (16,115) --
Treasury stock, at cost (1,034,484 shares at December 31, 1999) .................... -- (187,500)
Accumulated deficit ................................................................ (13,677,257) (5,678,714)
------------ ------------
Total stockholders' deficiency ........................................ (604,346) (5,106,214)
------------ ------------
TOTAL ................................................................. $ 5,987,840 $ 1,070,789
============ ============
</TABLE>
See notes to consolidated financial statements.
44
<PAGE>
booktech.com, inc. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
$.00042 Par Value $.00042 Par Value
Convertible Preferred Convertible Preferred $.00042 Par Value
Stock, Series A Stock, Series B Common Stock
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 1, 1998 ....................... -- $ -- -- $ -- -- $ --
Net loss for the period .................... -- -- -- -- -- --
--------- ------ --------- ------ ---------- -------
Balance, July 31, 1999 ........................ -- -- -- -- -- --
Related party loans converted into
common stock .............................. -- -- -- -- -- --
Net loss for the period ..................... -- -- -- -- -- --
--------- ------ --------- ------ ---------- -------
Balance, December 31, 1999 .................... -- -- -- -- -- --
Adjustment to reflect exchange of common
stock in reverse merger ................... -- -- -- -- 7,520,690 3,159
Issuance of preferred stock in exchange for
common stock .............................. -- -- 1,100,000 462 -- --
Conversion of related party notes and
accrued interest into preferred stock ..... 2,135,301 897 -- -- -- --
Issuance of common stock, including
conversion of other debt and accrued
interest into common stock ................ -- -- -- -- 4,666,667 1,960
Common stock held by former Ebony & Gold
Ventures' shareholders .................... -- -- -- -- 5,000,000 2,100
Issuance of common stock to acquire
technology and patent application ......... -- -- -- -- 1,379,310 579
Reverse merger expenses ..................... -- -- -- -- -- --
Issuance of common stock to acquire assets
of Copytron, Inc. ......................... -- -- -- -- 238,298 100
Stock-based compensation .................... -- -- -- -- 341,581 143
Accrued dividends on convertible preferred
stock, Series A ........................... -- -- -- -- -- --
Fair value of warrants granted in connection
with issuance of notes payable to related
parties ................................... -- -- -- -- -- --
Beneficial conversion feature of notes
payable to related parties ................ -- -- -- -- -- --
Net loss for the period ..................... -- -- -- -- -- --
--------- ------ --------- ------ ---------- -------
Balance, December 31, 2000 .................... 2,135,301 $ 897 1,100,000 $462 19,146,546 $ 8,041
========= ====== ========= ====== ========== =======
<CAPTION>
Dividends
No Par Additional Payable In
Common Stock Paid-In Shares of
Shares Amount Capital Common Stock
------ -------- ---------- ------------
<S> <C> <C> <C> <C>
Balance, August 1, 1998 ....................... 20,000 $260,000 $ -- $ --
Net loss for the period .................... -- -- -- --
------ --------- ----------- ----------
Balance, July 31, 1999 ........................ 20,000 260,000 -- --
Related party loans converted into
common stock .............................. 5,000 500,000 -- --
Net loss for the period ..................... -- -- -- --
------ --------- ----------- ----------
Balance, December 31, 1999 .................... 25,000 760,000 -- --
Adjustment to reflect exchange of common
stock in reverse merger ................... (21,810) (663,024) 472,365 --
Issuance of preferred stock in exchange for
common stock .............................. (3,190) (96,976) 96,514 --
Conversion of related party notes and
accrued interest into preferred stock ..... -- -- 3,215,274 --
Issuance of common stock, including
conversion of other debt and accrued
interest into common stock ................ -- -- 7,022,577 --
Common stock held by former Ebony & Gold
Ventures' shareholders .................... -- -- (2,100) --
Issuance of common stock to acquire
technology and patent application ......... -- -- 992,524 --
Reverse merger expenses ..................... -- -- (582,938) --
Issuance of common stock to acquire assets
of Copytron, Inc. ......................... -- -- 699,900 --
Stock-based compensation .................... -- -- 980,917 --
Accrued dividends on convertible preferred
stock, Series A ........................... -- -- (195,736) 195,736
Fair value of warrants granted in connection
with issuance of notes payable to related
parties ................................... -- -- 83,317 --
Beneficial conversion feature of notes
payable to related parties ................ -- -- 101,276 --
Net loss for the period ..................... -- -- -- --
------ --------- ----------- ----------
Balance, December 31, 2000 .................... -- $ -- $12,883,890 $ 195,736
====== ========= =========== ==========
<CAPTION>
Deferred Treasury Accumulated
Compensation Stock Deficit Total
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
Balance, August 1, 1998 ....................... $ -- $ (187,500) $ (2,435,637) $(2,363,137)
Net loss for the period .................... -- -- (2,182,431) (2,182,431)
--------- ----------- ------------ ----------
Balance, July 31, 1999 ........................ -- (187,500) (4,618,068) (4,545,568)
Related party loans converted into
common stock .............................. -- -- -- 500,000
Net loss for the period ..................... -- -- (1,060,646) (1,060,646)
--------- ----------- ------------ ----------
Balance, December 31, 1999 .................... -- (187,500) (5,678,714) (5,106,214)
Adjustment to reflect exchange of common
stock in reverse merger ................... -- 187,500 -- --
Issuance of preferred stock in exchange for
common stock .............................. -- -- -- --
Conversion of related party notes and
accrued interest into preferred stock ..... -- -- -- 3,216,171
Issuance of common stock, including
conversion of other debt and accrued
interest into common stock ................ -- -- -- 7,024,537
Common stock held by former Ebony & Gold
Ventures' shareholders .................... -- -- -- --
Issuance of common stock to acquire
technology and patent application ......... -- -- -- 993,103
Reverse merger expenses ..................... -- -- -- (582,938)
Issuance of common stock to acquire assets
of Copytron, Inc. ......................... -- -- -- 700,000
Stock-based compensation .................... (16,115) -- -- 964,945
Accrued dividends on convertible preferred
stock, Series A ........................... -- -- -- --
Fair value of warrants granted in connection
with issuance of notes payable to related
parties ................................... -- -- -- 83,317
Beneficial conversion feature of notes
payable to related parties ................ -- -- -- 101,276
Net loss for the period ..................... -- -- (7,998,543) (7,998,543)
--------- ----------- ------------ ----------
Balance, December 31, 2000 .................... $ (16,115) $ -- $(13,677,257) $ (604,346)
========= =========== ============ ==========
</TABLE>
See notes to consolidated financial statements.
45
<PAGE>
BOOKTECH.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Five Months
Year Ended Ended Year Ended
December 31, December 31, July 31,
2000 1999 1999
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,998,543) $(1,060,646) $(2,182,431)
Adjustments to reconcile net loss to net cash used for operating
activities:
Depreciation and amortization 625,524 23,515 49,101
Stock-based compensation 964,945 -- --
Related-party interest expense satisfied by issuing convertible
preferred stock, Series A 56,839 -- --
Amortization of warrants and beneficial conversion feature on
convertible notes payable to related parties 8,432 -- --
Loss on disposal of property and equipment -- 12,869 --
Write-off of acquisition deposit 300,000 -- --
(Decrease) increase in cash from:
Accounts receivable, net 22,963 (114,359) (37,084)
Other current assets (51,136) -- --
Deposits and other assets (50,654) (2,000) (23,200)
Stockholder's advance -- 19,267 (19,267)
Accounts payable 864,387 368,075 663,939
Accrued payroll and other expenses 138,953 234,605 8,308
Accrued interest to related parties 7,862 101,348 164,756
Deferred lease obligation (45,000) 60,000 120,000
----------- ----------- -----------
Net cash used in operating activities (5,155,428) (357,326) (1,255,878)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of customer list (129,969) -- --
Expenditures for property and equipment (822,814) (181,699) (35,948)
Payment of merger costs (582,938) -- --
Acquisition deposit (300,000) -- --
----------- ----------- -----------
Net cash used in investing activities (1,835,721) (181,699) (35,948)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft 25,681 -- --
Proceeds from notes and warrants issued to related parties 2,957,212 150,000 1,510,000
Repayments of notes to related parties (456,710) (22,707) (20,106)
Proceeds from other debt financings -- 595,539 100,000
Repayments of other debt financings (613,176) (159,505) (271,772)
Net proceeds from issuance of common stock 5,000,000 -- --
----------- ----------- -----------
Net cash provided from financing activities 6,913,007 563,327 1,318,122
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH (78,142) 24,302 26,296
CASH, BEGINNING OF PERIOD 82,753 58,451 32,155
----------- ----------- -----------
CASH, END OF PERIOD $ 4,611 $ 82,753 $ 58,451
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
46 |
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| To: ChainSaw who started this subject | 7/3/2001 11:35:30 PM | | From: jmhollen | | | | <PAGE>
BOOKTECH.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature of Business - booktech.com, inc., a Nevada corporation (the
"Company"), is a digital and on-demand publisher of custom textbooks, also
known as course packs, which are distributed primarily through college
bookstores. The Company is organized as one segment reporting to the chief
operating decision-maker, the Company's chief executive officer.
Basis of Presentation - The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going
concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
As shown in the consolidated financial statements, the Company incurred net
losses of $7,998,543, $1,060,646 and $2,182,431 during the year ended
December 31, 2000, the five months ended December 31, 1999, and the year
ended July 31, 1999, respectively. The Company expects that it will
continue to incur losses as it continues its activities pursuant to the
current business plan, particularly those related to sales, marketing and
content development. In addition, the Company's current liabilities at
December 31, 2000 and December 31, 1999 of $6,479,351 and $5,438,929,
respectively, exceeded its current assets at those dates by $6,218,101 and
$5,127,710, respectively and a majority of the Company's accounts payable
of $4,009,090 at December 31, 2000 were beyond their normal payment terms.
The Company is also in default on certain provisions of its lending and
other contractual agreements as of December 31, 2000 and 1999, and,
accordingly, the amounts are callable by the creditors and have been
classified as current liabilities within the accompanying consolidated
balance sheets. The Company has settled a legal proceeding relative to the
non-payment of certain obligations and may not presently have available
financing to satisfy its obligations resulting from the court judgment. The
Company has historically financed its operating losses and working capital
needs principally by loans from its stockholders and from commercial
lenders. The Company is currently seeking additional financing and there
can be no assurance that any additional financing will be available to the
Company on commercially reasonable terms, or at all. Further, due to
certain non-compliance with financial reporting regulations, the American
Stock Exchange (the "AMEX") suspended trading of the Company's common stock
in April 2001. This suspension precludes the Company from seeking financing
through the public markets until such time as the AMEX lifts the
suspension. These factors, among other things, raise substantial doubt
about the Company's ability to continue as a going concern for a reasonable
period of time.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts
and classification of liabilities should the Company be unable to continue
as a going concern. For example, the Company has deferred costs related to
an ongoing patent application process and the development of the Company's
website. Completion of the patent application process and the web site will
require additional financial resources, which the Company presently does
not have. Further additional financial resources will be required for
selling, general and administrative expenses to develop a sales and
distribution channel associated with the patented business process.
47
<PAGE>
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION (Continued)
The Company's continuation as a going concern is dependent upon its ability
to obtain additional financing or refinance current obligations, generate
sufficient cash flow through increased net sales and reduced costs, comply with
the terms of its financing agreements, and ultimately to attain profitable
operations. Management is continuing its efforts to (1) obtain sufficient
short-term financing to satisfy short-term obligations; (2) reduce operating
expenses through the reduction in staffing and the renegotiation of certain
contracts; (3) negotiate extended payment terms for current obligations with
vendors and/or convert existing obligations into equity; (4) return the Company
to compliance with SEC regulations and remove the suspension of trading of the
Company's stock; and (5) further develop markets for the Company's product with
educational institutions. An investment-banking firm has been engaged by the
Company to assist management and the Board of Directors explore strategic
opportunities including, but not limited to, a sale or merger of the Company, a
recapitalization or other actions to obtain additional financial resources.
2. MERGER TRANSACTION
On March 31, 2000, EG Acquisitions Corporation, a Nevada corporation,
the wholly-owned sole subsidiary of Ebony & Gold Ventures, Inc. ("Ebony &
Gold"), merged with and into booktech.com, inc., a Massachusetts
corporation ("booktechmass"), pursuant to an Agreement and Plan of Merger
(the "Merger") dated March 31, 2000. Following the Merger, the business to
be conducted by Ebony & Gold was the business conducted by booktechmass
prior to the Merger. In conjunction with the Merger, Ebony & Gold, which is
the legal acquirer and surviving legal entity, changed its name to
booktech.com, inc. In addition, booktechmass changed its fiscal year from
July 31 to December 31 to conform to the fiscal year of Ebony and Gold.
Pursuant to its terms, the Merger involved the following transactions:
(a) the Company issued 7,520,690 shares of its authorized but unissued
common stock (the "Common Stock") and 1,100,000 shares of its authorized
but unissued Series B Preferred Stock to the former stockholders of
booktechmass in exchange for the 25,000 shares of common stock of
booktechmass issued and outstanding as of the effective time of the Merger;
(b) certain debt and accrued interest totaling $3,216,171 owed by
booktechmass to related parties was converted into 2,135,301 shares of the
Company's Series A Preferred Stock; (c) the Company sold 4,666,667 shares
of its common stock, including warrants to purchase an additional 833,333
shares of common stock, in a private placement (the "Private Placement") to
certain accredited investors for an aggregate purchase price of
approximately $7,000,000, including conversion of the notes payable,
advances and accrued interest owed to Verus Investments Holdings, Inc. (at
the time of the Merger, the Company received net cash proceeds of
$5,000,000 from the Private Placement); and (d) the Company purchased
technology and a related patent application from Virtuosity Press LLC, a
Delaware Limited Liability Company ("Virtuosity"), in exchange for
1,379,310 shares of its common stock.
At the time of the Merger, the common and preferred shares issued to
the former stockholders of booktechmass represented a majority of the
Company's voting stock, enabling them to retain voting and operating
control of the Company. The Merger was accounted for as a capital
transaction and was treated as a reverse acquisition, as the stockholders
of booktechmass received the larger portion of the voting interests in the
combined enterprise. Since the accounting applied differs from the legal
form of the merger, the Company's financial information for periods prior
to the Merger represent the financial results of booktechmass. Estimated
costs of the Merger were $582,938, which have been reflected as a reduction
in additional paid-in capital.
Under the terms of the Merger, the Company was required to use its
best efforts to file a registration statement to register 5,111,667 shares
of common stock by July 31, 2000 and an additional registration statement
to register 1,928,823 shares of common stock within six (6) months of the
effective date of the first registration
48
<PAGE>
2. MERGER TRANSACTION (Continued)
statement or within 30 days of the exercise, in whole or in part, by Verus
Investments Holdings, Inc. of its warrant to purchase 833,333 shares of
common stock.
Pro Forma Disclosure - The following table presents the unaudited
pro forma results of operations for the year ended December 31, 2000, the
five months ended December 31, 1999 and the year ended July 31, 1999
assuming the merger had occurred on August 1, 1998. These pro forma results
have been prepared for comparative purposes only and are not necessarily
indicative of what would have occurred had the Merger occurred at that date
or of results which may occur in the future.
<TABLE>
<CAPTION>
Five Months
Year Ended Ended Year Ended
December 31, December 31, July 31,
2000 1999 1999
------------- ------------ ------------
<S> <C> <C> <C>
Net sales ........................... $ 1,725,019 $ 1,024,866 $1,328,8213
Loss from operations ................ (7,871,260) (938,605) (1,968,145)
Net loss ............................ (7,942,064) (933,642) (1,971,684)
Net loss attributable to common
stockholders ........................ (8,202,571) (933,642) (1,971,684)
Net loss attributable to common
stockholders per share - basic and
diluted ............................. $ (.44) $ (.05) $ (.11)
Shares used in computing basic and
diluted net loss per common share ... 18,839,830 18,556,667 18,556,667
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The Company has accounted for the Merger
as a reverse acquisition. Accordingly, the Company's financial statements
for periods prior to March 31, 2000 represent those of booktechmass, which
is considered to be the acquirer for accounting purposes. The financial
statements for periods subsequent to March 31, 2000 include the accounts of
the Company and its wholly owned subsidiary after the elimination of all
significant intercompany balances.
Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America 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 balance sheet dates. Actual
results could differ from those estimates.
Fair Value of Financial Instruments - The Company's financial
instruments, including cash, accounts receivable, accounts payable, notes
payable, and short-term debt, are carried at cost which approximates their
fair values because of the short-term nature of these instruments.
Concentration of Credit Risk and Major Customer Information -
Financial instruments that potentially expose the Company to significant
concentrations of credit risk consist principally of accounts receivable.
The Company performs ongoing credit evaluations of its customers and does
not require collateral. In addition, the Company maintains allowances for
potential credit losses, and such losses, in the aggregate, have not
exceeded
49
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
management expectations. One customer accounted for 29%, 70% and 75% of net
sales for the year ended December 31, 2000, the five months ended December
31, 1999 and the year ended July 31, 1999, respectively. This same customer
accounted for 16% and 77% of the accounts receivable at December 31, 2000
and 1999, respectively.
Revenue Recognition - Revenue is recognized at the point in time when
persuasive evidence of an arrangement exits, the price is fixed and final,
delivery has occurred and there is a reasonable assurance of collection of
the sales proceeds. Provisions are recorded for estimated sales returns
based on historical data.
Equity - The Company accounts for stock options granted to employees
using the intrinsic value method in accordance with Accounting Principles
Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees",
and complies with the disclosure provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation."
Equity instruments issued to non-employees are accounted for in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task
Force ("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are
Issued To Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services". All transactions in which goods or services
are the consideration received for the issuance of equity instruments are
accounted for based on the fair value of the consideration received or the
fair value of the equity instrument issued, whichever is more reliably
measurable. The measurement date of the fair value of the equity instrument
issued is the earlier of the date on which the counterparty's performance
is complete or the date on which it is probable that performance will
occur.
For the purpose of reporting per share data, all amounts reflect the
effects of the Merger.
Income Taxes - Deferred tax liabilities and assets are determined
based on the difference between the financial statement carrying amounts
and tax bases of existing assets and liabilities, using enacted tax rates.
Valuation allowances are established when necessary to reduce the deferred
tax assets to those amounts expected to be realized.
Net Loss per Common Share - Basic net loss per common share is
computed by dividing net loss attributable to common stockholders by the
weighted-average number of common shares outstanding during the period.
Diluted net loss per common share reflects, in addition to the
weighted-average number of common shares, the potential dilution if common
stock options and warrants were exercised into common stock, convertible
preferred stock was converted into common stock and the vesting of
restricted stock awards, unless the effect is antidilutive. Dividends on
the convertible preferred stock Series A, which are payable in shares of
common stock on the first day of each fiscal year, have been accrued at the
rate of 8% per annum in determining the net loss attributable to common
stockholders.
Basic and diluted net loss per common share are the same for all
periods presented, as potentially dilutive stock options of 1,774,566 in
2000 (862,070 for the five months ended December 31,1999 and 344,828 for
the year ended December 31, 1999), common stock warrants of 1,083,333 in
2000 (none in the five months ended December 31,1999 and year ended July
31, 1999), 1,710,086 shares of common stock issuable upon conversion of the
convertible preferred stock, Series A and B in 2000 (none in the five
months ended December 31,1999 and year ended July 31, 1999), 85,106 shares
issuable upon conversion of the $200,000 note payable to Verus and unvested
restricted stock awards of 6,944 (none in the five months ended December
31, 1999 and year ended July 31, 1999) have not been included in the
calculation of diluted net loss per common share as their inclusion would
have been antidilutive.
Comprehensive Loss - Comprehensive loss was equal to net loss for each
period presented.
Cash and Equivalents - The Company considers all highly liquid
investments with remaining maturities of three months or less when
purchased to be cash equivalents.
50 |
| | booktech.com BTC - AMEX | Stock Discussion ForumsShare | RecommendKeepReplyMark as Last Read |
|
| To: ChainSaw who started this subject | 7/3/2001 11:38:33 PM | | From: jmhollen | | | | <PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment - Property and equipment is stated at cost.
Expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation and amortization are provided using the straight-line method over
the estimated useful lives of the related assets. Ranges of useful lives are as
follows:
Years
-----
Computer software................................ 3
Office and computer equipment.................... 3-5
Furniture and fixtures........................... 7
Leasehold improvements........................... 1-5
Vehicles......................................... 5
Intangible Assets - Intangible assets are recorded at cost and are
amortized on a straight-line basis over their estimated useful lives (generally
five years).
Impairment of Long-Lived Assets - Recoverability of intangible and other
long-lived assets is determined periodically by comparing the forecasted,
undiscounted net cash flows of the operations to which the assets relate to
their carrying amounts.
Adoption of New Accounting Pronouncements - In June 1998, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
The Company adopted SFAS No. 133 on January 1, 2001 as required. The adoption of
this accounting standard did not have an effect on the Company's financial
position or the results of its operations.
On December 3, 1999, the SEC issued Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements." SAB No. 101 provides
guidance on the recognition, presentation and disclosure of revenues in
financial statements filed with the SEC. The Company adopted SAB No. 101 in the
fourth quarter of 2000. The adoption of this bulletin did not have an effect on
the Company's financial position and its results of operations.
Reclassifications - Certain reclassifications have been made to the 1999
amounts to conform to the 2000 presentation.
51
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Supplemental Cash Flow Information - The following table sets forth certain
supplemental cash flow information for the year ended December 31, 2000, the
five months ended December 31, 1999 and the year ended July 31, 1999:
<TABLE>
<CAPTION>
Five Months
Year Ended Ended Year Ended
December December July 31,
31, 2000 31, 1999 1999
----------- ---------- ----------
<S> <C> <C> <C>
Cash paid during the period for interest ................................... $ 37,591 $ 16,548 $ 53,721
Non-Cash Financing Activities
Conversion of related-party loans and accrued interest into preferred
stock ............................................................... $ 3,216,171 $ -- $ --
Acquisition of technology and related patent application through the
issuance of common stock ............................................ 993,103 -- --
Conversion of related party loans, notes payable, advances and related
accrued interest into common stock .................................. 2,024,537 500,000 --
Property and equipment acquired through the issuance of debt and trade
credit .............................................................. 2,696,004 488,393 --
Customer list acquired through the issuance of debt and common
stock ............................................................... 900,000 -- --
Dividends on convertible preferred stock, Series A payable in
shares of common stock .............................................. 195,736 -- --
Warrants granted in connection with the issuance of convertible notes
payable to related-parties .......................................... 83,317 -- --
Beneficial conversion feature of convertible notes payable to
related parties .................................................... 101,276 -- --
Liabilities to the former officers of Ebony & Gold Ventures, Inc.
forgiven in conjunction with the reverse merger ..................... 17,564 -- --
Conversion of accounts payable into long-term debt ...................... -- -- 406,514
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 31,
-----------------------------
2000 1999
----------- -----------
Computer software .............................. $ 2,676,766 $ 314,491
Office and computer equipment .................. 1,272,830 263,241
Furniture and fixtures ......................... 229,642 149,934
Leasehold improvements ......................... 80,962 80,632
Vehicles ....................................... 66,916 --
----------- -----------
Total property and equipment .............. 4,327,116 808,298
Less accumulated depreciation .................. (613,621) (73,928)
----------- -----------
Property and equipment, net ................ $ 3,713,495 $ 734,370
=========== ===========
52
<PAGE>
4. PROPERTY AND EQUIPMENT (Continued)
The cost and related accumulated depreciation of leased office and computer
equipment which have been capitalized aggregate $1,041,000 and $144,000 at
December 31, 2000 and $109,000 and $1,000 at December 31, 1999,
respectively.
5. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 2000:
Acquired technology and patent application............ $ 993,103
Acquired customer list................................ 1,029,969
-----------
2,023,072
Less accumulated amortization......................... (85,831)
-----------
Intangible assets, net............................. $ 1,937,241
===========
Acquired Technology and Patent Application - In conjunction with the
Merger, the Company purchased technology and a related patent application from
Virtuosity Press LLC in exchange for 1,379,310 shares of common stock. The U.S.
patent office has not awarded the patent to the Company at December 31, 2000.
Accordingly, no amortization of the asset has been recorded in the accompanying
consolidated financial statements as of December 31, 2000. When approval of the
patent is received, the Company will determine the useful life of the patent,
and begin amortization of the purchase cost on a straight-line basis over the
estimated useful life.
Acquired Customer List. - On August 2, 2000, the Company entered into an
Asset Purchase Agreement (the "Agreement") with Copytron, an unrelated entity,
to purchase a customer list for a maximum aggregate purchase price of up to
$1,300,000. The terms of the agreement required aggregate cash payments of
$300,000, $100,000 at closing and $200,000 payable in three installments with
the last $100,000 due on October 9, 2000, and the $1.0 million balance of the
purchase price to be paid through the issuance of three tranches of the
Company's common stock. The Company paid the $100,000 at closing and one
additional $100,000 installment during 2000. However, given the Company's
financial position, the Company only paid $50,000 as of December 31, 2000
against the last installment and the balance of $50,000 owing on the last
installment remains unpaid as of June 25, 2001. Accordingly, the Company is in
default under the terms of this promissory note. On August 2, 2000, the Company
issued 238,298 shares of common stock with an aggregate value of $700,000 as
payment of the first tranche under the Agreement. On the one year anniversary of
the Agreement, and in the event that the fair value of the Company's common
stock is less than the fair market value, as defined in the Agreement, the
Company is obligated to pay, either in cash or in common stock at the
discretion of the Company, an amount, which when combined with the value of the
original issuance of the Company common stock has an aggregate value of
$700,000. The Company intends to satisfy this requirement by issuing additional
shares of common stock. As calculated using the April 23, 2001 fair market value
of the Company's common stock, the Company would be obligated to issue an
additional 720,000 shares. In addition, the Company will issue additional shares
of common stock on August 2, 2001 and 2002, if annual sales from customers
previously served by Copytron exceed $700,000, with each issuance having a then
current fair market value of up to $150,000. The customer list is being
amortized on a straight-line basis over an estimated life of 5 years.
6. NOTES PAYABLE AND OTHER DEBT (INCLUDING RELATED-PARTY FINANCINGS)
Notes payable and other debt consist of the following:
December 31,
--------------------------
2000 1999
----------- -----------
Capital lease obligations ......................... $ 883,105 $ 108,051
Ford Motor Credit Company ......................... 17,067 --
Notes payable to Verus Investments Holdings, Ltd. . 1,139,261 500,000
Note payable to Copytron, Inc. .................... 50,000 --
Notes payable to stockholders ..................... -- 2,953,759
Equipment supplier promissory note ................ -- 231,254
Advance under line of credit ...................... -- 95,539
Small Business Administration loans ............... -- 94,818
----------- -----------
Sub-total ..................................... 2,089,433 3,983,421
Less: Unamortized debt discount ............... (176,161) --
----------- -----------
Total Debt .................................... 1,913,272 3,983,421
Less: Amounts due to related parties .......... (1,013,100) (2,953,759)
Current portion of long-term debt ....... (888,587) (437,838)
----------- -----------
Long-term debt ................................. $ 11,585 $ 591,824
=========== ===========
53
<PAGE>
6. NOTES PAYABLE AND OTHER DEBT (INCLUDING RELATED PARTY FINANCINGS)
(Continued)
Capital lease obligations - The Company leases computer hardware and
software and certain office equipment under noncancelable leases expiring at
various dates through 2004. The Company has not complied with the payment
provisions within these leases and accordingly is in default at December 31,
2000. The Company has classified these leases within the current portion of
long- term debt in the accompanying consolidated balance sheet at December 31,
2000.
Scheduled future minimum lease payments, without giving effect to the event
of default, at December 31, 2000 are as follows:
Year Ending December 31,
-----------------------
2001 $ 748,606(1)
2002 183,212
2003 38,546
2004 19,249
----------
Total 989,613
Less amounts representing interest 106,508
----------
Present value of minimum lease payments $ 883,105
----------
(1) Includes $218,900 of payments in arrears
Ford Motor Credit Company - On March 2, 2000, the Company financed the
purchase of a motor vehicle. The loan is due in 48 monthly installments of $435,
including interest at an annual rate of 0.9%, with a final maturity on April 15,
2004. Approximately $5,482 is due within the next twelve (12) months and
included within the current portion of long-term debt in the accompanying
consolidated balance sheet at December 31, 2000. The balance of $11,585 is
included in long-term-debt.
Notes Payable to Verus Investments Holdings, Inc. - Subsequent to the
Merger, Verus Investments Holdings, Inc. ("Verus"), a stockholder and a British
Virgin Islands corporation controlled by a director of the Company, provided
$939,261 through a promissory note and $200,000 through convertible notes to
fund the Company's working capital needs. The notes are unsecured, carry
interest at a rate of 8% and 10%, respectively, per annum and mature December
31, 2001 and November 22, 2001, respectively. The $200,000 convertible notes are
convertible, at the option of the holder, into shares of common stock on the
earlier of 1) November 22, 2001 at a conversion rate of $2.35 per share or 2) at
anytime at a conversion rate of $2.94 per share when the average price, as
defined in the convertible note agreement, exceeds $3.675.
Since the fair market value of the Company's common stock was $2.56 on the
date the $200,000 convertible notes payable were issued and the notes could
ultimately be converted at a lower per share value, the convertible notes
contained a beneficial conversion feature. In accordance with Emerging Issues
Task Force Issue No. 00-27 "Application of Issue No. 98-5 to Certain Convertible
Instruments", the Company allocated $101,276 of the proceeds received to the
beneficial conversion feature which was recorded as a discount on the issuance
of the convertible notes and an increase to additional paid-in capital. The
discount will be amortized and recognized through a charge to interest expense
over the twelve month period ended November 22, 2001. None of the convertible
notes have been converted through December 31, 2000.
In addition, Verus was granted warrants to purchase 50,000 shares of common
stock at $2.94 per share in connection with the financing transactions. The fair
value of the warrants of $83,317 was recorded as a discount on the issuance of
the convertible notes and an increase in additional paid-in capital. The
discount will be amortized and recognized through a charge to interest expense
using the effective interest method through the convertible notes' maturity
date. The fair value of the warrants was determined using the Black-Scholes
option pricing model
54
<PAGE>
6. NOTES PAYABLE AND OTHER DEBT (INCLUDING RELATED PARTY FINANCINGS)
(continued)
based on a quoted market price of the common stock of $2.56 on the issuance
date; a risk-free interest rate of 6.5%; an expected warrant life of 3 years; no
dividends; and a volatility of 106%.
During 1999, the Company obtained two promissory notes from Verus in the
amount of $250,000 each, bearing an annual interest rate of 8%. The notes
payable, advances and accrued interest were converted into the Company's common
stock on March 31, 2000 in conjunction with the Merger.
Note Payable to Copytron, Inc. - In connection with the customer list
acquired from Copytron, the Company issued a $200,000 in promissory note payable
in three monthly installments through October 9, 2000. The Company did not pay
$50,000 against the last $100,000 installment of the promissory note as of
December 31, 2000 and, accordingly, the Company is in default under the terms of
the promissory note.
Note payable to Stockholders - The Company has been financed principally by
loans from its stockholders. At December 31, 1999, the outstanding notes payable
to stockholders aggregated $2,953,759, at an annual interest rate ranging from
8% to 8.25%, and were due at various dates through June 2000. In connection with
the Merger, the $2,953,759 in principal plus accrued interest was converted into
2,135,301 shares of the Company's Series A Preferred Stock.
Equipment Supplier Promissory Note - On April 15, 1999, the Company
converted $406,514 of amounts due to an equipment supplier into a promissory
note due December 15, 1999. At December 31, 1999, the Company was in default of
the promissory note. Accordingly, the note was classified and included within
current long-term debt at December 31, 1999. In April 2000, the Company repaid
the note, including the related accrued interest, with the proceeds from the
sale of common stock issued in conjunction with the Merger.
