U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
(Amendment No. 3)
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
eConnect
(Name of Small Business Issuer in its charter)
Nevada 541990 43-1239043
(State or jurisdiction of (Primary Standard (IRS Employer
incorporation or organization) Industrial Identification
Classification Code Number) Number
2500 Via Cabrillo Marina Suite 112, San Pedro, California 90731; (310) 514-9482
(Address and telephone number of Registrant's principal executive offices and
principal place of business)
Brian F. Faulkner, Esq., 3900 Birch Street, Suite 113, Newport Beach, Ca
(949) 975-0544
(Name, address, and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933 check the following box. X
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box.
CALCULATION OF REGISTRATION FEE
Title of Amount to be Proposed Proposed Amount of
Securities Registered(1) Maximum Maximum Registration
to be Offering Aggregate Fee
Registered Price Per Offering
Unit Price
Common
Stock 20,000,000 $1.00 $20,000,000 $5,000.00
Common
Stock 70,755,365 $0.11(2) $ 7,783,090 $ 257.79
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date
until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
(1) Pursuant to Rule 416, such additional amounts to prevent
dilution from stock splits or similar transactions.
(2) Calculated in accordance with Rule 457(c): The average of the
bid and ask price as of April 26, 2001.
PROSPECTUS
eConnect
90,755,365 Shares *
Common Stock
eConnect, a Nevada corporation, is hereby offering shares of
common stock on a delayed basis under a shelf registration under
Rule 415 pursuant to the terms of this prospectus. A total of
90,755,365 shares of common stock are to be registered, as
follows:
The company's public offering consists of 20,000,000 shares of
common stock, par value $0.001, at $1.00 per share in a best-
efforts offering by the company with no minimum required
purchases and no escrow. This offering will commence promptly
after effectiveness of the registration statement, will be made
on a continuous basis, and may continue for a period in excess
of 30 days from the date of commencement. This offering will
end not later than May 1, 2003. The company's common stock
trades on the Over the Counter Bulletin Board under the trading
symbol "ECNC".
Concurrent with this public offering, is an offering by certain
selling shareholders of the company, in the total amount of
70,755,365 shares of common stock. These selling shareholders
may offer their stock through public or private transactions, on
or off the Over the Counter Bulletin Board, at prevailing market
prices, or at privately negotiated prices.
The shares offered hereby are highly speculative and involve a
high degree of risk to public investors and should be purchased
only by persons who can afford to lose their entire investment
(See "Risk Factors" on page 6).
These securities have not been approved or disapproved by the
securities and exchange commission or any state securities
commission nor has the securities and exchange commission or any
state securities commission passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a
criminal offense.
Price to Public Underwriting Discounts Proceeds to
And Commissions Issuer
Per Share $ 1.00 $0 $1.00
Total Maximum $20,000,000 $0 $20,000,000
Information contained herein is subject to completion or
amendment. The registration statement relating to the
securities has been filed with the U.S. Securities and Exchange
Commission. The securities may not be sold nor may offers to
buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any
such State.
Subject to Completion, Dated: _____________, 2001
* Pursuant to SEC Rule 416, there will be a change in the
amount of securities being issued to prevent dilution resulting
from stock splits, stock dividends, or similar transaction
Table Of Contents
PROSPECTUS SUMMARY 4
RISK FACTORS 6
USE OF PROCEEDS 13
SELLING SHAREHOLDERS 14
PLAN OF DISTRIBUTION 17
LEGAL PROCEEDINGS 22
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 27
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 28
DESCRIPTION OF SECURITIES 30
INTEREST OF NAMED EXPERTS AND COUNSEL 32
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES 32
ORGANIZATION WITHIN LAST FIVE YEARS 38
DESCRIPTION OF BUSINESS 38
PLAN OF OPERATION 52
DESCRIPTION OF PROPERTY 56
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 56
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 61
EXECUTIVE COMPENSATION 63
FINANCIAL STATEMENTS 65
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 103
AVAILABLE INFORMATION 103
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed
information appearing elsewhere in this prospectus. Each
prospective investor is urged to read this prospectus in its
entirety.
The Company.
The Company has a specific emphasis on ATM card with PIN instant
cash transactions. There are two aspects to the industry of
self serviced home or mobile swiped ATM card with PIN entry or
credit card transactions which the company has named PERFECT
(personal encrypted remote financial electronic card transactions).
The first aspect is the development of the "Bank Eyes Only"T
transactions system whereby a consumer can use a remote terminal
from a home environment or mobile environment to read a credit
card or ATM card with PIN or a smart card which is then sent to
a host processor for card authorization. "Bank Eyes Only"
transactions refers to a direct Internet connection between the
consumer's terminal and the company's bank card authorization
system. The web merchant does not store nor has ready access to
the consumer's card data. These "Bank Eyes Only" terminals are
remote from the merchant (protecting the consumer's data) and
are wireless or landline or computer enabled. This should
result in greater consumer confidence in performing such
financial transactions. This system will also enable the
consumer or business person to effect instant cash payments to
the recipient. A transaction using the terminal device with an
ATM card with PIN is considered a cash payment. Internet "Bank
Eyes Only" ATM card with PIN payments could substantially affect
global commerce, completely changing the way people around the
world do business.
The second aspect of a PERFECT transaction is the usage of the
company's proprietary hardware placed in public locations for
self serviced bill payments by ATM card with PIN entry.
The principal offices of the company's are located at 2500 Via
Cabrillo Marina, Suite 112, San Pedro, California 90731. The
telephone number for the company is (310) 514-9482.
The Offering.
90,755,365 shares of common stock of the company will be
sold under a shelf registration under Rule 415 (shares
outstanding prior to this offering: 256,566,707, as of March 31,
2001 - the 6,600,882 shares of the company's common stock held
by Alpha for future advances on the Subscription Agreement is
deemed unissued since no consideration has been given for such
shares and are not reflected as part of the outstanding shares
of the company's common stock), as follows:
Selling shareholders on a delayed basis: 70,755,365 - this
includes the following:
12,307,692 restricted shares actually issued for cash under a
common stock purchase agreement with Alpha Venture Capital, Inc.
(since this firm is purchasing shares from the company under a
common stock purchase agreement at a price equal to price equal
to 82% of the average closing bid price for the five business
days immediately following a put notice to the company, it is
considered to be an underwriter); a warrant to purchase
2,000,000 shares of the company's common stock, exercisable upon
issuance in connection with the purchase agreement at a price
equal to the lesser of (a) 40% of the closing bid price of the
stock on December 8, 2000 ($0.44), or (b) 40% of the average
five day closing bid price as of the effective date of this
registration statement; a warrant to purchase 1,000,000 shares
of common stock on a pro rata basis in conjunction with draw
downs, exercisable at the close bid price at the date of each
draw down; and a remainder of 2,021,000 shares out of a warrant
to purchase 3,571,428 shares of common stock, exercisable at
$0.08 per share as calculated under an addendum (dated October
23, 2000) to a previous common stock purchase agreement between
the parties, dated September 28, 1999.
This combined holdings of Alliance Equities and Richard Epstein,
who controls this firm: (a) 3,550,000 restricted shares of
common stock; (b) a warrant for the purchase of 1,400,000 shares
of common stock, exercisable at $1.00 per share from June 30,
2000 through June 30, 2002; (c) a warrant for the purchase of
2,400,000 shares of common stock, exercisable at $0.40 per share
from September 30, 2000 through September 30, 2003; (d) a
warrant for the purchase of 3,000,000 shares of common stock,
exercisable at $0.25 per share from September 30, 2000 through
Septebmer 30, 2003; (e) a warrant for the purchase of 2,000,000
shares of common stock, exercisable at 50% below the bid price
when exercised from September 30, 2000 through September 30,
2003; and (f) a debenture (dated March 22, 2001) in the
principal amount of $1,653,000, which represent 9,723,529 shares
(convertible at any time from issuance until April 5, 2002 into
shares of common stock at $0.17 per share).
an option to purchase 4,400,000 shares of common stock,
exercisable upon issuance at $1.00 per share through July 12,
2002, granted David Weiler granted as repayment of all principal
and accured interest under a $500,000 loan made by this
individual to the company (3,080,000 shares of the total); the
remaining 1,320,000 were granted as compensation for consulting
services rendered to the company.
a warrant for the purchase of 4,000,000 shares of common stock,
exercisable upon issuance at $1.00 per share until October 21,
2003 (issued to PowerClick in connection with the settlement of
certain disputes with this firm).
a warrant for the purchase of a total of 482,500 shares of
common stock, exercisable upon issuance at $0.50 per share
through May 24, 2005, under an warrant agreement with GunnAllen
Financial, Inc., a broker/dealer, in connection with this firm's
services in assisting the company to become relisted on the Over
the Counter Bulletin Board.
Shares to be offered to the public on a continuous basis at
$1.00 per share: 20,000,000.
Use of Proceeds: The proceeds of the offering, less the expenses
of the offering (estimated at $72,758), will be used to provide
working capital for the company.
RISK FACTORS
The securities offered hereby are highly speculative in nature
and involve a high degree of risk. They should be purchased only
by persons who can afford to lose their entire investment.
Therefore, each prospective investor should, prior to purchase,
consider very carefully the following risk factors among other
things, as well as all other information set forth in this
prospectus.
Development Stage of Products.
The company is currently selling the eCashPad. The company's
PocketPay will require significant additional investment in
research and development and will require substantial additional
resources. The eCashPad has met all necessary regulatory
approvals (Federal Communications Commission and Underwriters
Laboratories) and is now ready for mass market consumer sales.
The company is confident that, based on the approvals of the
eCashPad, that the new product line such as the PocketPay will
also meet similar approvals for market usage.
There can be no assurance that the company will generate
significant revenues in the future; and there can be no
assurance that the company will operate at a profitable level.
If the company is unable to obtain customers and generate
sufficient revenues so that it can profitably operate, the
company's business will not succeed. In such event, investors
in the shares may lose their entire cash investment. Also the
company and its management do not have significant experience in
the internet business, and in particular the on-line gaming
business.
As a result of the fixed nature of many of the
company's expenses, the company may be unable to adjust spending
in a timely manner to compensate for any unexpected delays in
the development and marketing of the company's products or any
capital raising or revenue shortfall. Any such delays or
shortfalls will have an immediate adverse impact on the
company's business, operations and financial condition.
No Positive Revenues, History of Operating Loss and Accumulated Deficit.
The company has had no positive revenue to date. Although
the company has been involved with e-commerce since 1999, it has
been primarily engaged in research and development. The company
has incurred significant losses from operations: Net loss from
operations of $19,068,529 for the fiscal year ended December 31,
1999 and $107,809,363 for the fiscal year ended December 31,
2000. At December 31, 2000, the company had an accumulated
deficit of $145,126,417 (the majority of which resulted from
stock issued for services). The future growth and profitability
of the company will be principally dependent upon its ability to
successfully complete development and testing of, obtain
regulatory approvals for, and market or license its primary
products. Accordingly, the company's prospects must be
considered in light of the risks, expenses and difficulties
frequently encountered in connection with the establishment of a
new business in a highly competitive industry, characterized by
new product introductions.
The company anticipates that it will incur substantial operating
expenses in connection with the research, development, testing
and approval of its proposed products and expects these expenses
to result in continuing and significant losses until such time
as the company is able to achieve adequate revenue levels.
There can be no assurance that the company will be able to
significantly increase revenues or achieve profitable
operations. Failure to obtain additional capital, if needed,
would have a material adverse effect on the company's operations.
Additional Financing Will Be Required.
The company will be required to raise significant equity capital
to fund its plan of operation; this is estimated to be
$20,000,000 over the next 12 months. Currently, the company is
meeting its funding requirements through financing provided by
Alpha Venture Capital, Inc. through a common stock purchase
agreement between the company and this firm, dated December 8,
2000, in the commitment amount of $15,000,000. In addition, the
company has been meeting its funding requirements through
financing provided by Alliance Equities under a $7,000,000 line
of credit. However, there is no guarantee that these funding
sources will continue to be available in the future.
The current funds available to the company, and any revenue
generated by operations, will not be adequate for it to be
competitive in the areas in which it intends to operate, and may
not be adequate for the company to survive. Therefore, the
company will need to raise additional funds in order to fully
implement its business plan. The company's continued operations
therefore will depend upon its ability to raise additional funds
through bank borrowings, equity or debt financing. There is no
assurance that the company will be able to obtain additional
funding when needed, or that such funding, if available, can be
obtained on terms acceptable to the company. If the company
cannot obtain needed funds, it may be forced to curtail or cease
its activities. If additional shares were issued to obtain
financing, current shareholders may suffer a dilution on their
percentage of stock ownership in the company.
Risks Associated with eCashPad Production.
The agreement under which the eCashPad was originally
manufactured for the company only calls for an initial
production run of 5,000 units, at a total cost of $80,000. The
company has since concluded and paid for an order for 100,000
eCashPads from Asia Pacific Micro, Inc. at a favorable cost per
unit. Initial eCashPads are being delivered to the company on
an as needed basis.
This agreement offers the company substantial savings by
contracting with an Asian country for manufacturing. Currently,
the manufacturer is stable but there is no guarantee that the
manufacturer may not be impacted by future changes in government
policies. The company is presently seeking additional suppliers.
Risks in Connection with Approval of Regional ATM Networks.
Within the United States market, the company is closely working
with National Data Funding Corporation to secure the go ahead
for regional ATM card networks for an eCashPad ATM card with PIN
entry "Bank Eyes Only"T Internet payment. Such network currently
permit the usage of credit cards on their systems. Thus, a
substantial part of the company's strategy is based on ATM card
with PIN entry Internet payments, and the company may not
receive bank approvals from the regional ATM card networks in
the United States for such transactions. In such case, this
payment system could not be used in the United States, which
could substantially affect the prospects of the Company in this
country. Even though this type of payment system has already
been approved in the Dominican Republic and Ireland, and may be
approved elsewhere outside the United States, the Company would
expect that a substantial portion of its projected revenues
would come form United States based transactions. The company
has received verbal approval to begin an eCashPad ATM card with
PIN pilot in the second quarter over a small ATM card network.
Acceptance and Effectiveness of Internet Electronic Commerce.
The company's success in e-commerce will be dependent on
consumer acceptance of e-retailing and an increase in the use of
the Internet for e-commerce. If the markets for e-commerce do
not develop or develop more slowly than the company expects, its
e-commerce business may be harmed. If Internet usage does not
grow, the company may not be able to increase revenues from
Internet advertising and sponsorships which also may harm both
our retail and e-commerce business. Internet use by consumers is
in an early stage of development, and market acceptance of the
Internet as a medium for content, advertising and e-commerce is
uncertain. A number of factors may inhibit the growth of
Internet usage, including inadequate network infrastructure,
security concerns, inconsistent quality of service, and limited
availability of cost-effective, high-speed access. If these or
any other factors cause use of the Internet to slow or decline,
our results of operations could be adversely affected.
Competition in Internet Commerce.
The company anticipates substantial competition in the
development of the PERFECT industry and the "Bank Eyes Only"T
internet application in particular. The company believes that
the marketplace is large enough to absorb many competitor
companies who may focus on ancillary aspects of the PERFECT
industry such as the development of hardware or of merchant sign
ups, rather than on the core business of the company which is
the processing of transactions.
Increased competition from e-commerce could result in reduced
margins or loss of market share, any of which could harm both
our retail and e-commerce businesses. Competition is likely to
increase significantly as new companies enter the market and
current competitors expand their services. Many of the
company's present and potential competitors are likely to enjoy
substantial competitive advantages, including larger numbers of
users, more fully-developed e-commerce opportunities, larger
technical, production and editorial staffs, and substantially
greater financial, marketing, technical and other resources. If
the company does not compete effectively or if it experiences
any pricing pressures, reduced margins or loss of market share
resulting from increased competition, the company's business
could be adversely affected.
Unreliability of Internet Infrastructure.
If the Internet continues to experience increased numbers
of users, frequency of use or increased bandwidth requirements,
the Internet infrastructure may not be able to support these
increased demands or perform reliably. The Internet has
experienced a variety of outages and other delays as a result of
damage to portions of its infrastructure, and could face
additional outages and delays in the future. These outages and
delays could reduce the level of Internet usage and traffic. In
addition, the Internet could lose its viability due to delays in
the development or adoption of new standards and protocols to
handle increased levels of activity. If the Internet
infrastructure is not adequately developed or maintained, use of
the company website may be reduced. Even if the Internet
infrastructure is adequately developed, and maintained, the
company may incur substantial expenditures in order to adapt its
services and products to changing Internet technologies. Such
additional expenses could severely harm the company's financial results.
Transactional Security Concerns.
A significant barrier to Internet e-commerce is the secure
transmission of confidential information over public networks.
Any breach in security could cause interruptions and have an
adverse effect on the company's business.
Governmental Regulation of the Internet.
There are currently few laws that specifically regulate
communications or commerce on the Internet. Laws and
regulations may be adopted in the future, however, that address
issues including user privacy, pricing, taxation and the
characteristics and quality of products and services sold over
the Internet. Possible future consumer legislation, regulations
and actions could cause additional expense, capital expenditures,
restrictions and delays in the activities undertaken in
connection with the party planning business, the extent of which
cannot be predicted. The exact affect of such legislation cannot
be predicted until it is in final form.
Influence of Other External Factors on Prospects for Company.
The industry of the company in general is a speculative venture
necessarily involving some substantial risk. There is no
certainty that the expenditures to be made by the company will
result in a commercially profitable business. The marketability
of its products will be affected by numerous factors beyond the
control of the company. These factors include market
fluctuations, and the general state of the economy (including the
rate of inflation, and local economic conditions), which can
affect companies' spending. Factors which leave less money in
the hands of potential customers of the company will likely have
an adverse effect on the company. The exact effect of these
factors cannot be accurately predicted, but the combination of
these factors may result in the company not receiving an adequate
return on invested capital.
Success of Company Dependent on Management.
The company's success is dependent upon the hiring of key
administrative personnel. None of the company's officers,
directors, and key employees have an employment agreement with
the company (the accounting manager does have an employment
agreement with the company); therefore, there can be no
assurance that these personnel will remain employed by the
company after the termination of such agreements. Should any of
these individuals cease to be affiliated with the company for any
reason before qualified replacements could be found, there could
be material adverse effects on the company's business and
prospects. In addition, management has no experience is managing
companies in the same business as the company.
In addition, all decisions with respect to the management
of the company will be made exclusively by the officers and
directors of the company. Investors will only have rights
associated with minority ownership interest rights to make
decision which effect the company. The success of the company,
to a large extent, will depend on the quality of the directors
and officers of the company. Accordingly, no person should
invest in the shares unless he is willing to entrust all aspects
of the management of the company to the officers and directors.
Control of the Company by Officers and Directors.
The company's officers and directors beneficially own
approximately 7% of the outstanding shares of the company's
common stock. As a result, such persons, acting together, have
the ability to exercise influence over all matters requiring
stockholder approval. Accordingly, it may be difficult for the
investors hereunder to effectuate control over the affairs of
the company. Therefore, it should be assumed that the officers,
directors, and principal common shareholders who control the
majority of voting rights will be able, by virtue of their stock
holdings, to control the affairs and policies of the company.
Limitations on Liability, and Indemnification, of Directors and Officers.
The bylaws of the company provide for indemnification
of officer or directors of the company. In addition, the Nevada
Revised Statutes provide for permissive indemnification of
officers and directors and the company may provide
indemnification under such provisions. Any limitation on the
liability of any director, or indemnification of directors,
officer, or employees, could result in substantial expenditures
being made by the company in covering any liability of such
persons or in indemnifying them.
Potential Conflicts of Interest Involving Management.
Some of the officers and directors have other interests to which
they devote time, either individually or through partnerships
and corporations in which they have an interest, hold an office,
or serve on boards of directors, and each will continue to do so
notwithstanding the fact that management time may be necessary
to the business of the company. As a result, certain conflicts
of interest may exist between the company and its officers
and/or directors which may not be susceptible to resolution.
In addition, conflicts of interest may arise in the area of
corporate opportunities which cannot be resolved through arm's
length negotiations. All of the potential conflicts of interest
will be resolved only through exercise by the directors of such
judgment as is consistent with their fiduciary duties to the
company. It is the intention of management, so as to minimize
any potential conflicts of interest, to present first to the
board of directors of the company any proposed investments for
its evaluation.
Non-Cumulative Voting
Holders of the shares are not entitled to accumulate their votes
for the election of directors or otherwise. Accordingly, the
holders of a majority of the shares present at a meeting of
shareholders will be able to elect all of the directors of the
company, and the minority shareholders will not be able to elect
a representative to the company's board of directors.
Absence of Cash Dividends
The board of directors does not anticipate paying cash dividends
on the shares for the foreseeable future and intends to retain
any future earnings to finance the growth of the company's
business. Payment of dividends, if any, will depend, among other
factors, on earnings, capital requirements, and the general
operating and financial condition of the company, and will be
subject to legal limitations on the payment of dividends out of
paid-in capital.
Offering Price.
The offering price of the shares has been set at $1.00 per
share. Because of market fluctuations, there can be no
assurance that the shares will maintain market values
commensurate with the offering price.
"Shelf" Offering.
The shares are offered directly by the company on a continuous
basis. No assurance can be given that any or all of the shares
will be issued. No broker-dealer has been retained as an
underwriter and no broker-dealer is under any obligation to
purchase any of the shares. In addition, the officers and
directors of the company, collectively, have limited experience
in the offer and sale of securities on behalf of the company.
Use of Proceeds Not Specific.
The proceeds of this offering have been allocated only
generally. Proceeds from the offering have been allocated
generally to legal and accounting, and working capital.
Accordingly, investors will entrust their funds with management
in whose judgment investors may depend, with only limited
information about management's specific intentions with respect
to a significant amount of the proceeds of this offering.
