EXHIBIT 10.12
INCUBATE THIS! INC.
OFFERING OF 1,250,000 SHARES OF INCUBATE THIS! INC.
AT AN OFFERING PRICE OF FOUR DOLLARS ($4.00) PER SHARE
Incubate This! Inc., a Colorado corporation (the "Company"), is offering a
maximum of 1,250,000 Common Shares for sale at a price of $4.00 per Share. There
is no limitation on the number of Shares a subscriber may purchase.
Shares are being offered on a "best efforts" basis. All funds received
shall be available for immediate use by the Company.
The Offering price has been determined arbitrarily by the Company and
does not necessarily bear any relationship to the public market price for the
Securities, the Company's assets, book value, net worth or any other recognized
criteria of value. The Company trades on the OTC Bulletin Board under the
trading symbol "ICBT".
The Company is subject to the reporting requirements of the Securities
Act of 1934 ("34 Act") and information with respect to the Company is available
through the public records of the Securities and Exchange Commission ("SEC").
Potential investors are encouraged to visit this information site.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION TO
PUBLIC INVESTORS. THEY SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD THE
RISK OF LOSS OF THEIR INVESTMENT. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Discounts and Proceed to
Price to Public (1) Commissions (2) the Issuer (3)
Per Share $4.00 $ -0- $4.00
Total Maximum
Offering $5,000,000 $ -0- $5,000,000
(1) This offering is made by the Company on a "best efforts" basis, for
a period of 180 days from the date of this Memorandum and may be extended, at
the option of the Company for an additional period or periods not exceeding an
additional 180 days in the aggregate.
(2) No commissions will be paid in connection with sales which are made
directly by the Company. Commissions may be paid to licensed broker-dealers or
other legally authorized representatives.
(3) Before deducting certain other cost(s) related to this Offering
payable by the Company including legal, accounting and printing expenses.
The date of this Private
Offering Memorandum is May 12, 2000.
TABLE OF CONTENTS
Page No.
Offering Information
The Offering.........................................................5
Use of Proceeds......................................................6
The Company...................................................................6
Venture Capital Division......................................................7
Professional Services Division................................................7
Investment Characteristics....................................................7
Investment Objectives and Strategies..........................................8
Investment Criteria...........................................................8
Investments in Portfolio Companies...........................................10
Industry Overview............................................................10
Competition..................................................................12
Government Regulation
Investment Company Act of 1940......................................13
Other Regulations and Legal Uncertainties...........................14
Forward-Looking Statements...................................................15
Risk Factors.................................................................15
Use of Proceeds..............................................................19
Management...................................................................19
Remuneration.................................................................19
Principal Shareholders.......................................................20
Description of the Securities................................................20
Plan of Distribution.........................................................21
Investor Suitability Standards and Investment Restrictions...................23
Investor Suitability Evaluation Questionnaire................................26
Subscription Agreement and Investment Representation of Investors............28
THE SHARES ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND WILL NOT BE
REGISTERED UNDER THE 1933 ACT, OR QUALIFIED UNDER THE SECURITIES LAW OF ANY
STATE AND THEREFORE CANNOT BE SOLD,
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TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH REGISTRATION AND QUALIFICATION, OR
THE AVAILABILITY OF AN EXEMPTION THEREFROM. THERE IS NO PUBLIC OR OTHER MARKET
FOR SUCH SHARES.
THE SHARES OFFERED HEREBY INVOLVE RISK AND SHOULD NOT BE PURCHASED BY
ANYONE WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. (SEE "RISK
FACTORS.")
EACH RECIPIENT MUST RELY UPON HIS OR HER OWN REPRESENTATIVE AS TO LEGAL,
TAX AND RELATED MATTERS.
THE COMPANY INTENDS TO CONDUCT THE OFFERING THROUGH THE COMPANY IN SUCH A
MANNER THAT THE SHARES WILL ONLY BE SOLD TO "ACCREDITED INVESTORS" AS THAT TERM
IS DEFINED IN REGULATION D UNDER THE SECURITIES ACT OF 1933. THE REPRESENTATIONS
OF EACH INVESTOR WILL BE REVIEWED TO DETERMINE THE SUITABILITY OF PROSPECTIVE
INVESTORS AND THE COMPANY WILL HAVE THE RIGHT TO REFUSE A SUBSCRIPTION FOR
SHARES IF IN ITS SOLE DISCRETION THE COMPANY BELIEVES THAT THE PROSPECTIVE
INVESTOR DOES NOT MEET THE APPLICABLE SUITABILITY REQUIREMENT OR THAT THE SHARES
ARE OTHERWISE AN UNSUITABLE INVESTMENT FOR THE PROSPECTIVE INVESTOR.
THE COMPANY SHALL PRIOR TO THE SALE OF ANY SECURITIES ALLOW EACH INVESTOR
OR HIS AGENT THE OPPORTUNITY TO ASK QUESTIONS OF AND RECEIVE ANSWERS FROM ANY
PERSON AUTHORIZED TO ACT ON BEHALF OF THE COMPANY CONCERNING ANY ASPECT OF THE
INVESTMENT AND TO OBTAIN ANY ADDITIONAL INFORMATION (TO THE EXTENT THE COMPANY
POSSESSES SUCH INFORMATION) NECESSARY TO VERIFY THE ACCURACY OF THE INFORMATION
CONTAINED IN THIS OFFERING MEMORANDUM. INVESTORS OR THEIR REPRESENTATIVES HAVING
QUESTIONS OR DESIRING ADDITIONAL INFORMATION SHOULD CONTACT THE COMPANY AT
561-832-5696.
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NOTICES TO RESIDENTS OF CERTAIN STATES
NOTICE TO FLORIDA RESIDENTS
THE SHARES REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED BY, THE
HOLDER IN A TRANSACTION EXEMPT UNDER SECTION 517.061 OF THE FLORIDA SECURITIES
ACT. THE SHARES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF FLORIDA.
IN ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING THE
PURCHASE WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE
BY SUCH PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER, OR AN ESCROW AGENT OR
WITHIN THREE (3) DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED
TO SUCH PURCHASER, WHICHEVER OCCURS LATER.
NOTICE TO NEW YORK RESIDENTS
THIS OFFERING MEMORANDUM HAS NOT YET BEEN REVIEWED BY THE ATTORNEY
GENERAL PRIOR TO ISSUANCE AND USE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK
HAS NOT PASSED OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
THIS OFFERING MEMORANDUM DOES NOT CONTAIN AN UNTRUE STATEMENT OF A
MATERIAL FACT OR OMIT TO STATE A MATERIAL FACT NECESSARY TO MAKE THE STATEMENTS
MADE IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THAT WERE MADE, NOT MISLEADING.
IT CONTAINS A FAIR SUMMARY OF THE MATERIAL TERMS AND DOCUMENTS PURPORTED TO BE
SUMMARIZED HEREIN.
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OFFERING INFORMATION
This Memorandum describes in detail matters which may be material to
investors and should be read in its entirety. Each prospective investor should
thoroughly review the text of this Memorandum prior to deciding to purchase any
of the Shares offered hereby. This Memorandum has been prepared on the basis of
information obtained from sources deemed reliable by the Company and contains a
summary of documents referred to herein, all of which are available for
inspection upon request.
The Offering
The Company will consider minimum subscriptions for 25,000 shares
($100,000) and will sell a maximum of 1,250,000 shares of its no-par value per
share Common Stock (the "Common Stock"), at a price of $4.00 per share. The
Company reserves the right, in its sole discretion, to accept subscriptions for
less than the minimum amount.
The Shares offered hereby will be subject to transfer restrictions. The
Shares may not be sold or transferred except pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "Act")
or an applicable exemption therefrom. Currently, there is a limited public
market for the Common Stock offered hereby.
The offering of the Common Stock will commence on May 12, 2000 and will
terminate 180 days later subject to one or more extensions at the discretion of
the Company. The offering may be withdrawn by the Company at any time, in which
case subscription documents and cash, without interest thereon, tendered by
subscribers will be returned.
A total of 4,411,527 shares of the Company's Common Stock are currently
outstanding. Accordingly, investors acquiring Shares of the Company's Common
Stock in this offering will incur immediate substantial dilution. See
"Dilution."