Line of Credit - The Company had a line of credit which allowed borrowings
up to $100,000. In April 2000, the Company repaid the line in full, including
the related accrued interest, with the proceeds from the sale of the common
stock issued in conjunction with the Merger, and the line of credit was
cancelled.
Small Business Administration Loans - In April 2000, the Company repaid the
loans in full, including the related accrued interest, with the proceeds from
the sale of common stock issued in conjunction with the Merger.
7. EQUITY
Stock Option and Restricted Stock Grants Under 2000 Stock Option Plan
The Company has a 2000 Stock Option Plan (the "Plan") pursuant to which
employees, officers, directors, consultants and advisors of the Company are
eligible to receive stock options, restricted stock, and other stock-based
awards, including stock appreciation rights. The maximum number of shares of
common stock that may be issued under the Plan is 5,000,000. The Plan is
administered by the Board of Directors, which has the authority to designate the
nature of the award, the number of shares and the vesting period, among other
terms. The stock options expire no later than ten years from the date of grant.
As of December 31, 2000, there were 2,883,853 shares of common stock available
for future issuance under the Plan.
During the year ended December 31, 2000, the Company granted options to
purchase 1,429,738 shares of its common stock at a weighted average exercise
price of $.66 to its employees. In addition, in connection with the Merger, the
Company adjusted the number and exercise price of certain unexercised options.
These adjustments were accounted for in accordance EIFT Issue No. 90-9, "Changes
to Fixed Employee Stock Option Plans as a Result of Equity Restructuring".
Certain options granted during 2000 include a cashless exercise feature allowing
the grantee to exercise the option and to utilize the appreciation in the value
of the common stock as payment for the shares received.
55
<PAGE>
7. EQUITY (Continued)
The Company accounts for stock options granted to employees and
non-employee directors in accordance with APB No. 25. Under APB No. 25,
compensation expense is recorded when fixed award options are granted with
exercise prices at less than the fair value of the common stock on the date of
grant. Options with a cashless exercise feature are accounted for as variable
award options. Variable award options are subject to remeasurement criteria and
could result in additional future compensation expense until such time as the
options are either exercised, forfeited or expire without exercise. For unvested
options, deferred compensation is recorded and amortized as stock-based
compensation expense over the future vesting period.
The Company recorded stock-based compensation expense of $390,602 relating
to the employee stock option grants in 2000. Additional stock-based compensation
expense will be recorded in the future as the deferred compensation of $16,115
at December 31, 2000 is amortized over the remaining three-year vesting period.
In 2000, the Company also awarded 341,581 shares of common stock under the
Plan at a weighted average exercise price of $.89 to certain employees and a
former employee. The Company recorded stock-based compensation expense of
$172,200 during the year ended December 31, 2000 in connection with these awards
based on the fair value of the shares at the dates of grant.
Stock option activity for the year ended December 31, 2000, the five months
ended December 31, 1999 and the year ended July 31, 1999 was as follows:
Weighted
Number of Average
Shares Exercise Price
--------- --------------
Outstanding at August 1, 1998 .................. -- $ --
Granted ..................................... 344,828 .29
Exercised ................................... -- --
Cancelled ................................... -- --
---------
Outstanding at July 31, 1999 ................... 344,828 .29
Granted ..................................... 517,242 .58
Exercised ................................... -- --
Cancelled ................................... -- --
---------
Outstanding at December 31, 1999 ............... 862,070 .46
Granted ..................................... 1,429,738 .66
Exercised ................................... -- --
Cancelled ................................... (517,242) (.39)
---------
Outstanding at December 31, 2000 ............... 1,774,566 .64
=========
Exercisable at December 31, 2000 ............... 1,273,565
Exercisable at December 31, 1999 ............... 344,828
Exercisable at July 31, 1999 ................... --
The weighted average fair value of options granted during the year ended
December 31, 2000, the five months ended December 31, 1999 and the year ended
July 31, 1999 was $.47, $.12, and $.16 respectively.
56
<PAGE>
7. EQUITY (continued)
The following table sets forth additional information regarding options
outstanding at December 31, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------- --------------------------------
Exercise Number of Weighted Average Weighted Average Number of Weighted Average
Prices Shares Exercise Price Remaining Life - Years Shares Exercise Price
-------- --------- ---------------- ---------------------- -------- ----------------
<S> <C> <C> <C> <C> <C>
$ .29 344,828 $ .29 8.50 344,828 $ .29
$ .58 862,070 $ .58 9.28 862,070 $ .58
$ .66 330,334 $ .66 9.17
$ 1.25 166,667 $ 1.25 9.00 -- --
$ 1.50 66,667 $ 1.50 9.25 66,667 $ 1.50
$ 2.88 4,000 $ 2.88 9.41 -- --
</TABLE>
Pro Forma Disclosure - The Company uses the intrinsic value method to
measure compensation expense associated with grants of employee stock options.
SFAS No. 123 requires the disclosure of pro forma information as if the Company
adopted the fair value method of accounting for grants to employees. For
purposes of the pro forma disclosures, the fair value of the options on their
grant date was measured using the Black-Scholes option pricing model.
Forfeitures are recognized as they occur.
Had compensation expense on the employee options been determined based on
the fair value method of accounting in accordance SFAS No. 123, the Company's
net loss and net loss per common share would have been as follows:
<TABLE>
<CAPTION>
Year Ended Five Months Ended Year Ended
December 31, 2000 December 31, 1999 July 31, 1999
----------------- ----------------- -------------
<S> <C> <C> <C>
As Reported:
-------------
Net loss attributable to common stockholders ... $ (8,194,279) $ (1,060,646) $ (2,182,431)
------------ ------------ ------------
Net loss per common share - basic and
diluted .................................... (.51) (.15) (.36)
------------ ------------ ------------
Pro Forma:
-------------
Net loss attributable to common stockholders ... $ (8,564,388) $ (1,102,717) $ (2,190,833)
------------ ------------ ------------
Net loss per common share - basic and
diluted .................................... (.53) (.16) (.36)
------------ ------------ ------------
</TABLE>
Key assumptions used to apply the Black-Scholes option-pricing model are as
follows:
<TABLE>
<CAPTION>
Year Ended Five Months Ended Year Ended
December 31, 2000 December 31, 1999 July 31, 1999
----------------- ----------------- -------------
<S> <C> <C> <C>
Risk-free interest rate............................ 6.0% 5.5% 5.5%
Expected life of the options....................... 1-3 Years 3 Years 3 Years
Expected volatility of underlying stock............ 100% 40.7% 40.7%
Dividends.......................................... None None None
</TABLE>
57 |
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| To: ChainSaw who started this subject | 7/3/2001 11:40:34 PM | | From: jmhollen | | | | <PAGE>
7. EQUITY (continued)
Common Stock Warrants
On March 31, 2000 in connection with the Merger, the Company issued
warrants to purchase 833,333 shares of the Company's common stock to certain
investors.
On August 31, 2000, the Company engaged an outside financial advisor. In
addition to a retainer of $15,000, the Company granted warrants to the financial
advisor to purchase 200,000 of the Company's common stock for $3.75 per share.
The Company recorded stock-based compensation expense of $402,143 representing
the fair value of the stock warrants at the date of grant. The fair value of the
stock warrants was measured using the Black-Scholes option pricing model, based
on a quoted market price of the common stock of $3.75 at the date of grant; a
risk-free interest rate of 5.84%; an expected warrant life of 2.5 years; no
dividends; and a volatility of 85%.
In November 2000, the Company issued warrants to purchase 50,000 shares of
common stock for $2.94 per share in conjunction with the issuance of convertible
debt (See Note 6).
At December 31, 2000, the weighted average exercise price of all
outstanding warrants issued was $1.98 per share.
8. WRITE-DOWN OF ACQUISITION DEPOSIT
During 2000, the Company entered into an agreement to acquire On Demand
Machine Company ("ODMC"). In connection with the proposed acquisition, the
Company deposited $300,000 with ODMC which was refundable in the event the
acquisition was not completed. The acquisition was not consummated and ODMC has
indicated to the Company that any return of the deposit will be in ODMC common
stock. Given the illiquid nature of ODMC's common stock, the Company provided
for a full valuation allowance against the common stock. A member of the
Company's management is a greater than 5% stockholder in ODMC.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases - The Company leases office facilities and certain
equipment under noncancelable operating leases expiring at various dates through
October 2005. The leases are generally renewable at the option of the Company
for an additional five years. Total rent expense under these leases was
$161,956, $52,700 and $75,600 for the year ended December 31, 2000, the five
months ended December 31, 1999 and the year ended July 31, 1999, respectively.
At December 31, 2000, future minimum lease payments under these leases are as
follows:
Year Ending December 31,
-----------------------
2001 $ 170,486
2002 166,323
2003 161,268
2004 157,104
2005 124,374
---------
Total $ 779,555
=========
58
<PAGE>
9. COMMITMENTS AND CONTINGENCIES (continued)
Purchase of Copytron, Inc. Customer List - In connection with the purchase
of a customer list on August 2, 2000, the Company may be required to issue
additional shares of common stock (See Note 5).
Consulting Agreements -In connection with the Merger, the Company entered
into a consulting arrangement with an affiliate of Verus. The consulting
agreement provided for consulting fees of $15,000 per month for a two-year
period commencing March 31, 2000. The agreement was terminated effective
September 30, 2000. The Company paid $30,000 under this agreement, and the
balance owed of $60,000 is included in accounts payable at December 31, 2000.
Services Agreement - In March 1999, the Company entered into an agreement
with Xerox Corporation ("Xerox") to provide reproduction services. The term of
the agreement is 60 months and initially included base payment increases over
the term of the agreement. The agreement was renegotiated in May 2000. The total
amount of the initial base service payments is being charged to expense using
the straight-line method over the term of the agreement. The Company has
recorded a deferred credit to reflect the excess of the services expense over
cash payments since the inception of the agreement. Deferred lease credits of
$45,000 and $33,750 are reported within other accrued expenses and $101,250 and
$146,250 are reflected in deferred lease obligation within the accompanying
balance sheets at December 31, 2000 and 1999, respectively. One member of the
Company's Board of Directors serves in an executive capacity at Xerox. Future
scheduled minimum payments under the service agreement are as follows:
Year Ending December 31,
------------------------
2001 $ 894,276
2002 894,276
2003 894,276
2004 223,569
----------
Total $2,906,397
==========
At December 31, 2000, included in accounts payable are past due amounts on prior
service payments aggregating $455,627. On January 10, 2001, the Company
refinanced this amount into a promissory note (See Note 13). A stockholder has
personally guaranteed the Company's performance under the note.
Litigation - The Company was previously in litigation with Advizex, Inc.
for which a settlement was reached on June 5, 2001. The Company intends to enter
into a Consent Judgement which will require the Company to pay $120,000 in cash
beginning in July 2001 in equal installments over a twelve month period. In
addition, the Company will be required to issue common stock to Advizex with a
value of $120,000 based on the June 5, 2001 market price per share of $.73. The
Company has provided for the cost of this settlement at December 31, 2000.
The Company is party in various legal proceedings and potential claims
arising in the normal course of business. While the ultimate outcome of these
claims cannot be predicted, and assuming the Company raises adequate funding,
management does not believe, after consultation with counsel, the settlement of
these claims, if any, will have a material effect on the Company's financial
position or the results of its operations.
59
<PAGE>
10. INCOME TAXES
Significant components of the Company's deferred tax assets (liabilities)
are as follows:
December 31,
----------------------------
2000 1999
----------- -----------
Deferred tax assets (liabilities):
Net operating loss carryforwards .............. $ 5,017,000 $ 2,019,000
Allowance for sales returns ................... 31,000 37,000
Depreciation and amortization ................. (7,000) (8,000)
Accrued vacation .............................. 23,000 14,000
Accrued interest .............................. 7,000 146,000
Deferred credit ............................... 59,000 72,000
Amortization of the customer list ............ 23,000 --
----------- -----------
5,153,000 2,280,000
Less valuation allowance ........................ (5,153,000) (2,280,000)
----------- -----------
Net deferred tax assets ...................... $ -- $ --
=========== ===========
The increase in the Company's valuation allowance for the periods presented
results principally from the increase in the Company's deferred tax assets
related to the operating losses. The Company has established a valuation
allowance at December 31, 2000 and 1999 because of uncertainties regarding its
ability to generate sufficient taxable income in the applicable tax jurisdiction
to utilize the net operating loss carryforwards during the carryforward period
and to realize the full benefit from future tax deductions.
The Company has federal and state tax net operating loss carryforwards
available for future periods of approximately $12,542,000. The federal tax net
operating loss carryforwards expire beginning in 2011 through 2020 and state tax
net operating loss carryforwards expire beginning in 2002 through 2005. As a
result of the changes in the ownership of the Company, the Company's net
operating loss carryovers and certain other tax attributes may be limited under
Section 382 of the International Revenue Code.
A reconciliation of the applicable U.S. statutory tax rate to the effective
tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended Five Months Ended Year Ended
December 31, 2000 December 31, 1999 July 31, 1999
----------------- ------------------ -------------
<S> <C> <C> <C>
Federal statutory rate............................ 34% 34% 34%
State tax, net of federal impact.................. 6 6 6
Stock-based compensation expense ................. (9) -- --
Increase in valuation allowance .................. (31) (40) (40)
---- ---- ----
Effective tax rate................................ -- % -- % -- %
==== ==== ====
</TABLE>
60
<PAGE>
11. STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred Stock
At December 31, 2000, the Company had authorized 5,000,000 shares of
preferred stock, issuable in one or more series. Of the total shares issued at
December 31, 2000, 2,135,301 have been designated as convertible preferred
stock, Series A ("Series A") and 1,100,000 have been designated as convertible
preferred stock, Series B ("Series B").
Holders of the Series A are entitled to one vote for every three and one
half shares held on all matters submitted to a vote of the stockholders, except
that holders of a majority of the shares of Series A must approve changes to the
Certificate of Designation for the Series A and issuances of securities with
rights senior to the Series A. Dividends accrue daily at a rate of 8% of the
original issue price per annum and are settled by the issuance of shares of
common stock on January 1 of each succeeding year. In the event of liquidation,
the holders of the Series A shall receive, before any payments to the common
stock holders and the holders of the Series B, the original issue price per
share plus any accrued but unsettled dividends. Holders of the Series A may
convert the shares into common stock at any time at a rate of three and one half
shares of Series A for one share of common stock. On January 1, 2001, the
Company issued 113,608 shares for stock dividends.
Holders of the Series B are entitled to six votes for every one share held
on all matters submitted to a vote of the stockholders, except that holders of a
majority of the Series B must approve changes to the Certificate of Designation
for the Series B and issuances of securities with rights senior to the Series B.
No dividends are payable on the Series B. In the event of liquidation, the
holders of the Series B shall receive, before any payments to the common stock
holders, the original issue price per share, as determined by the Company's
Board of Directors. Holders of the Series B were permitted to convert the shares
into shares of common stock at any time. All shares of Series B were converted
into shares of common stock on March 31, 2001 in accordance with Series B
agreement. The conversion rate is one share of Series B for one share of common
stock.
Treasury Stock
In conjunction with the Merger, the Company's outstanding treasury stock
was retired.
12. TRANSACTIONS WITH RELATED PARTIES
The Company's transactions with Verus and its affiliates, Xerox, members of
management and significant stockholders described in these notes to the
financial statements are related party transactions in accordance with SFAS No.
57, "Related Party Disclosures".
13. SUBSEQUENT EVENTS
On January 1, 2001, the Company issued 113,608 common stock shares to
settle the $195,736 stock dividend accrued at December 31, 2000.
On January 5, 2001, the Company borrowed $55,000 from two of its officers.
These promissory notes are unsecured, bear interest at 5% per annum and were due
February 5, 2001. As of June 25, 2001, $46,000 has been repaid.