No Assurance of Continued Public Trading Market; Risk of Low
Priced Securities.
The common stock of the company is currently quoted on the
Over the Counter Bulletin Board; it was relisted on October 30,
2000 after trading on the National Quotation Bureau's Pink
Sheets since being delisted from the Over the Counter Bulletin
Board after the SEC trading suspension on March 13, 2000. In
addition, the common stock is subject to the low-priced security
or so called "penny stock" rules that impose additional sales
practice requirements on broker-dealers who sell such
securities. The Securities Enforcement and Penny Stock Reform
Act of 1990 ("Reform Act") requires additional disclosure in
connection with any trades involving a stock defined as a penny
stock (generally, according to recent regulations adopted by the
U.S. Securities and Exchange Commission, any equity security
that has a market price of less than $5.00 per share, subject to
certain exceptions), including the delivery, prior to any penny
stock transaction, of a disclosure schedule explaining the penny
stock market and the risks associated therewith. The
regulations governing low-priced or penny stocks sometimes limit
the ability of broker-dealers to sell the company's common stock
and thus, ultimately, the ability of the investors to sell their
securities in the secondary market.
Effects of Failure to Maintain Market Makers.
If the company is unable to maintain a National Association
of Securities Dealers, Inc. member broker/dealers as market
makers after relisting on the Bulletin Board, the liquidity of
the common stock could be impaired, not only in the number of
shares of common stock which could be bought and sold, but also
through possible delays in the timing of transactions, and lower
prices for the common stock than might otherwise prevail.
Furthermore, the lack of market makers could result in persons
being unable to buy or sell shares of the common stock on any
secondary market. There can be no assurance the company will be
able to maintain such market makers.
Shares Eligible For Future Sale
All of the approximate 17,500,000 shares of common stock which
are currently held, directly or indirectly, by management have
been issued in reliance on the private placement exemption under
the Securities Act of 1933. Such shares will not be available
for sale in the open market without separate registration except
in reliance upon Rule 144 under the Securities Act of 1933. In
general, under Rule 144 a person (or persons whose shares are
aggregated) who has beneficially owned shares acquired in a non-
public transaction for at least one year, including persons who
may be deemed affiliates of the company (as that term is defined
under that rule) would be entitled to sell within any three-
month period a number of shares that does not exceed the greater
of 1% of the then outstanding shares of common stock, or the
average weekly reported trading volume during the four calendar
weeks preceding such sale, provided that certain current public
information is then available. If a substantial number of the
shares owned by these shareholders were sold pursuant to Rule
144 or a registered offering, the market price of the common
stock could be adversely affected.
Potential Status as a Pseudo California Corporation.
Section 2115 of the California General Corporation Law
subjects certain foreign corporations doing business in
California to various substantive provisions of the California
General Corporation Law in the event that the average of its
property, payroll and sales is more than 50% in California and
more than one-half of its outstanding voting securities are held
of record by persons residing in the State of California.
Currently, all of the sales by the company come from sources
outside the State of California; however, this may change in the future.
Some of the substantive provisions include laws relating to
annual election of directors, removal of directors without
cause, removal of directors by court proceedings,
indemnification of officers and directors, directors standard of
care and liability of directors for unlawful distributions.
Section 2115 does not apply to any corporation which, among
other things, has outstanding securities designated as qualified
for trading as a national market security on NASDAQ if such
corporation has at least eight hundred holders of its equity
securities as of the record date of its most recent annual
meeting of shareholders. It is currently anticipated that the
company will not be subject to Section 2115 which, in addition
to other areas of the law, will subject the company to Section
708 of the California General Corporation Law which mandates
that shareholders have the right of cumulative voting at the
election of directors.
USE OF PROCEEDS
The maximum proceeds of the cash offering ($20,000,000), less
the estimated expenses of the offering, will be used to as set
forth below. The following table sets forth the use of proceeds
from this offering (with three scenarios assuming 25%, 50%, and
100% subscriptions of the shares for cash):
Use of Subscriptions Subscriptions Subscriptions
Proceeds (1) of 25% of Total of 50% of Total of 100% of Total
Transfer
Agent $1,000 0.02% 0.01% 0.005%
Printing Costs
$1,500 0.03% 0.02% 0.0075%
Legal Fees
$50,000 1.00% 0.50% 0.25%
Accounting
Fees $5,000 0.10% 0.05% 0.025%
Filing Fees
$20,000 0.40% 0.20% 0.10%
Working Capital 98.45% 99.22% 99.6125%
($4,922,500) ($9,922,500) ($19,922,500)
Total $5,000,000 $10,000,000 $20,000,000
(1) These are estimates, and the actual number could be higher
or lower that these numbers.
Management anticipates expending these funds for the purposes
indicated above. To the extent that expenditures are less than
projected, the resulting balances will be retained and used for
general working capital purposes or allocated according to the
discretion of the board of directors. Conversely, to the extent
that such expenditures require the utilization of funds in
excess of the amounts anticipated, supplemental amounts may be
drawn from other sources, including, but not limited to, general
working capital and/or external financing. The net proceeds of
this offering that are not expended immediately may be deposited
in interest or non-interest bearing accounts, or invested in
government obligations, certificates of deposit, commercial
paper, money market mutual funds, or similar investments.
SELLING SHAREHOLDERS
Selling shareholders will be offering a total of 70,755,365
shares of common stock of the company, as follows (these
restricted shares were issued in connection with consulting
services rendered to the company and various loans made to the
company):
Name of Amount Amount Offered Amount Percentage
Selling Beneficially for Selling Beneficially Ownership
Shareholders Owned Prior Shareholder's Owned After After
to Offering Account Offering Offering(1)
Alpha Venture Capital,
Inc. (2) 17,328,692 17,328,692 0 0.00%
PowerClick, Inc.(3) 4,000,000 4,000,000 0 0.00%
David Weiler (4) 11,200,000 4,400,000 6,800,000 2.58%
Chris Jensen (5) 4,200,000 4,200,000 0 0.00%
Richard Epstein (6) 40,573,529 22,073,529 18,500,000 7.03%
Quinn Brady 2,060,300 2,060,300 0 0.00%
Charles Yourshaw (7) 1,580,000 1,050,000 530,000 0.20%
GunnAllen Financial,
Inc. (8) 482,500 482,500 0 0.00%
Darrell Dickson (9) 422,500 412,500 10,000 0.004%
Wayne Hall 200,000 200,000 0 0.00%
Brent D. Schultz 171,450 164,830 6,620 0.002%
Roger Swanson 120,000 120,000 0 0.00%
Timothy Patrick
Murphy 100,000 100,000 0 0.00%
Donald Boyd (10) 162,500 162,500 0 0.00%
John Fiesbein 100,000 50,000 50,000 0.02%
Richard Zobost 50,000 50,000 0 0.00%
Pamela Matthews 50,000 50,000 0 0.00%
Jeff Lichter 35,000 35,000 0 0.00%
Jim Ball 57,500 32,500 25,000 0.01%
Eric Braghurst 30,000 30,000 0 0.00%
Richard Holt 27,500 27,500 0 0.00%
Matthew Lee 25,000 25,000 0 0.00%
Lori Lane 25,000 25,000 0 0.00%
Karen & Wayne
Gruninger 25,000 25,000 0 0.00%
Patrick Passarella 25,000 25,000 0 0.00%
John Hogle 25,000 25,000 0 0.00%
Matthew Ospeck 20,000 20,000 0 0.00%
John Kostecki 20,000 20,000 0 0.00%
David Kern Peteler 17,500 17,500 0 0.00%
Tim Bradlee 10,000 10,000 0 0.00%
Marvin Graberman 10,000 10,000 0 0.00%
Paul Brunn 10,000 10,000 0 0.00%
Dan Nguyen (11) 87,500 57,500 0 0.00%
Cinizia Padula 25,000 12,500 0 0.00%
Ed Del Rosario 101,065 37,500 0 0.00%
Eric Boyd 50,000 25,000 0 0.00%
Carolyn Gautreau 25,000 12,500 0 0.00%
Larry Gautreau 200,000 50,000 0 0.00%
Ronnie Stancyk 75,000 37,500 0 0.00%
Cruz Sanchez 30,000 15,000 0 0.00%
Jose Sanchez 25,000 12,500 0 0.00%
Mark Taylor 20,000 10,000 0 0.00%
Bryan Bagdady 402,756 300,454 102,302 0.04%
Peter Gonnerman 25,000 12,500 0 0.00%
Louis Sabatosso 600,000 300,000 0 0.00%
Laurie Belger 600,000 300,000 0 0.00%
Chris Higgins 300,000 300,000 0 0.00%
1st Source
Communications,
Inc. (12) 1,200,010 1,000,000 200,010 0.08%
Charles Brewton (13) 5,560 5,560 0 0.00%
Lewis Burtell 4,300 4,300 0 0.00%
Larry Hanse 100,000 100,000 0 0.00%
Raymond Kessler 2,075,000 550,000 1,525,000 0.58%
Shin-Ching Wang 235,000 35,000 200,000 0.08%
Peter McIntosh 5,000,000 5,000,000 0 0.00%
Michael Sherr 250,000 250,000 0 0.00%
Arthur H. Thiele 10,200 10,200 0 0.00%
Lis-Hua Wang Kessler 207,500 75,000 132,500 0.05%
Clinton Wong 5,125,000 5,000,000 125,000 0.05%
Total 98,961,797 70,755,365 28,206,432 10.72%
(1) Based on the total issued and outstanding common stock of
256,566,707 as of March 31, 2001. Please note that in
connection with a Regulation D Common Stock Private Equity Line
Subscription Agreement with Alpha Venture Capital, Inc., dated
September 28, 1999, 6,600,882 of the shares sold under this
agreement are being held by Alpha for future advances on the
Subscription Agreement. Accordingly, the 6,600,882 shares of
the company's common stock held by Alpha is deemed unissued
since no consideration has been given for such shares and are
not reflected as part of the outstanding shares of the company's
common stock at March 31, 2001.
(2) This firm is controlled by Barry Herman, who is the
director and authorized signatory for Alpha Venture Capital,
Inc. The shares of Alpha Venture Capital, Inc. are held in
trust on behalf of undisclosed investors; these investors are
only passively involved in the firm. The amount beneficially
owned consists of 12,307,692 shares actually issued for cash
under a common stock purchase agreement purchased from the
company under a common stock purchase agreement at a price equal
to price equal to 82% of the average closing bid price for the
five business days immediately following a put notice to the
company, and warrants for the purchase common stock totaling
6,571,428 shares, as follows: (i) a warrant to purchase
2,000,000 shares of the company's common stock, exercisable upon
issuance in connection with the purchase agreement at a price
equal to the lesser of (a) 40% of the closing bid price of the
stock on December 8, 2000 ($0.44), or (b) 40% of the average
five day closing bid price as of the effective date of this
registration statement; (ii) a warrant to purchase 1,000,000
shares of common stock on a pro rata basis in conjunction with
draw downs, exercisable at the close bid price at the date of
each draw down; and (iii) a remainder of 2,021,000 shares out of
a warrant to purchase 3,571,428 shares of common stock,
exercisable at $0.08 per share as calculated under an addendum
(dated October 23, 2000) to a previous common stock purchase
agreement between the parties, dated September 28, 1999.
(3) 50% owned subsidiary of the company. The amount owned and
offered by this selling shareholder consists of warrants to
purchase shares of common stock, exerciable upon issuance at
$1.00 per share through October 21, 2003.
(4) The amount owned and offered by this selling shareholder
consists of an option to purchase 4,400,000 shares of common
stock, exercisable upon issuance at $1.00 per share through July
12, 2002.
(5) This represents the combined holdings of GoldStake
Enterprises and Chris Jensen, who controls this firm.
(6) This represents the combined holdings of Alliance Equities
and Richard Epstein, who controls this firm. The amount owned
includes the following: (a) a warrant for the purchase of
1,400,000 shares of common stock, exercisable at $1.00 per share
from June 30, 2000 through June 30, 2002; (b) a warrant for the
purchase of 2,400,000 shares of common stock, exercisable at
$0.40 per share from September 30, 2000 through September 30,
2003; (c) a warrant for the purchase of 3,000,000 shares of
common stock, exercisable at $0.25 per share from September 30,
2000 through Septebmer 30, 2003; (d) a warrant for the purchase
of 2,000,000 shares of common stock, exercisable at 50% below
the bid price when exercised from September 30, 2000 through
September 30, 2003; and (e) a debenture (dated March 22, 2001)
in the principal amount of $1,653,000, which represent 9,723,529
shares (convertible at any time from issuance until April 5,
2002 into shares of common stock at $0.17 per share).
(7) The amount owned and offered by this selling shareholder
includes the following: (a) a warrant for the purchase of
1,000,000 shares of common stock, exercisable upon issuance at
$1.00 per share through June 30, 2002, and a warrant for the
purchase of 50,000 shares of common stock exercisable from
January 1, 2001 through June 30, 2002.
(8) The amount owned and offered by this selling shareholder
consists of a warrant for the purchase of 482,500 shares of
common stock, exercisable upon issuance at $0.50 per share
through May 24, 2005.
(9) This represents the combined holdings of Dickson Retirement
Plan and Darrell Dickson, who controls this plan.
(10) The amount owned and offered by this selling shareholder
includes a warrant for the purchase of 100,000 shares of common
stock, exercisable from January 1, 2001 through June 30, 2002 at
$1.00 per share.
(11) The amount being offered for the selling shareholders
account of Dan Nguyen through Chris Higgins includes warrants
exercisable from January 1, 2001 through June 30, 2002 at $1.00
per share.
(12) This firm is controlled by Arnie Parnell. The amount
owned and offered by this selling shareholder includes a warrant
for the purchase of 1,000,000 shares of common stock,
exercisable at $1.00 per share from June 30, 2000 through June
30, 2002.
(13) The amount being offered for the selling shareholders
account of Charles Brewton through Clinton Wong includes
warrants exerciable from June 30, 2000 through June 30, 2002 at
a price of $1.00 per share.
PLAN OF DISTRIBUTION
Registration under this Offering.
90,755,365 shares of common stock of the company will be
sold under a shelf registration under Rule 415 (shares
outstanding prior to this offering: 256,566,707, as of March 31,
2001 - the 6,600,882 shares of the company's common stock held
by Alpha for future advances on the Subscription Agreement is
deemed unissued since no consideration has been given for such
shares and are not reflected as part of the outstanding shares
of the company's common stock), as follows:
Selling shareholders on a delayed basis: 70,755,365 - this
includes the following:
12,307,692 restricted shares actually issued for cash under a
common stock purchase agreement with Alpha Venture Capital, Inc.
(since this firm is purchasing shares from the company under a
common stock purchase agreement at a price equal to price equal
to 82% of the average closing bid price for the five business
days immediately following a put notice to the company, it is
considered to be an underwriter); a warrant to purchase
2,000,000 shares of the company's common stock, exercisable upon
issuance in connection with the purchase agreement at a price
equal to the lesser of (a) 40% of the closing bid price of the
stock on December 8, 2000 ($0.44), or (b) 40% of the average
five day closing bid price as of the effective date of this
registration statement; a warrant to purchase 1,000,000 shares
of common stock on a pro rata basis in conjunction with draw
downs, exercisable at the close bid price at the date of each
draw down; and a remainder of 2,021,000 shares out of a warrant
to purchase 3,571,428 shares of common stock, exercisable at
$0.08 per share as calculated under an addendum (dated October
23, 2000) to a previous common stock purchase agreement between
the parties, dated September 28, 1999.
This combined holdings of Alliance Equities and Richard Epstein,
who controls this firm: (a) 3,550,000 restricted shares of
common stock; (b) a warrant for the purchase of 1,400,000 shares
of common stock, exercisable at $1.00 per share from June 30,
2000 through June 30, 2002; (c) a warrant for the purchase of
2,400,000 shares of common stock, exercisable at $0.40 per share
from September 30, 2000 through September 30, 2003; (d) a
warrant for the purchase of 3,000,000 shares of common stock,
exercisable at $0.25 per share from September 30, 2000 through
Septebmer 30, 2003; (e) a warrant for the purchase of 2,000,000
shares of common stock, exercisable at 50% below the bid price
when exercised from September 30, 2000 through September 30,
2003; and (f) a debenture (dated March 22, 2001) in the
principal amount of $1,653,000, which represent 9,723,529 shares
(convertible at any time from issuance until April 5, 2002 into
shares of common stock at $0.17 per share).
an option to purchase 4,400,000 shares of common stock,
exercisable upon issuance at $1.00 per share through July 12,
2002, granted David Weiler granted as repayment of all principal
and accured interest under a $500,000 loan made by this
individual to the company (3,080,000 shares of the total); the
remaining 1,320,000 were granted as compensation for consulting
services rendered to the company.
a warrant for the purchase of 4,000,000 shares of common stock,
exercisable upon issuance at $1.00 per share until October 21,
2003 (issued to PowerClick in connection with the settlement of
certain disputes with this firm).
a warrant for the purchase of a total of 482,500 shares of
common stock, exercisable upon issuance at $0.50 per share
through May 24, 2005, under an warrant agreement with GunnAllen
Financial, Inc., a broker/dealer, in connection with this firm's
services in assisting the company to become relisted on the Over
the Counter Bulletin Board.
Shares to be offered to the public on a continuous basis at
$1.00 per share: 20,000,000.
Use of Proceeds: The proceeds of the offering, less the expenses
of the offering (estimated at $72,758), will be used to provide
working capital for the company.
The amount of proceeds from this offering will depend on the
number of shares sold for cash. There can be no assurance that
any of these shares will be sold. No commissions or other fees
will be paid, directly or indirectly, by the company, or any of
its principals, to any person or firm in connection with
solicitation of sales of the shares. These securities are
offered by the company subject to prior issue and to approval of
certain legal matters by counsel.
Selling Shareholders.
(a) Manner of Sales; Broker-Dealer Compensation.
The selling shareholders, or any successors in interest to the
selling shareholders, may sell their shares of common stock in
one or more of the following methods:
Ordinary brokers' transactions;
Transactions involving cross or block trades or otherwise on the
Bulletin Board;
Purchases by brokers, dealers or underwriters as principal and
resale by these purchasers for their own accounts pursuant to
this prospectus;
"At the market" to or through market makers or into an existing
market for the company's common stock;
In other ways not involving market makers or established
trading markets, including direct sales to purchases or sales
effected through agents;
Through transactions in options, swaps or other derivatives
(whether exchange-listed or otherwise);
In privately negotiated transactions;
To cover short sales; or
Any combination of the foregoing.
The selling shareholders also may sell their shares in reliance
upon Rule 144 under the Securities Act at such times as they
are eligible to do so. The company has been advised by the
selling shareholders that they have not made any arrangements
for the distribution of the shares of common stock. Brokers,
dealers or underwriters who effect sales for the selling
shareholders may arrange for other brokers, dealers or
underwriters to participate. Brokers, dealers or underwriters
engaged by the selling shareholders will receive commissions or
discounts from them in amounts to be negotiated prior to
the sale. These brokers, dealers or underwriters may act as
agent or as principals.
From time to time, one or more of the selling shareholders may
pledge, hypothecate or grant a security interest in some or all
of the shares of common stock being offered for sale, and the
pledgees, secured parties or persons to whom these securities
have been pledged shall, upon foreclosure in the event of
default, be considered a selling shareholder hereunder. In
addition, selling shareholders may, from time to time, sell
short their common stock. In these instances, this prospectus
may be delivered in connection with these short sales and the
shares of the common stock may be used to cover these short sales.
From time to time one or more of the selling shareholders may
transfer, pledge, donate or assign shares of their common stock
to lenders or others and each of these persons will be
considered a selling shareholder for purposes of this
prospectus. The number of shares of the company's common stock
beneficially owned by those selling shareholders who so
transfer, pledge, donate or assign shares of their common stock
will decrease as and when they take these actions. The plan of
distribution for the company's common stock by the selling
shareholders set forth herein will otherwise remain unchanged,
except that the transferees, pledgees, donees or other
successors will be considered selling shareholders hereunder.
Subject to the limitations discussed above, a selling
shareholder may enter into hedging transactions with broker-
dealers and the broker-dealers may engage in short sales of the
company's common stock in the course of hedging the positions
they assume with this selling shareholders, including in
connection with distributions of the common stock by these
broker-dealers. A selling shareholder may also enter into
option or other transactions with broker-dealers that involve
the delivery of the company's common stock to the broker-
dealers, who may then resell or otherwise transfer these
shares. A selling shareholder also may loan or pledge the
company's common stock to a broker-dealer and the broker-dealer
may sell the common stock so loaned or upon a default may sell
or otherwise transfer the pledged common stock.
(b) Filing of a Post-Effective Amendment In Certain Instances.
If any selling shareholders notifies the company that he, she,
or it has entered into a material arrangement (other than a
customary brokerage account agreement) with a broker or dealer
for the sale of shares of common stock under this prospectus
through a block trade, purchase by a broker or dealer or similar
transaction, the company will file a post- effective amendment
to the registration statement for this offering. The post-
effective amendment will disclose:
The name of each broker-dealer involved in the transaction.
The number of shares of common stock involved.
The price at which those shares of common stock were sold.
The commissions paid or discounts or concessions allowed to the
broker-dealer(s).
If applicable, that these broker-dealer(s) did not conduct any
investigation to verify the information contained or
incorporated by reference in this prospectus, as supplemented.
Any other facts material to the transaction.
(c) Certain Persons May Be Deemed to Be Underwriters.
The selling shareholders and any broker-dealers who execute
sales for them may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933 because of the number of
shares of common stock to be sold or resold by these persons or
entities or the manner of sale of these shares, or both. If a
selling shareholder or any broker-dealer or other holders were
determined to be underwriters, any discounts, concessions or
commissions received by them or by brokers or dealers acting on
their behalf and any profits received by them on the resale of
their shares of common stock might be deemed to be underwriting
discounts and commissions under the Securities Act.