The Offering
Type of security...............................................Common Shares
Offering price per Share........................................... $4.00
Maximum Number of Shares Offered.............................. 1,250,000
Shares Outstanding
Prior to the Offering ............................... 4,411,527
After the Maximum Offering............................5,661,527
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Use of Proceeds
Assuming all of the Shares offered hereby are sold, prior to deducting
sales commissions payable to broker-dealers or other legally authorized
representative which sell any of the Shares, the net proceeds of the offering
are estimated to be $5,000,000. The Company intends to apply the net proceeds of
the offering to Working Capital. See "Use of Proceeds" and "Risk and Other
Important Factors - Risks Relating to the Company - Governmental Regulations and
Approvals."
The executive office of the Company is:
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Telephone: (561) 832-5696
Facsimile: (561)659-5371
THE COMPANY
Incubate This, Inc. (the "Company") is a US publicly held company that
operates as a provider of professional advisory and management services to its
investee companies ("portfolio companies") and provides early stage venture
capital to private and publicly held companies targeting a wide range of
emerging growth opportunities. Since its change in business strategy and
management ("the reorganization") during the fourth quarter of 1999, the Company
has made three separate investments into early stage companies that participate
in the Online Publishing, Agricultural Technology, and Music industries. These
portfolio companies ("incubator companies") are headquartered in London, Israel,
and the United States, respectively. The Company anticipates most of its venture
capital efforts and investments to continue to be made within the regions of
North America, Europe, and Israel.
The Company is not qualified as a "regulated investment company" for
federal income tax purposes and has no independent investment advisor at this
time.
The Company's executive office is located at 265 Sunrise Avenue, Suite 204,
Palm Beach, FL 33480. The Company's telephone number is (561) 832-5696. In
February 2000, the Company changed its name from Pet Health Systems, Inc. to
Incubate This! Inc. to better reflect the new scope of its business.
VENTURE CAPITAL DIVISION
The Company's venture capital arm makes strategic equity investments in
independently managed companies primarily entering the early stages of
development, but which exhibit the unique
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qualities deemed necessary for eventual success. The Company's investment
decisions are made by its officers, subject to the Company's investment policies
and objectives, and under the guidance and oversight of its Board of Directors.
Historically, the Company has relied on the efforts of its officers to identify
new investment opportunities. Following the Company's reorganization, new
management has sought referrals from venture capitalists, investment bankers,
attorney's, accountants and other professionals.
PROFESSIONAL SERVICES DIVISION
In order to facilitate the growth of its incubator companies, the
Company offers management and advisory oversight services to its portfolio
companies. Management believes the collaboration between its two businesses
could provide synergistic and competitive advantages to its portfolio companies
that can ultimately improve shareholder value. Acting as a long-term partner,
management's incubator strategy is to integrate its portfolio companies into a
collaborative network that leverages the collective knowledge and resources of
its investment umbrella. As part of this objective, the Company is in the early
stages of forming a unique technology campus located in Israel that will provide
a wide variety of services ranging from general corporate facilities to
strategic and creative consulting. The campus concept is designed to assist
independent Internet companies as well as the Company's portfolio companies with
the development and execution of their business strategies in a more
streamlined, cost effective, and knowledgeable manner. The Company believes that
by providing these services it enables its clients and portfolio companies to
better focus on their core competencies and accelerate the time-to-market of
their products and services.
INVESTMENT CHARACTERISTICS
Since its reorganization, the Company has invested only in the common
stock of privately held portfolio companies. The security interests in these
companies are presently classified as restricted securities under regulations of
the United States Securities & Exchange Commission. The Company does not have a
policy that limits the amount of nor class of securities of portfolio companies.
However, the Company intends to restrict investment into securities with
features void of shareholder voting rights. In addition, management seeks to
obtain governance rights, anti- dilution rights and liquidation preferences
whenever possible in its investments.
The Company believes that equity participation in common stock and
preferred stock issuances offers the potential for higher returns and elevated
performance of its investment portfolio. However, there is no assurance that its
investment strategy will yield a return nor higher return than other securities.
All of the Company's investments are highly illiquid and there can be no
assurance that any market will develop for portfolio company securities. In
addition, many of the Company's portfolio companies have low levels of
capitalization with relatively high negative cash flows. There are no current
personal guarantees held by the Company as related to the Company's investments.
Additionally, there is no assurance that the Company will find opportunities on
terms favorable to the Company.
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INVESTMENT OBJECTIVES AND STRATEGIES
Our venture investment strategy is to realize a significant capital
return on our venture investments by making strategic, early-stage equity
investments in companies which we believe will emerge as leaders within their
respective target markets. We seek to accomplish this goal by identifying
promising companies in select industries, investing in those companies, and
enhancing the future success of these companies by employing our expertise when
called upon, and leveraging our relationships. Currently, the Company holds
minority equity interests in its portfolio companies. It is the Company's intent
to acquire only minority interests in future portfolio companies.
The Company seeks long-term growth in the value of its assets and
expects no current income from its portfolio company investments (as opposed to
its professional advisory ad management services). The Company's investments are
made with the intent of liquidation within 2 to 5 years. However, situations may
arise whereby the Company may hold an equity interest for a longer or shorter
period. Under current management, the Company focuses on investments in
privately held companies that target high growth industries, communications and
other technology related businesses operating in a diverse range of industries.
There is no assurance that the Company will be able to locate investments in
companies operating in such emerging growth markets. The Company concentrates
its investment in companies located in Israel and the United States, but will
consider investments in other countries if the eligible concerns operate in
countries deemed favorable.
At present, the Company's existing portfolio companies are expansion
stage businesses that have recently emerged from the startup phase and entered
commercial operations. The Company's investment policy does not restrict
investment into startup stage companies that are consistent with the Company's
investment selection criteria.
INVESTMENT CRITERIA
Within the Company's scope of structuring equity investments, the Company uses
the following criteria in selecting investment opportunities:
Experienced Management. The Company seeks to invest in companies whose
management holds a significant level of interest ownership and who are deemed to
have a high degree of experience, competence, and other characteristics required
to enhance the odds for success.
Strong Growth Prospects. The Company requires prospective investees to exhibit
high growth or the potential to deliver high annual growth within a short period
of time.
Potential Profits. The Company attempts to identify those companies with the
highest potential to deliver high growth and potentially early profits.
Early Development Stage. The Company seeks to invest in companies that are in
the early stages of commercializing their operations and strategies.
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Liquidation/Exit Strategy. An exit strategy of 2 - 5 years is sought by the
Company in order to take profits and reinvest into new companies. A variety of
exit methods is possible and may include an initial public offering of the
portfolio company, a repurchase by such portfolio company of the Company's
interest, a cash buyout by a competitor, and potentially a purchase of the
Company's interest by a third party such as another financial institution.
INDUSTRY OVERVIEW
The venture capital industry in the United States is extremely
advanced, and has for more than a century served as the energy to fuel America's
engine of innovation. Today, there are thousands of venture capital firms in the
U.S. and in Europe, particularly Germany and the United Kingdom. Over the last
decade, the venture capital market in Israel has experienced strong growth due
to the country's successful initiatives to nurture the development of new
technologies. Whereas there were only a few venture capital firms operated in
Israel at the onset of the 1990s, there are now more than 110 active funds
involved in the Israeli market. According to the latest statistics, Israel is
home to an estimated 2500 start ups, the majority of them high tech, and the
country has averaged 800 new startups per year over the last several years. This
yearly growth in startups is more than all of Europe, and second only to the
U.S. The increased venture capital activity in Israel over the last decade has
resulted in Israel now claiming the highest number of its country stocks traded
on the NASDAQ, second only to Canada.
The rise of the Internet and development of new technologies has
created an explosive demand for seed, venture, mezzanine, and other funds to
commercialize new ideas and technologies. With the promise of astronomical
returns, venture capital firms have stepped up to the opportunity. In the last
quarter of 1999, US venture capitalists showered Internet-related start-ups with
$5.2 billion, almost five times as much as during the same period a year ago,
according to PricewaterhouseCoopers. While the Internet incubator trend is more
advanced in the U.S., Europe intends to catch up. Six months ago, Europe had
hardly any incubators. Today, there are at least 100, most of them based in
London. The recent launch and IPO of Internet incubator, Jellyworks Plc,
exhibits just how much pent up demand there is for such investment vehicles in
Europe. Since its December 99 IPO, the stock has risen more than 3000%.