61
<PAGE>
13. SUBSEQUENT EVENTS (continued)
On January 10, 2001, the Company refinanced $455,627 of accounts payable
due to Xerox under the services agreement described in Note 9 with a promissory
note. The note is payable in monthly installments of $41,339, including interest
at a rate of 16% per annum, beginning on February 15, 2001. The final payment
will be due on January 10, 2002, unless the Company defaults under the terms of
the note, in which case, the note becomes fully due and payable. The Company has
not made the required payments under the promissory note in 2001 and,
accordingly, the Company is in default of the note. A stockholder has personally
guaranteed the Company's performance under this note.
On January 19, 2001 the Company borrowed $40,000 from two additional
officers. These promissory notes are unsecured, are due February 19, 2001, and
are payable with interest at a rate of 5% per annum. The notes have not been
repaid.
On February 8, 2001, the Company sold 40,000 shares of its common stock to
an accredited investor for $20,000.
On February 13, 2001 the Company borrowed $100,000 from a stockholder and
officer of the Company due and payable on June 30, 2001 with interest at 8% per
annum. This borrowing is unsecured.
On March 15, 2001, the Company offered to issue 500,000 shares of its
common stock to Dutchess Advisors, Ltd. ("Dutchess") as consideration for their
advisory services in connection with the Company's current efforts to secure
additional financing through a private placement. The shares would be issued
pursuant to Regulation D under the Securities Act, as amended. Of the total
shares that could be issued, 100,000 shares contain piggyback registration
rights. The Company rescinded the offer on June 22, 2001 and no shares have been
offered to Dutchess. An additional finder's fee may be paid in cash to Dutchess
upon completion of a private placement transaction.
On March 17, 2001, the Company entered into a factoring agreement covering
the majority of the Company's trade accounts receivable. Fees for these services
are expected to average 6% of amounts factored.
On March 22, 2001, the Company entered into an equity line of credit with a
private investor. Under the terms of the agreement, upon the effective
registration of the Company's common stock or from other available free trading
shares, the investor will purchase up to $10 million of such common stock over
the course of 36 months from the date of the agreement at an amount equal to 91%
of the market price as defined therein. The amount of shares to be put to the
investor by the Company is subject to certain average daily trading volumes for
the Company's common stock in the U.S. financial markets. In connection with
this agreement, the Company will issue 250,000 shares of common stock for no
consideration, to an affiliate of this investor.
14. NET LOSS PER SHARE
A reconciliation of net loss and weighted-average common shares outstanding
for purposes of calculating basic and diluted net income per share is as
follows:
<TABLE>
<CAPTION>
Five Months
Year Ended Ended
December 31, December 31, Year Ended
2000 1999 July 31, 1999
------------ ------------ -------------
<S> <C> <C> <C>
NUMERATOR:
Net loss ............................................. $ (7,998,543) $ (1,060,646) $ (2,182,431)
Preferred stock dividends ............................ (195,736) -- --
------------ ------------ ------------
Net loss attributable to common stockholders ......... $ (8,194,279) $ (1,060,646) $ (2,182,431)
DENOMINATOR:
Weighted average number of common shares outstanding:
Common Stock ....................................... 16,282,674 6,921,001 6,016,552
Effect of potentially dilutive common shares........ -- -- --
------------ ------------ ------------
Total ........................................... 16,282,674 6,921,001 6,016,552
------------ ------------ ------------
</TABLE>
62
</TEXT>
</DOCUMENT>
NUMBER SHARES
BTC 0338 booktech.com, inc. SPECIMEN
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
54,523,810 SHARES COMMON STOCK AUTHORIZED, $.00042 PAR VALUE
CUSIP 098583 10 7
SEE REVERSE FOR
CERTAIN DEFINITIONS
This certifies that
SPECIMEN
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
============================== booktech.com, inc. ==============================
transferable only on the books of the Corporation in person or by duly
authorized attorney upon surrender of this certificate properly endorsed. This
certificate and the shares represented hereby are subject to the laws of the
State of Nevada, and to the Certificate of Incorporation and Bylaws of the
Corporation, as now or hereafter amended. This certificate is not valid unless
countersigned by the Transfer Agent.
Dated
/s/ illegible booktech.com, inc. /S/ TED J. BERNHARDT
------------------ CORPORATE SEAL -----------------------
PRESIDENT NEVADA SECRETARY
Copyright S.C.B. Co.
Copyright SECURITY-COLUMBIAN UNITED STATES BANKNOTE CORPORATION
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, NJ)
TRANSFER AGENT AND REGISTRAR
By SPECIMEN
AUTHORIZED OFFICER |
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The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with the right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ........Custodian...........
(Cust) (Minor)
Act ................
(State)
Additional abbreviations may also be used though not in the above list.
For value received, _____________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
---------------------------------------
---------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________ , Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated __________________
X ______________________________________________________________________________
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER. THE SIGNATURE(S) MUST BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan
Associations and Credit Unions.)
</TEXT>
</DOCUMENT>
CUMMINGS PROPERTIES 7990453-AWT-A
STANDARD FORM
COMMERCIAL LEASE
In consideration of the covenants herein contained, Cummings Properties/LLC
hereinafter called LESSOR, does hereby lease to Book Tech. Inc. (a MA corp.),
605 Main Street, Winchester, MA 01890 hereinafter called LESSEE, the following
described premises, hereinafter called the leased premises: approximately 10,685
square feet at 42 and 43 Cummings Park, Woburn, MA 01801.
TO HAVE AND HOLD the leased premises for a term of five (5) years
commencing at noon on September 15, 1999 and ending at noon on September 14,
2004 unless sooner terminated as herein provided. LESSOR and LESSEE now covenant
and agree that the following terms and conditions shall govern this lease during
the term hereof and for such further time as LESSEE shall hold the leased
premises.
1. RENT. LESSEE shall pay to LESSOR base rent at the rate of one hundred
thirty three thousand three hundred forty eight (133,348) U.S. dollars per year,
drawn on a U.S. bank, payable in advance in monthly installments of $11,112.33
on the first day in each calendar month in advance, the first monthly payment to
be made upon LESSEE's execution of this lease, including payment in advance of
appropriate fractions of a monthly payment for any portion of a month at the
commencement or end of said lease term. All payments shall be made to LESSOR or
agent at 200 West Cummings Park, Woburn, Massachusetts 01801, or at such other
place as LESSOR shall from time to time in writing designate. If the "Cost of
Living" has increased as shown by the Consumer Price Index (Boston,
Massachusetts, all items, all urban consumers), U.S. Bureau of Labor Statistics,
the amount of base rent due during each calendar year of this lease and any
extensions thereof shall be annually adjusted in proportion to any increase in
the Index. All such adjustments shall take place with the rent due on January 1
of each year during the lease term with the first such adjustment on January 1,
2001. The base month from which to determine the amount of each increase in the
Index shall be January 1999, which figure shall be compared with the figure for
November 2000, and each November thereafter to determine the percentage increase
(if any) in the base rent to be paid during the following calendar year. In the
event that the Consumer Price Index as presently computed is discontinued as a
measure of "Cost of Living" changes, any adjustment shall then be made on the
basis of a comparable index then in general use.
2. SECURITY DEPOSIT. LESSEE shall pay to LESSOR a security deposit in the
amount of twenty two thousand (22,000) U.S. dollars upon the execution of this
lease by LESSEE, which shall be held as security for LESSEE's performance as
herein provided and refunded to LESSEE without interest at the end of this
lease, subject to LESSEE's satisfactory compliance with the conditions hereof.
LESSEE may not apply the security deposit to payment of the last month's rent.
In the event of any default or breach of this lease by LESSEE, LESSOR may
immediately apply the security deposit first to any unamortized improvements
completed for LESSEE's occupancy, then to offset any outstanding invoice or
other payment due to LESSOR, with the balance applied to outstanding rent. If
all or any portion of the security deposit is applied to cure a default or
breach during the term of the lease, LESSEE shall be responsible for restoring
said deposit forthwith, and failure to do so shall be considered a substantial
default under the lease. LESSEE's failure to remit the full security deposit or
any portion thereof when due shall also constitute a substantial lease default.
Until such time as LESSEE pays the security deposit and first month's rent,
LESSOR may declare this lease null and void for failure of consideration.
3. USE OF PREMISES. LESSEE shall use the leased premises only for the
purpose of executive and administrative offices and business printing, and all
other lawful uses necessary and incidental to the operation of LESSEE's
business.
4. ADDITIONAL RENT. LESSEE shall pay to LESSOR as additional rent a
proportionate share (based on square footage leased by LESSEE as compared with
the total leaseable square footage of the building of which the leased premises
are a part) of any increase in the real estate taxes levied against the land and
building of which the leased premises are a part (hereinafter called the
building), whether such increase is caused by an increase in the tax rate, or
the assessment on the property, or a change in the method of determining real
estate taxes. LESSEE shall make payment within thirty (30) days of written
notice from LESSOR that such increased taxes are payable, and any additional
rent shall be prorated should the lease terminate before the end of any tax
year. The base from which to determine the amount of any increase in taxes shall
be the rate and the assessment in effect as of July 1,1999.
5. UTILITIES. LESSOR shall provide equipment per LESSOR's building standard
specifications to heat the leased premises in season and to cool all areas
[Insert addendum 5a] between May 1 and November 1 [insert addendum 5b]. LESSEE
shall pay all charges for utilities used on the leased premises, including
electricity, gas, oil, water and sewer. LESSEE shall pay the utility provider or
LESSOR, as applicable, for all such utility charges as determined by separate
meters serving the leased premises and/or as a proportionate share of the
utility charges for the building if not separately metered. LESSEE shall also
pay LESSOR a proportionate share of any [insert addendum 5c] fees and charges
relating in any way to utility use at the building. No plumbing, construction or
electrical work of any type shall be done without LESSOR's prior written
approval [insert addendum 5d] and LESSEE obtaining the appropriate municipal
permit.
<PAGE>
6. COMPLIANCE WITH LAWS. LESSEE acknowledges that no trade, occupation,
activity or work shall be conducted in the leased premises or use made thereof
which may be unlawful, improper, noisy, offensive, or contrary to any applicable
statute, regulation, ordinance or bylaw. LESSEE shall keep all employees working
in the leased premises covered by Worker's Compensation Insurance and shall
obtain any licenses and permits necessary for LESSEE's occupancy. LESSEE shall
be responsible for causing the leased premises and any alterations by LESSEE
which are allowed hereunder to be in full compliance with any applicable
statute, regulation, ordinance or bylaw.
7. FIRE, CASUALTY, EMINENT DOMAIN. Should a substantial portion of the
leased premises, or of the property of which they are a part, be substantially
damaged by fire or other casualty, or be taken by eminent domain, LESSOR may
elect to terminate this lease. When such fire, casualty, or taking renders the
leased premises substantially unsuitable for their intended use, a just and
proportionate abatement of rent shall be made, and LESSEE may elect to terminate
this lease if: (a) LESSOR fails to give written notice within thirty (30) days
of intention to restore the leased premises, or (b) LESSOR fails to restore the
leased premises to a condition substantially suitable for their intended use
within ninety (90) days of said fire, casualty or taking. LESSOR reserves all
rights for damages or injury to the leased premises for any taking by eminent
domain, except for damage to LESSEE's property or equipment [insert addendum
7a].
8. FIRE INSURANCE. LESSEE shall not permit any use of the leased premises
which will adversely affect or make voidable any insurance on the property of
which the leased premises are a part, or on the contents of said property, or
which shall be contrary to any law or regulation from time to time established
by the Insurance Services Office (or successor), local Fire Department, LESSOR's
insurer, or any similar body. LESSEE shall on demand reimburse LESSOR, and all
other tenants, all extra insurance premiums caused by LESSEE's use of the leased
premises. LESSEE shall not vacate the leased premises or permit same to be
unoccupied other than during LESSEE's customary non-business days or hours
[insert addendum 8a].
9. MAINTENANCE OF PREMISES. LESSOR will be responsible for all structural
maintenance of the leased premises [insert addendum 9a] and for the normal
daytime maintenance of all space heating and cooling equipment, sprinklers,
doors, locks, plumbing, and electrical wiring, but specifically excluding damage
caused by the careless, malicious, willful, or negligent acts of LESSEE or
[insert addendum 9b], chemical, water or corrosion damage from any source
[insert addendum 9c], and maintenance of any non "building standard" leasehold
improvements. LESSEE agrees to maintain at its expense all other aspects of the
leased premises in the same condition as they are at the commencement of the
term or as they may be put in during the term of this lease, normal wear and
tear [insert addendum 9d], other taking by eminent domain and damage by fire or
casualty only excepted, and whenever necessary, to replace light bulbs, plate
glass and other glass therein, acknowledging that the leased premises are now in
good order and the light bulbs and glass whole [insert addendum 9e]. LESSEE will
properly control or vent all solvents, degreasers, smoke, odors, etc. and shall
not cause e the area surrounding the leased premises to be in anything other
than a neat and clean condition, depositing all waste in appropriate
receptacles. LESSEE shall be solely responsible for any damage to plumbing
equipment, sanitary lines, or any other portion of the building which results
from the discharge or use of any acid or corrosive substance by LESSEE. LESSEE
shall not permit the leased premises to be overloaded, damaged, stripped or
defaced, nor suffer any waste, and will not keep animals within the leased
premises. If the leased premises include any wooden mezzanine type space, the
floor capacity of such space is suitable only for office use, light storage or
assembly work. LESSEE will protect any carpet with plastic or masonite chair
pads under any rolling chairs. Unless heat is provided at LESSOR's expense,
LESSEE shall maintain sufficient heat to prevent freezing of pipes or other
damage. Any increase in air conditioning equipment or electrical capacity or any
installation or maintenance of equipment which is necessitated by some specific
aspect of LESSEE's use of the leased premises shall be LESSEE's sole
responsibility, at LESSEE's expense and subject to LESSOR's prior written
consent. All maintenance provided by LESSOR shall be during LESSOR's normal
business hours [insert addendum 9f].
10. ALTERATIONS. LESSEE shall not make structural alterations or additions
of any kind to the leased premises, but may make nonstructural alterations
provided LESSOR consents thereto in writing [insert addendum 10a]. All such
allowed alterations shall be at LESSEE's expense and shall conform with LESSOR's
[insert addendum 10b] construction specifications. If LESSOR or LESSOR's agent
provides any services or maintenance for LESSEE in connection with such
alterations or otherwise under this lease, any just invoice will be promptly
paid. LESSEE shall not permit any mechanics' liens, or similar liens, to remain
upon the leased premises in connection with work of any character performed or
claimed to have been performed at the direction of LESSEE and shall cause any
such lien to released [insert addendum 10c] or removed forthwith without cost to
LESSOR. Any alterations or additions shall become part of the leased premises
and the property of LESSOR. Any alterations completed by LESSOR or LESSEE shall
be LESSOR's "building standard" unless noted otherwise. LESSOR shall have the
right at any time to change the arrangement of parking areas, stairs, walkways
or other common areas of the building [insert addendum 10d].
11. ASSIGNMENT OR SUBLEASING. LESSEE shall not assign this lease or sublet
or allow any other firm or individual to occupy the whole or any part of the
leased premises without LESSOR's prior written consent [insert addendum 11a].
Notwithstanding such assignment or subleasing, LESSEE shall remain liable to
LESSOR for the
<PAGE>
payment of all rent and for the full performance of the covenants and conditions
of this lease. LESSEE shall pay LESSOR promptly for legal and administrative
expenses incurred by LESSOR in connection with any consent requested hereunder
by LESSEE [insert addendum 11b].
12. SUBORDINATION. This lease shall be subject and subordinate to any and
all mortgages and other instruments in the nature of a mortgage, now or at any
time hereafter, and LESSEE shall, when requested, promptly execute and deliver
such written instruments as shall be necessary to show the subordination of this
lease to said mortgages or other such instruments in the nature of a mortgage
[insert addendum 12a].