(d) Regulation M.
The company has informed the selling shareholders that
Regulation M promulgated under the Securities Exchange Act of
1934 may be applicable to them with respect to any purchase or
sale of the company's common stock. In general, Rule 102 under
Regulation M prohibits any person connected with a distribution
of the company's common stock from directly or indirectly
bidding for, or purchasing for any account in which it has a
beneficial interest, any of the common stock or any right to
purchase this stock, for a period of one business day before and
after completion of its participation in the distribution.
During any distribution period, Regulation M prohibits the
selling shareholders and any other persons engaged in the
distribution from engaging in any stabilizing bid or purchasing
the company's common stock except for the purpose of preventing
or retarding a decline in the open market price of the common
stock. None of these persons may effect any stabilizing
transaction to facilitate any offering at the market. As the
selling shareholders will be reoffering and reselling the
company's common stock at the market, Regulation M will prohibit
them from effecting any stabilizing transaction in contravention
of Regulation M with respect to this stock.
Opportunity to Make Inquiries.
The company will make available to each offeree, prior to any
issue of the shares, the opportunity to ask questions and
receive answers from the Company concerning any aspect of the
investment and to obtain any additional information contained in
this prospectus, to the extent that the Company possesses such
information or can acquire it without unreasonable effort or
expense.
Execution of Documents.
Each person desiring to purchase Shares must complete, execute,
acknowledge, and delivered to the company certain documents. By
executing these documents, the subscriber is agreeing that such
subscriber will be, a shareholder in the Company and will be
otherwise bound by the articles of incorporation and the bylaws
of the Company.
LEGAL PROCEEDINGS
Other than as stated below, the company is not a party to any
material pending legal proceedings and, to the best of its
knowledge, no such action by or against the company has been
threatened:
Securities and Exchange Commission Action (March 12, 1999).
On March 12, 1999, the Securities and Exchange Commission
("SEC") filed a complaint alleging the company had failed to
make available to the investing public current and accurate
information about its financial condition and results of
operations through the filing of periodic reports as required by
the Securities Exchange Act of 1934 (specifically, the Form 10-
KSB for the 1997 and 1998 fiscal years, the Form 10QSB for each
of the first three quarters of fiscal 1998, and the
corresponding Notifications of Late Filings (Form 12b-25)). The
SEC sought in this action to compel the company to file
delinquent reports and enjoin the company from further
violations of the reporting requirements. The company consented
to the entry of a final judgment granting the relief sought by
the SEC.
Although this action has been concluded, since the
permanent injunction was entered the company has been late with
the following reports:
Form 10QSB for the quarter ended February 28, 1999 (due by
April 29, 1999 because of the filing of a Form 12b-25) - filed
with the SEC on May 28, 1999.
Form 10QSB for the quarter ended June 30, 1999 (due by August
14, 1999) - filed with the SEC on August 23, 1999 (due to an
error in the CIK code for the company entered on the EDGAR
electronic filing system).
Form 10-QSB for the transition period ended December 31, 1998
(due by July 5, 1999) - filed with the SEC on September 3, 1999.
Form 8-K to reflect a certain acquisition by the company (due by
May 21, 1999) - filed with the SEC on November 15, 1999.
Form 8-K to reflect two acquisitions by the company (due by
September 15, 1999) - filed with the SEC on November 16, 1999.
Form 10-KSB for the fiscal year ended December 31, 1999 (due by
April 14, 2000) - filed with the SEC on May 9, 2000.
Form 10-QSB for the quarter ended March 31, 2000 (due by May 22,
2000). The Form 10-QSB's for the quarters ended June 30, 2000
and September 30, 2000 were timely filed.
Form 10-KSB for the fiscal year ended December 31, 2000 (due by
April 16, 2001).
Securities and Exchange Commission Action (March 23, 2000).
In a complaint filed on March 23, 2000 (Securities and Exchange
Commission v. eConnect and Thomas S. Hughes, Civil Action No. CV
00 02959 AHM (C.D. Cal.)), the SEC alleged that since February
28, 2000, the company issued false and misleading press releases
claiming: (1) the company and its joint venture partner had a
unique licensing arrangement with PalmPilot; and (2) a
subsidiary of the company had a strategic alliance with a
brokerage firm concerning a system that would permit cash
transactions over the Internet. The complaint further alleges
that the press releases, which were disseminated through a wire
service as well as by postings on internet bulletin boards,
caused a dramatic rise in the price of the company's stock from
$1.39 on February 28 to a high of $21.88 on March 9, 2000, on
heavy trading volume. The SEC suspended trading in the
company's common stock on the Over the Counter Bulletin Board on
March 13 for a period of 10 trading days (trading resumed on the
Pink Sheets LLC on March 27, 2000). The complaint alleges that
despite the trading suspension and the SEC's related
investigation, the company and Mr. Hughes continued to issue
false and misleading statements concerning the company's
business opportunities. In addition to the interim relief
granted, the Commission seeks a final judgment against the
company and Mr. Hughes enjoining them from future violations of
Section 10(b) of the Exchange Act and Rule 10b-5 thereunder (the
anti-fraud provisions of that act) and assessing civil penalties
against them.
On March 24, 2000, a temporary restraining order was issued in
the above-entitled action prohibiting the company and Mr.
Hughes, from committing violations of the antifraud provisions
of the federal securities laws. The company and Mr. Hughes
consented to the temporary restraining order.
On April 6, 2000, without admitting or denying the allegations
contained in said complaint, the company and Mr. Hughes entered
into a settlement by consent that has resulted in the entry of
permanent injunctive relief. The settlement agreement with the
SEC was accepted and a judgment of permanent injunction was
entered by the Court on April 7, 2000. The judgment that the
company and Mr. Hughes consented to prohibits the company and
Mr. Hughes from taking any action or making any statement, or
failing to make any statement that would violate Section 10(b)
of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder. The court has yet to determine whether
disgorgement, civil penalties or other relief should be assessed
against the company and/or Mr. Hughes.
Shareholder Class Action Lawsuits.
Einhorn, et al. v. eConnect, Thomas S. Hughes, Jack M. Hall,
Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case No. 00-
02674 MMM (JWJx);
Eckstein, et al. v. eConnect, Inc. , Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-02700 DDP (CWx);
Bernstein, et al. v. eConnect, Inc., et al., Case No. 00-02703
FMC (BQRx);
Colangelo, et al. v. eConnect, Inc., et al., Case No. 00-02743
SVW (SHx);
Baron, et al. v. eConnect, Inc. , Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-02757 WJR (CTx);
Warstler, et al. v. eConnect, Inc. , Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-02758 R (SHx);
Prager, et al. v. eConnect, Inc. , Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-02759 GHK (RCx);
Weisblum, et al. v. eConnect and Thomas S. Hughes, Case No. 00-
02770 MRP (CTx);
Mazda, et al. v. eConnect, et al., Case No. 00-02776 LGB (Mcx);
Pirraglia, et al. v. eConnect, et al., Case No. 00-02875 SVW
(CWx);
Hershkop and Hershkop, et al. v. eConnect and Thomas S. Hughes,
Case No. 00-03095 MRP (RNRx);
Bacun, et al. v. eConnect, Inc. , Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-03161 FMC (JWJx);
Fine, et al. v. eConnect, Inc. and Thomas Hughes, Case No. 00-
03290 SVW (BQRx);
Smith, et al. v. eConnect, Thomas Hughes, Case No. 00-03301 DT
(Mcx);
Reimer, et al. v. eConnect, Thomas Hughes, Case No. 00-03405
JSL;
Tepper, et al. v. eConnect and Thomas S. Hughes, Case No. 00-
03444 WJR (CTx);
Bury, et al. v. eConnect, Thomas Hughes, Case No. 00-03446 ABC;
Villari, et al. v. eConnect, Thomas Hughes, Case No. 00-03447
LGB (SHx);
Ringel, et al. v. eConnect, Inc. , Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-03591 RSWL (RNBx);
Massaro, et al. v. eConnect, Inc., Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-03671 DDP (MANx);
Gardner, et al. v. eConnect, Inc., Thomas S. Hughes, Jack M.
Hall, Dianne Hewitt, Anthony L. Hall, and Kevin J. Lewis, Case
No. 00-03897 MMM (RZx);
Schneyer, et al. v. eConnect, Case No. CV-00-03783 MMM (JWJx);
Ginocchi, et al. v. eConnect, Case No. 00-04003 MMM (JWJx);
Matrisciani, et al. v. eConnect, Case No. 00-04181 MMM (JWJx);
Dutton, et al. v. eConnect, Case No. 00-04505 LGB (Ex);
Shaw, et al. v. eConnect, Case No. 00-04637 LGB (Ex);
Gowrie, et al. v. eConnect, Case No. 00-04686 LGB (Ex);
Belcher, et al. v. eConnect, Case No.00-04792 LGB (Ex);
Lively, et al. v. eConnect, Case No. 00-03112 MMM (JWJx);
Levine, et al. v. eConnect, Case No. 00-03649 MMM (JWJx); and
Berkowitz, et al. v. eConnect, Case No. 00-04152 MMM (JWJx).
The foregoing thirty-one actions were filed on various
dates between March 14, 2000 and early May 2000, inclusive, and
are all pending in the United States District Court for the
Central District of California. These actions are brought by
various putative classes of the purchasers of the company's
common stock. The putative classes alleged, none of which have
been certified, range from no earlier than November 18, 1999
through March 13, 2000. Plaintiffs in the various actions
assert that the company and Thomas S. Hughes, as well as (in
certain of the actions) Jack M. Hall, Diane Hewitt, Anthony L.
Hall, and Kevin J. Lewis, have violated Section 10(b) of the
Exchange Act (false or misleading statements and omissions which
deceived stock purchasers) and also Section 20(a) of the
Exchange Act (liability as a "controlling person" with respect
to a primary violation of securities laws). The principal
allegations concern various alleged material misrepresentations
and omissions which supposedly made the company's public
statements on and after November 18, 1999 (and/or on and after
November 23, 1999) false and misleading, thereby artificially
inflating the market in and for the company's common stock.
No class has yet been certified in connection with any of these
actions. All cases have been combined into one case before the
Honorable Margaret M. Morrow, entitled In Re eConnect, Inc.
Securities Litigation, Master File No. 00-02674 MMM (JWJx).
Negotiations are underway regarding the settlement of these actions.
Additionally, a shareholder of the company named John P.
Maloney, filed an individual action for "securities fraud and
misrepresentation" against the company and Mr. Hughes on May 12,
2000 in small claims court in Torrance, California. The company
subsequently removed the action to the United States District
Court for the Central District of California, and requested that
it be consolidated with In Re eConnect, Inc. Securities
Litigation. However, on September 11, 2000, the Honorable
Margaret M. Morrow ruled that Mr. Maloney's action should be
remanded to the state small claims court. Subsequently, Mr.
Maloney's action was settled amicably and dismissed.
The company has reached a settlement in principle with the
plaintiffs, pursuant to which $350,000 was paid to plaintiffs'
counsel. A warrants component of the settlement is still being
finalized with plaintiffs' counsel. We anticipate that the
settlement will be negotiated in full by early May 2001, and
that the Court will approve the settlement by or before June
2001.
Quantum Leap Litigation
On September 16, 1999, Quantum Leap Media, Inc. filed a
complaint in United States District Court, Central District of
California against Greg Maxwell (Case No. CZ 00-10279 HM). This
action alleged claims of fraud, conversio and breach of contract
against Maxwell in connection with Maxwell's alleged
misappropriation of intellectual property owned by plaintiffs.
Subsequently, on October 20, 2000, Maxwell filed counterclaims
against plaintiffs and their directors, officers and
shareholders for breach of contract and fraud, among other
things. Among the parties named as a counterclaim defendant was
the company, solely on account of its alleged ownership of
common stock of plaintiff PowerClick, Inc. Subsequently,
Maxwell amended his counterclaims on two consecutive occasions,
before the company had an opportunity to test the legal
sufficiency of Maxwell=s counterclaims by motion. Then, on
March 6, 2001, the parties reached a binding settlement, with
the company paying nothing to any party.
Short-Swing Trading Complaint.
On September 6, 2000, Richard Morales, a purported
shareholder of the company, filed an action in the United States
District Court for the Southern District of New York against the
company and Mr. Hughes. This action, Richard Morales v.
eConnect and Thomas Hughes, Case No. 00 CIVIL 6695 (AKH),
alleges that short-swing trading of common stock issued by the
company to Mr. Hughes in violation of Section 16(b) of the
Securities Exchange Act of 1934. On November 29, 2000, the
plaintiff voluntarily dismissed this action.
Employment Agreement - President/Chief Operating Officer.
On March 21, 2000, the company consummated an amended employment
agreement with Steven Pazian for the position of President and
Chief Operating Officer for the company (see Exhibit 10.41 to
this Form 10-KSB). On April 17, 2000, the company terminated
this individual as President and Chief Operating Officer of the
company. Based upon the amended employment agreement, the
remaining salary for the term of this agreement, will be due
within 30 days upon the termination of this individual if
terminated for reasons other than good cause. In addition,
through the date of termination, all of the granted stock
options and warrants will vest and be exercisable for their
entire term. Accordingly, the termination of this individual,
for reasons other than good cause, may potentially expose the
company to incur a liability of approximately $1,260,000 for the
remaining portion of unpaid salary for the first, second, third,
and fourth years of this agreement. Furthermore, the
termination may have accelerated the vesting of the granted
stock options and warrants consisting of 1,000,000 warrants
exercisable at $1.00 per share, 6,000,000 stock options
exercisable at $0.40 per share, and 1,500,000 stock options
exercisable at the lowest average daily trading price of the
company's common stock within the first 90 days of the
executive's employment.
On March 21, 2001, Mr. Pazian filed a complaint for breach of
contract and specific performance in the Superior Court of the
State of California, County of Los Angeles seeking $1,260,000 in
cash, as well as one million company warrants (at a basis of
$0.40) and six million vested stock options (at a strike price
of $0.40) (Stephen Pazian v. eConnect, Inc., Case No. BC
247186). The company's management denies all liability
whatsoever to Mr. Pazian and intends to defend itself in this
matter vigorously. Management of the company cannot take any
position at this time as to the likely outcome of the matter.
Employment Agreement - Outside Counsel.
On March 22, 2000, the company consummated an amended and
restated employment agreement with Stanley C. Morris, Esq. to
act as outside counsel for the company (see Exhibit 10-42 to
this Form 10-KSB). On April 14, 2000, the company terminated
this individual and his firm as outside counsel. Based upon the
amended and restated employment agreement, the remaining
compensation for the term of this agreement will be due
immediately upon the termination of this individual and his firm
as outside counsel if terminated for reasons other than good
cause. In addition, any common stock and stock warrants granted
through the term of this agreement will be considered due in the
event of termination for reasons other than good cause.
Accordingly, the termination of this individual and his firm,
for reasons other than good cause, may potentially expose the
company to incur a liability of approximately $700,000 for the
remaining portion of unpaid compensation for the first, second
and third years of this agreement. Furthermore, the termination
may have accelerated the vesting of the granted common stock and
stock warrants consisting of 600,000 common shares and 600,000
warrants exercisable at $1.00 per share. The company's
management believes that the termination of this individual and
his firm was in good cause and intends to defend itself in this
matter vigorously should litigation be initiated in the future.
Breach of Contract Action.
On September 5, 2000, Geoffrey N. Cornish filed a complaint
Superior Court of the State of California, County of Los Angeles
for breach of an oral contract, money owed, and fraud against
the company, Mr. Hughes and Electronic Transactions &
Technologies, alleging that plaintiff and the company entered
into an oral contract whereby plaintiff was to perform marketing
and product development services for the company (Geoffrey N.
Cornish v. eConnect, Inc., Thomas S. Hughes, and ET&T, Case No.
NC028475). Plaintiff claims that he is owed $128,589.90 plus
interest by the company. The company, Mr. Hughes and ET&T deny
all liability whatsoever to plaintiff and will contest this
matter vigorously. Management of the company cannot take any
position at this time as to the likely outcome of the matter.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
The names, ages, and respective positions of the directors,
executive officers, and key employee of the company are set
forth below. The directors named below will serve until the
next annual meeting of the company's stockholders or until their
successors are duly elected and have qualified. Directors are
elected for a one-year term at the annual stockholders'
meeting. Officers will hold their positions at the will of the
board of directors, absent any employment agreement, of which
none currently exist or are contemplated. There are no
arrangements, agreements or understandings between non-
management shareholders and management under which non-
management shareholders may directly or indirectly participate
in or influence the management of the company's affairs. There
are no other promoters or control persons of the company. There
are legal proceedings involving two of the directors of the company.
Thomas S. Hughes, Chief Executive Officer/Director.
Mr. Hughes, Age 52, has been President and a Director of the
company since March 1997. From 1993 to the present, he has also
served as the President of Electronic Transactions &
Technologies, a privately held Nevada corporation which
developed terminals for wireless home and internet applications.
Jack M. Hall, Secretary/Director.
Mr. Hall, age 72, is currently President of Hall Developments, a
real estate development company he founded in 1991, which
employs a staff of 10 people. Mr. Hall spends approximately 20
hours per week searching out strategic alliances for the
company. Mr. Hall joined the company as Secretary and a Director
in March 1997.
Laurence B. Donoghue, Director.
Mr. Donoghue, age 55, is an attorney as well as a computer
professional. He was awarded a Juris Doctor degree at George
Washington University in Washington, D.C. in 1971. In December
1997, Mr. Donoghue founded and incorporated an Internet
marketing consulting business call Adweb Communications. In
July 1998, Mr. Donoghue also opened his own practice of law,
founding the Law Offices Of Laurence B. Donoghue. Mr. Donoghue
continues to operate both enterprises. From 1975 to 1998, Mr.
Donoghue built a successful prosecuting career in the Los
Angeles County District Attorney's Office as a Deputy District
Attorney. From 1980 to 1998, Mr. Donoghue worked as an Adjunct
Professor at Law at Trinity University School of Law.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the
beneficial ownership of shares of the company's common stock as
of March 31, 2001 (256,566,707 issued and outstanding (1)) by (i)
all stockholders known to the company to be beneficial owners of
more than 5% of the outstanding common stock; and (ii) all
directors, executive officers, and key employees of the company,
individually and as a group:
Title of Name and Address of Amount and Percent
Class Beneficial Owner (2) Nature of of
Beneficial class
Owner (3)
Common Richard Epstein 40,573,529 (4) 12.93%
Stock 12147 Northwest 9th Drive
Coral Springs, FL 33071
Common Alpha Venture Capital, Inc. 17,328,692 (5) 6.75%
Stock P. O. Box 11
Avarua Rarotonga
Cook Islands
Common Thomas S. Hughes 8,700,000 (6) 3.39%
Stock 2500 Via Cabrillo Marina
Suite 112
San Pedro, CA 90731
Common Hughes Net Income Charitable 8,522,500 (7) 3.32%
Stock Remainder Unitrust,
c/o Anthony J. Bayne, Esq.
2500 Via Cabrillo Marina
Suite 300
San Pedro, CA 90731
Common Jack M. Hall 200,000 (8) 0.08%
Stock 2500 Via Cabrillo Marina
Suite 112
San Pedro, CA 90731
Common Laurence B. Donoghue 110,000 (9) 0.04%
Stock 2500 Via Cabrillo Marina
Suite 300
San Pedro, CA 90731
Common Shares of all directors, 17,532,500 6.83%
Stock executive officers,
and key employees
as a group (4 persons)
(1) In connection with a Regulation D Common Stock Private
Equity Line Subscription Agreement with Alpha Venture Capital,
Inc., dated September 28, 1999, 6,600,882 of the shares sold
under this agreement are being held by Alpha for future advances
on the Subscription Agreement. Accordingly, the 6,600,882
shares of the company's common stock held by Alpha is deemed
unissued since no consideration has been given for such shares
and are not reflected as part of the outstanding shares of the
company's common stock at March 31, 2001.
(2) Except as noted in footnote 4 below, each person has sole
voting power and sole dispositive power as to all of the shares
shown as beneficially owned by them.
(3) Other than as set forth below, none of these security
holders has the right to acquire any amount of common stock
within 60 days from options, warrants, rights, conversion
privilege, or similar obligations.
(4) This represents the combined holdings of Alliance Equities
and Richard Epstein, who controls this firm. The amount owned
includes the following: (a) a warrant for the purchase of
1,400,000 shares of common stock, exercisable at $1.00 per share
from June 30, 2000 through June 30, 2002; (b) a warrant for the
purchase of 2,400,000 shares of common stock, exercisable at
$0.40 per share from September 30, 2000 through September 30,
2003; (c) a warrant for the purchase of 3,000,000 shares of
common stock, exercisable at $0.25 per share from September 30,
2000 through Septebmer 30, 2003; (d) a warrant for the purchase
of 2,000,000 shares of common stock, exercisable at 50% below
the bid price when exercised from September 30, 2000 through
September 30, 2003; and (e) a debenture (dated March 22, 2001)
in the principal amount of $1,653,000, which represent 9,723,529
shares (convertible at any time from issuance until April 5,
2002 into shares of common stock at $0.17 per share).