Historically, the large majority of venture capital firms have remained
private. However, there has been a significant rise in the number of venture
capitalists taking their company or investment holding companies public. The
ability to raise additional venture capital funds through the public markets has
made it attractive to be public. Additionally, investor enthusiasm for higher
growth investments is at record levels, driven by the high returns awarded for
success. Publicly traded venture-backed companies offer the average individual
investor a chance to diversify into promising high technology issues that have
been screened by the intelligence and experience of venture money. VC's are in
many ways, like insiders, for they possess a high level of knowledge that
individual investors simply to not have, as related to the interworkings of
industries and companies.
Over the last five years, after-market performance of venture-backed
companies has outpaced the broader markets by a substantial degree. Return on
investments in venture-backed companies completing IPOs in 1999 reached
unimaginable levels as some firms' enjoyed returns greater than
30
500%. The fact that half of all IPOs in 1999 were venture-backed companies is
hard evidence that the venture capital community is driving economic growth in
the United States and abroad. As well as accelerating the development of
business, incubators also bridge the widening gap between venture capitalists
and young entrepreneurs. It also represents a significant trend that the Company
intends to profit from.
In January 2000, the Venture Economics Group of Thomson Financial
Securities Data reported that 271 U.S. venture-backed companies went public in
1999, representing nearly 50% of all IPOs in the United States during 1999! The
group also reported that Venture-backed companies are raising more dollars and
going public at an earlier age. "The 271 venture-backed companies in 1999 raised
over $23.6 billion for themselves and marked a total post offer valuation at
offering dates of an astounding $136.2 billion. The average offer size for a
venture-backed IPO was up 75% from the previous year to $87.2 million along with
an unprecedented average post offer valuation of $502.7 million--more than twice
as much as the prior year. The median company age of venture- backed IPOs was
4.0 years in 1999, versus 4.5 in 1998 and 5.5 years in 1997."
COMPETITION
We compete against numerous public companies such as CMGI, Inc.,
Internet Capital Group, Inc., Rare Medium Group, Inc. and Softbank Corp., as
well as private companies such as Idealab! and Divine Interventures, Inc., that
provide some combination of the same or similar services that we provide. Many
of these competitors have longer operating histories, larger installed client
bases, greater name recognition, more experience and significantly greater
financial, technical, marketing and other resources than we do. We expect that
competition from both private and public companies in our markets will
intensify. At any time, our current and potential competitors could increase
their resource commitments to our markets. Among other adverse consequences,
this competition may diminish our ability to identify, attract and develop
relationships with partner companies. As a result, our business, operating
results and financial condition could be materially and adversely affected.
The individual markets for professional and venture capital services
are intensively competitive and characterized by an increasing number of
entrants because the barriers to entry in these markets are relatively low.
In providing such services, we compete directly against traditional
venture capital and private equity firms and public and private companies with
venture funds. Many of these competitors have significantly greater experience
and financial resources than we have. In addition to these competitors, numerous
public companies, as well as private companies, devote significant resources to
providing capital together with other resources to incubator companies.
Additionally, corporate strategic investors, including Fortune 500 and other
significant companies, are developing incubator strategies and capabilities.
Many of these competitors have significantly greater financial resources and
brand name recognition than we do, and the barriers to entry for companies
seeking to provide capital and other resources to entrepreneurs and their
emerging technology companies are minimal. We expect that competition from both
private and public companies with business models similar to our own will
intensify. Among other adverse consequences, this competition may diminish the
pool of potential investment opportunities and
31
raise the cost of making future investments. As a result, our financial
condition, operating results and business could be materially and adversely
affected.
In providing professional and venture capital services, we compete
directly against strategy consulting firms and management consulting firms. In
providing venture capital services, we compete directly with other investment
banking and merchant banking firms which vary in size from small,
privately-owned firms to very large, publicly-held corporations. We also face
increasing competition from other sources, such as commercial banks, insurance
companies and consulting firms offering financial services. The principle
competitive factors in the investment banking and financial services industry
include transaction experience, breadth of services offered, innovation,
reputation and price. Many of our current and potential competitors in the
venture development and venture banking markets have longer operating histories,
larger installed clients bases, greater name recognition, more experience and
have significantly greater financial, technical, marketing and other resources
than we do. As a result, our competitors may be more attractive partners to
businesses. In addition, our competitors may be able to respond more quickly to
changes in client needs, service more clients simultaneously and undertake more
extensive marketing campaigns. We cannot assure you that we will be able to
compete successfully against our current or future competitors or that
competitive pressures will not have a material adverse effect on our business,
operating results and financial condition.
Competition for products and services is intense. As the market for
e-commerce grows, we expect that competition will intensify. Barriers to entry
are minimal, and competitors can offer products and services at a relatively low
cost. Further, our partner companies' competitors may develop products or
services that are superior to, or have greater market acceptance than, the
solutions offered by our partner companies. Many of our partner companies'
competitors have greater brand recognition and greater financial, marketing and
other resources than our partner companies. This may place our partner companies
at a disadvantage in responding to their competitors' pricing strategies,
technological advances, advertising campaigns, strategic partnerships and other
initiatives. If our partner companies are unable to compete successfully, they
will fail and it could have a material adverse effect on our business and
financial condition.
GOVERNMENT REGULATION
Investment Company Act of 1940
We are not currently required to be registered under the Investment
Company Act. Generally, a company must register under the Investment Company Act
and comply with significant restrictions on operations and transactions if: (1)
its investment securities exceed 40% of its total assets, or (2) it holds itself
out as being "primarily engaged" in the business of investing, owning or holding
securities. At this time, less than 40% of our total assets are investment
securities. If, in the future, our investment securities exceed 40% of our total
assets, we believe that we will not be required to register under the Investment
Company Act because we believe that we are "primarily engaged" in a
non-investment company business through our wholly-owned subsidiaries and that
we do not otherwise meet the requirements for registering under the Investment
Company Act. However, if more than 40% of our total assets are investment
securities and we are no longer "primarily engaged" in a non-investment company
business through our wholly-owned subsidiaries, we believe that we will be
"primarily engaged" in a non-investment company business through our
32
majority-owned subsidiaries and controlled subsidiaries and we will then
promptly file with the Securities and Exchange Commission an exemptive
application under Section 3(b)(2) of the Investment Company Act to have the
Securities and Exchange Commission so declare. If we do not receive exemptive
relief, then we may be required to register under the Investment Company Act.
Registration under the Investment Company Act would be inconsistent with our
present business strategy and would have a material and adverse effect on our
business, financial condition and operating results. Moreover, we might be
subject to civil and criminal penalties for failure to register, certain of our
contracts might be voidable and a court-appointed receiver could take control of
our company and liquidate our business.
To avoid regulation under the Investment Company Act, we would have to
attempt to reduce our investment securities to less than 40% of our total
assets. This reduction can be attempted in a number of ways, including the
disposition of investment securities and the acquisition of non-investment
security assets. If we were required to sell investment securities, we may sell
them sooner than we otherwise would. These sales may be at depressed prices, and
we may not realize anticipated benefits from, or may incur losses on, these
investments. Some investments may not be sold due to contractual or legal
restrictions or the inability to locate a suitable buyer. Moreover, we may incur
tax liabilities when we sell assets. We may also be unable to purchase
additional investment securities that may be important to our operating
strategy. If we decide to acquire non-investment security assets, we may not be
able to identify and acquire suitable assets and businesses.
If we are deemed to be, and required to register as, an investment
company, we will be forced to comply with the numerous and burdensome
substantive requirements of the Investment Company Act, including: (a)
limitations on our ability to borrow; (b) limitations on our capital structure;
(c) restrictions on acquisition of equity interests in partner companies; (d)
prohibitions on transactions with affiliates; (e) restrictions on specific
investments; and (f) compliance with reporting, record keeping, voting, proxy
disclosure and other rules and regulations.
If we were forced to comply with the rules and regulations of the
Investment Company Act, our operations would significantly change, and we would
be prevented from successfully executing our business strategy. As a result, our
business, financial condition and operating results would be materially and
adversely affected.