13. LESSOR'S ACCESS. LESSOR or agents of LESSOR may at any reasonable time
enter to view the leased premises, to make repairs and alterations as LESSOR
should elect to do for the leased premises, the common areas or any other
portions of the building, to make repairs which LESSEE is required but has
failed to do, and to show the leased premises to others. [insert addendum 13a].
14. SNOW REMOVAL. The plowing of snow from all roadways and unobstructed
parking areas shall be at the sole expense of LESSOR. The control of snow and
ice on all walkways, steps and loading areas serving the leased premises and all
other areas not readily accessible to plows shall be the sole responsibility of
LESSEE. Notwithstanding the foregoing, however, LESSEE shall hold LESSOR and
OWNER harmless from any and all claims by LESSEE's agents, representatives,
employees, callers or invitees for damage or personal injury resulting in any
way from snow or ice on any area serving the leased premises [insert addendum
14a].
15. ACCESS AND PARKING. LESSEE shall have the right without additional
charge to use parking facilities provided for the leased premises in common with
others entitled to the use thereof. Said parking areas plus any stairs,
corridors, walkways, elevators or other common areas (hereinafter collectively
called the common areas) shall in all cases be considered a part of the leased
premises when they are used by LESSEE or LESSEE's employees, agents, or
invitees. LESSEE will not obstruct in any manner any portion of the building or
the walkways or approaches to the building, and will conform to all rules and
regulations now or hereafter made by LESSOR for parking, and for the care, use,
or alteration of the building, its facilities and approaches. LESSEE further
warrants that LESSEE will not permit any employee to violate this or any other
covenant or obligation of LESSEE. No unattended parking will be permitted
between 7:00 PM and 7:00 AM without LESSOR's prior written approval, and from
December 1 through March 31 annually, such parking shall be permitted only in
those areas specifically designated for assigned overnight parking. Unregistered
or disabled vehicles, or storage trailers of any type, may not be parked at any
time. LESSOR may tow, at LESSEE's sole risk and expense, any misparked vehicle
belonging to LESSEE or LESSEE's agents, employees, invitees or callers, at any
time. LESSOR shall not be responsible for providing any security services for
the leased premises.
16. LIABILITY. LESSEE shall be solely responsible as between LESSOR and
LESSEE for deaths or personal injuries to all persons whomsoever occurring in or
on the leased premises (including any common areas that are [insert addendum
16c] considered part of the leased premises hereunder) and damage to property to
whomsoever belonging arising out of the use, control, condition or occupation of
the leased premises by LESSEE; and LESSEE agrees to indemnify and save harmless
LESSOR and OWNER from any and all liability, including but not limited to costs,
expenses, damages, causes of action, claims, judgments and attorney's fees
caused by or in any way growing out of any matters aforesaid, except for death,
personal injuries or property damage [insert addendum 16a] resulting from the
negligence [insert addendum 16b] LESSOR.
17. INSURANCE. LESSEE will secure and carry at its own expense a commercial
general liability policy insuring LESSEE, LESSOR and OWNER against any claims
based on bodily injury (including death) or property damage arising out of the
condition of the leased premises (including any common areas that are considered
part of the leased premises hereunder) or their use by LESSEE, such policy to
insure LESSEE, LESSOR and OWNER against any claim up to One Million (1,000,000)
Dollars in the case of any one accident involving bodily injury (including
death), and up to One Million (1,000,000) Dollars against any claim for damage
to property. LESSOR and OWNER shall be included in each such policy as
additional insureds using ISO Form CG 20 26 11 85 or some other form approved by
LESSOR. LESSEE will file with LESSOR prior to occupancy certificates and any
applicable riders or endorsements showing that such insurance is in force, and
thereafter will file renewal certificates prior to the expiration of any such
policies. All such insurance certificates shall provide that such policies shall
not be cancelled without at least ten (10) days prior written notice to each
insured. In the event LESSEE shall fail to provide or maintain such insurance at
any time during the term of this lease, then LESSOR may elect to contract for
such insurance at LESSEE's expense.
18. SIGNS. LESSOR authorizes, and LESSEE at LESSEE's expense agrees to
erect promptly upon commencement of this lease, signage for the leased premises
in accordance with LESSOR's building standards for style, size, location, etc.
LESSEE shall obtain the prior written consent of LESSOR before erecting any sign
on the leased premises, which consent shall include approval as to size,
wording, design and location, [insert addendum 18a]. LESSOR may remove and
dispose of any sign not approved, erected or displayed in conformance with this
lease.
19. BROKERAGE. LESSEE warrants and represents to LESSOR that LESSEE has
dealt with no broker or third person with respect to this lease, [insert
addendum 19a], and LESSEE agrees to indemnify LESSOR against any
<PAGE>
brokerage claims arising by virtue of this lease. LESSOR warrants and represents
to LESSEE that LESSOR has employed no exclusive broker or agent in connection
with the letting of the leased premises [insert addendum 19b].
20. DEFAULT AND ACCELERATION OF RENT. In the event that: (a) any assignment
for the benefit of creditors, trust mortgage, receivership or other insolvency
proceeding shall be made or instituted with respect to LESSEE or LESSEE's
property [insert addendum 20a]; (b) LESSEE shall default in the observance or
performance a of any of LESSEE's covenants, agreements, or obligations
hereunder, other than substantial monetary payments as provided below, and such
default shall not be corrected within [insert addendum 20b] after written notice
thereof [insert addendum 20c]; or (c) LESSEE vacates the leased premises [insert
addendum 20d], then LESSOR shall have the right thereafter, while such default
continues and without demand or further notice, to re-enter and take possession
of the leased premises, to declare the term of this lease ended, and to remove
LESSEE's effects, without being guilty of any manner of trespass, and without
prejudice to any remedies which might be otherwise used for arrears of rent or
other default or breach of the lease. If LESSEE shall default in the payment of
the security deposit, rent, taxes, substantial invoice from LESSOR or LESSOR's
agent for goods and/or services or other sum herein specified, and such default
shall continue for ten (10) days after written notice thereof, and, because both
parties agree that nonpayment of said sums when due is a substantial breach of
the lease, and, because the payment of rent in monthly installments is for the
sole benefit and convenience of LESSEE, then in addition to the foregoing
remedies the entire balance of rent which is due hereunder shall become
immediately due and payable as liquidated damages. LESSOR, without being under
any obligation to do so and without thereby waiving any default, may remedy same
for the account and at the expense of LESSEE [insert addendum 20e]. If LESSOR
pays or incurs any obligations for the payment of money in connection therewith,
such sums paid or obligations incurred plus interest and costs, shall be paid to
LESSOR by LESSEE as additional rent. Any sums received by LESSOR from or on
behalf of LESSEE at any time shall be applied first to any unamortized
improvements completed for LESSEE's occupancy, then to offset any outstanding
invoice or other payment due to LESSOR, with the balance applied to outstanding
rent. LESSEE agrees to pay reasonable attorney's fees and/or administrative
costs incurred by LESSOR in enforcing any or all obligations of LESSEE under
this lease at any time. LESSEE shall pay LESSOR interest at the rate of eighteen
(18) percent per annum on any payment from LESSEE to LESSOR which is past due.
21. NOTICE. Any notice from LESSOR to LESSEE relating to the leased
premises or to the occupancy thereof shall be deemed duly served when served by
constable, or sent to the leased premises by certified mail, return receipt
requested, postage prepaid, addressed to LESSEE. Any notice from LESSEE to
LESSOR relating to the leased premises or to the occupancy thereof shall be
deemed duly served when served by constable, or delivered to LESSOR by certified
mail, return receipt requested, postage prepaid, addressed to LESSOR at 200 West
Cummings Park, Woburn, MA 01801 or at LESSOR's last designated address. No oral
notice or representation shall have any force or effect. Time is of the essence
in the service of any notice.
22. OCCUPANCY. In the event that LESSEE takes possession of said leased
premises prior to the start of the lease term, LESSEE will perform and observe
all of LESSEE's covenants from the date upon which LESSEE takes possession
except the obligation for the payment of extra rent for any period of less than
one month. In the event that LESSEE continues to occupy or control all or any
part of the leased premises after the agreed [insert addendum 22a] of this lease
without the written permission of LESSOR, then LESSEE shall be liable to LESSOR
for any and all loss, damages or expenses incurred by LESSOR, and all other
terms of this lease shall continue to apply except that rent shall be due in
full monthly installments at a rate of one hundred fifty (150) percent of that
which would otherwise be due under this lease, it being understood between the
parties that such extended occupancy is as a tenant at sufferance and is solely
for the benefit and convenience of LESSEE and as such has greater rental value.
LESSEE's control or occupancy of all or any part of the leased premises beyond
noon on the last day of any monthly rental period shall constitute LESSEE's
occupancy for an entire additional month, and increased rent as provided in this
section shall be due and payable immediately in advance. LESSOR's acceptance of
any payments from LESSEE during such extended occupancy shall not alter LESSEE's
status as a tenant at sufferance.
23. FIRE PREVENTION. LESSEE agrees to use every reasonable precaution
against fire and agrees to provide and maintain approved, labeled fire
extinguishers, emergency lighting equipment, and exit signs and complete any
other modifications within the leased premises as required or recommended by the
Insurance Services Office (or successor organization), OSHA, the local Fire
Department, or any similar body.
24. OUTSIDE AREA. Any goods, equipment, or things of any type or
description held or stored in any common area without LESSOR's prior written
consent shall be deemed abandoned and may be removed by LESSOR at LESSEE's
expense without notice. LESSEE shall maintain a building standard size dumpster
in a location approved by LESSOR, which dumpster shall be provided and serviced
at LESSEE's expense by whichever disposal firm may from time to time be
designated by LESSOR. Alternatively, if a shared dumpster or compactor is
provided by LESSOR, LESSEE shall pay its proportionate share of any costs
associated therewith.
25. ENVIRONMENT. LESSEE will so conduct and operate the leased premises as
not to interfere in any way with the use and enjoyment of other portions of the
same or neighboring buildings by others by reason of odors, smoke, exhaust,
smells, noise, pets, accumulation of garbage or trash, vermin or other pests, or
otherwise, and will at its expense employ a professional pest control service if
necessary. LESSEE agrees to maintain efficient and effective devices for
preventing damage to heating equipment from solvents, degreasers, cutting oils,
propellants, etc. which |
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may be present at the leased premises. No hazardous materials or wastes shall be
stored, disposed of, or allowed to remain at the leased premises at any time,
and LESSEE shall be solely responsible for any and all corrosion or other damage
associated with the use, storage and/or disposal of same by LESSEE.
26. RESPONSIBILITY. [insert addendum 26a] Neither LESSOR nor OWNER shall be
held liable to anyone for loss or damage caused in any way by the use, leakage,
seepage or a escape of water from any source, or for the cessation of any
service rendered customarily to said premises or buildings, or agreed to by the
terms of this lease, due to any accident, the making of repairs, alterations or
improvements, labor difficulties, weather conditions, mechanical breakdowns,
trouble or scarcity in obtaining fuel, electricity, service or supplies from the
sources from which they are usually obtained for said building, or any cause
beyond LESSOR's immediate control.
27. SURRENDER. LESSEE shall at the termination of this lease remove all of
LESSEE's goods and effects from the leased premises. LESSEE shall deliver to
LESSOR the leased premises and all keys and locks thereto, all fixtures and
equipment connected therewith, and all alterations, additions and improvements
made to or upon the leased premises, whether completed by LESSEE, LESSOR or
others, including but not limited to any offices, [insert addendum 27a]
partitions, window blinds, floor coverings (including computer floors), plumbing
and plumbing fixtures, air conditioning equipment and ductwork of any type,
exhaust fans or heaters, water coolers, burglar alarms, telephone wiring, air or
gas distribution piping, compressors, overhead cranes, hoists, trolleys or
conveyors, counters, all electrical work, including but not limited to lighting
fixtures of any type, wiring, conduit, EMT, transformers, distribution panels,
bus ducts, raceways, outlets and disconnects, and furnishings or equipment which
have been bolted, welded, nailed, screwed, glued or otherwise attached to any
wall, floor, ceiling, roof, pavement or ground, or which have been directly
wired to any portion of the electrical system or which have been plumbed to the
water supply, drainage or venting systems serving the leased premises. LESSEE
shall deliver the leased premises sanitized from any chemicals or other
contaminants, and broom clean and in the same condition as they were at the
commencement of this lease or any prior lease between the parties for the leased
premises, or as they were modified during said term with LESSOR's written
consent reasonable wear and tear, [insert addendum 27b] and damage by fire or
other casualty only excepted. In the event of LESSEE's failure to remove any of
LESSEE's property from the leased premises upon termination of the lease, LESSOR
is hereby authorized, without liability to LESSEE for loss or damage thereto,
and at the sole risk of LESSEE, to remove and store any such property at
LESSEE'S expense, or to retain same under LESSOR's control, or to sell at public
or private sale (without notice), any or all of the property not so removed and
to apply the net proceeds of such sale to the payment of any sum due hereunder,
or to destroy such abandoned property. In no case shall the leased premises be
deemed surrendered to LESSOR until the termination date provided herein or such
other date as may be specified in a written agreement between the parties,
notwithstanding the delivery of any keys to LESSOR.
28. GENERAL. (a) The invalidity or unenforceability of any provision of
this lease shall not affect or render invalid or unenforceable any other
provision hereof. (b) The obligations of this lease shall run with the land, and
this lease shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that LESSOR and OWNER shall
be liable only for obligations occurring while lessor, owner or master lessee of
the premises. (c) Any action or proceeding arising out of the subject matter of
this lease shall be brought by LESSEE within [insert addendum 28a] after the
cause of action has occurred and only in a court of the Commonwealth of
Massachusetts. (d) If LESSOR is acting under or as agent for any trust or
corporation, the obligations of LESSOR shall be binding upon the trust or
corporation, but not upon any trustee, officer, director, shareholder, or
beneficiary of the trust or corporation individually. (e) If LESSOR is not the
owner (OWNER) of the leased premises, LESSOR represents that said OWNER has
agreed to be bound by the terms of this lease unless LESSEE is in default
hereof. (f) This lease is made and delivered in the Commonwealth of
Massachusetts, and shall be interpreted, construed, and enforced in accordance
with the laws thereof. (g) This lease was the result of negotiations between
parties of equal bargaining strength, and when executed by both parties shall
constitute the entire agreement between the parties, superseding all prior oral
and written agreements, representations, statements and negotiations relating in
any way to the subject matter herein. This lease may not be extended or amended
except by written agreement signed by both parties or as otherwise provided
herein, and no other subsequent oral or written representation shall have any
effect hereon. (h) Notwithstanding any other statements herein, LESSOR makes no
warranty, express or implied, concerning the suitability of the leased premises
for LESSEE's intended use. (i) LESSEE agrees that if LESSOR does not deliver
possession of the leased premises as herein provided for any reason, LESSOR
shall not be liable for any damages to LESSEE for such failure, but LESSOR
agrees to use reasonable efforts to deliver possession to LESSEE at the earliest
possible date. A [insert addendum 28b] abatement of rent, excluding the cost of
any amortized improvements to the leased premises, for such time as b LESSEE may
be deprived of possession of the leased premises, except where a delay in
delivery is caused in any way by LESSEE, shall be LESSEE's sole remedy. (j)
Neither the submission of this lease form, nor the prospective acceptance of the
security deposit and/or rent shall constitute a reservation of or option for the
leased premises, or an offer to lease, it being expressly understood and agreed
that this lease shall not bind either party in any manner whatsoever until it
has been executed by both parties. (k) LESSEE shall not be entitled to exercise
any option contained herein if LESSEE is at that time in default of any terms or
conditions hereof, [insert addendum 28c]. (I) Except as otherwise provided
herein, LESSOR, OWNER and LESSEE shall not be liable for any special, c
incidental, indirect or consequential damages, including but not limited to lost
profits or loss of business,
<PAGE>
arising out of or in any manner connected with performance or nonperformance
under this lease, even if any party has knowledge of the possibility of such
damages. (m) The headings in this lease are for convenience only and shall not
be considered part of the terms hereof. (n) No endorsement by LESSEE on any
check shall bind LESSOR in any way. (o) LESSOR and LESSEE hereby waive any and
all rights to a jury trial in any proceeding in any way arising out of this
lease.