(5) This firm is controlled by Barry Herman, who is the
director and authorized signatory for Alpha Venture Capital,
Inc. The shares of Alpha Venture Capital, Inc. are held in
trust on behalf of undisclosed investors; these investors are
only passively involved in the firm. The amount beneficially
owned consists of 12,307,692 shares actually issued for cash
under a common stock purchase agreement purchased from the
company under a common stock purchase agreement at a price equal
to price equal to 82% of the average closing bid price for the
five business days immediately following a put notice to the
company, and warrants for the purchase common stock totaling
6,571,428 shares, as follows: (i) a warrant to purchase
2,000,000 shares of the company's common stock, exercisable upon
issuance in connection with the purchase agreement at a price
equal to the lesser of (a) 40% of the closing bid price of the
stock on December 8, 2000 ($0.44), or (b) 40% of the average
five day closing bid price as of the effective date of this
registration statement; (ii) a warrant to purchase 1,000,000
shares of common stock on a pro rata basis in conjunction with
draw downs, exercisable at the close bid price at the date of
each draw down; and (iii) a remainder of 2,021,000 shares out of
a warrant to purchase 3,571,428 shares of common stock,
exercisable at $0.08 per share as calculated under an addendum
(dated October 23, 2000) to a previous common stock purchase
agreement between the parties, dated September 28, 1999.
(6) 8,400,000 of this amount is owned by Electronic
Transactions & Technologies. This ownership is attributed to
Mr. Hughes by virtue of his 70% ownership of this company. In
addition, 150,000 of this amount is represented by options
issued in December 2000 under the company's stock incentive plan
which are exercisable within 60 days (the total options granted
was 600,000). These options are exercisable at $0.40 per share
for those exercised on or before December 31, 2000; thereafter the
exercise price is 25% of the fair market value of the shares on
the date of the exercise. A maximum of 25% of the total options
may be exercised in any one calendar year.
(7) The creator of this trust is Thomas S. Hughes. Thomas S.
Hughes is the trustee of the trust; Lawrence B. Donoghue, Esq.
is the special trustee, and as such has the voting power and
power over the disposition of the company's shares under this
trust. In addition, Mr. Hughes is the lifetime net income
beneficiary of this trust, and the remainder beneficiary is
Philosopher Kings and Queens, a California nonprofit public
benefit corporation (according to information provided by Mr.
Hughes). According to information provided by Mr. Hughes, this
trust is irrevocable.
(8) 100,000 of this amount is represented by options issued in
December 2000 under the company's stock incentive plan which are
exercisable within 60 days (the total options granted was
400,000). These options are exercisable at $0.40 per share for
those exercised on or before December 31, 2000; thereafter the
exercise price is 25% of the fair market value of the shares on
the date of the exercise. A maximum of 25% of the total options
may be exercised in any one calendar year.
(9) 100,000 of this amount is represented by options issued in
December 2000 under the company's stock incentive plan which are
exercisable within 60 days (the total options granted was
400,000). These options are exercisable at $0.40 per share for
those exercised on or before December 31, 2000; thereafter the
exercise price is 25% of the fair market value of the shares on
the date of the exercise. A maximum of 25% of the total options
may be exercised in any one calendar year.
DESCRIPTION OF SECURITIES
General Description.
The securities being offered are shares of common stock. The
authorized capital of the company consists of 300,000,000 shares
of common stock, $0.001 par value per share. The holders of
common stock shall:
have equal ratable rights to dividends from funds legally
available therefore, when, as, and if declared by the board of
directors of the company
are entitled to share ratably in all of the assets of the
company available for distribution upon winding up of the
affairs of the company
are entitled to one non-cumulative vote per share on all matters
on which shareholders may vote at all meetings of shareholders.
The shares of common stock do not have any of the following rights:
special voting rights
preference as to dividends or interest
preemptive rights to purchase in new issues of Shares
preference upon liquidation, or
any other special rights or preferences.
In addition, the Shares are not convertible into any other
security. There are no restrictions on dividends under any loan
other financing arrangements or otherwise. The company does not
have any preferred stock authorized in its articles of incorporation.
Non-Cumulative Voting.
The holders of shares of common stock of the company do not have
cumulative voting rights, which means that the holders of more
than 50% of such outstanding shares, voting for the election of
directors, can elect all of the directors to be elected, if they
so choose. In such event, the holders of the remaining shares
will not be able to elect any of the company's directors.
Dividends.
The company does not currently intend to pay cash dividends. The
company's proposed dividend policy is to make distributions of
its revenues to its stockholders when the company's Board of
Directors deems such distributions appropriate. Because the
company does not intend to make cash distributions, potential
shareholders would need to sell their shares to realize a return
on their investment. There can be no assurances of the projected
values of the shares, nor can there be any guarantees of the
success of the company.
A distribution of revenues will be made only when, in the
judgment of the company's Board of Directors, it is in the best
interest of the company's stockholders to do so. The Board of
Directors will review, among other things, the investment
quality and marketability of the securities considered for
distribution; the impact of a distribution of the investee's
securities on its customers, joint venture associates,
management contracts, other investors, financial institutions,
and the company's internal management, plus the tax consequences
and the market effects of an initial or broader distribution of
such securities.
Transfer Agent.
The company has engaged the services of Corporate Stock
Transfer, 3200 Cherry Creek Drive South, Suite 430, Denver,
Colorado 80209, to act as transfer agent and registrar.
INTEREST OF NAMED EXPERTS AND COUNSEL
Other than as set forth below, no named expert or counsel
was hired on a contingent basis, will receive a direct or
indirect interest in the small business issuer, or was a
promoter, underwriter, voting trustee, director, officer, or
employee of the company.
Brian F. Faulkner, A Professional Law Corporation, counsel
for the company named in this registration statement as giving
an opinion on the validity of the securities, will be receiving
a total of 2,150,000 shares of common stock pursuant to the
company's Amended and Restated Non-Employee Directors and
Consultants Retainer Stock Plan (1,150,000 under a Form S-8
filed on September 12, 2000 and 1,000,000 shares under a Form S-
8 filed on May 2, 2001) in exchange for legal services
previously rendered, and to be rendered in the future, to the
company (900,000 of which have already been issued). In
addition, Mr. Faulkner has received options to purchase 500,000
shares of common stock under the company's stock incentive plan
in connection with this work. These legal services consist of
advice and preparation work in connection with reports of the
company filed under the Securities Exchange Act of 1934, and
other general corporate and securities work for the company.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Limitation of Liability.
The articles of incorporation of the company provide that
no Director or Officer of this company shall be liable to the
company or its stockholders for any breach of fiduciary duty as
Officer or Director of this company. This provision shall not
affect liability for acts or omissions which involve intentional
misconduct, fraud, a knowing violation or law, or the payment of
dividends in violation of NRS 78.300.
Indemnification.
(a) Articles of Incorporation.
The articles of incorporation of the company provide the
following with respect to indemnification:
"All expenses incurred by Officers or Directors in defending a
civil or criminal action, suit, or proceeding, must be paid by
this company as they are incurred in advance of a final
disposition of the action, suit or proceeding, upon receipt of
an undertaking by or on behalf of a Director or Officer to repay
the amount if it is ultimately determined by a court of
competent jurisdiction, that he or she did not act in good
faith, and in the manner he or she reasonably believed to be or
not opposed to the best interests of this company."
(b) Bylaws.
The bylaws of the company provide the following with respect to
indemnification:
"Section 1. Definitions. For purposes of this Article,
"Indemnitee" shall mean each Director or Officer who was or is a
party to, or is threatened to be made a party to, or is
otherwise involved in, any Proceeding (as hereinafter defined),
by reason of the fact that he or she is or was a Director or
Officer of this Corporation or is or was serving in any capacity
at the request of this Corporation as a Director, Officer,
employee, agent, partner, or fiduciary of, or in any other
capacity for, another corporation, partnership, joint venture,
trust, or other enterprise. The term "Proceeding" shall mean any
threatened, pending or completed action or suit (including,
without limitation, an action, suit or proceeding by or in the
right of this Corporation), whether civil, criminal,
administrative or investigative.
Section 2. Indemnification. Each Indemnitee shall be
indemnified and held harmless by this Corporation for all
actions taken by him or her, and for all omissions (regardless
of the date of any such action or omission), to the fullest
extent permitted by Nevada law, against all expense, liability
and loss (including, without limitation, attorney fees,
judgments, fines, taxes, penalties, and amounts paid or to be
paid in settlement) reasonably incurred or suffered by the
Indemnitee in connection with any Proceeding. Indemnification
pursuant to this Section shall continue as to an Indemnitee who
has ceased to be a Director or Officer and shall inure to the
benefit of his or her heirs, executors and administrators. This
Corporation may, by action of its Board of Directors, and to the
extent provided in such action, indemnify employees and other
persons as though they were Indemnitees. The rights to
indemnification as provided in this Article shall be non-
exclusive of any other rights that any person may have or
hereafter acquire under an statute, provision of this
Corporation's Articles of Incorporation or Bylaws, agreement,
vote of stockholders or Directors, or otherwise.
Section 3. Financial Arrangements. This Corporation may
purchase and maintain insurance or make other financial
arrangements on behalf of any person who is or was a Director,
Officer, employee or agent of this Corporation, or is or was
serving at the request of this Corporation in such capacity for
another corporation, partnership, joint venture, trust or other
enterprise for any liability asserted against him or her and
liability and expenses incurred by him or her in such capacity,
whether or not this Corporation has the authority to indemnify
him or her against such liability and expenses.
The other financial arrangements which may be made by this
Corporation may include, but are not limited to, (a) creating a
trust fund; (b) establishing a program of self-insurance; (c)
securing its obligation of indemnification by granting a
security interest or other lien on any of this Corporation's
assets, and (d) establishing a letter of credit, guarantee or
surety. No financial arrangement made pursuant to this section
may provide protection for a person adjudged by a court of
competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable for intentional misconduct, fraud, or a
knowing violation of law, except with respect to advancing
expenses or indemnification ordered by a court. Any insurance
or other financial arrangement made on behalf of a person
pursuant to this section may be provided by this Corporation or
any other person approved by the Board of Directors, even if all
or part of the other person's stock or other securities is owned
by this Corporation. In the absence of fraud:
(a) the decision of the Board of Directors as to the propriety
of the terms and conditions of any insurance or other financial
arrangement made pursuant to this section, and the choice of the
person to provide the insurance or other financial arrangement
is conclusive; and
(b) the insurance or other financial arrangement is not void or
voidable; does not subject any Director approving it to personal
liability for his action; and even if a Director approving the
insurance or other financial arrangement is a beneficiary of the
insurance or other financial arrangement.
Section 4. Contract of Indemnification. The provisions of this
Article relating to indemnification shall constitute a contract
between this Corporation and each of its Directors and Officers,
which may be modified as to any Director or Officer only with
that person's consent or as specifically provided in this
section. Notwithstanding any other provision of the Bylaws
relating to their amendment generally, any repeal or amendment
of this Article which is adverse to any Director or Officer
shall apply to such Director or Officer only on a prospective
basis and shall not limit the rights of an Indemnitee to
indemnification with respect to any action or failure to act
occurring prior to the time of such repeal or amendment.
Notwithstanding any other provision of these Bylaws, no repeal
or amendment of these Bylaws shall affect any or all of this
Article so as to limit or reduce the indemnification in any
manner unless adopted by (a) the unanimous vote of the Directors
of this Corporation then serving, or (b) the stockholders as set
forth in Article XII hereof; provided that no such amendment
shall have retroactive effect inconsistent with the preceding
sentence.
Section 5. Nevada Law. References in this Article to Nevada
law or to any provision thereof shall be to such law as it
existed on the date these Bylaws were adopted or as such law
thereafter may be changed; provided that (a) in the case of any
change which expands the liability of an Indemnitee or limits
the indemnification rights or the rights to advancement of
expenses which this Corporation may provide, the rights to
limited liability, to indemnification and to the advancement of
expenses provided in this Corporation's Articles of
Incorporation, these Bylaws, or both shall continue as
theretofore to the extent permitted by law; and (b) if such
change permits this Corporation, without the requirement of any
further action by stockholders or Directors, to limit further
the liability of Indemnitees or to provide broader
indemnification rights or rights to the advancement of expenses
than this Corporation was permitted to provide prior to such
change, liability thereupon shall be so limited and the rights
to indemnification and advancement of expenses shall be so
broadened to the extent permitted by law."
The board of directors may from time to time adopt further
bylaws with respect to indemnification and may amend these
bylaws to provide at all times the fullest indemnification
permitted by the Nevada Revised Statutes.
(c) Nevada Revised Statutes.
"NRS 78.7502 Discretionary and mandatory indemnification of
officers, directors, employees and agents: General provisions.
(1) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by
or in the right of the corporation, by reason of the fact that
he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with the action, suit
or proceeding if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself,
create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and that, with
respect to any criminal action or proceeding, he had reasonable
cause to believe that his conduct was unlawful.
(2) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred
by him in connection with the defense or settlement of the
action or suit if he acted in good faith and in a manner which
he reasonably believed to be in or not opposed to the best
interests of the corporation. Indemnification may not be made
for any claim, issue or matter as to which such a person has
been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the
corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in
which the action or suit was brought or other court of competent
jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems
proper.
(3) To the extent that a director, officer, employee or agent
of a corporation has been successful on the merits or otherwise
in defense of any action, suit or proceeding referred to in
subsections 1 and 2, or in defense of any claim, issue or matter
therein, the corporation shall indemnify him against expenses,
including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
NRS 78.751 Authorization required for discretionary
indemnification; advancement of expenses; limitation on
indemnification and advancement of expenses.
(1) Any discretionary indemnification under NRS 78.7502 unless
ordered by a court or advanced pursuant to subsection 2, may be
made by the corporation only as authorized in the specific case
upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances. The
determination must be made:
(i) By the stockholders;
(ii) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the action, suit
or proceeding;
(iii) If a majority vote of a quorum consisting of directors
who were not parties to the action, suit or proceeding so
orders, by independent legal counsel in a written opinion; or
(iv) If a quorum consisting of directors who were not
parties to the action, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
(2) The articles of incorporation, the bylaws or an agreement
made by the corporation may provide that the expenses of
officers and directors incurred in defending a civil or criminal
action, suit or proceeding must be paid by the corporation as
they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or
on behalf of the director or officer to repay the amount if it
is ultimately determined by a court of competent jurisdiction
that he is not entitled to be indemnified by the corporation.
The provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than
directors or officers may be entitled under any contract or
otherwise by law.
(3) The indemnification and advancement of expenses authorized
in NRS 78.7502 or ordered by a court pursuant to this section:
(i) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under
the articles of incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, for either
an action in his official capacity or an action in another
capacity while holding his office, except that indemnification,
unless ordered by a court pursuant to or for the advancement of
expenses made pursuant to subsection 2, may not be made to or on
behalf of any director or officer if a final adjudication
establishes that his acts or omissions involved intentional
misconduct, fraud or a knowing violation of the law and was
material to the cause of action.
(ii) Continues for a person who has ceased to be a
director, officer, employee or agent and inures to the benefit
of the heirs, executors and administrators of such a person.
NRS 78.752 Insurance and other financial arrangements against
liability of directors, officers, employees and agents.
(1) A corporation may purchase and maintain insurance or
make other financial arrangements on behalf of any person who is
or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise for any liability asserted against him and liability
and expenses incurred by him in his capacity as a director,
officer, employee or agent, or arising out of his status as
such, whether or not the corporation has the authority to
indemnify him against such liability and expenses.
(2) The other financial arrangements made by the corporation
pursuant to subsection 1 may include the following:
(i) The creation of a trust fund.
(ii) The establishment of a program of self-insurance.
(iii) The securing of its obligation of indemnification by
granting a security interest or other lien on any assets of the
corporation.
(iv) The establishment of a letter of credit, guaranty or surety.
No financial arrangement made pursuant to this subsection may
provide protection for a person adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be
liable for intentional misconduct, fraud or a knowing violation
of law, except with respect to the advancement of expenses or
indemnification ordered by a court.
(3) Any insurance or other financial arrangement made on behalf
of a person pursuant to this section may be provided by the
corporation or any other person approved by the board of
directors, even if all or part of the other person's stock or
other securities is owned by the corporation.
(4) In the absence of fraud:
(i) The decision of the board of directors as to the propriety
of the terms and conditions of any insurance or other financial
arrangement made pursuant to this section and the choice of the
person to provide the insurance or other financial arrangement
is conclusive; and
(ii) The insurance or other financial arrangement:
(A) Is not void or voidable; and
(B) Does not subject any director approving it to personal
liability for his action, even if a director approving the
insurance or other financial arrangement is a beneficiary of the
insurance or other financial arrangement.
(5) A corporation or its subsidiary which provides self-
insurance for itself or for another affiliated corporation
pursuant to this section is not subject to the provisions of
Title 57 of NRS."
Undertaking.
The company undertakes the following:
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in
the opinion of the U.S. Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
ORGANIZATION WITHIN LAST FIVE YEARS
The names of the promoters of the company are the officers
and directors as disclosed elsewhere in this Form SB-2. None of
the promoters have received anything of value from the company
in such capacity.
DESCRIPTION OF BUSINESS
Business Development
The company was originally organized under the laws of the
State of Missouri on September 1, 1981, as HANDY-TOP, INC. On
April 20, 1983, the Articles of Incorporation were amended to
change the name of the corporation to HTI Corporation. On May
28, 1993, the Articles of Incorporation were amended to change
the name of the corporation to Leggoons, Inc. and increase the
number of authorized shares of common stock from 40,000 to
10,000,000 and decrease the par value of the common stock from
$1.00 per share to $0.01 per share. Also on May 28, 1993,
Leggoons, Inc., declared a 14-for-1 stock split.
Leggoons, Inc., was engaged in the design, manufacture and
distribution of apparel and related accessories which are sold
to specialty and department stores nationwide under the brands
Leggoons, CPO by Leggoons, John Lennon Artwork Apparel, and
Snooggel. On January 19, 1996, Leggoons, Inc. adopted a formal
plan to discontinue the designing, selling, manufacturing and
distribution of its apparel products. As part of such plan,
Leggoons, Inc., discontinued production on April 30, 1996, and
intended to either sell or liquidate the operations within
twelve months of that date.
On June 12, 1996, Leggoons, Inc., transferred all of its assets
and liabilities to a third party assignee, under an "Assignment
for the Benefit of Creditors" (an assignment is a business
liquidation device available as an alternative to bankruptcy).
The third party assignee, a Nebraska corporation, also named
Leggoons, Inc., was required to properly, timely, and orderly
dispose of all remaining assets for the benefit of creditors.
Leggoons, Inc. continued to maintain its status as a shell corporation.
On February 18, 1997, Leggoons, Inc. entered into an
Agreement to License Assets from Home Point of Sales, Inc.(now
know as Electronic Transactions & Technologies) for the purpose
of licensing certain technology for the development of Personal
Encrypted Remote Financial Electronic Card Transactions
("PERFECT"). Electronic Transactions & Technologies is a
privately held corporation 70% owned by Thomas S. Hughes,
president of the company. This technology is designed to enable
consumers to instantly pay bills or impulse purchase from home
with real time cash transactions.
Mr. Hughes, Chairman of Electronic Transactions &
Technologies, became chairman and president of Leggoons, Inc. on
March 1, 1997. At that time, the name was changed to Betting, Inc.
On April 28, 1997, the company entered into a Host
Processing Agreement with Electronic Transactions & Technologies
for the purpose of having this firm act as the bank host
processing for all Betting, Inc.'s future transactions that are
sent by terminals that read credit cards or ATM cards. On March
27, 1998, the company entered into a license agreement with
Electronic Transactions & Technologies for the purpose of
licensing additional technology for processing electronic
banking transactions. The technology licensed under this
agreement supplements the technology licensed under the
agreement dated February 18, 1997.
On May 17, 1999, an Agreement and Plan of Merger between
Betting, Inc., a Missouri corporation, into Betting, Inc., a
Nevada corporation was executed by an authorized signatory of
each company. On May 21, 1999, the merger of the two companies
was approved by a majority of the shareholders. Effective on
June 1, 1999, Articles of Merger were filed with the Nevada
Secretary of State, which formally resulted in the redomicile of
the company from the State of Missouri to the State of Nevada.
This also resulted in the change of the fiscal year end from
August 31 to December 31. On June 4, 1999, a Certificate of
Amendment to Articles of Incorporation was filed with the Nevada
Secretary of State changing the name of the company to
"eConnect" and increasing the number of authorized common shares
to 100,000,000.
On August 23, 1999, a Certificate of Amendment to Articles of
Incorporation was filed with the Nevada Secretary of State
increasing the number of authorized common shares to
200,000,000. On November 22, 2000, a Certificate of Amendment
of Articles of Incorporation was filed with the Nevada Secretary
of State increasing the number of authorized common shares to
300,000,000.
Business of Company.
The business of the company is to drive (process) PERFECT global
transactions with specific emphasis on ATM card with PIN instant
cash transactions. There are two aspects to the industry of
self serviced home or mobile swiped ATM card with PIN entry or
credit card transactions which the company has named PERFECT
(personal encrypted remote financial electronic card transactions).
The first aspect is the development of the home "Bank Eyes
Only"T transactions system whereby a consumer can use a remote
terminal from a home environment or mobile environment, (the
eCashPad), to read a credit card or ATM card with PIN or a smart
card which is then sent to a host processor for card
authorization. "Bank Eyes Only" transactions refers to a direct
Internet connection between the consumer's terminal and the
company's bank card authorization system. The web merchant does
not store nor has ready access to the consumer's card data.
These "Bank Eyes Only" terminals are remote from the merchant
(protecting the consumer's data) and are wireless or landline or
computer enabled. This should result in greater consumer
confidence in performing such financial transactions.
This system will also enable the consumer or business person to
effect instant cash payments to the recipient. A transaction
using the terminal device with an ATM card with PIN is
considered a cash payment. Internet "Bank Eyes Only" ATM card
with PIN payments could substantially affect global commerce,
completely changing the way people around the world do business.
The second aspect of a PERFECT transaction is the public usage
of the company's proprietary hardware placed in public locations
for self serviced bill payments by ATM card with PIN entry.