Other Regulations and Legal Uncertainties
Currently, there are few laws or regulations directed specifically at
e-commerce. However, because of the Internet's popularity and increasing use,
new laws and regulations may be adopted. These laws and regulations may cover
issues such as the collection and use of data from web site visitors and related
privacy issues, pricing, content, copyrights, promotions, distribution and
quality of goods and services, registration of domain names and use, and export
and distribution of encryption technology. The enactment of any additional laws
or regulations may impede the growth of the Internet and e-commerce, which could
decrease revenues of our partner companies and place additional financial
burdens on them.
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RISK FACTORS
Our investments in our partner companies are risky.
A portion of our assets include equity interests which we have directly
and indirectly acquired in our partner companies. Decreases in the value of our
partner companies will have an adverse effect on our business, financial
condition and operating results. Even though we intend to be actively involved
in the affairs of our partner companies, because we own or will own less than a
majority of the shares of our partner companies, we may not be able to control
the policies or directions that these companies take.
All of our partner companies are in the early stages of development,
and we cannot assure you that these companies will be able to successfully
achieve their business goals in a timely manner or at all. Our strategy is to
realize a return on our equity interests in these companies by liquidating these
investments through sales of equity or otherwise. We cannot assure you that we
will realize any return on any of these investments. Moreover, the trading price
of our common stock may be adversely affected if we do not realize any return on
these investments, or if that return is lower than the market expects. The
failure of one or more of the companies in which we have invested, and the
timing of any dispositions of our investments in these companies, could have a
material adverse effect on our business, financial condition and operating
results and on the market price of our common stock.
We will not be able to successfully execute our business strategy if we
are deemed to be an investment company under the Investment Company Act of 1940.
We are not currently required to be registered under the Investment
Company Act. Generally, a company must register under the Investment Company Act
and comply with significant restrictions on operations and transactions if: (1)
its investment securities exceed 40% of its total assets, or (2) it holds itself
out as being "primarily engaged" in the business of investing, owning or holding
securities. At this time, less than 40% of our total assets are investment
securities. If, in the future, our investment securities exceed 40% of our total
assets, we believe that we will not be required to register under the Investment
Company Act because we believe that we are "primarily engaged" in a
non-investment company business through our wholly-owned subsidiaries and that
we do not otherwise meet the requirements for registering under the Investment
Company Act. However, if more than 40% of our total assets are investment
securities and we are no longer "primarily engaged" in a non-investment company
business through our wholly-owned subsidiaries, we believe that we will be
"primarily engaged" in a non-investment company business through our
majority-owned subsidiaries and controlled subsidiaries and we will then
promptly file with the Securities and Exchange Commission an exemptive
application under Section 3(b)(2) of the Investment Company Act to have the
Securities and Exchange Commission so declare. If we do not receive exemptive
relief, then we may be required to register under the Investment Company Act.
Registration under the Investment Company Act would be inconsistent with our
present business strategy and would have a material and adverse effect on our
business, financial condition and operating results. Moreover, we might be
subject to civil and criminal penalties for failure to register, certain of our
contracts might be voidable and a court-appointed receiver could take control of
our company and liquidate our business.
34
To avoid regulation under the Investment Company Act, we would have to
attempt to reduce our investment securities to less than 40% of our total
assets. This reduction can be attempted in a number of ways, including the
disposition of investment securities and the acquisition of non-investment
security assets. If we were required to sell investment securities, we may sell
them sooner than we otherwise would. These sales may be at depressed prices, and
we may not realize anticipated benefits from, or may incur losses on, these
investments. Some investments may not be sold due to contractual or legal
restrictions or the inability to locate a suitable buyer. Moreover, we may incur
tax liabilities when we sell assets. We may also be unable to purchase
additional investment securities that may be important to our operating
strategy. If we decide to acquire non-investment security assets, we may not be
able to identify and acquire suitable assets and businesses.
If we are deemed to be, and required to register as, an investment
company, we will be forced to comply with the numerous and burdensome
substantive requirements of the Investment Company Act, including: (a)
limitations on our ability to borrow; (b) limitations on our capital structure;
(c) restrictions on acquisition of equity interests in partner companies; (d)
prohibitions on transactions with affiliates; (e) restrictions on specific
investments; and (f) compliance with reporting, record keeping, voting, proxy
disclosure and other rules and regulations.
If we were forced to comply with the rules and regulations of the
Investment Company Act, our operations would significantly change, and we would
be prevented from successfully executing our business strategy. As a result, our
business, financial condition and operating results would be materially and
adversely affected.
Our common stock has not traded in the marketplace recently.
The market price of our common stock has been, and is likely to
continue to be, volatile, experiencing wide fluctuations. In recent years, the
stock market has experienced significant price and volume fluctuations which
have particularly affected the market prices of equity securities of many
companies providing Internet-related products and services. Some of these
fluctuations appear to be unrelated or disproportionate to the operating
performance of these companies. Future market movements may materially and
adversely affect the market price of our common stock.
Fluctuations in our financial performance could adversely affect the trading
price of our common stock.
Our operating results may fluctuate as a result of a variety of
factors, many of which are beyond our control, including: (a) the number of our
partner companies with which we have established relationships and services
which we are engaged to provide; (b) reductions, cancellations or completions of
major engagements to provide venture development, venture banking and/or venture
funding services; (c) the loss of significant partner companies or a change of
scope in the services that we are providing to them; (d) the efficiency with
which we utilize our professionals; (e) variability in market demand for our
services; (f) costs related to expansion of our business; (g) sales of equity
interests in our partner companies; (h) significant acquisitions; (i) increased
competition; and (j) general economic conditions.
35
In some quarters, our operating results may fall below the expectations
of securities analysts and investors due to many factors, including those
described above. As a result, the trading price of our common stock would likely
decline, and the decline could be significant.
Competition for professional and venture capital services is intense.
In providing professional and venture capital services, we compete
directly against traditional venture capital and private equity firms and public
and private companies with venture funds, and many of these competitors have
significantly greater experience and financial resources than we have. In
addition to these competitors, numerous public companies devote significant
resources to providing capital together with other resources to Incubator
companies. As a result, our business, financial condition and operating results
could be materially and adversely affected .
Governmental regulation of the Internet could adversely impact our business and
operations and the business and operations of our partner companies.
Currently, few laws or regulations are directly applicable to the
Internet. Due to the increasing popularity and use of the Internet, it is likely
that a number of new laws and regulations may be adopted at the local, state,
national or international levels with respect to the Internet, including
Internet laws regarding privacy, taxation, pricing, content, copyrights,
distribution and quality of products and services. The enactment of any new laws
or regulations, including international laws and regulations, could inhibit the
growth in use of the Internet and decrease the acceptance of the Internet as a
communications and commercial medium, which could in turn decrease the demand
for our services and those of our partner companies, or otherwise have a
material adverse effect on our business, financial condition and operating
results, and those of our partner companies.
Future payment of dividends is not expected.
The payment of dividends on the Common Stock is determined in the sole
discretion of the Board of Directors. The Company intends to retain future
earnings, if any, to provide funds for the operation of its business and,
accordingly, does not anticipate payment of cash dividends on its Common Stock
in the foreseeable future.
Purchasers face substantial dilution.
A total of 4,411,527 shares of the Company's Common Stock are currently
outstanding. Based upon the offering price of $4.00 per Share and assuming all
of the Shares offered hereby are sold, purchasers of the Common Stock will incur
substantial immediate dilution.
The offering price is arbitrary.
The price of the Common Stock offered hereby has been arbitrarily
determined by the Company without negotiation and, accordingly, the price of the
Common Stock may not be an indication of the fair value of the Common Stock.
There can be no assurance that the Common Stock could be sold by investors in
the future at the offering price or for any other amount.
36
Management has broad discretion to utilize all funds.
Management has broad discretion to utilize the proceeds of this
Offering.
USE OF PROCEEDS
The net proceeds to be realized from this Offering will approximate
$5,000,000 if the maximum offering is sold however it is possible that less than
the full amount of the Offering will be obtained.
All funds will be applied toward working capital.
MANAGEMENT AND OTHER ADVISORY PERSONNEL
Roni Greenbaum, Director and Secretary
Mr. Greenbaum, age 28, is one of Europe Investor Direct's early private
investors. From 1999 to present, Mr. Greenbaum has been actively engaged as a
founder of Galtar Investments, an Israeli project management and finance
brokerage firm specializing in real estate. From 1996 to 1998, Mr. Greenbaum was
director of development for Millennium Lofts Cooperation, a company that
specialized in residential property development in North West London. Mr.