29. SECURITY AGREEMENT. THIS PARAGRAPH DOES NOT APPLY.
30. WAIVERS, ETC. No consent or waiver, express or implied, by LESSOR, to
or of any breach of any covenant, condition or duty of LESSEE shall be construed
as a consent or waiver to or of any other breach of the same or any other
covenant, condition or duty. If LESSEE is several persons, several corporations
or a partnership, LESSEE's obligations are joint or partnership and also
several. Unless repugnant to the context, "LESSOR" and "LESSEE" mean the person
or persons, natural or corporate, named above as LESSOR and as LESSEE
respectively, and their respective heirs, executors, administrators, successors
and assigns.
31. AUTOMATIC FIVE-YEAR EXTENSIONS. THIS PARAGRAPH DOES NOT APPLY.
32. ADDITIONAL PROVISIONS. (Continued on attached rider(s) if necessary.)
- SEE ATTACHED RIDER -
IN WITNESS WHEREOF, LESSOR and LESSEE have hereunto set their hands and
common seals and intend to be legally bound hereby this 10th day of August,
1999.
LESSOR: CUMMINGS PROPERTIES, LLC LESSEE: BOOK TECH, INC.
By: /s/ illegible signature By: /S/ MORRIS A. SHEPARD
-------------------------- ----------------------------
Executive Vice President
GUARANTY
IN CONSIDERATION of the making of the above lease by Cummings Properties
LLC, with Book Tech, Inc.
--------------------------------------------------------------------------------
at the request of the undersigned and in reliance on this guaranty, the
undersigned (GUARANTOR) hereby personally guarantees the prompt payment of rent
by LESSEE and the performance by LESSEE of all terms, conditions, covenants and
agreements of the lease, any amendments thereto and any extensions or
assignments thereof, and the undersigned promises to pay all expenses, including
reasonable attorney's fees, incurred by LESSOR in enforcing all obligations of
LESSEE under the lease or incurred by LESSOR in enforcing this guaranty.
LESSOR's consent to any assignments, subleases, amendments and extensions by
LESSEE or to any compromise or release of LESSEE's liability hereunder, with or
without notice to the undersigned, or LESSOR's failure to notify the undersigned
of any default and/or reinstatement of the lease by LESSEE, shall not relieve
the undersigned from liability as GUARANTOR.
IN WITNESS WHEREOF, the undersigned GUARANTOR has hereunto set his/her/its
hand and common seal intending to be legally bound hereby as of this 10th day of
August, ______.
/S/ MORRIS A. SHEPARD
------------------------
<PAGE>
ADDENDUM TO LEASE
BOOK TECH, INC.
5. a. at 42 Cummings Park
b. and all areas at 43 Cummings Park, year-round
c. municipal
d. which approval shall not be unreasonably withheld, delayed or
conditioned
7. a. and LESSEE's cost of relocation.
8. a. except due to fire or other casualty or to any cause beyond LESSEE's
control.
9. a. the roof, foundation and all common areas of the building of which the
leased premises are a part, driveways, parking areas and landscaping,
b. its agents or employees
c. except damage caused by LESSOR
d. taking by eminent domain
e. except for latent or hidden conditions.
f. and shall be performed by LESSOR in a manner that will not
unreasonably interfere with LESSEE's use of or access to the leased
premises.
10. a. which consent shall not be unreasonably withheld, delayed or
conditioned.
b. reasonable
c. bonded,
d. provided that any such changes do not unreasonably interfere with
LESSEE's use of, or access to, the leased premises.
11. a. which consent shall not be unreasonably withheld, delayed or
conditioned.
b. which shall not exceed $500.00.
12. a. provided LESSOR obtains and delivers to LESSEE, when requested, a
standard non-disturbance agreement from such mortgagee(s).
13. a. Except for emergencies, such access shall be on reasonable advance
notice, and to the extent possible, conducted in a manner so as not to
unreasonably interfere with LESSEE's use of the leased premises.
14. a. except those claims based on LESSOR's sole negligence.
16. a. to the extent
<PAGE>
b. misconduct or material breach of this lease by
c. in use by LESSEE or LESSEE's employees, agents or invitees and so are
18. a. such consent not to be unreasonably withheld, delayed or conditioned.
19. a. except for Phillip Burgess or Burgess Properties,
b. and that LESSOR shall be responsible for any fees due to Phillip
Burgess.
20. a. and if involuntary, is not dismissed within sixty (60) days after
commencement
b. thirty (30)
c. or such longer period of time as shall be reasonably necessary to cure
any such default provided LESSEE commences to cure default within
thirty (30) days and thereafter diligently prosecutes the same
d. other than due to fire or other casualty or any other cause completely
beyond LESSEE's control
e. if LESSEE fails to cure such default within ten (10) days after
written notice thereof.
22. a. expiration
26. a. Subject to Sections 16 and 17 above,
27. a. non-portable
b. taking by eminent domain
28. a. two years
b. per diem
c. beyond any applicable grace period
<PAGE>
CUMMINGS PROPERTIES, LLC
STANDARD FORM 7990453-AWT-3
RIDER TO LEASE
The following additional provisions are incorporated into and made a part
of the attached lease:
A. * LESSOR, at LESSOR's cost, shall modify the leased premises according to a
mutually agreed upon plan attached hereto before or about the time LESSEE
takes possession of the leased premises.
B. LESSEE acknowledges and agrees that the electric service upgrade to 800A,
120/208V that LESSEE has requested may not be completed by Boston Edison as
of the commencement date of the lease. Notwithstanding any such delay,
LESSEE's obligation to pay monthly rent shall commence as of the
commencement date of the lease without any abatement.
C. Upon completion of the modifications provided for herein, LESSOR shall
carefully remeasure the entire leased premises using LESSOR's standard
methodology, and if the size does not equal the total number of square feet
set forth in the initial paragraph of this lease, LESSOR shall notify
LESSEE in writing of the actual revised square footage and the
corresponding increase or decrease in rent, based on the same rate per
square foot used in this lease.
D. * Provided LESSEE is not then in default of this lease or in arrears of any
rent or invoice payment, LESSEE shall have the right to extend this lease,
including all terms, conditions, escalations, etc., for one additional
period of five (5) years ("the extended lease term") by serving LESSOR with
written notice of its desire to so extend the lease. The time for serving
such written notice shall be not more than 12 months or less than 6 months
prior to the expiration of the initial lease term. Time is of the essence.
E. * Notwithstanding the provisions of Section 1, annual base rent during the
extended lease term shall be recalculated at LESSOR's published annual
rental rate as of the commencement of the extended lease term for similar
space, and the base month from which to determine the amount of each "Cost
of Living" adjustment during the extended lease term shall then be changed
to January 2004. The "comparison" month shall be changed to November 2004,
and the first adjustment during the extended lease term shall take place
with the rent due on January 1, 2005. Section 1 shall continue to apply in
all other respects during the extended lease term.
F. * Prior to the termination date of this lease, LESSEE may remove the
telephone system, copying machines, electronic, copying, computer and
similar data equipment and lines supplied and installed by LESSEE if LESSEE
has satisfactorily complied with all other conditions of this lease and if
LESSEE repairs any and all damage resulting from such removal and restores
the leased premises to their condition prior to the installation of said
equipment, all on a timely basis prior to the end of the lease term. Time
is of the essence.
G. * LESSOR hereby represents that, to the best of its knowledge and belief,
the use of the leased premises for the purposes set forth in Section 3 is
permitted under the Massachusetts General Laws and the Wobum Zoning
Ordinance. In the event, however, that the City of Wobum issues a citation
to LESSEE prohibiting the use of the leased premises for said purposes and
said citation is adjudged valid after LESSEE has exhausted all applicable
appeals, then LESSEE may cancel this lease by serving LESSOR with 30 days
prior written notice to that effect, and neither party shall have any
further obligation to the other. Cancellation of the lease shall be
LESSEE's exclusive remedy for any breach by LESSOR of this representation
or otherwise in connection with such municipal action.
H. * In the event that the entire balance of rent is accelerated pursuant to
Section 20 above on account of the nonpayment of any sums due under this
lease, provided LESSEE then fully cures such nonpayment and pays any other
sums that are then due (including LESSOR's legal fees and costs) prior to
the entry of a final judgment for the full accelerated rent, LESSOR agrees
to reinstate the lease in full and to waive the acceleration of the rent
(without waiving any rights which may arise with respect to any subsequent
default). Time is of the essence.
LESSOR: CUMMINGS PROPERTIES, LLC LESSEE: BOOK TECH, INC.
By: /s/ illegible signature By: /S/ MORRIS A. SHEPARD
-------------------------- -------------------------
Executive Vice President
Date: 8/10/99
-------------------------- |
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CUMMINGS PROPERTIES
STANDARD FORM 8990525-AWT
AMENDMENT TO LEASE # 1
In consideration with a lease currently in effect between the parties at 42
and 43 Cummings Park, Woburn, Massachusetts, executed on August 10, 1999 and
terminating September 14, 2004, and in consideration of the mutual benefits to
be derived herefrom, Cummings Properties, LLC Lessor, and Book Tech, Inc.,
LESSEE, hereby agree to amend said lease as follows:
1. *LESSOR, at LESSEE's sole expense, shall complete alterations and
improvements within the leased premises in accordance with the mutually
agreed upon plan attached hereto. LESSOR shall amortize the agreed charge
of $42,455, plus interest at the rate of 9.75%, for said construction as
additional rent as provided below.
2. * The Security Deposit is hereby increased by $2,000 from $22,000 to a new
total of $24,000. LESSEE shall pay this increase upon LESSEE's execution of
this amendment.
This amendment shall not bind either party in any manner until it has been
executed by both parties. All other terms, conditions and covenants of the
present lease shall continue to apply except that adjusted base rent shall be
increased by $10,761.96 annually, from a total of $133,348.00 to a new annual
total of $144,109.96 or $12,009.16 per month. Annual base rent for purposes of
computing any future escalations thereon shall be $144,109.96. This amendment
shall be effective September 15th 1999 and shall continue through the balance of
the lease and any extensions thereof unless further modified by written
amendment(s).
In Witness Whereof, LESSOR and LESSEE have hereunto set their hands and
common seals this _________________ day of __________________, 1999.
LESSOR: CUMMINGS PROPERTIES, LLC LESSEE: BOOK TECH, INC.
By: By: /S/ MORRIS A. SHEPARD
---------------------------- -----------------------------
Executive Vice President
<PAGE>
CUMMINGS PROPERTIES
STANDARD FORM 12990809-JTH-B
AMENDMENT TO LEASE # 2
In consideration with a lease currently in effect between the parties at 42
and 43 Cummings Park, Woburn, Massachusetts, executed on August 10, 1999 and
terminating September 14, 2004, and in consideration of the mutual benefits to
be derived herefrom, Cummings Properties, LLC Lessor, and Book Tech, Inc.,
LESSEE, hereby agree to amend said lease as follows:
3. *LESSOR, at LESSEE's sole expense, shall complete alterations and
improvements within the leased premises in accordance with the mutually
agreed upon plan Additional Work Authorization dated December 8, 1999
attached hereto. LESSOR shall amortize the agree charge of $3,895, plus
interest at the rate of 9.75%, for said construction as additional rent as
provided below.
This amendment shall not bind either party in any manner until it has been
executed by both parties. All other terms, conditions and covenants of the
present lease shall continue to apply except that adjusted base rent shall be
increased by $1,058.08 annually, from a total of $144,946.92 to a new annual
total of $146,005.00 or $12,167.08 per month. Annual base rent for purposes of
computing any future escalations thereon shall be $146,005.00. This amendment
shall be effective January 1, 2000 and shall continue through the balance of the
lease and any extensions thereof unless further modified by written
amendment(s).
In Witness Whereof, LESSOR and LESSEE have hereunto set their hands and
common seals this 26th day of January, 2000.
LESSOR: CUMMINGS PROPERTIES, LLC LESSEE: BOOK TECH, INC.
By: /s/ illegible signature By: /S/ TED BERNHARDT
----------------------------- --------------------------------
Executive Vice President Duly Authorized
Print Name:
--------------------
<PAGE>
ADDITIONAL WORK AUTHORIZATION
ATLANTIC BOSTON CONSTRUCTION, INC.
200 WEST CUMMINGS PARK, WOBURN, MA 01801
781-935-8000 -- fax 781-935-1990
--------------------------------------------------------------------------------
CUSTOMER NAME DATE ORIGINATOR
Book Tech, Inc. 12/8/99 AWT/JW
--------------------------------------------------------------------------------
STREET CITY CITY Zip Code
42 & 43 Cummings Park Woburn MA 01801
--------------------------------------------------------------------------------
ATTENTION PHONE FAX
Morris A. Shepherd, Ph.D. 718-729-6250
--------------------------------------------------------------------------------
PROVIDE LABOR AND MATERIALS TO EXECUTE THE FOLLOWING SCOPE OF WORK:
1. Install CPL standard 2-ton, A/C only (no heat) roof top Unit (R.T.U.)
dedicated to Server Room. Work includes: removal of ceiling system, as
required; capping of existing ductwork leading from existing HVA/C unit
into Server Room; reactivation of existing ductwork to adjacent Office and
Break Room from existing HVA/C unit; supply and installation of 2-Ton
capacity R.T.U. on existing roof curb, associated branch ductwork and low
ambient temperature kit; extension and flashing of freon and electrical
lines from suite to R.T.U.; and reinstallation of ceiling system.
PRICE: $5,101.00
Credit: $1,116.00
---------
TOTAL PRICE: $3,985.00
---------
o No representation is made as to the suitability of above work for
Customer's use or occupancy.
o Customer to remove furniture end equipment from the work area.
o Customer acknowledges that the above work or revisions from previously
approved plans may cause a delay beyond any prior scheduled completion
date.
o This quote is valid for 30 days from the date of Issue. If space Is
unoccupied on date of Issue, prices may increase after occupancy, Above
work Is to be accomplished during normal working hours or during
prearranged overtime at additional expense. Contract price includes sales
tax.
o Payment is due upon the Customer's execution of this authorization.
o Customer acknowledges that the work described herein shall be considered
nonbuilding standard under the terms of the lease and shall be maintained
by Customer following installation, unless otherwise noted.
ACCEPTED BY: /S/ TED BERNHARDT DATE: 12/8/99
-------------------------------- -----------------------
PRINTED NAME: TITLE:
------------------- -----------------------
--------------------------------------------------------------------------------
FOR OFFICE ONLY Design/Construction Supervisor LESSEE Cert of Insurance
Approval Approval and Endorsement on file
--------------------------------------------------------------------------------
</TEXT>
</DOCUMENT>
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT (this "AGREEMENT"), dated as of March 22, 2001 by
and among BOOKTECH.COM, INC., a Nevada corporation with offices located at 42
Cummings Park, Woburn, MA 01801 (the "COMPANY"), and Cornell Capital Partners,
L.P., a New York limited partnership (the "INVESTOR").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Investor shall invest up to $10,000,000 to
purchase the Company's common stock, $.00042 par value per share (the "COMMON
STOCK");
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) under the Securities Act of 1933, as may be amended (the "1933
ACT"), Regulation D, and the rules and regulations promulgated thereunder,
and/or upon such other exemption from the registration requirements of the 1933
Act as may be available with respect to any or all of the investments in Common
Stock to be made hereunder.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit A (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act, and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Investor hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings specified or indicated, and such meanings shall be
equally applicable to the singular and plural forms of the defined terms.
"1933 ACT" shall mean the Securities Act of 1933, as may be amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as may be amended.
"AFFILIATE" shall have the meaning specified in Section 5(h).
"AGREED UPON PROECEDURES REPORT" shall have the meaning specified in Section
2(l).
"AGREEMENT" shall mean this Investment Agreement.
"BUY-IN" shall have the meaning specified in Section 6.