Today, bankcard authorized transactions, that are terminal
driven, are initiated by consumers, "face to face" with
merchants. The company's "Bank Eyes Only" transaction enables
the consumer to perform the transaction safely from a remote
location. These PERFECT transactions are originated by the
consumer. The transaction is encrypted before being sent. The
merchant does not originate the transaction by swiping the bank
card; the consumer swipes the bank card with no merchant
present. The consumer is "remote" from the merchant.
Applications of the PERFECT industry focus specific attention of
the usage of ATM card with PIN entry to effect "just in time"
bill, tax, mortgage, or premium payments from home, to "reserve
your seat" for entertainment purposes. The company has
developed a proprietary hardware device, the eCashPad to conduct
such transactions.
The company's goal is to develop network global host processing
centers. These centers will drive and be compatible with all
types of hardware made by many different competitors.
The company has spent substantial capital in cash and stock
during the last two fiscal years developing the system for the
implementation of the PERFECT industry in general and for the
specific application of Internet "Bank Eyes Only" transactions
in particular.
The company has contracted exclusive licenses for global usage
of Patent No. 5,336,870, issued August 8, 1994, Patent No.
5,754,655, issued May 19, 1998, and Patent No. 5,809,143, issued
September 15, 1998 (see Exhibit 99.1 to this Form 10-KSB).
These three patents broadly cover the implementation of what the
company is now calling "Bank Eyes Only" transactions. Patent No.
5,336,870 has developed into the EzyDepot unit.
The EzyDepot unit was deployed as a self service terminal for
self service EzyShop at public locations. The company is now
focused on using the eCashPad for placement with PC's at public
locations such as coffee shops whereby the consumer can use the
eCashPad to safely shop by Bank Eyes Only at specific Bank Only
web sites.
The EzyDepot unit will be adapted and used as a self service
bill pay terminal at public locations abroad and will be driven
by eConnect full service host centers.
Patent No. 5,809,143 has developed into what the company is
calling the eCashPad, and the specific focus is for Internet
"Bank Eyes Only" usage. This device connects directly to a
personal computer and runs on the Windows operating system.
The company is projecting a third quarter distribution of
eCashPads into the market and the initial generation of revenues
from both eCashPad sales and the transactions generated from
usage of the eCashPad at web merchant sites.
Patent No. 5,754,655 covers is in the process of development as
a hand held wireless voice capable phone and terminal for sale
and distribution into the PERFECT industry, with specific focus
for "Bank Eyes Only" Internet ATM card with PIN entry
transactions. This product is called the ePocketPay and is in
the development stage with a potential prototype targeted for
the third quarter.
The "Bank Eyes Only" system once fully implemented will consist
of the eCashPad sending Internet originated transactions into
the bank system for authorization. At no time is any bankcard
data stored with the Internet merchant, and this simple action
effects a highly secure consumer Internet transaction. National
Data Funding Corporation will be providing the company with
operations support for the company's host systems under an
agreement with the company in April 2000.
The eCashPad has been developed by Asia Pacific Micro, Inc,
under a manufacturing agreement entered into in January 2000.
Over 1,200 eCashPad units have initially been produced.
The eCashPad simply and easily attaches to the consumer's
computer keyboard and enables the consumer to affect Internet
"Bank Eyes Only" transactions, from the consumer's home or
office. The company will receive a fee from the merchant per
transaction. The eCashPad will also be distributed with private
labels, through direct sales and promotionss.
Companies participating in the private label eCashPads will
enjoy the benefit of receiving a portion of the company's
transaction fee for transactions made to them in addition to
those made to other merchants. For example, an insurance
company using the eCashPad will generate cash payments by ATM
card with PIN entry for its premium payments. In addition, it
can generate additional revenues from the same eCashPad as it is
used to pay a phone bill, to make a charitable donation, to
purchase a product, or to pay a tax bill. The company will
receive a fee per transaction as paid by the web merchant.
The company is presently developing a full service host system
in the Dominican Republic and is presently completing the
certification process with Banco Nacional de Credito, and is
planning to follow with additional host centers for eConnect
Ireland, eConnect China and eConnect Austrialia. A non-binding
letter of intent has recently been signed by Huaxia Bank of
Shanghai China to implement the eCashPad solution with specific
emphasis on ATM card with PIN on line debit.
Within the countries of China, Ireland, Australia, and the
Dominican Republic, the company recognizes that the eCashPad
within those countries will naturally evolve into ATM card with
PIN cash games, and the company intends to provide services for
such PERFECT games. One projected game will be the
"International", which will be the equivalent of a same day
instant cash game between the countries of Australia, China,
Ireland and the Dominican Republic whereby the eCashPad is used
with ATM card and PIN entry and processed by the company's host systems.
The specific goal of the company is to establish global "Bank
Eyes Only" full service Host processing centers which will not
only drive the company's hardware but will also certify and
drive other types of hardware devices effecting both
conventional and PERFECT transactions. The company is currently
using eFunds CONNEX software to provide the company Host support
system outside of the United States.
The long term strategic goal of company is to position its
global host systems to offer "Bank Eyes Only" processing
services for both competitors' terminal solutions and for the
company's terminal solutions. This places the company in the
position of being a HUB for its own transactions and
competitor's transactions. There will also be a particular
emphasis on Internet cash payments between countries by the
usage of eCashPad or ePocketPay type of devices and ATM card
with PIN entry. This enables the company to handle Business to
Business transactions and Country to Country transactions.
Revenue generation from "Bank Eyes Only" transactions is
expected to begin in the third quarter as eCashPads are
distributed into the marketplace. Within the United States
market, the company is closely working with NDFC to secure the
go ahead for regional ATM card networks for an eCashPad ATM card
with PIN entry "Bank Eyes Only" internet payment. The company
is targeting the third and fourth quarters to begin pilots with
Regional ATM card networks as regards the ATM card with PIN
entry aspect of the eCashPad.
The company expects the industry of "Bank Eyes Only" Internet
transactions to develop substantially by the fourth quarter and
anticipates numerous "Bank Eyes Only" product devices to be
introduced by various companies. It is the intention of the
company to provide support services for such hardware devices
and to gain a service fee from the processing of "Bank Eyes
Only" transactions. The company encourages the introduction of
different types of "Bank Eyes Only" devices.
The company anticipates a strong effort by competitors to seize
the "Bank Eyes Only" space on an Internet merchant site but
points out that all competitors will need to co operatively work
together as regards web merchant signups. The company
anticipates a co-operative competition environment with
competitors as regards the establishment of respected PERFECT
payment solutions at a merchants web site as no merchant will
exclusively offer only one solution.
In summary, the company intends to build host systems in such
countries as the Dominican Republic, China , Australia and
Ireland, plus numerous other countries, whereby the company's
host system is driving many different types of hardware devices
as developed by many companies to meet the demand of the PERFECT
industry. The company will generate a fee per transaction from
the driving of each hardware device which is sending in PERFECT
ATM card and PIN entry, credit card and smart cardpayments.
The company intends to monitor the performance of the Top
Sports walk-in locations in the Dominican Republic in 2001 to
determine if revenues do not justify expenditures. The company
has removed itself from the Internet casino business other than
to provide support transactions services.
The company has recently signed a letter of intent to divest
eConnect Caribbean. S.A. from the company. To date,
negotiations are continuing towards the signing of a definitive
agreement.
Acquisitions by Company.
(a) Rogel Technologies.
According to an agreement dated May 6, 1999, the company
acquired all of the assets of Rogel Technologies, a sole
proprietorship. These assets consisted of the following:
Proposed secure e-mail service
Perfect Merchant Response Software (MRS)
Global Market Place Mall (GMM) (the GMM includes these products:
GMM Classified Adds, GMM Web hosting services, eTrusts,
eHomebuy, eDine, eTheater, Portable Website Software, PCA
Compression Software, and Virtual Card Game Software)
The consulting services of Rogel Patawaran for the purpose of
creating and writing new software products for the company.
The company agreed to make the following payments under this
agreement:
2,750,000 free trading shares
2,500,000 restricted shares of common stock
Options to purchase 500,000 shares of common stock at an
exercise price of $0.50 per share, which options expire on June
30, 2000
Options to purchase 500,000 shares of common stock at an
exercise price of $1.00, which options expire on June 30, 2001
Options to purchase 250,000 shares of common stock at an
exercise price $2.00 per share, which options expire on June 30, 2002
$200,000 per year management fee payable from the gross revenues
of RT
12.5% of the remaining net profits of Rogel Technologies as an
administration fee
A total of 2,500,000 restricted shares of common stock and
2,500,000 free trading shares of common stock have been issued
date under this agreement (no options as set forth in the
agreement have been issued to date).
Under an agreement dated October 23, 1999, the company agreed to
pay Rogel Technologies an additional $168,000 for services
related to MRS software and the SafeTPay system server, and to
provide additional consulting services for an hourly fee. Under
an agreement dated November 23, 1999, the parties agreed that in
consideration of said sum the MRS and SafeTPay software will
remain under the ownership and full control of Rogel
Technologies; however, the company would have the right to
utilize this software and provide instruction in its use.
Based on the main focus of this agreement being the consulting
services of Mr. Patawaran in research and development activities
of the company, the shares issued under this agreement are being
accounted for as research and development costs in the financial
statements of the company. The company has not as yet made any
determination regarding further development of the other items
set forth in the agreement.
(b) Isla Escondida, S.A.
La Empressa Ranco Plasticos Limitada, a Costa Rica corporation
("Holder"), was the owner of record of 58.33% of the issued and
outstanding stock of Isla Escondida, S.A., a Costa Rica
Corporation ("IE") ("Stock"). Pursuant to an agreement between
Holder, Jamie Ligator and Michael Lanes, one-half (1/2) of the
Stock was actually being held in the name of Holder for the
benefit of Lanes and the other one-half (1/2) of the Stock was
actually being held in the name of Holder for the benefit of
Ligator. Effective on August 31, 1999, the company purchased
the Stock under a Stock Exchange Agreement.
Under this agreement the company paid the following amounts for
the Stock: 7,000,000 shares of free trading common stock of the
company, to be deposited into an escrow account. These share
were all released by December 31, 1999 under the provisions of
an accompanying escrow agreement. Subsequent to this agreement,
the company acquired, for 5,000,000 free trading shares, the
remaining 41.67% of the stock of IE directly from the
shareholders of that company in a stock swap (an additional
5,200,000 restricted shares of common stock previously issued in
connection with this transaction are still in need of
cancellation). In addition to the above amounts paid, the
company paid an additional 1,510,000 shares of free trading
common stock in connection with closing this transaction.
During 2000, the company cancelled 10,500,000 shares of the
company's common stock related to this acquisition in fiscal
year 1999. The company renegotiated the terms of this
acquisition primarily due to lack of performance of the assets
purchased.
This asset has generated no revenues for the company since its
acquisition. Due to various problems with the operation in
Costa Rica, the website was closed shortly after the acquisition
by the company and no revenues or profits were realized from
this operation. As a result, this entire investment was
completely written-off as of December 31, 2000.
(c) TheArtAuction.com
Effective on September 9, 1999, the company acquired the website
known as "theArtAuction.com" from PowerClick, Inc., a Nevada
corporation, through an Agreement and Plan of Acquisition
Agreement. Under this agreement, company paid the following:
(a) 1,000,000 shares of free trading common stock of the
company; and (b) 1,000,000 shares of restricted common stock of
the company. In addition, the company paid an additional
165,000 shares of restricted common stock in connection with
closing this transaction.
Although this website did briefly generate revenues in September
1999 totaling approximately $40,000, the website was closed down
in November 1999 for reconstruction and has not as yet reopened.
The company has been upgrading theArtAuction.com into
artaste.com, which began operations in the fourth quarter of
2000. However, the value of this asset has been written-off as
of December 31, 2000.
(d) Top Sports S.A.
(1) Initial Purchase Agreements.
By a Contract of Partnership dated November 20, 1999, the
company acquired a 50% interest in Top Sports S.A., a Dominican
Republic corporation. The company has also entered into a
Business Cooperation Agreement with Top Sports S.A., dated
December 9, 1999, to carry forward the terms of the partnership
between the two companies under local Dominican Republic law.
Top Sports operates various sports book betting establishments
in the Dominican Republic, where casino and related types of
gaming are legal.
Under these agreements, the company is to be the beneficiary of
50% of all the assets, benefits and gains, and shall share in
50% of all the liabilities, losses or obligations. The company
paid the following:
U.S. $35,000; and
1,000,000 of restricted common stock of the company.
The company also agreed to issue warrants to purchase 2,000,000
shares of common stock of the company, exercisable during the 12
months following the execution hereof for the fixed price of
$0.30 per share (subsequently adjusted to $0.40 per share).
These warrants were issued in 1999; Mr. Egan exercised 500,000
of these warrants in 2000 (the remained expired prior to the end
of 2000).
(2) Subsequent Purchase Agreement.
On January 1, 2000, the company entered into a Shares Sale
Contract to acquire the remaining approximately 50% interest of
Top Sports from Paul Egan. Under the terms of the agreement, the
company is to pay Mr. Egan:
1,000,000 unrestricted free-trading shares of the company;
1,000,000 restricted shares of the company; and
1,000,000 warrants at a fixed price of $1.00 per share.
By subsequent oral agreement of the parties, the above
agreements were amended as follows:
The compensation under the agreements for the purchase of the
initial 50% of Top Sports was increased by 1,000,000 free
trading shares of the company's common stock;
The compensation under the agreement for the purchase of the
remaining 99.94% of Top Sports was increased by 1,000,000
restricted shares of the company's common stock; and
The 200,000 shares paid under the Funding Agreement, as set
forth below, was credited to the 1,000,000 free trading shares
now due under the first agreements.
In addition, during fiscal year 2000 the company cancelled
1,000,000 shares of its common stock related to the fiscal year
1999 acquisition of Top Sports. The cancellation was a result
of the renegotiated terms of the acquisition agreement which
called for the cancellation of the original shares issued in
1999 and for the issuance of additional shares as discussed above.
Effective on April 1, 2000; the company acquired 4,994
shares of the remaining 5,000 capital shares outstanding. Of
the 10,000 shares outstanding, the company owns 9,994 shares
(Dominican Republic Law, where Top Sports, S.A. is incorporated,
requires that there be seven stockholders in a company).
(3) Consultancy Agreement.
Under a consultancy agreement, dated January 1, 2000, the
company agreed to retain Mr. Egan as a consultant for Top Sports
to run the day to day operations of this firm and perform other
tasks. Under this agreement, Mr. Egan was to be paid the
following (none of which was issued):
1,800,000 free trading S-8 shares of the company;
2,000,000 restricted class 144 shares of the company;
A warrant for the purchase of 1,500,000 shares of the company,
exercisable at $0.40 per share; and
A warrant for the purchase of 1,000,000 shares of the company,
exercisable at $1.00 per share.
(4) Funding Agreement.
In order to help fund the operation of Top Sports, S.A., this
firm and the company entered into an agreement dated December
16, 1999, whereby the company is to provide that firm with
100,000 free trading shares of the company per month beginning
January 2000 and ending December 2000 (to date the company has
issued a total of 200,000 shares in this regard). It was the
intent that Top Sports would sell these shares in the
marketplace and will use the resulting proceeds to fund the
continued expansion plans of this companuy.
(5) July 20, 2000 Agreement.
Under an Agreement dated July 20, 2000 (with an effective date
of April 1, 2000), the company and Top Sports agreed that all
prior compensation paid under the acquisition agreements shall
remain with Mr. Egan, but that no further compensation is to be
paid under any agreements. Therefore, no compensation was dur
under the January 1, 2000 Consultancy Agreement or the Funding
Agreement.
The parties also agreed, among other things, to the following:
The company is to establish "eConnect Caribbean, S.A." as a
Dominican Republic subsidiary.
Mr. Egan is to be employed as the President of eConnect
Caribbean, S.A. for a term of three years.
Mr. Egan is to receive 25% of the common stock of eConnect
Caribbean, S.A.
Mr. Egan agrees to resign from the Board of Directors, or other
similar governing body, of Top Sports.
In January 2001, the company issued a total of 3,000,000
restricted shares of common stock to satisfy the total
obligation of restricted shares under the acquisition
agreements. Therefore, as of the present Mr. Egan is owed the
following with respect to these agreements: (a) 1,800,000 free
trading shares; and (b) the issuance of a warrant for the
purchase of 1,000,000 shares of common stock at $1.00 per share.
(f) PowerClick, Inc.
On February 9, 2000, the company acquired 50% of the outstanding
capital stock of PowerClick, Inc., a Nevada corporation, in
consideration of $1,200,000 cash and 8,000,000 shares of the
company's common stock valued at $1,300,000 for an aggregate 50%
investment of $2,500,000, which is principally comprised of
goodwill. PowerClick, Inc. owns and operates a website that
provides a wide range of products and services to the public,
and is intended to be used as a vehicle to promote the use of
the "Bank Eyes Only" system.
On October 21, 2000, the company and PowerClick agreed to a
settlement of the actions between the parties and a mutual
release (which is in the process of being implemented), as
follows: The company purchased an additional 30% of PowerClick
(giving a total ownership to the company of 80%) in exchange for:
conversion of the 6,000,000 restricted shares of company's
common stock currently held by PowerClick into freely trading
shares of the company;
the issuance to PowerClick of warrants for the purchase of
4,000,000 shares of freely trading common stock of the company
(exercisable at $1.00 per share until October 21, 2003;
capping the cash portion of the original acquisition as
$750,000; and
decreasing the value of the transaction to $2,050,000.
As of December 31, 2000, the remaining 30% of PowerClick shares
due to the company had not yet been transferred to the company.
As of that date, all of the goodwill associated the company's
interest in PowerClick has been written off.
(g) National Data Funding Corporation.
On May 22, 2000, the company entered into a non-binding letter
of intent with National Data Funding Corporation to acquire 100%
of this company's common stock and later spin it off in a
publicly trading company and retaining a 25% ownership.
National Data Funding Corporation is a company that will provide
eCashPad distribution, encryption, and maintenance. National
Data Funding Corporation will also provide full merchant
processing for all credit and debit cards in support of eFunds-
United States.
In connection with the letter of intent, the company has
deposited (non-refundable) $250,000. The letter of intent
requires the company to pay the stockholders of National Data
Funding Corporation $10,000,000 and 10,000,000 restricted shares
of the company's common stock in exchange for 100% ownership,
and contribute to National Data Funding Corporation $1,000,000
and 1,000,000 shares of the company's common stock for working
capital. The Letter of Intent, dated June 2, 2000, originally
expired on September 1, 2000 but was extended by oral agreement
of the parties to a closing date of October 31, 2000.
On October 29, 2000, the company entered into an Agreement for
Sale and Plan of Reorganization ("NDFC Agreement") requiring the
company to pay the stockholders of NDFC $10,000,000, 10,000,000
shares of the company's common stock in exchange for 50%
ownership, and contribute to NDFC $1,000,000 and 1,000,000
shares of the company's common stock for working capital.
Pursuant to the NDFC Agreement, the company is required to make
a bona fide and good faith effort to spin off NDFC as a publicly
traded company in which the company will retain approximately a
28% ownership. The company was required to complete the terms
of the NDFC Agreement on October 31, 2000 ("Closing Date"). The
company did not complete the NDFC Agreement on the Closing Date.
Certain provisions within the NDFC Agreement provided for an
extension through January 2, 2001, however the company did not
complete the terms of the NDFC Agreement within the extension
date. The company plans to continue its negotiation for the
acquisition of NDFC.
Other Material Contracts.
(a) First Entertainment Holding Corp.
On April 29, 1999, the company entered into a Joint Venture
Agreement with First Entertainment Holding Corp. for the purpose
of using the allowing customers to use their ATM cards to make
purchases from a number of websites owned by that firm at
www.firstentertainment.com. These companies originally intended
to move forward with this project once the eCashPad is available
for distribution; however, it now appears that this company is
no longer in operation.
(b) International Investor Relations Group.
The company entered into a Consulting Agreement with
International Investor Relations Group, Inc. ("IRG"), dated
September 24, 1999. Under the terms of this agreement, this
firm provided certain services for the company, as follows: (a)
10 road shows; (b) 1 Media Placement in Stock/Card deck reaching
250,000 + investors; (c) 2 News releases, includes broadcast fax
to all interested parties; (d) one research report 6-8 page full
color; and (e) a broker card - 2 sided, full color.
Under this agreement, the company paid the following amounts for
the services of IRG:
$85,000.00
167,000 free trading shares based on a .21 cent per share price
300,000 purchase warrants, as follows: 100,000 $0.50 per share,
100,000 at $0.75 per share, and 100,000 at $1.00 per share.
These have a 2-year expiration date from the original date of
signing the agreement.
(c) Kanakaris Communications.
On October 21, 1999, the company entered into an agreement with
Kanakaris Communications for the purpose of developing Internet
Cash Programming ("ICP"), a service to be offered by Kanakaris
and the company which will enable the consumer to purchase
internet video streaming programming by Same-as-Cash (ATM card
and PIN), or by Enhanced Credit Card (the payment by credit card
that is read by the ePIN or like devices). Under this
agreement, Kanakaris Communications will provide the delivery to
the internet consumer of video streaming programming from either
Kanakaris Communications own inventory base or shall act as a
distributor of video streaming programming from other
entertainment providers.
Under the terms of this agreement, ICP will be established as a
separate Nevada corporation and will authorize 1,000,000 shares
of stock; Kanakaris Communications will receive 400,000 shares
of stock and eConnect shall receive 400,000 shares of stock, and
200,000 shares of stock shall remain in the ICP treasury.
Kanakaris Communications will retain the managing control of ICP
and shall appoint officers to manage ICP. All profits of ICP
shall be equally split between eConnect and Kanakaris Communications.