Greenbaum holds an MSc in Property Investment from City University, City
Business School in London. He also holds a Second Class Degree in BSc Economics
& Marketing from Guildhall University, London. Upon graduating Herzlia High
School, Mr. Greenbaum served as a Paratrooper in the Israeli Armed Forces,
leaving the service under the rank of First Sergeant.
Sharone Perlstein, Director and President
Mr. Perlstein age 28 graduated from the University of Illinois at
Champaign/Urbana in 1993 with a B.A in Communications. Mr. Perlstein is an
entrepreneur and after graduating from school founded his own import/export
company. Mr. Perlstein's clients overseas led him to the financial world and he
made his way to Wall Street. In 1994, Mr. Perlstein joined US Securities and
Futures located at 110 Wall Street in New York as a Series 7 and 63 licensed
broker. After a year as a registered representative Mr. Perlstein gave up his
license to pursue a career as a financial consultant to emerging technology
companies. He has consulted several companies and has acted in the capacity of
an investment banker assisting in mergers/acquisitions/corporate finance and
raising capital. Mr. Perlstein is very familiar with the technology community in
Israel.
James P. Gately. Treasurer and Chief Financial Officer
Mr. Gately, age 42, is a certified public accountant, acts as Chief Financial
Officer. During his career in public accounting, he has spent time in the areas
of audit, taxation and small business consulting. After managing a small CPA
firm he decided to concentrate his practice in the area of auditing and
consulting with companies that are, or intend to be, traded in a public market.
In addition to this, he teaches advanced level fifth year accounting classes at
Florida Southern College.
37
He is treasurer of Congressman John Mica's political campaign and, as a member
of the American Institute of Certified Public Accountants Key Person Program,
lobbies congress on behalf of the accounting community. Prior to his more than
ten year career in public accounting, he assisted in his family's business, two
full line department stores. Experienced in all ends of that business, he and
his family decided to sell the stores. In 1989 he received an MBA Degree from
Keller Gaduate School of Management and in 1981 he received a Bachelor of
Science Degree in Marketing and a minor in English from the University of
Dayton.
Gerald B. Raingold, Non-executive Director
Gerald B. Raingold, age 57, is a senior investment banker based in London and
formally a Managing Director of the international investment banking group
Paribas, in London, responsible for the development of its investment banking
and commercial banking operations.
He has in the past, undertaken substantial domestic and cross border equity,
mergers/acquisitions and capital market assignments involving U.K., Continental
European, U.S., South African and Israeli corporations.
Previously he was with Coopers & Lybrand (both in Paris and Boston, USA),
Wallace Brothers and the Midland Montagu Group. He is a qualified chartered
accountant and Sloan Fellow of the London Business School (One year MBA
program).
He holds a number of other non-executive directorships, principally in the U.K.
Amos Pickel, Non-executive Director
Amos Pickel, age 33, was appointed as a member of the Board of Directors of The
Red Sea Group, an Israeli based international commercial real estate firm, in
May 1999. Since 1994 Mr. Pickel is the General Manager and a member of the Board
of Directors of Red Sea Hotels Ltd. (traded on the Tel-Aviv Stock Exchange).
Before then, he was Vice President of Red Sea Hotels Ltd. Mr. Pickel is a lawyer
by profession. He earned his Bachelors degree from Tel-Aviv University in 1990,
and his Masters degree from N.Y.U. in 1993. In his military service Mr. Pickel
was a Project Manager of a development of a computer-based system for the
Israeli Air Force Intelligence.
Richard I. Anslow, Advisory Board Member
Richard I. Anslow, age 39, admitted to the Bar, 1987, New Jersey and U.S.
District Court, District of New Jersey; 1988, District of Columbia, United
States Tax Court; 1996, United States District Court, Eastern District of New
York and Southern District of New York. Mr. Anslow received a Bachelor of
Science in Accounting with honors from the University of Buffalo in 1982 and a
Juris Doctor from Cardozo School of Law in 1985. Mr. Anslow is a practicing
attorney and has operated a law practice under the name Richard I. Anslow &
Associates based in Freehold, New Jersey since 1993. Formerly associated with
Ernst & Young (predecessor to Arthur Young & Co.), New York, New York as a tax
attorney; formerly associated with Stark & Stark, Princeton, New Jersey, a large
New Jersey law firm, within the securities, corporate and banking areas.
Practice encompasses various aspects of transactional work including securities
(including, without
38
limitation, private placements, initial public offerings, annual filings and
registrations), general corporate and real estate, bank loan origination and
other related matters in the securities, corporate, banking and real estate
areas, health care law, sports and entertainment law, and commercial collection
matters. Affiliations include Secretary of the Student Bar Association; Chair-
Entertainment, Arts and Sports Law Section of the New Jersey State Bar
Association.
Dr. Ron Daisy, Advisory Board Member
Dr. Ron Daisy, age 36, is the head of the signal processing and communication
algorithms development group in Comverse Infosys Inc., located in Tel-Aviv
Israel. He is an expert in voice band modems technology, in advanced object
oriented software development technologies, and in system architecture design.
He received his DSc, MSc, and BSc degrees from the Technion, Israel Institute of
Technology, in 1997, 1993, and 1990 respectively. His main interests were:
Non-linear Optics, Optical communications, and Micro-wave and Optical systems,
in which he published 10 original papers, and issued one patent. From 1981 to
1985 he served in the Air Force of the Israel defense army.
William Luckman, Independent Consultant and Advisor
William Luckman, age 28, is a founder of Europe Investor Direct, Ltd. and
currently serves as a Managing Director of the Company. Since 1999, Mr. Luckman
has been active in developing the strategy, content, and logistics for delivery
of financial content related to the Company's web site. Mr. Luckman has also
been instrumental in developing the corporate structure of Europe Investor
Direct, Ltd in its multiple jurisdictions. From 1994 to Present, Mr. Luckman has
held various executive level positions for a number of established and emerging
growth companies. From 1998 to Present, Mr. Luckman has been Senior Vice
President of EuroSoft Corporation, a multi- national IT consulting, product and
services corporation with subsidiaries in the U.S., U.K., Germany and Finland.
From 1994 to 1997, Mr. Luckman was employed by American Home Mortgage of New
York (NASDAQ: AHMH), one of the largest mortgage banks in the United States.
During his employment with American, Mr. Luckman successfully led the Company's
development team for building out-of-region growth in New York, Florida and
Illinois, thus earning him the distinction as the youngest Vice President in the
Company's history.
REMUNERATION OF MANAGEMENT AND OTHER ADVISORY PERSONNEL
Mr. Sharone Perlstein is currently serving without remuneration. Management
does intend, however, to provide compensation to Mr. Perlstein in the near
future.
Mr. Roni Greenbaum is to be paid a total of 109,375 shares of the
restricted common stock of the Company upon completion of three (3) months of
duties as a director or secretary and was awarded options to purchase the
restricted common stock of the Company as follows:
(A) 35,000 stock options exercisable at $10.00 per share of common stock on
or before May 1, 2001 (B) 35,000 stock options exercisable after May 1,
2001 and on or before May 1, 2002, at $15.00 per share of common stock.
39
(C) 35,000 stock options exercisable after May 1, 2002, and on or before
May 1, 2003, at $20.00 per share of common stock. (D) 35,000 stock options
exercisable after May 1, 2003, and on or before May 1, 2004, at $25.00 per
share of common stock.
Mr. James Gately is to be paid for his services as Treasurer and Chief
Financial Officer at the rate of $150.00 per hour for actual time expended and
was awarded options to purchase the restricted common stock of the Company as
follows:
(A) 5,000 stock options exercisable at $15.00 per share of common stock on
or before May 1, 2001. (B) 5,000 stock options exercisable after May 1,
2001 and on or before May 1, 2002, at $20.00 per share of common stock. (C)
5,000 stock options exercisable after May 1, 2002, and on or before May 1,
2003, at $25.00 per share of common stock. (D) 5,000 stock options
exercisable after May 1, 2003, and on or before May 1, 2004, at $30.00 per
share of common stock.