"BUY-IN ADJUSTMENT AMOUNT" shall have the meaning specified in Section 6.
1
<PAGE>
"CLOSING" shall have the meaning specified in Section 2(g).
"CLOSING DATE" shall mean, as defined in Section 2(g), the date which is three
(3) Trading Days following the expiration of the related Purchase Period (or
such other time or later date as is mutually agreed to by the Company and the
Investor).
"COMMON STOCK" shall mean the Common Stock of the Company.
"CONTROL" or "CONTROLS" shall have the meaning specified in Section 5(h).
"COVERING SHARES" shall have the meaning specified in Section 6.
"DOLLAR AMOUNT" shall mean the Dollar Amount of shares of common stock the
Company requests Investor to purchase.
"EFFECTIVE DATE" shall mean the date the SEC declares effective the Registration
Statement covering the transactions described in the Agreement.
"ENVIRONMENTAL LAWS" shall have the meaning specified in Section 4(o).
"ESCROW AGENT" shall mean Butler Gonzalez LLP and First Union National Bank
"ESCROW AGREEMENT" shall mean the Escrow Agreement entered into among the
Company, the Investor and the Escrow Agent in the form attached hereto as
Exhibit "B".
"EXECUTION DATE" shall mean the date all Transaction Documents are executed by
the Company and Investor.
"FLOOR PRICE" shall mean the price that is the lowest price at which the
Investor shall be permitted to sell Shares during an applicable Purchase Period
and shall be equal to 75% of the lowest closing bid price of the Common Stock
during the fifteen (15) trading days immediately preceding the date upon which
the Put Notice is delivered by the Company.
"INDEMNITEES" shall have the meaning specified in Section 10.
"INDEMNIFIED LIABILITIES" shall have the meaning specified in Section 10.
"INEFFECTIVE PERIOD" shall mean any period of time that the Registration
Statement or any Supplemental Registration Statement (as defined in the
Registration Rights Agreement) becomes ineffective or unavailable for use for
the sale or resale, as applicable, of any or all of the Registrable Securities
(as defined in the Registration Rights Agreement) for any reason (or in the
event the prospectus under either of the above is not current and deliverable)
during any time period required under the
2
<PAGE>
Registration Rights Agreement.
"MAJOR TRANSACTION" shall have the meaning specified in Section 2(f).
"MATERIAL ADVERSE EFFECT" shall have the meaning specified in Section 4(a).
"MATERIAL FACTS" shall have the meaning specified in Section 2(k).
"MAXIMUM COMMON STOCK ISSUANCE" shall have the meaning specified in Section
2(h).
"MAXIMUM PUT AMOUNT" shall mean the maximum Dollar Amount of a Put Notice
calculated by multiplying the average of the Volume Weighted Average Price for
the forty (40) Trading Days immediately preceding a Put Notice Date, by one and
one-half (1.5).
"OPEN PERIOD" shall mean the period beginning on and including the Trading Day
immediately following the Effective Date and ending on the earlier of (i) the
date which is thirty-six (36) months from the Effective Date and (ii)
termination of the Agreement in accordance with Section 9.
"PAYMENT AMOUNT" shall have the meaning specified in Section 2(m).
"PRINCIPAL MARKET" shall have the meaning specified in Section 2(e).
"PROSPECTUS" shall mean the prospectus, preliminary prospectus and supplemental
prospectus used in connection with the Registration Statement.
"PURCHASE AMOUNT" shall mean the amount being paid by Investor on a particular
Closing Date to purchase the Shares.
"PURCHASE PERIOD" shall mean the period beginning on the Put Notice Date and
ending on and including the date which is ten (10) Trading Days after such Put
Notice Date.
"PURCHASE PRICE" shall mean 91% of the average of the lowest three closing bid
prices of the Company's common stock during the specified Purchase Period.
"PUT NOTICE" shall mean a written notice sent to the Investor by the Company
stating the Dollar Amount of Shares the Company intends to sell to the Investor
pursuant to the terms of the Agreement and stating the current number of the
Company's Shares issued and outstanding on such date.
"PUT NOTICE DATE" shall mean the Trading Day immediately following the day on
which the Investor receives a Put Notice, however a Put Notice shall be deemed
delivered
3
<PAGE>
on (x) the Trading Day it is received by facsimile or otherwise by the Investor
if such notice is received prior to 12:00 noon Eastern Time (receipt being
deemed to occur if the Company possess a facsimile confirmation showing
completed transmission by such time), or (y) the immediately succeeding Trading
Day if it is received by facsimile or otherwise after 12:00 noon Eastern Time on
a Trading Day (receipt being documented as described in (x) above). No Put
Notice may be deemed delivered on a day that is not a Trading Day.
"REGISTRABLE SECURITIES" shall have the meaning set forth in the Registration
Rights Agreement.
"REGISTRATION OPINION" shall have the meaning specified in Section 2(k).
"REGISTRATION OPINION DEADLINE" shall mean the date that is between three (3)
and five (5) Trading Days prior to each Put Notice Date.
"REGISTRATION PERIOD" shall have the meaning specified in Section 5(c).
"REGISTRATION RIGHTS AGREEMENT" shall mean the Agreement entered into by the
Company with Investor for the registration of this transaction.
"REGISTRATION STATEMENT" means the registration statement of the Company filed
under the 1933 Act covering this transaction.
"RELATED PARTY" shall have the meaning specified in Section 5(h).
"REPURCHASE EVENT" shall have the meaning specified in Section 2(m).
"REPURCHASE OPTION" shall have the meaning specified in Section 2(m).
"RESOLUTION" shall have the meaning specified in Section 8(f).
"SEC" shall mean the Securities & Exchange Commission.
"SEC DOCUMENTS" shall have the meaning specified in Section 4(f).
"SECURITIES" shall mean the shares of common stock issued pursuant to the terms
of the Agreement.
"SHARES" shall mean the shares of common stock of the Company having a par value
of $.00042 per share.
"SOLD SHARES" shall have the meaning specified in Section 6.
"SUBSIDIARIES" shall have the meaning specified in Section 4(a).
4
<PAGE>
"TRADING DAY" shall mean any day on which the Principal Market for the Company's
common stock is open for trading.
"TRANSACTION DOCUMENTS" shall mean the Agreement, Registration Rights Agreement,
and each of the other agreements entered into by the parties hereto in
connection with the Agreement.
"VALUATION EVENT" shall have the meaning specified in Section 2(k).
"VOLUME WEIGHTED AVERAGE PRICE" shall mean the product of (i) the daily trading
volume and (ii) the average trade price of the Company's common stock on the
Principal Market, which volume and average trade price shall be as reported by
Bloomberg Financial Markets ("BLOOMBERG"), or if not available through Bloomberg
because of delisting, then the average of the bid prices of any market makers
for the Company's Common Stock as reported in the "pink sheets" by the National
Quotation Bureau, Inc.
2. PURCHASE AND SALE OF COMMON STOCK
a. Purchase and Sale of Common Stock. Upon the terms and conditions set
forth herein, the Company shall issue and sell to the Investor, and the Investor
shall purchase from the Company, up to that number of Shares having an aggregate
Purchase Price of $10,000,000.
b. Delivery of Put Notices. Subject to the terms and conditions of the
Transaction Documents, and from time to time during the Open Period the Company
may, in its sole discretion, deliver a Put Notice in substantially the same form
as Exhibit "C" attached hereto to the Investor which states the Dollar Amount of
Shares which the Company intends to sell to the Investor during the Purchase
Period. In addition, the Dollar Amount designated by the Company in a Put Notice
shall be in increments of not less than $75,000 and not more $5,000,000 subject
to a waiver of such minimum and maximum amounts in the Investor's sole
discretion. Once the Put Notice is received by the Investor the Put Notice shall
not be, terminated, withdrawn or otherwise revoked by the Company. During the
Open Period, the Company shall not be entitled to submit a Put Notice during the
three (3) Trading Day period following a Closing Date and a Put Notice may not
be given during a Purchase Period. The Company shall not be entitled to issue a
Put Notice to Investor for more than the Maximum Put Amount. The average Volume
Weighted Average Price for the ten (10) Trading Days immediately preceding both
the Put Notice Date and the expiration of a Purchase Period must be at least
$50,000, unless the Investor in its sole discretion reduces such amount. The
Purchase Price shall be 91% of the average of the lowest three (3) closing bid
prices of the Common Stock during the Purchase Period.
The Floor Price shall be stated in each Put Notice. In the event that
the
5
<PAGE>
Shares are trading at or below the Floor Price during the Purchase Period
immediately preceding the applicable Closing Date, the Investor, in its sole
discretion, shall have the right to decrease the Dollar Amount set forth in that
Put Notice by a pro rata percentage equal to ten percent (10%) for every day
during the ten (10) Trading Day Purchase Period that the average trading price
as reported by Bloomberg is at or below the Floor Price.
Within ten (10) calendar days after the commencement of each calendar
quarter occurring subsequent to the commencement of the Open Period, the Company
undertakes to notify Investor as to its reasonable expectations as to the Dollar
Amount it intends to raise during such calendar quarter, if any, through the
issuance of Put Notices. Such notification shall constitute only the Company's
good faith estimate with respect to such calendar quarter and shall in no way
obligate the Company to raise such amount during such calendar quarter or
otherwise limit its ability to deliver Put Notices during such calendar quarter.
The failure by the Company to comply with this provision can be cured by the
Company's notifying Investor at any time as to its reasonable expectations with
respect to the current calendar quarter.
c. Stock Payment. On the Execution Date, the Company shall issue to
Yorkeville Advisors Management, LLC ("Yorkeville") 250,000 shares of Common
Stock with the restrictive legend set forth in Section 3(g) hereof; provided
however, that such shares shall be subject to a lock up agreement in the form
attached hereto as Exhibit "D".
d. Investor's Obligation to Purchase Shares. Subject to the conditions
set forth in this Agreement, following the Investor's receipt of a validly
delivered Put Notice, the Investor shall be required to purchase from the
Company during the related Purchase Period that number of Shares having an
aggregate Purchase Price equal to the lesser of (i) the Dollar Amount set forth
in the Put Notice (subject to reduction during the Purchase Period as may be
provided pursuant to the terms of this Agreement), and (ii) 20% of the aggregate
Volume Weighted Average Price during the applicable Purchase Period, but only if
said Shares bear no restrictive legend and are not subject to stop transfer
instructions.
e. Conditions to Investor's Obligation to Purchase Shares.
Notwithstanding anything to the contrary in this Agreement, the Company shall
not be entitled to deliver a Put Notice and require the Investor to purchase any
Shares at a Closing (as defined in Section 2(g)) unless each of the following
conditions are satisfied:
(i) a Registration Statement shall have been declared effective
and shall remain effective and available for the resale of all
the Registrable Securities (as defined in the Registration Rights
Agreement) at all times during the Purchase Period;
(ii) at all times during the period beginning on the related Put
Notice Date and ending on and including the related Closing Date,
the Common Stock shall have been listed on The American Stock
Exchange, Inc. ("AMEX")
6
<PAGE>
or The New York Stock Exchange, Inc. or designated on the Nasdaq
National Market, The Nasdaq SmallCap Market or the National
Association of Securities Dealer's, Inc. OTC electronic bulletin
board (the "PRINCIPAL MARKET") and shall not have been suspended
from trading thereon for a period of five (5) consecutive Trading
Days during the Open Period and the Company shall not have been
notified of any pending or threatened proceeding or other action
to delist or suspend the Common Stock;
(iii) during the period beginning on the Put Notice Date and
ending on and including the applicable Closing Date, there shall
not have occurred a Major Transaction (as defined in Section
2(f)) or the public announcement of a pending Major Transaction
which has not been abandoned or terminated;
(iv) the Company has complied with its obligations and is
otherwise not in breach of a material provision, or in default
under, this Agreement, the Registration Rights Agreement or any
other agreement executed in connection herewith which has not
been corrected prior to delivery of the Put Notice Date;
(v) no Material Adverse Effect (as defined in Section 4(a)) has
occurred since the Execution Date;
(vi) no injunction shall have been issued, or action commenced by
a governmental authority, prohibiting the purchase or the
issuance of the Common Stock; and
(vii) the issuance of the Common Stock will not violate the
shareholder approval requirements of AMEX.
If any of the events described in clauses (i) through (vii) above
occurs during a Purchase Period, then the Investor shall have no
obligation to purchase the Dollar Amount of Common Stock set
forth in the applicable Put Notice.
f. Major Transaction. For purposes of this Agreement, a "MAJOR
TRANSACTION" shall be deemed to have occurred at the closing of any of the
following events: (i) the consolidation, merger or other business combination of
the Company with or into another person (other than pursuant to a migratory
merger effected solely for the purposes of changing the jurisdiction of
incorporation of the Company) (ii) the sale or transfer of all or substantially
all of the Company's assets; or (iii) the consummation of a purchase, tender or
exchange offer made to, and accepted by, the holders of more than 30% of the
economic interest in, or the combined voting power of all classes of voting
stock of, the Company. Notwithstanding the above, Major Transaction shall not
include
7
<PAGE>
the proposed acquisition by the Company of Campus Custom Publishing, Inc.
g. Mechanics of Purchase of Shares by Investor. Subject to the
satisfaction of the conditions set forth in Sections 2(e), 7 and 8, the closing
of the purchase by the Investor of Shares (a "CLOSING") shall occur on the date
which is three (3) Trading Days following the expiration of the related Purchase
Period (or such other time or later date as is mutually agreed to by the Company
and the Investor) (a "CLOSING DATE"). On or before the Trading Day immediately
preceding each Closing Date, (i) the Company shall deliver to the Escrow Agent
pursuant to the Escrow Agreement certificates representing the Shares to be
issued to the Investor on such date and registered in the name of the Investor,
or in street name as may be requested by Investor, or deposit such Shares into
the account(s) (with the Investor receiving confirmation that the Shares are in
such account(s)) designated by the Investor for the benefit of the Investor and
(ii) the Investor shall deliver to the Escrow Agent the Purchase Price to be
paid for such Shares (after receipt of confirmation of delivery of such Shares),
determined as aforesaid, by wire transfer. In the alternative to physical
delivery of certificates for Common Stock to the Investor, if delivery of the
Shares may be effectuated by electronic book-entry through The Depository Trust
Company ("DTC"), then delivery of the Shares pursuant to such purchase shall,
unless requested otherwise by such Investor (or holder of such Shares), settle
by book-entry transfer through DTC on the Closing Date. The parties agree to
coordinate with DTC to accomplish this objective. The Company and the Investor
shall deliver all documents, instruments and writings required to be delivered
by either of them to the Escrow Agent pursuant to this Agreement or the Escrow
Agreement.
h. Overall Limit on Common Stock Issuable. Notwithstanding anything
contained herein to the contrary, if the Company is listed on the AMEX, the
number of Shares issuable by the Company and purchasable by the Investor
including the shares of Common Stock issuable pursuant to Section 2(c) hereof,
shall not exceed 19.99% of the shares of Common Stock outstanding as of the date
of the applicable Put Notice, subject to appropriate adjustment for stock
splits, stock dividends, combinations or other similar recapitalization
affecting the Common Stock (the "MAXIMUM COMMON STOCK ISSUANCE"), unless the
issuance of Shares in excess of the Maximum Common Stock Issuance shall first be
approved by the Company's shareholders in accordance with applicable law and the
By-laws and Articles of Incorporation of the Company, if such issuance of shares
of Common Stock could cause a delisting on the Principal Market. Without
limiting the generality of the foregoing, such shareholders' approval must duly
authorize the issuance by the Company of shares of Common Stock totaling 19.99%
or more of the shares of Common Stock outstanding on the date hereof. The
parties understand and agree that the Company's failure to seek or obtain such
shareholder approval shall in no way adversely affect the validity and due
authorization of the issuance and sale of Shares hereunder or the Investor's
obligation in accordance with the terms and conditions hereof to purchase a
number of Shares in the aggregate up to the Maximum Common Stock Issuance
limitation, and that such approval pertains only to the applicability of the
Maximum Common Stock Issuance limitation provided in this Section 2(h).