The company will receive exclusive global rights to drive or
process all originating ICP transactions whether transacted by
an ePIN or by a competitive hardware devices that are effecting
either a Same-as-Cash or Enhanced Credit Card programming
purchase. In addition, the company will charge ICP a flat fee
per ICP processed transaction. Further development of this
project is awaiting the delivery of the eCashPad, as previously
discussed. The company paid a total of 3,000,000 shares of free
trading common stock for the research and development to be done
under this agreement. To date, the ICP has not been implemented.
(d) REAL Solutions.
The company has entered into a letter of intent with Real
Solutions, Ltd. on March 9, 2000 to provide the IBM hardware
support in connection with the eFunds agreements. On April 13,
2000, the company entered into a formal Master Services
Agreement with Real Solutions in connection with this matter.
Under this agreement, the company will pay Real Solutions based
on a Statement of Work to be developed between the parties.
(e) Peters Entertainment.com, Inc.
On April 14, 2000, the company entered into an agreement with
Peters Entertainment.com, Inc., an independent motion picture
production affiliate of Time Warner Inc. Under this agreement,
there will be a 50/50 revenue-sharing arrangement to develop an
on-line media portal that would combine a consumer entertainment
environment with e-services designed to meet the needs of
production studios. The company will be acting as a consultant
to Peters Entertainment under this agreement. To date, there
has been no revenue generated under this agreement.
(f) Broadband Video, Inc.
On October 4, 2000, the company entered into an agreement with
Broadband Video, Inc. for that firm to sell all of its assets to
the company. These assets consist of all right, title and
interest of Broadband Video in and to Zoom-TV software
technology. The consideration for this purchase is 10,000,000
restricted shares of common stock of the company and a warrant
to purchase 3,000,000 shares of company common stock for $1.00
per share, from the date of the agreement until 5:00 p.m.
December 31, 2001. The parties are currently conducting a due
diligence review, and the completion of which and the
transaction is anticipated to close in the second quarter of
2001. If the consideration has been paid, then Broadband Video
will deliver the source code for the Zoom-TV technology to the company.
Zoom Technology will offer the company the ability to deliver
downloaded film content on a web cast basis to thousands of
viewers watching the same pre-theatrical viewing window at the
same time across the country. Additionally, this technology
will expand the picture to full size on the monitor screen. The
eCashPad can send ATM card with PIN cash payments directly to
the film producer with no middleman. This will be a fee per
transaction of the eCashPad and may open up the film industry to
a whole new economic window that will precede the theatrical release.
Contracts Made in the Ordinary Course of Business.
(a) Sunset Marketing Group.
On November 15, 2000, the company entered into an agreement
under which Sunset Marketing Group will market the company's
eCashPad to the insurance, mortgage and other financial
industries. Sunset has agreed to provide to the company ten
"Bank Eyes Only" web merchants each month, following the first
three months of the contract. Sunset Mortgage LP, parent
company of Sunset Marketing, becomes the company's first
mortgage-industry merchant. Sunset Marketing also expects to
announce one insurance and one financial-industry "Bank Eyes
Only" merchant within the second quarter of 2001.
(b) SBN.com, Inc.
On December 7, 2000, the company entered into two agreements
with SBN.COM, a market affliate-independent contractor agreement
and a charter industry company agreement. SBN's online yellow
pages, one of the world's largest, contains 1.5 million pages
and more than 75 million business listings worldwide. Within
the US, this includes the listings of every phone book in every
area code in all 50 states, every business-to-business listing,
and the entire database for toll-free numbers, as well as every
Yellow Pages protocol worldwide. Published in both English and
Spanish, the online yellow pages are accessible from the
websites of several hundred internet service providers and other
Internet hosts accounting for in excess of 3 million
subscribers, and at more than 850 affiliate e-commerce sites.
These agreement will allow for the marketing of the company's
"Bank Eyes Only" as a secure online payment system to existing
and future clients. These agreements also call for SBN.COM's
online yellow pages to be directly accessible from the company's
website, via the Walking Fingers MouseT icon. Under the
agreements, the company and SBN.COM will share revenues from
banner advertising by listees at www.eConnectholdings.com, as
well as online yellow pages advertising sold directly by the
company. The company will also share revenues resulting from
new listees who sign up via the company's website. Online
yellow pages listees who wish to accept these "Bank Eyes Only"
payments will require proprietary software; once equipped,
however, these merchants will still be able to make non-"Bank
Eyes Only" transactions with customers who do not yet own an
eCashPad.
(c) TransCast International, Inc.
On January 8, 2001, the company entered into a definitive
agreement for a strategic partnership TransCast International,
Inc., a San Jose, California TV-based provider of co-branded
portals and Internet access services. TransCast is presently
working to integrate its t-commerce portal into analog
televisions for a truly interactive television experience,
including web surfing, t-commerce, chat, and e-mail. TransCast
and the company will work together to integrate the company's
eCashPad capabilities with the TransCast TV portal service.
Under the terms of its strategic partnership with the company,
TransCast will (i) display the company payment symbol and offer
eCashPad transactions on the first page of the TransCast t-
commerce portal at
(http://content.transcast.net:8090/XCST/sportal/index.html );
(ii) work with the company to enable the eCashPad to work in
conjunction with both TransCast's set-top boxes and inside-TV
interactive television configurations, and (iii) introduce the
company's eCashPad technology for evaluation as a potential
bundled or integrated peripheral with the TransCast service.
PLAN OF OPERATION
Twelve Month Plan of Operation.
The company has completed all development but has not fully
implemented the eCashPad consumer and bank network support
services. In anticipation of this implementation, the company
is currently offering the eCashPad for sale at $59.95. The
company initially ordered 1,200 eCashPads to be produced and
which have been delivered to the company to effect "Bank Eyes
Only" transactions.
"Bank Eyes Only" refers to a direct Internet connection between
the consumer's terminal and the companys bank card authorization
system by which the consumer will order an item from an Internet
merchant, but the credit card data or ATM data will go directly
to the company's server and then to the bank, bypassing the
merchant. Thus, this service will enable customers to pay for
Internet purchases, bill payments and other types of
transactions from home by physically swiping either credit cards
or ATM cards with PIN entry. These "Bank Eyes Only" transactions
can be processed over the Internet without the cardholder
account information being stored at the merchant's web site, nor
does the merchant have ready access to the consumer's bank card
information. The company believes that "Bank Eyes Only"
transaction processing system will effectively address Internet
consumers' concerns regarding personal and financial information
security.
The company is now developing an interface between the eCashPad
and the host processor that will enable a quick and easy install
by web merchants of the "Bank Eyes Only" solution. This install
connects the home consumers eCashPad with the web merchant and
enables the eCashPad to effect either credit card or ATM card
with PIN or chip card payments.
The company plans to publish the "Bank Eyes Only" web merchant
install download documentation during the next quarter and is
confident that based on present web merchant responses to adding
on the alternative payment solution of "Bank Eyes Only", that
substantial numbers of web merchants will be accessible to
payment by an eCashPad.
The company plans to distribute a substantial number of
promotional eCashPads during the second, third and fourth
quarters. The company has reasonable expectations that the
average eCashPad will transact 2 monthly transactions per 1,000
"Bank Eyes Only" web merchant base. Presently, the eCashPad
effects credit card transactions only. By mid 2001, the company
is confident that ATM card with PIN regional pilots with the
eCashPad will begin which will enable the company to offer
instant electronic cash payments by on debit POS to the web merchants.
The company also has reason to believe that a substantial number
of additional web merchants will become accessible to the
service of ATM card with PIN immediate payments. Industries
such as Mortgage, Insurance, Telecommunications, Collections,
Charity, Entertainment, Finance and others will begin to place
upward pressure on their client base to pay by ATM card with PIN
entry cash transactions. This will add more "Bank Eyes Only"
accessible web merchants and will increase the monthly usage of
the eCashPad.
Registration of "Bank Eyes Only" web merchants will be pursued
by a team specialists to be hired who understand their specific
industry such as phone or cable or collections and who will
fully develop the pertinent "Bank Eyes Only" applications for
that industry and who will develop strategic alliances within
their specific industry. In addition, the company has structured
a networking approach for mass market consumer participation in
finding "Bank Eyes Only" merchants along with sales teams to
sign on local web merchants.
Using a revenue sharing plan from the flat fee, the company will
incentivize private labels of eCashPads with expected
advertising and marketing of these private label eCashPads by
the vendors to their consumer base. The company is projecting
an average transaction revenue of 50 cents per usage which is
charged to the web merchant.
The company has entered into an agreement with National Data
Funding Corporation in April 2000 to provide eCashPad
distribution, encryption, and maintenance, and to collect
merchant fees generated by eCashPad usage. National Data
Funding Corporation will have the responsibility for collecting
these fees by debiting the merchant's checking account.
The company is presently selling the eCashPad for $59.95 and
expects to substantially lower the price by the third quarter.
The company estimates a web merchant base of 10,000 merchants to
be developed over the next three quarters with a minimum
universe of 50,000 eCashPads generating 20 monthly transactions
per month.
The company also plans to activate the EzyShop service in the
third quarter in which the eCashPad will be placed in public
walk in locations such as national chains of high traffic coffee
shops. Working with a strategic partner who will provide the
monitor and PC to enable Internet access, the company is
confident that consumers will use the eCashPad to shop at "Bank
Eyes Only" web merchant sites.
It is the plan of the company to establish a full service host
center by the third quarter that certifies and processes other
types of competitive hardware. The company will generate fees
from these hardware vendors to process incoming transactions,
and the company will generate fees from web merchants when the
eCashPad is used by a consumer to effect a "Bank Eyes Only"
transaction.
Additionally, the company will generate additional revenues with
the full service host processing local ATM machines, behind the
counter terminals and other conventional services that are not
eCashPad originated.
Outside of the United States, the company intends to develop
full service host centers and business model that emulates the
United States business model. The company has established the
first full service capable host center, eConnect Caribbean, in
the Dominican Republic.
eConnect Caribbean has contracted with Banco Nacional de Credito
to launch the usage of the eCashPad in the Dominican Republic.
eCashPad orders from Banco Nacional de Credito are projected at
30,000 units over the next quarter.
It is the intention of the company to establish the following
full service company host centers, eConnect Ireland, eConnect
China, eConnect Australia, eConnect Mexico and eConnect Brazil.
Using the Internet as the medium, these full service centers
will enable consumers using an eCashPad to effect country to
country "Bank Eyes Only" transactions. The company envisions
the usage of the eCashPad to effect Internet cash wagers by
either ATM card with PIN or by chip card payments.
Global Internet Cash Games will be a service of the company
which will provide support services for Internet companies
offering games of skill and games of chance whereby players are
using their eCashPad with ATM card and PIN entry to effect on
line cash transactions. One projected gaming service will be
the the "International", which will be a four country real time
"Bank Eyes Only" with ATM card and PIN entry game between the
countries of the Dominican Republic, Ireland, Australia, and
China, whereby consumers within those countries will be able to
use the eCashPad to effect same day gaming with ATM card and PIN
entry.
In February 2000, the company consummated an acquisition
agreement with PowerClick, Inc., a Nevada corporation, whereby
the company acquired 50% of the outstanding capital stock of
this company. PowerClick, Inc. owns and operates a website that
provides a wide range of products and services to the public,
and is intended to be used as a vehicle to promote the use of
the "Bank Eyes Only" system.
The company expects 80% control of Powerclick by the end of May
2001. Powerclick, a business unit of eConnect, expects to
generate revenues from the business model of
Lotto.Powerclick.com and has over 150,000 registered members
that eConnect can contact for both eCashPad sales and web
merchant installs.
Revenues are generated from advertising and sponsorship.
Additional revenues will be generated from incoming new games
whereby the consumer plays for gifts and prizes and pays to
enter select gaming areas. These 2001 revenues are expected to
be reported in the next 10-QSB filing of the company.
Artaste.com, a second business unit of the company, has taken
the first quarter to develop the site and in the second quarter
will begin to offer special one day auctions with respected
artists selling their works. In the Gallery, juried exhibitions
of nationally recognized artists who bring their own following
will begin. Special exhibits from collectors will also be
presented. This is expected to begin in the second quarter of 2001.
To this date, artaste.com has served as a vehicle to offer the
eCashPad for sale and to generate a growing list of registered
members that can be contacted for both eCashPad sales and the
install of "Bank Eyes Only" at their web site.
It is the plan of the company to use 10% discounts for purchases
from artaste.com as an incentive for consumers to buy an
eCashPad. The company is confident that revenues will be
steadily generated by artaste.com in second quarter.
Forward Looking Statements.
This prospectus contains "forward looking statements"
within the meaning of Rule 175 under the Securities Act of 1933,
as amended, and Rule 3b-6 under the Securities Act of 1934, as
amended, including statements regarding, among other items, the
company's business strategies, continued growth in the company's
markets, projections, and anticipated trends in the company's
business and the industry in which it operates. The words
"believe," "expect," "anticipate," "intends," "forecast,"
"project," and similar expressions identify forward-looking
statements. These forward-looking statements are based largely
on the company's expectations and are subject to a number of
risks and uncertainties, certain of which are beyond the
company's control. The company cautions that these statements
are further qualified by important factors that could cause
actual results to differ materially from those in the forward
looking statements, including, among others, the following:
reduced or lack of increase in demand for the company's
products, competitive pricing pressures, changes in the market
price of ingredients used in the company's products and the
level of expenses incurred in the company's operations. In
light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained herein
will in fact transpire or prove to be accurate. The company
disclaims any intent or obligation to update "forward looking
statements."
DESCRIPTION OF PROPERTY
The company owns approximately $400,000 of miscellaneous
office furniture and equipment, including computers. In San
Pedro, the company leases a total of 8,777 square feet of office
space, with leases expiring on various dates between September
30, 2001 and April 30, 2003. In the Dominican Republic, the
company leases 9,000 square feet of office space on a lease
expiring in August 2005. The lease agreements call for an
annual base rent of approximately $146,000 with a variable
escalation rate. As of December 31, 2000, total rent expense
for the leased facility approximated $95,000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two fiscal years, certain transactions which
occurred between the company and its officers, directors and
five percent or greater shareholders are set forth below. With
respect to each such transaction, the company believes that the
terms of each transaction were approximately as favorable to the
company as could have been obtained from an unrelated third party:
(a) On February 18, 1997, Leggoons, Inc. entered into an
agreement to license assets from Home Point of Sales, Inc. (now
known as Electronic Transactions & Technologies). ET&T ("ET&T)
is a privately held corporation 70% owned by Mr. Hughes,
President of the company, which is focused on the emergence of
the personal encrypted remote financial electronic card
transactions industry (although this agreement was entered into
prior to Mr. Hughes becoming affiliated with the company, it is
included here since certain of the conditions under that
agreement have not been completely fulfilled, as discussed
below). This technology will provide consumers with the option
to instantly pay bills or impulse purchase from home with real
time cash transactions with the usage of simple equipment such
as the eCashPad.
The assets included under this license agreement are the
following:
The name "Betting, Inc.", as trademarked by ET&T
The Wagering Gate (receive incoming data transfer commands from
the host center and other competitive host centers who have
received ATM and SMART card wagering payment from off site home
or office locations and then who command the Wagering GATE to
alert the recipient gaming companies that they have been paid
and to respond back with an acknowledgement of such payment;
and, the general promotion and education of home ATM and SMART
card wagering over the Internet through the ET&T secure computer
keyboard or over the telephone through the ET&T stand alone
Infinity unit)
The specific application of wagering with an ATM card or SMART
card with the secure computer keyboard (any other uses of the
Secure Computer Keyboard, such as Bill Pay or Impulse Purchase
that are not wagering transactions, are not included)
The ET&T developed merchant response software for the specific
application only of transacting off site ATM and Smart card
wagering through the Wagering Gate
ET&T's interest in the use of and revenue from the personal
encrypted remote financial electronic card transaction relating
to the wagering business.
Under terms of this license agreement, the company is to issue
2,900,000 shares of restricted common stock to as the total
consideration in exchange for licensing home ATM card and SMART
card wagering technology developed by ET&T. Of this amount,
2,755,000 shares were placed in escrow subject to cancellation
on February 10, 1998, in the event the bid price of the common
stock of the company is not at least $3.00 per share for any
twenty consecutive day period as reported on the NASD's
Electronic Bulletin Board or NASDAQ's Small Cap Market from the
date of the agreement through February 10, 1998.
As of the date of this prospectus, the terms of the license
agreement have not been met by the company. However, under an
amendment dated September 1, 1999 the cancellation date of the
shares, as set forth above, has been extended to September 1,
2001, subject to certain conditions specified in the amendment.
The license agreement also provides that in the event that the
bid price for the common stock of the company is more than $3.00
per share for any twenty consecutive day period, then ET&T shall
have the option to purchase up to 13,822,000 additional shares
of the company common stock at an exercise price of $.30 per
share. To date, the conditions of this provision have not been
met.
Under the terms of this license agreement, it was the
intention of the parties hereto that if and when any additional
shares of the common stock of Leggoons (now the company) are
issued to the public or any employees, ownership interest in the
company shall be and remain no less than 60% and that ownership
interest of the current shareholders of Leggoons (James Clinton)
shall, at that time, be no less than 10%. ET&T has never sought
to enforce this provision in this license agreement. However,
between June 9, 1999 and February 2, 2000, the company has
issued a total of 2,950,000 shares to James Clinton or his
nominees based on the stated reason that compliance with said
10% provision in such license agreement was required. Shares
issued under said provision of this license agreement were not
issued for consideration and therefore may not have been
properly issued in compliance with Missouri Revised Statutes
351.160 (which governed the company prior to its redomicile to
the State of Nevada on June 1, 1999) and Nevada Revised Statutes
78.211.
(b) On April 28, 1997, the company entered into a host
processing agreement with ET&T for the purpose of having this
firm act as the bank host processing for all company
transactions that are sent by terminals that read credit cards
or ATM cards. ET&T is to charge the company a fee of $0.25 per
transaction or 2.5% of the wager being sent by the company to
gaming operators. These transactions are to originate from
globally placed company equipment and/or company licensed
operators.
(c) On March 27, 1998, the company entered into a license
agreement with ET&T for the purpose of licensing additional
technology for processing electronic banking transactions. This
agreement states that ET&T licenses the following products to
the company for the exclusive global usage of wagering by
PERFECT originated ATM cards, credit cards, and smart cards:
The PayMaster, defined as a stand alone terminal that attaches
to phone lines and which calls the ET&T host processing center
with bank data.
The SLICK, defined as a stand alone keyboard terminal that
attaches to phone lines and call the ET&T host processing center
with bank data that has bypassed the Internet.
The PocketPay, defined as a pocket sized terminal and telephone
that sends bank data by wireless transmission to the ET&T host
processing center.
The TV Pin Pad Remote, defined as a set top box and TV remote
that sends bank data by landline dial up transmission to the
ET&T host processing center.
Each ET&T product is exclusively licensed to the company on a
global basis for the application of PERFECT wagering at a
licensing fee of $2,000,000 each. The duration of the exclusive
license is 20 years. The licensing fee is to be paid by the
company at the rate of $30,000 per month; however, under the
terms of this license agreement, this fee is not due and payable
until the technology for a particular product covered by the
license has been perfected and is ready for public use. As of
the date of this prospectus, only the PayMaster has been
perfected. This liability was satisfied in full in June 1999
through the issuance of common stock (as reflected in the Form
10-QSB for the quarter ended June 30, 1999). None of the other
products covered by the license agreement had been perfected,
and, therefore, no licensing fee is required to be paid at this
time (when this does occur, a statement to that effect will be
placed in a future report filed by the company).
(d) The company, ET&T and Mr. Hughes entered into a
promissory note, dated December 1, 1999, to reflect the
principal sum of $2,836,411 owed by the latter two to the
company for various sums paid by the company to ET&T. As of
December 31, 2000, this amount had increased to a total of
$4,835,718 due to the following:
Interest on the principal amount of $193,886;
Additional stock issued to ET&T by the company in the amount of
3,000,000 shares ($843,900); and
A loan in the amount of $961,521 made by the company to ET&T.
The total amount due has been fully reserved as an allowance for
doubtful accounts and expensed as bad debt. This amount relates
to a combination of approximately 21% cash and 79% common stock
issuance to Thomas S. Hughes and ET&T during fiscal year 1999
and 2000.
(e) On August 22, 2000, the company granted to Richard Epstein
in repayment of previous sums loaned to the company in 2000
(totaling $1,336,366), as follows: (1) a warrant covering the
purchase of 3,000,000 shares of common stock, exercisable at
$0.25 from September 30, 2000 through September 30, 2003; (2) a
warrant covering the purchase of 2,400,000 shares of common
stock, exercisable at $0.40 per share from September 30, 2000
through September 30, 2003; and (3) a warrant covering the
purchase of 2,000,000 shares of common stock, exercisable at 50%
below the closing bid price on the date of exercise from August
22, 2000 through December 31, 2001. To date, none of these
warrants have been issued.
In addition to these warrants and in payment of said sum
and a further amount of $316,634 loaned to the company in the
first quarter of 2001, in March 2001 the company issued a
debenture in the principal amount of $1,653,000 (convertible at
any time from issuance until April 5, 2002 into shares of common
stock at $0.17 per share).
(f) In January of 2000, the company entered into a Consulting
Services Agreement with Mr. Epstein. Mr. Epstein has agreed to
assist the company in developing a market for the usage of the
eCash Pad for a period of three years in exchange for 15,000,000
shares of the company's common stock. The amount recorded as
consulting expense totaled $983,475 for the year ended December
31, 2000. In January 2001, the company issued Mr. Epstein
15,000,000 shares of common stock in satisfaction of this agreement.
(g) In February 2000, the company entered into another
Consulting Services Agreement with Mr. Epstein. Mr. Epstein
agreed to provide consulting services related to future mergers
and acquisitions in behalf of the company for a period of 2
years in exchange for 300,000 shares of the company's common
stock monthly. The company recorded consulting expenses of
$3,996,630 for the year ended December 31, 2000. During fiscal
year 2000, the company issued a total of 1,050,000 shares of its
common stock in advance of such services having been rendered.