Gerald B. Raingold is to be paid for his services as a Non-executive
Director at the rate of $250.00 per hour for actual time expended plus a
nonrefundable retainer of 100,000 shares and was granted options for
compensation for his services as a director, such options awarded for the
purchase of the restricted common stock of the Company as follows:
(A) 25,000 stock options exercisable at $10.00 per share of common stock.
(B) 25,000 stock options exercisable at $15.00 per share of common stock.
(C) 25,000 stock options exercisable at $20.00 per share of common stock.
(D) 25,000 stock options exercisable at $25.00 per share of common stock.
Mr. Amos Pickel is to be paid a total of 109,375 shares of the restricted
common stock of the Company upon completion of three (3) months of duties as a
director and was awarded options to purchase the restricted common stock of the
Company as follows:
(A) 35,000 stock options exercisable at $10.00 per share of common stock on
or before May 1, 2001.
(B) 35,000 stock options exercisable after May 1, 2001 and on or before May
1, 2002, at $15.00 per share of common stock.
(C) 35,000 stock options exercisable after May 1, 2002, and on or before
May 1, 2003, at $20.00 per share of common stock.
(D) 35,000 stock options exercisable after May 1, 2003, and on or before
May 1, 2004, at $25.00 per share of common stock.
40
Dr. Ron Daisy was granted options for compensation for his services as an
Advisory Board Member, such options awarded for the purchase of the restricted
common stock of the Company as follows:
(A) 25,000 stock options exercisable at $10.00 per share of common stock.
(B) 25,000 stock options exercisable at $15.00 per share of common stock.
(C) 25,000 stock options exercisable at $20.00 per share of common stock.
(D) 25,000 stock options exercisable at $25.00 per share of common stock.
Richard I. Anslow was granted options for compensation for his services as
an Advisory Board Member, such options awarded for the purchase of the
restricted common stock of the Company as follows:
(A) 25,000 stock options exercisable at $10.00 per share of common stock.
(B) 25,000 stock options exercisable at $15.00 per share of common stock.
(C) 25,000 stock options exercisable at $20.00 per share of common stock.
(D) 25,000 stock options exercisable at $25.00 per share of common stock.
Mr. William Luckman is to be paid for his services as an Independent
Consultant and Advisor at the rate of $250.00 per hour for actual time expended,
plus a nonrefundable retainer of 200,000 shares of the common stock of the
Company. In addition special project work may be approved from time to time by
the Board of Directors although no such projects have been approved or are under
consideration at this time.
SPECIFIC TRANSACTIONS, RELATIONSHIPS AND POTENTIAL CONFLICTS ON
INTEREST
In January 2000, the Company purchased 10% of the issued and outstanding
shares of LP Records, Inc. ("LP Records"), in exchange for a total payment of
$7,500.00. LP Records is a production company representing both new and
established musical artists in the United States. Ms. Lilach Perlstein, the
principal owner and sole Officer and Director of LP Records is the sister of
Sharone Perlstein who is the principal owner and sole Officer and Director of
the Company.
In January 2000, the Company also acquired a total of 1,010,000 shares of
the common stock of Europe Investor Direct, Ltd. ("EID") for the total sum of
$250,000.00. EID is a United States and London based company that owns and
operates Europe Investor Direct.com, a subscriber -based financial website
offering a broad range of free and premium investment information, personal
finance products and various other finance products related to the European and
United States markets. The site offers investment research, academic content,
real time news, on-line tools for
41
tracking investment opportunities, challenges and trends in Europe and the
United States. The investment by the Company represents a fully diluted 8% stake
in EID. The current sole Officer and Director of the Company serves as a
Director of EID and owns approximately 35% of EID. EID also employs Mr. William
Luckman, a paid consultant to the Company as its Managing Director. Mr. Luckman
owns approximately 20% of EID. Present legal counsel to the Company, Donald F.
Mintmire, is a Director of EID.
Jagerton Research was the majority shareholder of the Company for a
brief period of time. Jagerton Research is beneficially owned by Ann Kristine
Perlstein, the sponsor of Sharone Perlstein.
Consulting fees have been paid by the Company relating to the
restructuring of the Company, its latest acquisitions and research and
development relating to other potential business and acquisitions. Such fees
were paid to Orly Capital (wholly owned by Sharone Perlstein), Eagle Research
Group, Inc. (wholly owned by William Luckman), and Jagerton Research (wholly
owned by Ann Kristine Perlstein).
The Company is indebted to Mr. Perlstein in the amount of $525,000.00
in conjunction with the Demand Promissory Note dated April 19, 2000. Mr.
Perlstein has committed to converting this Note to equity under the terms of
this Offering.
The Company is also indebted to Jagerton Research, Ltd. in the amount
of $127,300 as of March 31, 2000, such indebtedness represented in the form of a
demand note. Jagerton has committed to converting this Note to equity under the
terms of this Offering.
The Company is also indebted to Giuseppe Coniglione in the amount of
$112,000 as of March 31, 2000, such indebtedness represented in the form of a
demand note. Mr. Coniglione has committed to converting this Note to equity
under the terms of this Offering.
PRINCIPAL SHAREHOLDERS
Prior to this offering, the Company had 4,411,527 shares of its Common
Stock issued and outstanding. The following table sets forth, as of May 12,
2000, the beneficial ownership of the Company's Common Stock (i) by the only
persons who are known by the Company to own beneficially more than 5% of the
Company's Common Stock; (ii) by each officer and/or director of the Company; and
(iii) by all directors and officers as a group.
Name Number of Shares Percentage Owned Percentage Owned
Owned Prior to Offering* Before Offering* After Maximum
Offering*
Sharone Perlstein 4,000,000 99.7% 72%
Officers and 4,000,000 99.7% 72%
Directors as a group
42
*Does not include an undetermined number of shares (approximately 800,000) to be
offered to Company employees and consultant through its Year 2000
Employee/Consultant Plan, to be filed in the near future on S-8 Registration
Statement. Mr. Pickel and Mr. Greenbaum after seving three (3) months under the
terms of their Board Member Agreements will each receive 109,375 shares of the
common stock of the Company.
DESCRIPTION OF THE SECURITIES
Common Stock
The authorized capital stock of the Company consists of 800,000,000
shares of Common Stock, no-par value. Holders of the Common Stock do not have
preemptive rights to purchase additional shares of Common Stock or other
subscription rights. The Common Stock carries no conversion rights and is not
subject to redemption or to any sinking fund provisions. All shares of Common
Stock are entitled to share equally in dividends from sources legally available
therefore when, as and if declared by the Board of Directors and, upon
liquidation or dissolution of the Company, whether voluntary or involuntary, to
share equally in the assets of the Company available for distribution to
stockholders. All outstanding shares of Common Stock are validly authorized and
issued, fully paid and nonassessable, and all shares to be sold and issued as
contemplated hereby, will be validly authorized and issued, fully paid and
nonassessable. The Board of Directors is authorized to issue additional shares
of Common Stock, not to exceed the amount authorized by the Company's
Certificate of Incorporation, on such terms and conditions and for such
consideration as the Board may deem appropriate without further stockholder
action. The above description concerning the Common Stock of the Company does
not purport to be complete. Reference is made to the Company's Certificate of
Incorporation and Bylaws which are available for inspection upon proper notice
at the Company's offices, as well as to the applicable statutes of the State of
Colorado for a more complete description concerning the rights and liabilities
of stockholders.
Prior to this Offering, there has been no market for the Common Stock
of the Company, and no predictions can be made of the effect, if any, that
market sales of shares or the availability of shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of significant
amounts of the Common Stock of the Company in the public market may adversely
affect prevailing market prices, and may impair the Company's ability to raise
capital at that time through the sale of its equity securities.
Each holder of Common Stock is entitled to one vote per share on all
matters on which such stockholders are entitled to vote. Since the shares of
Common Stock do not have cumulative voting rights, the holders of more than 50
percent of the shares voting for the election of directors can elect all the
directors if they choose to do so and, in such event, the holders of the
remaining shares will not be able to elect any person to the Board of Directors.
Preferred Stock
The authorized capital stock of the Company also consists of
100,000,000 shares of Preferred Stock, no-par value, none of which are issued.
43
PLAN OF DISTRIBUTION
The Company will offer up to 1,250,000 Shares of its Common Stock. The
Shares will be offered directly by the Principals of the Company at the offering
price of $4.00 per Share. There is no limitation on the number of Shares a
subscriber may purchase.