8 |
| | booktech.com BTC - AMEX | Stock Discussion ForumsShare | RecommendKeepReplyMark as Last Read |
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| To: ChainSaw who started this subject | 7/3/2001 11:49:36 PM | | From: jmhollen | | | | <PAGE>
i. Valuation Event. For purposes of this Agreement, "VALUATION EVENT"
shall mean an event in which the Company at any time during a "Purchase Period"
takes any of the following actions:
(i) subdivides or combines its Common Stock;
(ii) pays a dividend in Common Stock or makes any other
distribution of its Common Stock, except for dividends paid
with respect to the Preferred Stock;
(iii) issues any options or other rights to subscribe for or
purchase Common Stock and the price per share for which
Common Stock may at any time thereafter be issuable
pursuant to such options or other rights shall be less than
the Bid Price in effect immediately prior to such issuance;
(iv) issues any securities convertible into or exchangeable for
Common Stock and the consideration per share for which
shares of Common Stock may at any time thereafter be
issuable pursuant to the terms of such convertible or
exchangeable securities shall be less than the Bid Price in
effect immediately prior to such issuance;
(v) issues shares of Common Stock otherwise than as provided in
the foregoing subsections (i) through (iv), at a price per
share less, or for other consideration lower, than the Bid
Price in effect immediately prior to such issuance, or
without consideration;
(vi) makes a distribution of its assets or evidences of
indebtedness to the holders of Common Stock as a dividend
in liquidation or by way of return of capital or other than
as a dividend payable out of earnings or surplus legally
available for dividends under applicable law or any
distribution to such holders made in respect of the sale of
all or substantially all of the Company's assets (other
than under the circumstances provided for in the foregoing
subsections (i) through (v); or
(vii) takes any action affecting the number of shares of Common
Stock outstanding, other than an action described in any of
the foregoing subsections (i) through (vi) hereof,
inclusive, which in the opinion of the Company's Board of
Directors, determined in good faith, would have a
materially adverse effect upon the rights of Investor at
the time of a Put Notice is delivered to Investor.
j. If a Valuation Event occurs during a Purchase Period, the Investor,
at its sole option, may either (i) choose a new Purchase Period beginning on the
Trading Day immediately following the occurrence of such Valuation Event, (ii)
use the Purchase Period during which the Valuation Event occurred or (iii)
decline the Put Notice.
k. Registration Opinion. The Company shall cause its independent
counsel to deliver to the Investor, on each Registration Opinion Deadline, an
opinion, (the
9
<PAGE>
"REGISTRATION OPINION"), addressed to the Investor stating, inter alia, that no
facts ("MATERIAL FACTS") have come to such counsel's attention that have caused
it to believe that the Registration Statement is subject to an Ineffective
Period or to believe that the Registration Statement, any supplemental
Registration Statement (as each may be amended, if applicable), and any related
prospectuses, contain an untrue statement of material fact or omits a material
fact required to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. If a Registration
Opinion cannot be delivered by the Company's independent counsel to the Investor
on the Registration Opinion Deadline due to the existence of Material Facts or
an Ineffective Period, the Company shall promptly notify the Investor and as
promptly as possible amend each of the Registration Statement and any
supplemental Registration Statements, as applicable, and any related prospectus
or cause such Ineffective Period to terminate, as the case may be, and deliver
such Registration Opinion and updated prospectus as soon as possible thereafter.
If at any time after a Put Notice shall have been delivered to Investor but
before the related Closing Date, the Company acquires knowledge of such Material
Facts or any Ineffective Period occurs, the Company shall promptly notify the
Investor and Investor, at Investor's sole option, shall be entitled to cancel
that entire Put Notice by facsimile notice to the Company on or before the
related Closing Period.
l. Procedure if Material Facts are Reasonably believed to be untrue or
are omitted. In the event after such consultation the Investor or the Investor's
counsel reasonably believes that the Registration Statement contains an untrue
statement or a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading,
(i) the Company shall file with the SEC an amendment to the Registration
Statement responsive to such alleged untrue statement or omission and provide
the Investor, as promptly as practicable, with copies of the Registration
Statement and related Prospectus, as so amended, or (ii) if the Company disputes
the existence of any such material misstatement or omission, (x) the Company's
independent counsel shall provide the Investor's counsel with a Registration
Opinion and (y) in the event the dispute relates to the adequacy of financial
disclosure and the Investor shall reasonably request, the Company's independent
auditors shall provide to the Company a letter ("Agreed Upon Procedures Report")
outlining the performance of such "agreed upon procedures" as shall be
reasonably requested by the Investor and the Company shall provide the Investor
with a copy of such letter.
m. Delisting; Suspension. If at any time during the Open Period or
within thirty (30) calendar days after the end of the Open Period, (i) the
Registration Statement, after it has been declared effective, shall not remain
effective and available for sale of all the Registrable Securities, (ii) the
Common Stock shall not be listed on the Principal Market or shall have been
suspended from trading thereon (excluding suspensions of not more than one
trading day resulting from business announcements by the Company) or the Company
shall have been notified of any pending or threatened proceeding or other action
to delist or suspend the Common Stock, (iii) there shall have occurred a Major
Transaction (as defined in Section 2(f)) or the public announcement of a pending
Major
10
<PAGE>
Transaction which has not been abandoned or terminated, or (iv) the Registration
Statement is no longer effective or stale for a period of more than five (5)
Trading Days as a result of the Company to timely file its financials, the
Investor shall have the right (the "REPURCHASE OPTION"), as partial relief for
the damages to the Investor by reason of the occurrence of the events listed in
clauses (i), (ii), (iii) or (iv)above (which remedy shall not be exclusive of
any other remedies available at law or equity), in its sole discretion, which
right shall be exercised within thirty (30) calendar days of such event or
occurrence (a "REPURCHASE EVENT"), to sell to the Company, and the Company
agrees to buy, promptly upon the exercise of such right by the Investor, but in
any event within ten (10) calendar days of the exercise of such right, and
subject to the limitations imposed by applicable federal and state law, all or
any part of the Shares issued to the Investor within the sixty (60) Trading Days
preceding the Investor's exercise of the Repurchase Option and then held by the
Investor at a price per Share equal to the highest closing price during the
period beginning on the date of the Repurchase Event and ending on and including
the date on which the Investor exercises its Repurchase Option (the "PAYMENT
AMOUNT"). If the Company fails to pay to the Investor the full aggregate Payment
Amount within ten (10) calendar days of the Investor's exercise of the
Repurchase Option hereunder, the Company shall pay to the Investor, on the first
Trading Day following such tenth (10th) calendar day, in addition to and not in
lieu of the Payment Amount payable by the Company to the Investor upon exercise
of the Repurchase Option, an amount equal to 2% of the aggregate Payment Amount
then due and payable to the Investor, in cash by wire transfer, plus compounded
annual interest of 8% on such Payment Amount during the period, beginning on the
day following such tenth calendar day, during which such Payment Amount, or any
portion thereof, is outstanding.
3. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
The Investor and Yorkeville jointly and severally represent and warrant
to the Company that:
a. Investment Purpose. Each of the Investor and Yorkeville is acquiring
the Securities for its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the 1933 Act;
provided, however, that by making the representations herein, the Investor does
not agree to hold any of the Securities for any minimum or other specific term
and reserves the right to dispose of the Securities at any time in accordance
with or pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status; Sophisticated Investor. Each of the
Investor and Yorkeville is an "accredited investor" as that term is defined in
Rule 501(a) of Regulation D under the 1933 Act. The Investor and Yorkeville have
such knowledge, sophistication and experience in business and financial matters
so as to be capable of evaluating the merits and risks of the prospective
investment in the Securities.
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<PAGE>
c. Reliance on Exemptions. The Investor and Yorkeville understand that
the Securities are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and the Investor's and Yorkeville's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Investor and Yorkeville set forth herein in order to determine the
availability of such exemptions and the eligibility of the Investor and
Yorkeville to acquire such Securities.
d. Information. Each of the Investor and Yorkeville and its advisors,
if any, have been furnished with or have had access to all materials relating to
the business, finances and operations of the Company and materials relating to
the offer and sale of the Securities which have been requested by the Investor
and Yorkeville. The Investor and Yorkeville and its advisors, if any, have been
afforded the opportunity to ask questions of the Company. Neither such inquiries
nor any other due diligence investigations conducted by the Investor, Yorkeville
or its advisors, if any, or its representatives shall modify, amend or affect
the Investor's or Yorkeville's right to rely on the Company's representations
and warranties contained in Section 4 below. The Investor and Yorkeville
understand that its investment in the Securities involves a high degree of risk.
The Investor and Yorkeville have sought such accounting, legal and tax advice as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Securities.
e. No Governmental Review. The Investor and Yorkeville understand that
no United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Securities
or the fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. The Investor and Yorkeville understand that
except as provided in the Registration Rights Agreement: (i) the Securities have
not been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered for resale thereunder and sold, assigned or transferred
in accordance with an effective registration statement, (B) the Investor or
Yorkeville, as the case may be, shall have delivered to the Company an opinion
of counsel, in a reasonably acceptable form, to the effect that such Securities
to be sold, assigned or transferred may be sold, assigned or transferred
pursuant to an exemption from such registration, or (C) the Investor or
Yorkeville, as the case may be, provides the Company with assurance reasonably
acceptable to the Company that such Securities can be sold, assigned or
transferred pursuant to Rule 144 promulgated under the 1933 Act (or a successor
rule thereto) ("RULE 144"); (ii) any sale of the Securities made in reliance on
Rule 144 may be made only in accordance with the terms of Rule 144 and further,
if Rule 144 is not applicable, any resale of the Securities under circumstances
in which the seller (or the person through whom the sale is made) may be deemed
to be an underwriter (as that term is defined in the 1933 Act) may require
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<PAGE>
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. The Investor and Yorkeville agree that the sale of the
Securities will be in compliance with all applicable state and federal
securities laws, rules and regulations and the rules and regulations of the
Principal Market, if applicable.
g. Legends. The Investor and Yorkeville understand that, until such
time as the Securities have been transferred to a person who may trade the
Shares without restriction under the 1933 Act as contemplated by the
Registration Rights Agreement, the certificates representing the Securities,
except as set forth below and in Section 8(r), shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
FOR RESALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FOR THE RESALE OF THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of the Securities upon which it
is stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for resale under the 1933 Act, (ii) in connection with
a sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of such Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with assurances reasonably acceptable
to the Company that such Securities can be sold pursuant to Rule 144 without any
restriction as to (A) the number of securities acquired as of a particular date
that can then be immediately sold or (B) manner of sale. Each of the Investor
and Yorkeville covenants that, in connection with any transfer of Securities by
it pursuant to an effective registration statement under the 1933 Act, it will
(i) comply with the applicable prospectus delivery requirements of the 1933 Act,
provided that copies of a current prospectus relating to such effective
registration statement are or have been supplied to the Investor and Yorkeville,
and (ii) comply with the "Plan of Distribution" section of the current
prospectus relating to such effective registration statement.
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<PAGE>
h. Authorization; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Investor and is a valid and
binding agreement of the Investor enforceable against the Investor in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. Section 9 of the 1934 Act. During the Open Period, the Investor and
Yorkeville will comply with the provisions of Section 9 of the 1934 Act, and the
rules promulgated thereunder, with respect to transactions involving the Common
Stock.
j. No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Investor and the consummation by the Investor of
the transactions contemplated hereby and thereby will not (i) result in a
violation of the Articles of Incorporation or the By-laws or (ii) conflict with,
or constitute a material default (or an event which with notice or lapse of time
or both would become a material default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
contract, indenture mortgage, indebtedness or instrument to which the Investor
or any of its Subsidiaries is a party, or result in a violation of any law,
rule, regulation, order, judgment or decree applicable to the Investor or any of
its Subsidiaries or by which any property or asset of the Investor or any of its
Subsidiaries is bound or affected. The business of the Investor and its
Subsidiaries is not being conducted, and shall not be conducted, in violation of
any law, statute, ordinance, rule, order or regulation of any governmental
authority or agency, regulatory or self-regulatory agency, or court, except for
possible violations the sanctions for which either individually or in the
aggregate would not have a Material Adverse Effect.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedules attached hereto, the Company
represents and warrants to the Investor that:
a. Organization and Qualification. The Company and its "SUBSIDIARIES"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns a controlling interest) (a complete list of which
is set forth in Schedule 4(a)) are corporations duly organized and validly
existing in good standing under the laws of the State of Nevada, and have the
requisite corporate power and authorization to own their properties and to carry
on their business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, "MATERIAL
ADVERSE EFFECT" means any material adverse effect on the business, properties,
assets, operations, results of operations, financial condition or prospects of
the Company and its Subsidiaries, if any,
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<PAGE>
taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined in Section 1 and 4(b)below).
b. Authorization; Enforcement; Compliance with Other Instruments. (i)
The Company has the requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement, and each of the other
agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "TRANSACTION
DOCUMENTS"), and to issue the Shares in accordance with the terms hereof and
thereof, (ii) the execution and delivery of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby and
thereby, including without limitation the reservation for issuance and the
issuance of the Shares pursuant to this Agreement, have been duly and validly
authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors, or its
shareholders, except for any approval required pursuant to the rules and
regulations of the AMEX (iii) the Transaction Documents have been duly and
validly executed and delivered by the Company, and (iv) the Transaction
Documents constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies.
c. Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of (i) 54,523,810 shares of Common Stock, of which as of
the date hereof, 18,566,667 shares are issued and outstanding, 5,000,000 shares
of Preferred Stock, of which as of the date hereof 3,235,301 shares are issued
and outstanding, and 2,779,737 shares of Common Stock are issuable upon the
exercise of options, Warrants and conversion rights. All of such outstanding
shares have been, or upon issuance will be, validly issued and are fully paid
and nonassessable. Except as disclosed in Schedule 4(c) or in SEC Documents (as
defined in Section 4(f) below), (i) no shares of the Company's capital stock are
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company, (ii) there are no outstanding
debt securities, (iii) there are no outstanding shares of capital stock,
options, Warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries or options, Warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, (iv) there are no agreements or arrangements
under which the Company or any of its Subsidiaries is obligated to register the
sale of any of their securities under the 1933 Act (except the Registration
Rights Agreement), (v) there are no outstanding
15
<PAGE>
securities of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries, (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement, (vii) the Company does not have
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement and (viii) there is no dispute as to the class of any
shares of the Company's capital stock. The Company has furnished to the
Investor, or the Investor has had access through EDGAR to, true and correct
copies of the Company's Articles of Incorporation, as in effect on the date
hereof (the "ARTICLES OF INCORPORATION"), and the Company's By-laws, as in
effect on the date hereof (the "BY-LAWS `), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
d. Issuance of Shares. At least 16,000,000 Shares issuable pursuant to
this Agreement have been duly authorized and reserved for issuance (subject to
adjustment pursuant to the Company's covenant set forth in Section 5(f) below)
pursuant to this Agreement, subject to approval by the Company's stockholders.
Upon issuance in accordance with this Agreement, the Securities will be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof. In the event the Company cannot register
16,000,000 Shares, due to the remaining number of authorized shares of Common
Stock being insufficient, the Company will use its best efforts to register the
maximum number of shares it can based on the remaining balance of authorized
shares and will use its best efforts to increase the number of its authorized
shares as soon as reasonably practicable.
e. No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby will not (i) result in a violation
of the Articles of Incorporation, any Certificate of Designations, Preferences
and Rights of any outstanding series of preferred stock of the Company or the
By-laws or (ii) conflict with, or constitute a material default (or an event
which with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, contract, indenture mortgage,
indebtedness or instrument to which the Company or any of its Subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including United States federal and state securities laws and
regulations and the rules and regulations of the Principal Market or principal
securities exchange or trading market on which the Common Stock is traded or
listed) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected. Except as disclosed in Schedule 4(e), neither the Company nor its
Subsidiaries is in violation of any term of, or in default under, the Articles
of Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or their
organizational charter or
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