Accordingly, the company has recorded a prepaid consulting
services of $1,271,655 related to such advance issuances.
(h) During 1999 and 2000, the company entered into several
other consulting agreements with Mr. Epstein or Alliance
Equities, Inc., a company controlled by him. Mr. Epstein and
Alliance Equities were paid a total of 8,914,000 shares of
common stock under these agreements during 2000.
(i) In September 1999, the company entered into a Regulation D
Common Stock Private Equity Line Subscription Agreement
("Subscription Agreement") with Alpha Venture Capital, Inc.
("Alpha"). The Subscription Agreement entitles the company to
draw funds up to $5,000,000 from issuance of its common stock
for an amount equal to 80% of the market value at the time of
each draw request, expiring September 2000, subject to certain
terms and conditions. The Subscription Agreement required the
company to deliver an aggregate of 1,000,000 five year warrants
to purchase its common stock at an exercise price equal to 80%
of the closing bid price on the execution of this agreement as a
commitment fee. Furthermore, the company is required to deliver
to Alpha up to a maximum of 500,000 warrants on a pro rata basis
in conjunction with the draw request, exercisable at the closing
bid price at the date of each draw request.
In October 2000, the company was granted a one year
extension on its Subscription Agreement with one automatic six
month extension and an overall increase in funds it may draw by
an additional $5,000,000. Pursuant to the October 2000
extension, the company is required to deliver an aggregate of
2,000,000 five year warrants to purchase its common stock at an
exercise price equal to 80% of the closing bid price on the
execution of this extension. Furthermore, the company is
required to deliver to Alpha up to a maximum of 1,571,428
warrants on a pro rata basis in conjunction with the draw
request, exercisable at the closing bid price at the date of
each draw request. The company is assessed a placement fee, as
provided within the Subscription Agreement, for funds drawn,
which is equal to 8% of each draw. As of December 31, 2000, the
company has drawn $7,773,000 of the available $10,000,000.
During fiscal year 2000, Alpha exercised approximately 3,050,000
warrants of the total 5,071,000 granted related to the
Subscription Agreement.
(j) In December 2000, the company entered into an
additional Regulation D Common Stock Private Equity Line
Subscription Agreement ("Subscription Agreement No. 2") with
Alpha. The Subscription Agreement No. 2 entitles the company to
draw funds up to $15,000,000 from issuance of its common stock
for an amount equal to 82% of the market value for the five
business days immediately following the draw request date,
expiring December 2001 with one automatic twelve month extension
if at least 20% of the subscription amount is drawn during the
first six months as of the agreement date, subject to certain
terms and conditions. The Subscription Agreement No. 2 requires
the company to file a registration statement on Form SB-2 with
the Securities and Exchange Commission for the registration of
common stock for future issuance related to the Subscription
Agreement No. 2. The Subscription Agreement No. 2 also requires
the company to deliver an aggregate of 2,000,000 five year
warrants to purchase its common stock at an exercise price equal
to the lesser of 40% of the closing bid price of the company's
common stock at the agreement date or 40% of the average five
day closing bid price as of the date of the effectiveness the
Registration Statement. Furthermore, the company is required to
deliver to Alpha up to a maximum of 1,000,000 warrants on a pro
rata basis in conjunction with the draw request, exercisable at
the closing bid price at the date of each draw request. The
company is assessed a placement fee, as provided within the
Subscription Agreement, for funds drawn, which is equal to 8% of
each draw. As of December 31, 2000, the company has not drawn
upon the Subscription Agreement No. 2. Furthermore, no warrants
were exercised of the total 3,000,000 warrants granted related
to the Subscription Agreement No. 2.
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Market Information.
The company's common stock is currently traded in the Over-the-
Counter Bulletin Board, under the symbol "ECNC". On March 13,
2000, the SEC ordered a ten trading day suspension in the
trading of the company's common stock on the Over the Counter
Bulletin Board. This trading suspension was taken in connection
with an investigation of the company by the SEC. The company's
common stock resumed trading on March 27, 2000; however, from
that date through October 31, 2000, the company's common stock
traded on the Pink Sheets LLC (symbol "ECNC") since the
company's common stock was delisted on that date from this
exchange due to the trading suspension.
In August, 2000, a market maker, on behalf of the company, filed
with the NASD Stock Market, Inc. an application for the
company's common stock to be relisted on the Over the Counter
Bulletin Board. Together with that application was a packet of
information required by Rule 15c2-11 promulgated under the
Securities and Exchange Act of 1934. That rule specifies that
certain information and documents must be in the records of a
broker or dealer before such person may publish any quotation
for the company's common stock. The packet sent to the NASD
contains all such information and related documents.
Under NASD Rule 6530, an NASD member (i.e. the market maker) is
permitted to quote a domestic equity security that is not listed
on NASDAQ or a registered national securities exchange in the
United States, by an issuer that is required to file reports
(e.g. quarterly and annual reports on Forms 10Q-SB and 10K-SB,
and periodic reports on Form 8-K) pursuant to Section 13 or
15(d) of the Act, and if the issuer is current in those
reporting obligations (subject to a thirty calendar day grace
period). The company met these requirements, and, upon
completion of the application with the NASD, the company's
common stock was accepted for quotation on the Over the Counter
Bulletin Board; it commenced trading on that exchange on
November 1, 2000.
The range of closing prices shown below is as reported by these
markets. The quotations shown reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended December 31, 2000
High Low
Quarter Ended December 31, 2000 1.35 0.20
Quarter Ended September 30, 2000 0.69 0.30
Quarter Ended June 30, 2000 1.75 0.37
Quarter Ended March 31, 2000 * 16.50 0.49
* The common stock did not trade from March 13, 2000 through
March 24, 2000 due to the trading suspension ordered by the
Securities and Exchange Commission
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended December 31, 1999
High Low
Quarter Ended December 31, 1999 0.40 0.06
Quarter Ended September 30, 1999 0.41 0.15
Quarter Ended June 30, 1999 0.83 0.38
Quarter Ended March 31, 1999 0.81 0.37
Holders of Common Equity.
As of March 31, 2001, the company had approximately 1,000
shareholders of record of its common stock.
Dividend Information.
The company has not declared or paid a cash dividend to
stockholders since it was originally organized. The company
paid a 5% stock dividend on September 20, 1999 to shareholders
of record as of close of business on September 14, 1999. The
Board of Directors presently intends to retain any earnings to
finance company operations and does not expect to authorize cash
dividends in the foreseeable future. Any payment of cash
dividends in the future will depend upon the company's earnings,
capital requirements and other factors.
EXECUTIVE COMPENSATION
Summary Compensation Table
Annual compensation Long-term
compensation
Awards Payouts
Other Securi All
Annual ties other
Name and compen Restrict under compen
Principal Year Salary Bonus sation stock lying LTIP sation
Position award options payouts
SARs
($) ($) ($) ($) (#) ($) ($)
Thomas S. 2000 $255,968 0 0 4,800,000 600,000 0 0
Hughes, 1999 $79,215 0 0 0 0 0 0
Chief 1998 0 0 0 0 0 0 0
Executive
Off.
Jack M.Hall 2000 0 0 57,500 56,000 400,000 0 0
Secretary 1999 0 0 21,500 0 0 0
1998 0 0 0 0 0 0 0
Lawrence B. 2000 0 0 0 101,900 400,000 0 0
Donoghue
Director(1)
(1) Mr. Donoghue became a director of the company on May 23, 2000.
Individual Option/SAR Grants In Fiscal Year Ended December 31, 2000.
Name Number of Percent of Exercise or Expiration
Securities options/SARS base price date
Underlying granted to ($/Sh)
Options/SARs employees in
Granted (#) fiscal year (1)
Thomas S.
Hughes, Chief
Executive Off. 600,000 5.04% 25% 0f market December 8
Price on date 2010
Of exercise
Jack M. Hall, 400,000 3.36% 25% of market December 8
Secretary Price on date 2010
Of exercise
Lawrence B. 400,000 3.36% 25% of market December 8
Donoghue, Price on date 2010
Director Of exercise
(1) On November 7, 2000, the company's board of directors
approved an Amended and Restated Stock Incentive Plan (Amendment
No. 3); this will allow for stock options and restricted awards
to be made to employees and non-employees of the company. There
have been a total of 11,900,000 options granted in December 2000
under this plan, including for the officers and directors (as
set forth above).
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End
Option/SAR Values.
Number of Value of
Name Shares Value securities unexercised
Acquired realized underlying in-the-money
On exercise ($) unexercised options/SARs
(#) options/SARS at FY-end ($)
at FY-end (#) exercisable/
exercisable/ unexercisable
unexercisable (1)
(a) (b) (c) (d) (e)
Thomas S. - - 150,000 -
Hughes, Chief exercisable
Executive Off. 450,000
unexercisable
Jack. M. Hall, - - 100,000 -
Secretary - - exercisable
300,000
unexercisable
Lawrence B. - - 100,000 -
Donoghue, exercisable
Director 300,000
unexercisable
(1) As of fiscal year end (December 31, 2000), none of the
unexercised options were in-the-money.
Other Compensation.
There are no annuity, pension or retirement benefits
proposed to be paid to directors and officers of the company in
the event of retirement at normal retirement date as there is no
existing plan provided for or contributed to by the company.
Other than under the Amended and Restated Stock Incentive Plan
(Amendment No. 3) as discussed above, there is no remuneration
proposed to be paid in the future directly or indirectly by the
company to any officer or director.
FINANCIAL STATEMENTS
L.L. BRADFORD & COMPANY, LLC
Certified Public Accountants & Consultants
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
eConnect
San Pedro, California
We have audited the accompanying consolidated balance sheet of
eConnect as of December 31, 2000, and the related consolidated
statements of operations, stockholders' deficit, and cash flows
for the years ended December 31, 2000 and 1999. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit. The financial statements of Top Sports, S.A. and
eConnect Caribbean, S.A. (subsidiaries of eConnect) as of
December 31, 2000 and the financial statements of Top Sports,
S.A. for the year ended December 31, 2000, and the financial
statements of eConnect Caribbean, S.A. for the period from July
1, 2000 (Date of Inception) through December 31, 2000, were
audited by other auditors whose reports dated March 16, 2001,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures
in the consolidated financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the December 31, 2000 and 1999 consolidated
financial statements referred to above present fairly, in all
material respects, the financial position of eConnect as of
December 31, 2000, and the results of its operations and cash
flows for the years then ended in conformity with accounting
principles generally accepted in the United States.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 18 to the consolidated financial
statements, the Company has suffered losses from operations,
current liabilities exceed current assets and has a net
stockholders' deficiency, all of which raise substantial doubt
about its ability to continue as a going concern. Management's
plans in regards to these matters are also described in Note 18.
The consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
/s/ L.L. Bradford & Company, LLC
L.L. Bradford & Company, LLC
Las Vegas, Nevada
March 30, 2001
2901 El Camino Avenue, Suite 105, Las Vegas, Nevada 89102 (702) 735-5030
Facsimile (702) 735-4854
ORTEGA & ASOCIADOS
Auditores y Consultores
INDEPENDENT AUDITORS' REPORT
To the Board of Administration of
ECONNECT CARIBBEAN, S.A.:
We have audited the accompanying balance sheet of Econnect
Caribbean, S.A. a development stage enterprise (a corporation in
the Dominican Republic partially owned by Econnect, Inc.) as of
December 31, 2000, and the related statements of loss,
shareholders' equity, and cash flows for period of six months
then ended. These financial statements are the responsibility
of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards 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 the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis of our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Econnect Carribean, S. A. as of December 31, 2000, and the
results of its operations, accumulated deficit, shareholders'
equity and cash flows for the period of six months ended, in
conformity with generally accepted accounting principles in the
United States.
The company is member of a Group of related companies that
perform significant transactions among them. Due to these
relations, it is possible that these transactions were not the
same of those that could not result from the transaction
performed among independent entities.
The accompanying financial statements have been prepared
assuming that the company will continue as a going concern. As
discussed in Note 7 and shown in the accompanying financial
statements, the company has suffered losses from operations
fundamentally originated in connection with its operations
development process, also current liabilities exceeds current
assets having a negative working capital of US$326,219, and has
a net stockholders' deficiency, all of which raise substantial
doubt about its ability to continue as a going concern.
Management's plans in regards to these matters are also
described in Note 12. The financial statements do not include
any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and
classification of liabilities that might result from this uncertainty.
/s/ Ortega & Asociados
Ortega & Asociados
March 16, 2001
Santo Domingo, Dominican Republic
Av. Jose Ortega y Gasset #46, Ensanche Naco, Apartado Postal
2289, Santo Domingo, Rep. Dom.
ORTEGA & ASOCIADOS
Auditores y Consultores
INDEPENDENT AUDITORS' REPORT
To the Board of Administration of
TOP SPORTS, S.A.:
We have audited the accompanying balance sheet of Top Sports,
S.A. a development stage enterprise (a corporation in the
Dominican Republic totally owned by Econnect, Inc.) as of
December 31, 2000, and the related statements of loss,
shareholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the
company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards 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 the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis of our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Top Sports, S. A. as of December 31, 2000, and the results of
its operations, accumulated deficit, shareholders' equity and
cash flows for the year then ended, in conformity with generally
accepted accounting principles in the United States.
The company is member of a Group of related companies that
perform significant transactions among them. Due to these
relations, it is possible that these transactions were not the
same of those that could not result from the transaction
performed among independent entities.
The accompanying financial statements have been prepared
assuming that the company will continue as a going concern. As
discussed in Note 9 and shown in the accompanying financial
statements, the company has suffered losses from operations
fundamentally originated in connection with its operations
development process, also current liabilities exceeds current
assets having a negative working capital of US$581,019, and has
a net stockholders' deficiency, all of which raise substantial
doubt about its ability to continue as a going concern.
Management's plans in regards to these matters are also
described in Note 14. The financial statements do not include
any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and
classification of liabilities that might result from this
uncertainty.
/s/ Ortega & Asociados
Ortega & Asociados
March 16, 2001
Santo Domingo, Dominican Republic
Av. Jose Ortega y Gasset #46, Ensanche Naco, Apartado Postal
2289, Santo Domingo, Rep. Dom.
eCONNECT
CONSOLIDATED BALANCE SHEET
December 31, 2000
ASSETS
Current assets
Cash $ 13,007
Accounts receivable 16,758
Total current assets 29,765
Fixed assets, net 443,735
Other assets
Investment in equity-method investee 48,040
Intangible assets, net 392,457
Purchased software, net 1,513,101
Deposit 38,820
Other assets 105,612
2,098,030
Total assets 2,571,530
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable 2,112,273
Accrued liabilities 3,033,373
Due to consultants 2,020,447
Due to related parties 7,043,409
Advance on equity funding line 206,600
Notes payable - current portion 2,672,906
Total current liabilities 17,089,008
Total liabilities 17,089,008
Commitments and contingencies -
Stockholders' deficit
Common stock; $.001 par value; 300,000,000
shares authorized, 214,074,197 shares
issued and outstanding 214,074
Additional paid-in capital 131,758,828
Due from related party - secured by
Company's common stock -
Common stock issued for prepaid consulting
Services (1,271,655)
Minority interest in consolidated subsidiaries (92,308)
Accumulated deficit (145,126,417)
Total stockholders' deficit (14,517,478)
Total liabilities and stockholders' deficit 2,571,530
See Accompanying Notes to Financial Statements
eCONNECT
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
2000 1999
Revenue
Sports books loss (655,584) -
E-Commerce sales - 41,785
Gross loss (655,584) 41,785
Operating expenses
Stock based compensation 83,441,832 10,886,992
Bad debt 4,952,537 8,000
Sports books 5,880 -
Consulting 4,033,344 7,664,088
Public relations 1,198,411 189,180
Professional fees 743,207 159,085
Research and development 4,620,491 3,490,411
Wages 1,963,574 5,026,165
Amortization and depreciation 1,967,338 207,019
General and administrative 4,227,165 2,324,581
Total operating expenses 107,153,779 19,068,529
Net loss from operations (107,809,363) (19,068,529)
Other income (expense)
Interest income 9,056 144,471
Interest expense (1,263,012) -
Loss investments (4,527,546) (4,391,120)
Legal settlement (1,451,959) -
Cancellation of common stock 984,375 -
Equity losses on investees (603,438) -
Total other income (expense) (7,852,524) (4,246,649)
Net loss before provision for
income taxes (114,661,887) (23,315,178)
Provision for income taxes - -
Net loss (114,661,887) (23,315,178)
Basic and diluted loss per common share (0.66) (0.63)
Basic and diluted weighted average
common shares outstanding 174,371,038 36,868,312
See Accompanying Notes to Financial Statements
eCONNECT
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
Common Stock Common Stock
Number Add'l Due Issued Stock Min Accum Total
Of Paid From for sub ority ulated Stock
Shares in Related pre scrip int Deficit holders
Amount capital Party paid tion in Deficit
Secured con pay consol
By sult able idated
Companys ing subsi
Common serv diaries
Stock ices
Bal
ance
Dec 31
1998
14,475,234 14,475 5,148,837 - - - - (6,243,740)(1,080,428)
Stock
Holder
loan
9,400,000 9,400 2,827,011 (2,980,882)- - - (144,471)
Stock
Sub
Scrip
tion
pay
able
- - - - - 81,546 - - 81,546
Common
Shares
issued
for
services
40,710,349 40,711 10,846,281 - - - - - 10,886,992
Common
Shares
issued
for
stock
sub
scrip
tion
receiv
able
716,966 717 219,459 - - - - - 220,176
Common
Shares
Issued
for
prin
cipal
pay
ments
on long-
term debt
1,589,387 1,589 298,411 - - - - - 300,000
Common
Shares
issued
for
cash
16,428,136 16,428 2,804,209 - - - - - 2,820,637
Common
Shares
issued
for
acquisi
tion of
Isla
Escondida, S.A.
18,710,000 18,710 3,533,091 - - - - - 3,551,801
Common
Shares
issued
for
acquisi
tion
of
www.
theArtAuction.com
2,165,000 2,165 961,804 - - - - - 963,969
Common
Shares
issued
for joint
venture
1,650,000 1,650 323,700 - - - - - 325,350
Common
Shares
issued to
acquire 50%
ownership
in Top
Sports, S.A.
1,000,000 1,000 72,100 - - - - - 73,100
Common
Shares
issued
for
stock
dividend
3,756,101 3,756 1,052,460 - - - - (1,056,216) -
Net
loss
- - - - - - - (23,273,393)(23,273,393)
Balance
December
31,
1999
110,601,173 110,601 28,087,363 (2,980,882) - 81,546 - (30,573,349) (5,274,721)
Capital
contribution
from minority
interest in
consolidated
subsidiary
- - - - - - 16,511 - 16,511
Stock
Holder
loan
- - -(1,854,835) - - - - (1,854,835)
Stock
Subscrip
tion
payable
495,000 495 81,051 - -(81,546) - - -
Common
Shares
issued
in
satis
faction
of
officer
bonus
payable
6,000,000 6,000 4,794,000 - - - - - 4,800,000
Stock
Holder
loan
reserve
as
allowance
for
doubtful
accounts
- - - 4,835,717 - - - - 4,835,717
Common
Shares
issued
for cash
$0.40
3,335,762 3,336 1,330,969 - - - - - 1,334,305
Common
Shares
issued
for cash
$0.16
3,000,000 3,000 497,000 - - - - - 500,000
Common
Shares
issued
for
services
65,158,348 65,158 40,789,546 - - - - - 40,854,704
Common
Shares
issued
for
employee
based
compensation
570,000 570 1,046,302 - - - - - 1,046,872
Common
Stock
issued
to satisfy
Company
Accounts
payable
666,667 667 549,333 - - - - - 550,000
Stock
based
compen
sation
related
to options
and
warrants
granted
- - 40,366,861 - - - - - 40,366,861
Stock
Based
lawsuit
settlement
related to
warrants
- - 1,451,959 - - - - - 1,451,959
Common
Shares
issued for
service
related
to
exercise
of
warrants
with a
strike
price of
$0.40
2,933,488 2,933 1,170,462 - - - - - 1,173,395
Prepaid
consulting
services
paid with
common shares
1,050,000 1,050 1,270,605 - (1,271,655) - - - -
Cancell
ation of
common shares
related
to the
fiscal year
1999
acquisi
tion of
Isla
Escondida, S.A.
(10,500,000) (10,500) (973,875) - - - - - (984,375)
Cancell
ation of
common
shares
related
to the
fiscal
year 1999
acquisi
tion of Top
Sports, S.A.
(1,000,000) (1,000) (72,100) - - - - - (73,100)
Common
Shares
Issued
for cash
related
to Alpha
Venture
Capital
net of
offering
costs of
$2,331,486
13,161,800 13,162 6,486,738 - - - - - 6,499,900
Common
Shares
Issued
for cash
related
To Alpha
Venture
Capital
Exercise
of
warrants
weighted
average
strike
price
of $0.20
3,050,000 3,050 610,350 - - - - - 613,400
Common
Shares
Issued
for cash
related to
exercise
of warrants
with a
strike price
of $0.40
7,351,959 7,352 2,933,432 - - - - - 2,940,784
Common
Shares
issued
for the
acquisi
tion
of
Powerclick
Inc.
8,000,000 8,000 1,292,000 - - - - - 1,300,000
Common
Shares
Issued
to acquire
additional
50%
ownership
in Top
Sports, S.A.