Price of the Offering
There is currently a limited market for shares of the Company's common
stock, and there is no guarantee that a market will ever develop for these
securities. Accordingly, the offering price has been determined by the Company.
Among other factors considered in such determination were estimates of business
potential for the Company, the Company's financial condition, an assessment of
the Company's management and the general condition of the securities market at
the time of this Offering. Such price does not necessarily bear any relationship
to the assets, income or net worth of the Company.
The Offering price should not be considered an indication of the actual
value of the Shares. Such price is subject to change as a result of market
conditions and other factors, and no assurance can be given that the Shares can
be resold at the Offering Price.
There can be no assurance that an active trading market will develop
upon completion of this Offering, or if such market develops, that it will be
sustained. Consequently, purchasers of the Shares offered hereby may not find a
ready market for their Shares.
CAUTIONARY WARNING
THE COMPANY'S BUSINESS PLAN AND THE COMPANY'S FINANCIAL STATEMENTS AND
PROJECTIONS ARE FORWARD LOOKING. STATEMENTS AND ACTUAL RESULTS COULD MATERIALLY
DIFFER FROM THE PROJECTIONS. AS SUCH, NO INVESTOR SHOULD RELY ON SUCH
INFORMATION IN MAKING HIS INVESTMENT.
ADDITIONAL INFORMATION
Each investor warrants and represents to the Company that, prior to
making an investment in the Company, that he has had the opportunity to inspect
the books and records of the Company and that he has had the opportunity to make
inquiries to the officers and directors of the Company and further that he has
been provided full access to such information.
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44
INVESTOR SUITABILITY STANDARDS AND
INVESTMENT RESTRICTIONS
Suitability
Shares will be offered and sold pursuant to an exemption under the
Securities Act, and exemptions under applicable state securities and Blue Sky
laws. There are different standards under these federal and state exemptions
which must be met by prospective investors in the Company.
The Company will sell Shares only to those Investors it reasonably
believes meet certain suitability requirements described below.
Each prospective Investor must complete a Confidential Purchaser
questionnaire and each Purchaser Representative, if any, must complete a
Purchaser Representative Questionnaire.
EACH INVESTOR MUST BE RESPONSIBLE FOR DETERMINING THAT IT IS PERMITTED
TO INVEST IN THE COMPANY, THAT ALL APPROPRIATE ACTIONS TO AUTHORIZE SUCH AN
INVESTMENT HAVE BEEN TAKEN, AND THAT ANY REQUIREMENTS THAT ITS INVESTMENTS BE
DIVERSIFIED OR SUFFICIENTLY LIQUID HAVE BEEN MET.
An investor will qualify as an accredited Investor if it falls within
any one of the following categories at the time of the sale of the Shares to
that Investor:
(1) A bank as defined in Section 3(a)(2) of the Securities Act, or a
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act, whether acting in its individual or
fiduciary capacity; a broker or dealer registered pursuant to Section 15 of
the Securities Exchange Act of 1934; an insurance company as defined in
Section 2(13) of the Securities Act; an investment company registered under
the Investment Company Act of 1940 or a business development company as
defined in Section 2(a)(48) of that Act; a Small Business Investment
Company licensed by the United States Small Business Administration under
Section 301(c) or (d) of the Small Business Investment Act of 1958; a plan
established and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political subdivisions, for the
benefit of its employees, if such plan has total assets in excess of
$5,000,000; an employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974, if the investment decision is made
by a plan fiduciary, as defined in Section 3(21) of that Act, which is
either a bank, savings and loan association, insurance company, or
registered investment adviser, or if the employee benefit plan has total
assets in excess of $5,000,000, or, if a self-directed plan with the
investment decisions made solely by persons that are accredited investors;
(2) A private business development company as defined in Section
202(a) (22) of the Investment Advisers Act of 1940;
45
(3) An organization described in Section 501(c)(3) of the Internal
Revenue Code with total assets in excess of $5,000,000;
(4) A director or executive officer of the Company.
(5) A natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of such person's purchase of the
Shares exceeds $1,000,000;
(6) A natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current
year;
(7) A trust with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as describe in Rule 506(b)(2)(ii) of
Regulation D; and
(8)An entity in which all of the equity owners are accredited
investors (as defined above).
As used in this Memorandum, the term "net worth" means the excess of
total assets over total liabilities. In computing net worth for the purpose of
(5) above, the principal residence of the investor must be valued at cost,
including cost of improvements, or at recently appraised value by an
institutional lender making a secured loan, net of encumbrances. In determining
income an investor should add to the investor's adjusted gross income any
amounts attributable to tax exempt income received, losses claimed as a limited
partner in any limited partnership, deductions claimed for depletion,
contributions to an IRA or KEOGH retirement plan, alimony payments, and any
amount by which income form long-term capital gains has been reduced in arriving
at adjusted gross income.
In order to meet the conditions for exemption from the registration
requirements under the securities laws of certain jurisdictions, investors who
are residents of such jurisdiction may be required to meet additional
suitability requirements.
An Investor that does not qualify as an accredited Investor is a
non-accredited Investor and may acquire Shares only if:
(1) The Investor is knowledgeable and experienced with respect to
investments in limited partnerships either alone or with its Purchaser
Representative, if any; and
(2) The Investor has been provided access to all relevant documents it
desires or needs; and
(3) The Investor is aware of its limited ability to sell and/or
transfer its Shares in the Company; and
46
(4) The Investor can bear the economic risk (including loss of the
entire investment) without impairing its ability to provide for its
financial needs and contingencies in the same manner as it was prior to
making such investment.
THE COMPANY RESERVES THE RIGHT IN ITS ABSOLUTE DISCRETION TO DETERMINE
IF A POTENTIAL INVESTOR MEETS OR FAILS TO MEET THE SUITABILITY STANDARDS SET
FORTH IN THIS SECTION.
Additional Suitability Requirements for Benefit Plan Investors
In addition to the foregoing suitability standards generally applicable
to all Investors, the Employee Retirement Income Security Act of 1934, as
amended ("ERISA"), and the regulations promulgated thereunder by the Department
of Labor impose certain additional suitability standards for Investors that are
qualified pension, profit-sharing or stock bonus plans ("Benefit Plan
Investor"). In considering the purchase of Shares, a fiduciary with respect to a
prospective Benefit Plan Investor must consider whether an investment in the
Shares will satisfy the prudence requirement of Section 404(a)(1)(B) of ERISA,
since there is not expected to be any market created in which to sell or
otherwise dispose of the Shares. In addition, the fiduciary must consider
whether the investment in Shares will satisfy the diversification requirement of
Section 404(a)(1)(C) of ERISA.
Restrictions on Transfer or Resale of Shares
The availability of federal and state exemptions and the legality of
the offers and sales of the Shares are conditioned upon, among other things, the
fact that the purchase of Shares by all Investors are for investment purposes
only and not with a view to resale or distribution. Accordingly, each
prospective Investor will be required to represent in the Subscription Agreement
that it is purchasing the Shares for its own account and for the purpose of
investment only, not with a view to, or in accordance with, the distribution of
sale of the Shares and that it will not sell, pledge, assign or transfer or
offer to sell, pledge, assign or transfer any of its Shares without an effective
registration statement under the Act, or an exemption therefrom (including an
exemption under Regulation D, Rule 505 or Regulation D, Rule 506) and an opinion
of counsel acceptable to the Company that registration under the Act is not
required and that the transaction complies with all other applicable Federal and
state securities or Blue Sky laws.
47
CONFIDENTIAL
Incubate This! Inc., a Colorado corporation
INVESTOR SUITABILITY EVALUATION QUESTIONNAIRE
1. NAME ___________________________________________________
2. ADDRESS __________________________________________________
3. PHONE Residence ( )_____________________________
Business ( )_____________________________
4. SOCIAL SECURITY OR TAX ID NUMBER ________________________
5. DATE OF BIRTH _____________________________________________
6. REPRESENTATIONS (Investor should initial the appropriate blanks to
which an affirmative representation can be made)
__________ I am a bank as defined in Section 3(a)(2) of the Securities
Act, or a savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Securities Act, whether
acting in its individual or fiduciary capacity; a broker or
dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934; an insurance company as defined in
Section 2(13) of the Securities Act; an investment company
registered under the Investment Company Act of 1940 or a
business development company as defined in Section 2(a)(48) of
that Act; a Small Business Investment Company licensed by the
United States Small Business Administration under Section
301(c) or (d) of the Small Business Investment Act of 1958; a
plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or
its political subdivisions, for the benefit of its employees,
if such plan has total assets in excess of $5,000,000; an
employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974, if the investment
decision is made by a plan fiduciary, as defined in Section
3(21) of that Act, which is either a bank, savings and loan
association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in
excess of $5,000,000, or, if a self-directed plan with the
investment decisions made solely by persons that are
accredited investors;
__________ I am a private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
__________ I am an organization described in Section 501(c)(3) of the
Internal Revenue Code with total assets in excess of
$5,000,000;
__________ I am a director or executive officer of the Company.
__________ I am a natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of such person's
purchase of the Shares exceeds $1,000,000;
__________ I am a natural person who had an individual income in excess
of $200,000 in each of the two most recent years or joint
income with that person's spouse in excess of $300,000 in each
of those years and has a reasonable expectation of reaching
the same income level in the current year;
__________ I am a trust with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person
as describe in Rule 506(b)(2)(ii) of Regulation D; and
__________ I am an entity in which all of the equity owners are
accredited investors (as defined above).
I represent that the total purchase price does not exceed ten percent
(10%) of my net worth. I further represent that I can bear the economic risk of
this investment and that I have substantial experience in making investment
decisions of this type.
48
------------------------------
Signature of Investor
Date:___________________________ ______________________________
Name of Investor
49
SUBSCRIPTION AGREEMENT AND INVESTMENT
REPRESENTATION OF INVESTORS
INCUBATE THIS! INC.
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Telephone: (561) 832-5696
Facsimile: (561) 659-5371
Gentlemen:
1. Subject to the terms and conditions hereof, the undersigned, intending
to be legally bound, hereby irrevocably subscribes for and agrees to accept and
subscribe to _________ Shares of Incubate This! Inc., a Colorado corporation
(the "Company"), for a total consideration of $_________, the receipt and
sufficiency of which is hereby acknowledged.
2. In order to induce the Company to accept the subscription made hereby,
the undersigned hereby represents and warrants to the Company, and each other
person who acquires or has acquired the Shares, as follows :
(a) The undersigned, if an individual (i) has reached the age
of majority in the state in which he resides and (ii) is a bona fide resident
and domiciliary (not a temporary or transient resident) of the state set forth
beneath his signature below.
(b) The undersigned has the financial ability to bear the
economic risk of an investment in the Shares has adequate means of providing for
his current needs and personal contingencies, has no need for liquidity in such
investment, and could afford a complete loss of such investment. The
undersigned's overall commitment to investments that are not readily marketable
is not disproportionate to his net worth, and his investment in the Company will
not cause such overall commitment to become excessive.
(c) The undersigned meets at least one of the following
criteria:
(i) A bank as defined in Section 3(a)(2) of the Securities Act, or a
savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Securities Act, whether acting in its
individual or fiduciary capacity; a broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934; an
insurance company as defined in Section 2(13) of the Securities Act;
an investment company registered under the Investment Company Act of
1940 or a business development company as defined in Section 2(a)(48)
of that Act; a Small Business Investment Company licensed by the
United States Small Business Administration under Section 301(c) or
(d) of the Small Business Investment Act of 1958; a plan established
and maintained by a state, its political subdivisions, or any agency
or instrumentality of a state or its political subdivisions, for the
benefit of its
50
employees, if such plan has total assets in excess of $5,000,000; an
employee benefit plan within the meaning of the Employee Retirement
Income Security Act of 1974, if the investment decision is made by a
plan fiduciary, as defined in Section 3(21) of that Act, which is
either a bank, savings and loan association, insurance company, or
registered investment adviser, or if the employee benefit plan has
total assets in excess of $5,000,000, or, if a self- directed plan
with the investment decisions made solely by persons that are
accredited investors;
(ii) A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(iii) An organization described in Section 501(c)(3) of the Internal
Revenue Code with total assets in excess of $5,000,000;
(iv) A director or executive officer of the Company.
(v) A natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of such person's purchase of
the Shares exceeds $1,000,000;
(vi) A natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with
that person's spouse in excess of $300,000 in each of those years and
has a reasonable expectation of reaching the same income level in the
current year;
(vii) A trust with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person as describe in Rule
506(b)(2)(ii) of Regulation D; and
(viii) An entity in which all of the equity owners are accredited
investors (as defined above).
(d) The investment is one in which I am purchasing for myself
and not for others, the investment amount does not exceed 10% of my net worth
and I have the capability to understand the investment and the risk.
(e) The undersigned has been given a full opportunity to ask
questions of and to receive answers from the Company concerning the terms and
conditions of the offering and the business of the Company, and to obtain
additional information necessary to verify the accuracy of the information given
him or to obtain such other information as is desired in order to evaluate an
investment in the Shares. All such questions have been answered to the full
satisfaction of the undersigned.
(f) In making his decision to purchase the Shares herein
subscribed for, the undersigned has relied solely upon independent
investigations made by him. He has received no
51
representation or warranty from the Company or from a broker-dealer, if any, or
any of the affiliates, employees or agents of either. In addition, he is not
subscribing pursuant hereto for any Shares as a result of or subsequent to (i)
any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, or
(ii) any seminar or meeting whose attendees, including the undersigned, had been
invited as a result of, subsequent to, or pursuant to any of the foregoing.
(g) The undersigned understands that the Shares have not been
registered under the Act in reliance upon specific exemptions from registration
thereunder, and he agrees that his Shares may not be sold, offered for sale,
transferred, pledged, hypothecated, or otherwise disposed of except in
compliance with the Act and applicable state securities laws, which restrictions
require the approval of the Company for the transfer of any Shares (which
approval, except under limited circumstances, may be withheld by the Company in
its sole discretion). The undersigned has been advised that the Company has no
obligations to cause the Shares to be registered under the Act or to comply with
any exemption under the Act, including but not limited to that set forth in Rule
144 promulgated under the Act, which would permit the Shares to be sold by the
undersigned. The undersigned understands that it is anticipated that there may
not be any market for resale of the Shares, and that it may not be possible for
the undersigned to liquidate an investment in the Shares. The undersigned
understands the legal consequences of the foregoing to mean that he must bear
the economic risk of his investment in the Shares. He understands that any
instruments representing the Shares will bear legends restricting the transfer
thereof.
3. To the extent I have the right to rescind my purchase of the Shares,
which right of recission is hereby offered, I waive and relinquish such rights
and agree to accept certificate(s) evidencing such Shares.
4. This Agreement and the rights and obligations of the parties hereto
shall be governed by, and construed and enforced in accordance with, the laws of
the State of Florida.
5. All pronouns contained herein and any variations thereof shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the parties hereto may require.
6. The Shares referred to herein may be sold to the subscriber in a
transaction exempt under Section 517.061 of the Florida Securities Act. The
Shares have not been registered under said act in the State of Florida. In
addition, if sales are made to five or more persons in the State of Florida, any
sale in the State of Florida is voidable by the purchaser within three (3) days
after the first tender of consideration is made by such purchaser to the issuer,
an agent of the issuer, or an escrow agent or within three (3) days after the
availability of that privilege is communicated to such purchaser, whichever
occurs later.
IN WITNESS WHEREOF, the undersigned has executed and agrees to be bound
by this Subscription Agreement and Investment Representation on the date written
below as the Date of Subscription:
52
(TO BE USED FOR INDIVIDUAL(S))
- ---------------------------- -------------------------------
Print Name of Individual Signature of Individual
- ----------------------------- -------------------------------
State of Residence Date of Subscription
(TO BE USED FOR PARTNERSHIPS, CORPORATIONS,
TRUSTS OR OTHER ENTITIES)
_______________________________ By:______________________________
Print Name of Partnership Signature of Authorized
Corporation - Trust - Entity Representative
- ------------------------------- ---------------------------------
Capacity of Authorized Print Name of Authorized
Representative Representative
- ------------------------------- --------------------------------
Print Jurisdiction of Date of Subscription
Incorporation or Organization
53