200,000 200 46,832 - - - - - 47,032
Net loss
- - - - - - (108,819) (114,553,068)(114,661,887)
Balance
December
31,
2000
214,074,197 214,074 131,758,828-(1,271,655) -(92,308) (145,126,417) (14,517,478)
See Accompanying Notes to Financial Statement
eCONNECT
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
2000 1999
Cash flows from operating activities:
Net loss $ (114,661,887) $(23,273,393)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization and depreciation 1,967,338 207,019
Stock based compensation 83,441,832 10,886,992
Loss on investments 4,527,546 4,391,120
Bad debt 4,952,537 -
Loan fee 253,501 -
Cancellation of common stock (984,375) -
Legal settlement 1,451,959 -
Changes in operating assets and liabilities:
Change in due from related party 133,180 (250,000)
Change in accounts receivable (16,758) -
Change in stock subscription payable 220,176 -
Change in deposits (38,820) -
Change in other assets (105,612) -
Change in due from related party -
secured by Company's common stock (1,854,835) (757,481)
Change in officer bonus payable - 4,800,000
Change in accounts payable 1,740,453 (62,251)
Change in accrued liabilities 2,942,694 45,111
Change in due to consultants 2,020,447 -
Change in due to related parties 3,106,403 613,010
Change in stockholder loan payable - 350,000
Net cash used by operating activities (10,904,221) (3,049,873)
Cash flows from investing activities:
Purchase of fixed assets (497,857) -
Purchase of purchased software (2,168,892) -
Cost of investments (1,000,000) (35,000)
Net cash used by investing activities (3,666,749) (35,000)
Cash flows from financing activities:
Proceeds from issuance of notes payable 2,606,305 500,000
Proceeds from advance on equity funding line 206,600 -
Principal payments on notes payable (260,000) (200,000)
Proceeds from issuance of common stock 11,888,389 2,820,637
Proceeds from minority interest in
consolidated subsidiary 16,511 -
Proceeds from issuance of stock
subscription payable - 81,546
Net cash provided by financing activities 14,457,805 3,202,183
Net increase (decrease) in cash (113,165) 117,310
Cash, beginning of period 126,172 8,862
Cash, end of period 13,007 126,172
Supplemental disclosure of cash flow:
Cash paid for interest 121,493 -
Cash paid for taxes - -
Schedule of non-cash investing and
financing activities:
1,050,000 common shares issued for prepaid
consulting services 1,271,655 -
1,000,000 common shares cancelled
during renegotiation of 99.94% of
Top Sports, S.A. recorded as portion of
due to related parties (73,100) -
Remaining consideration for 99.94%
acquisition of Top Sports, S.A.
recorded as portion of due
to related parties 2,973,996 -
6,000,000 common shares issued for
officer bonus payable 4,800,000 -
8,000,000 common shares issued related
to acquisition of Powerclick, Inc. 1,300,000 -
666,667 common shares issued for
accounts payable 550,000 -
203,865 common shares issued for
stock subscription payable 81,546 -
18,710,000 common shares issued for
the acquisition of Isla Escondida, S.A. - 3,551,801
2,165,000 common shares issued for the
acquisition of www.theArtAuction.com - 963,969
1,650,000 common shares issued for
joint venture - 325,350
1,000,000 common shares issued for the
acquisition of a 50% interest in Top Sports, S.A. - 73,100
9,400,000 common shares issued in
exchange for due from related party -
secured by Company's common stock - 2,836,411
716,966 common shares issued in
exchange for stock subscription receivable - 220,176
3,756,101 common shares issued for a 5%
stock dividend - 1,056,216
1,589,397 common shares issued for
principal payments on long-term debt - 300,000
Acquisition of investment in exchange
For due from related party - secured by
Company's common stock - 706,810
See Accompanying Notes to Financial Statements
eCONNECT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
Description of business - eConnect (the "Company") currently has
two divisions. The first division is focused on the development
of the Personal Encrypted Remote Financial Electronic Card
Transactions ("PERFECT") industry, which consists of the fully
operational terminal, the eCash Pad, effecting Internet ATM card
with PIN and credit card and smart card transactions, and
generating a fee per transaction for the Company. The second
division is the development of PERFECT gaming services for
online gaming companies by the usage of either same as cash ATM
card with PIN entry or smart card payments using the Internet as
the medium. The Company's present gaming operations consists of
walk in sports book locations in the Dominican Republic.
History - eConnect (formerly Betting, Inc.) was originally
incorporated in the State of Missouri on September 1, 1981 under
the name of Handy-Top, Inc. The Company underwent several name
changes until May 1993, when it changed its name to Leggoons,
Inc. and continued as a shell corporation with no business
operations.
In February 1997, the Company entered into an agreement to
license assets from Electronic Transaction Technology ("ET&T"),
formerly known as Home Point of Sales, Inc., for the purpose of
licensing certain technology for the development of PERFECT.
ET&T is a privately held corporation with a majority interest
owned by Thomas S. Hughes, President of the Company. This
technology developed by ET&T would provide consumers with the
option to instantly pay bills or make purchases from home with
real-time cash transactions. In March 1997, Thomas S. Hughes,
Chairman of ET&T, was elected the Chairman and President of the
Company and concurrently changed the Company's name to Betting,
Inc.
In May 1999, an Agreement and Plan of Merger was consummated
between the Company and Betting, Inc., a non-operating privately
held Nevada corporation ("Betting-Nevada") to effectuate re-
domicile of the Company to the State of Nevada, whereby no
shares were issued between companies. Under generally accepted
accounting principles, the merger with Betting-Nevada is
considered to be a reorganization in substance, rather than a
business combination since Betting-Nevada had no assets,
liabilities or operations, and the Company has since re-
domiciled in the State of Nevada through Betting-Nevada.
Accordingly, the accounting for the merger has been recorded at
historical cost in a manner similar to a pooling of interests
("as-if pooling of interest accounting"), and no goodwill was
recorded.
In June 1999, a Certificate of Amendment to the Articles of
Incorporation changed the name of the Company to eConnect. In
November 2000, a Certificate of Amendment to the Articles of
Incorporation was filed with the Nevada Secretary of State
further increasing the number of authorized common stocks to
300,000,000.
Business combinations and investments - The business
combinations have been accounted for under the purchase method
of accounting, therefore the Company includes the results of
operations of the acquired business from the date of
acquisition. Net assets of the company acquired are recorded at
fair value as of the date of acquisition. The excess of the
acquired business' purchase price over the fair value of its
tangible and identifiable intangible assets is then included in
goodwill in the accompanying consolidated balance sheet.
Investments in affiliated entities in which the Company has the
ability to exercise significant influence, but not control, and
generally is an ownership interest of the investee's voting
stock between 20% and 50%, are accounted for under the equity
method of accounting. Accordingly, under the equity method of
accounting, the Company's share of the investee's earnings or
losses are included in the consolidated statements of
operations. The Company records its investments accounted for
under the equity-method as "Investment in equity-method
investee" on the consolidated balance sheet and its share of the
investee's earnings or losses in "Earnings or loss on equity-
method investees" on the consolidated statement of operations.
The portion of the Company's investment in an investee that
exceeds its claim of the net assets of the investee, if any, is
treated as goodwill and amortized over a period of three years.
Principles of consolidation - The consolidated financial
statements include the accounts of the Company and its
subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Definition of fiscal year - The Company's fiscal year end is
December 31.
Reclassification - Certain prior year balances have been
reclassified to conform to the current year presentation.
Use of estimates - The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Goodwill and intangible assets - Goodwill represents the excess
of an acquired business' purchase price over the fair value of
its assets, resulting from business acquisitions accounted for
under the purchase method. Goodwill is presented net of related
accumulated amortization and is being amortized over the
estimated useful life.
Goodwill and intangible assets (continued)
The Company periodically evaluates whether events and
circumstances have occurred that may warrant revision of the
estimated useful life of goodwill and intangible assets or
whether the remaining balance of goodwill and intangible assets
should be evaluated for possible impairment. The Company uses
an estimate of the related undiscounted cash flows over the
remaining life of the goodwill and intangible assets in
measuring their recoverability.
Fair value of financial instruments - The carrying amounts for
the Company's cash, accounts receivable, due to/from related
party, accounts payable, accrued interest, accrued liabilities,
due to consultants, advance on equity funding line and notes
payable approximate fair value due to the short-term maturity of
these instruments.
Earnings (loss) per share - Basic earnings (loss) per share
excludes any dilutive effects of options, warrants and
convertible securities. Basic earnings (loss) per share is
computed using the weighted-average number of outstanding common
stocks during the applicable period. Diluted earnings per share
is computed using the weighted average number of common and
common stock equivalent shares outstanding during the period.
Common stock equivalent shares are excluded from the computation
if their effect is antidilutive.
Income taxes - The Company accounts for its income taxes in
accordance with Statement of Financial Accounting Standards No.
109, which requires recognition of deferred tax assets and
liabilities for future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
As of December 31, 2000, the Company has available net operating
loss carryovers of approximately $34 million that will expire in
various periods through 2020. Such losses may not be fully
deductible due to the significant amounts of non-cash service
costs and the change in ownership rules under Section 382 of the
Internal Revenue Code. The Company has established a valuation
allowance for the full tax benefit of the operating loss
carryovers due to the uncertainty regarding realization.
Comprehensive income (loss) - The Company has no components of
other comprehensive income. Accordingly, net loss equals
comprehensive loss for all periods.
Segment information - The Company discloses segment information
in accordance with Statements of Financial Accounting Standards
("SFAS") No. 131, "Disclosures about Segments of an Enterprise
and Related Information," which uses the Management approach to
determine reportable segments.
Advertising costs - The Company recognizes advertising expenses
in accordance with Statement of Position 93-7 "Reporting on
Advertising Costs." Accordingly, the Company expenses the costs
of producing advertisements at the time production occurs, and
expenses the costs of communicating advertisements in the period
in which the advertising space or airtime is used. Internet
advertising expenses are recognized based on the terms of the
individual agreements, generally over the greater of the number
of impressions delivered over the total number of contracted
impressions, or a straight-line basis over the term of the
contract. Advertising costs of approximately $50,000 and
$226,000 were incurred for the years ended December 31, 1999 and
2000, respectively.
Research and development costs - Research and development costs
are charged to expense when incurred. Costs incurred to
internally develop software, including costs incurred during all
phases of development, are charged to expense as incurred.
Expenses of offering - The Company accounts for specific
incremental costs directly to a proposed or actual offering of
securities as a direct charge against the gross proceeds of the
offering.
Stock-based compensation - The Company accounts for stock-based
employee compensation arrangements in accordance with provisions
of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and complies with
the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." Under APB No. 25, compensation
expense is based on the difference, if any, on the date of the
grant, between the fair value of the Company's stock and the
exercise price. The Company accounts for stock issued to non-
employees in accordance with the provisions of SFAS No. 123 and
the Emerging Issues Task Force ("EITF") Issue No. 96-18.
New accounting pronouncements - In June 1998, the Financial
Accounting Standards Board issued SFAS No.133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133
requires companies to recognize all derivatives contracts as
either assets or liabilities in the balance sheet and to measure
them at fair value. If certain conditions are met, a derivative
may be specifically designated as a hedge, the objective of
which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in
the fair value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings of
New accounting pronouncements (continued)
the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS No. 133, as
amended by SFAS No. 137, is effective for all quarters of fiscal
years beginning after June 15, 2000.
2. FIXED ASSETS
Fixed assets consist of the following as of December 31, 2000:
Furniture and fixtures $ 207,790
Computers, equipment and software 203,088
Leasehold equipment 86,979
497,857
Less: accumulated depreciation 54,122
Fixed assets, net $ 443,735
3. INVESTMENTS
Isla Escondida, S.A. - The Company initiated an acquisition of
Isla Escondida, S.A. during 1999. This acquisition was recorded
using the purchase method of accounting under APB No. 16. The
results of operations for the acquired company have been
included in the financial results of the Company from the date
of such transaction forward.
In accordance with APB No. 16, all identifiable assets were
assigned a portion of the cost of the acquired company (purchase
price) on the basis of their respective fair values. Intangible
assets were identified and valued by considering the Company's
intended use of the acquired assets and analysis of data
concerning products, technologies, markets, historical
performance, and underlying assumptions of future performance.
The economic environment in which the Company and the acquired
company operate were also considered in the valuation analysis.
In August 1999, the Company completed its acquisition of Isla
Escondida, S.A. (hereafter "777WINS"), a Costa Rica Corporation
with the ability to provide on-line gaming through its website
portal www.777WINS.com. In connection with the acquisition, the
Company issued 18,710,000 shares of the Company's common stock.
Substantially the entire purchase price, approximately
$3,552,000, was allocated to goodwill, which was being amortized
on a straight-line basis over the estimated useful life of three years.
As of December 31, 1999, the Company evaluated the balance and
useful life of goodwill related to 777WINS and determined that
approximately $3,302,000 had no future benefit and, accordingly,
recorded a loss on investment for the same amount. As of
December 31, 2000, the Company reevaluated the balance and
useful life of the remaining goodwill related to 777WINS and
determined an impairment on such goodwill since the operations
have not commenced nor does the Company anticipate it will ever
commence. Accordingly, the Company recorded a loss for the
remaining unamortized goodwill balance related to 777WINS
approximating $139,000 since there is no future benefit.
During 2000, the Company cancelled 10,500,000 shares of the
Company's common stock related to the fiscal year 1999
acquisition of 777WINS. The Company renegotiated the terms of
the acquisition of 777WINS primarily due to lack of performance
of 777WINS. The cancellation of common stock has been reflected
as other income of $984,375, see Note 13 for additional
discussion.
Top Sports, S.A. - In December 1999, the Company acquired 50% of
the outstanding capital stock of Top Sports, S.A. ("Top Sports")
in consideration of $35,000, 1,000,000 shares of the Company's
common stock and 2,000,000 warrants to purchase common stock for
$0.40 per share for a total value of $108,100, of which $85,319
was comprised of goodwill. During 2000, the Company
renegotiated the terms of the acquisition agreement, whereby the
Company agreed to issue an additional 1,000,000 shares valued at
$235,160. As of December 31, 2000 200,000 of these additional
shares have been issued. In April 2000, the Company acquired an
additional 49.94% of Top Sports in consideration of 3,000,000
shares of the Company's common stock and 1,000,000 warrants to
purchase common stock for $1.00 per share for a total value of
$2,785,867, see Note 14. This acquisition was recorded using
the purchase method of accounting under APB No. 16. The
Company's equity interest in Top Sports' loss for the period
from January 1, 2000 through March 31, 2000 has been recorded as
a loss on equity-method investees totaling $200,668. The
results of operations from April 1, 2000 through December 31,
2000 for the acquired company has been included in the financial
results of the Company.
During fiscal year 2000, the Company cancelled 1,000,000 shares
of its common stock related to the fiscal year 1999 acquisition
of Top Sports. The cancellation was a result of the
renegotiated terms of the acquisition agreement which called for
the cancellation of the original shares issued in 1999 and for
the issuance of new shares as discussed above.
In accordance with APB No. 16, all identifiable assets were
assigned a portion of the cost of the acquired company (purchase
price) on the basis of their respective fair values. Intangible
assets were identified and valued by considering the Company's
intended use of the acquired assets and analysis of data
concerning products, technologies, markets, historical
performance, and underlying assumptions of future performance.
The economic environments in which the
Company and the acquired company operate were also considered in
the valuation analysis. As of December 31, 2000, the Company
evaluated the unamortized balance and useful life of goodwill
related to Top Sports and determined the balance had no future
benefit and, accordingly, recorded a loss on investment for $2,788,000.
Powerclick, Inc. - In February 2000, the Company acquired 50% of
the outstanding capital stock of Powerclick, Inc. ("Powerclick")
in consideration of $750,000 and 8,000,000 shares of the
Company's common stock valued at $1,300,000 for an aggregate
investment of $2,050,000 which is principally comprised of
goodwill. The Company's equity interest in Powerclick's loss
has been recorded as a loss on equity-method investees totaling
$402,770 as of December 31, 2000.
As of December 31, 2000, the Company evaluated the unamortized
balance and useful life of goodwill related to Powerclick and
determined the balance had no future benefit and, accordingly,
recorded a loss on investment for approximately $1,235,000.
During June 2000, 200,000 shares of common stock valued at
$1,950,000 were issued to Powerclick, Inc. stockholders for
consulting services and expensed as of December 31, 2000.
www.theArtAuction.com - In September 1999, the Company acquired
www.theArtAuction.com ("ArtAuction") from Powerclick, Inc., a
domain name and website portal, to provide on-line art auctions.
In connection with the acquisition, the Company issued 2,165,000
shares of the Company's common stock to Powerclick, Inc.
Substantially the entire purchase price, approximately $964,000,
was allocated to other intangibles.
As of December 31, 1999, the Company's management has evaluated
and determined that approximately $764,000 of this investment
has no future benefit, accordingly, the Company recorded a loss
on investment for the same amount. As of December 31, 2000, the
Company reevaluated the balance and useful life of remaining
goodwill related to ArtAuction and determined the entire balance
had no future benefit and, accordingly, recorded a loss on
investment for approximately $116,000.
eConnect Caribbean, S.A. - eConnect Caribbean, S.A. ("eConnect
Caribbean") was organized under the laws of the Dominican
Republic and serves as the Company's Latin American headquarters
for all e-commerce transactions. The Company owns 75% of the
outstanding capital shares with the remaining 25% owned by
eConnect Caribbean's managing director. eConnect Caribbean is
in the start-up phase, therefore no revenue has been recorded
and start-up costs of $253,213 have been expensed. The
formation of this subsidiary was recorded using the
proportional consolidation method. The consolidated financial
statements include 100% of the assets and liabilities of the
subsidiary and the ownership interest of the minority
participant, recorded as "Minority interest in consolidated subsidiary."
Intangible asset, net - In February 1997, the Company entered
into an agreement for the exclusive 20-year license of certain
assets of ET&T. In satisfaction of the agreement terms, the
Company reduced the balance due from related party - secured by
the Company's common stock by approximately $707,000 based upon
the historical value of this license based upon the amount of
research and development costs incurred by ET&T. This other
intangible is being amortized on a straight-line basis over
three years based upon management's estimated useful life of
such asset. Amortization expense for the years ended December
31, 2000 and 1999 approximated $235,600 and $78,700, respectively.
National Data Funding Corporation - In connection with a "Letter
of Intent", a non-binding agreement with National Data Funding
Corporation (NDFC), the Company deposited (non-refundable)
$250,000. The Letter of Intent requires the Company to pay the
stockholders of NDFC $10,000,000, 10,000,000 shares of the
Company's common stock in exchange for 100% ownership, and
contribute to NDFC $1,000,000 and 1,000,000 shares of the
Company's common stock for working capital. Pursuant to the
"Letter of Intent", the Company is required to "spin off" NDFC
as a publicly traded company in which the Company will retain a
25% ownership. The Letter of Intent expired on September 1,
2000. During September 2000, the Company evaluated and
determined the deposit of $250,000 of this investment has no
future benefit, accordingly, the Company recorded a loss on
investment for the same amount.
In October 2000, the Company entered into an Agreement for Sale
and Plan of Reorganization ("NDFC Agreement") requiring the
Company to pay the stockholders of NDFC $10,000,000, 10,000,000
shares of the Company's common stock in exchange for 50%
ownership, and contribute to NDFC $1,000,000 and 1,000,000
shares of the Company's common stock for working capital.
Pursuant to the NDFC Agreement, the Company is required to make
a bona fide and good faith effort to spin off NDFC as a publicly
traded company in which the Company will retain approximately a
28% ownership. The Company was required to complete the terms
of the NDFC Agreement on October 31, 2000 ("Closing Date"). The
Company did not complete the NDFC Agreement on the Closing Date.
Certain provisions within the NDFC Agreement provided for an
extension through January 2, 2001, however the Company did not
complete the terms of the NDFC Agreement within the extension
date. The Company plans to continue its negotiation for the
acquisition of NDFC.
4. COMMON STOCK ISSUED FOR PREPAID CONSULTING SERVICES
As of December 31, 2000, the Company issued 1,050,000 shares of
its common stock to Richard Epstein (a shareholder) for
consulting services to be rendered in the future. Accordingly,
the Company recorded a value of $1,271,655 as prepaid consulting
services at December 31, 2000. The Company will expense this
prepaid consulting service when such services have been
considered rendered. The Company believes that such services
will be fully rendered by fiscal year ended 2001.
5. PURCHASED SOFTWARE
Purchased software represents licenses to use the Connex
Software System used in processing e-commerce transactions. The
system will be installed in the Dominican Republic (currently in
process), Ireland, Hong Kong and Australia. The licenses have
been valued at approximately $2,169,000 and is being amortized
on a straight-line basis over three years based upon
management's estimated useful life of such asset. Amortization
expense for the year ended December 31, 2000 approximated $656,000
6. ACCRUED LIABILITIES
As of December 31, 2000, accrued liabilities totaling $3,033,372
are comprised of the following balances:
Accrued interest $1,225,971
Employee signing bonus (see Note 11) 75,000
Financing fee 318,176
Purchased software liability (see Note 5) 1,336,144
License fees 78,081
Total accrued liabilities $3,033,372
7. DUE TO CONSULTANTS
As of December 31, 2000, due to consultants totaling $2,020,447
relate to various individuals. These individual will be
renumerated with 2,400,000 shares of the Company's common stock.
As discussed in Note 19, the Company has issued such shares
during the first quarter of fiscal year 2001.
8. ADVANCE ON EQUITY FUNDING LINE
As of December 31, 2000, advances on equity funding line
totaling $206,600 relates to advances from Alpha Venture
Capital, Inc. related to the Regulation D Common Stock Private
Equity Line Subscription Agreement as discussed in Note 10. The
advances are due on demand and bear no interest. The Company
plans on converting these advances as a draw on the Regulation D
Common Stock Private Equity Line Subscription Agreement in
fiscal year 2001.
9. NOTES PAYABLE
As of December 31, 2000, notes payable totaling $2,672,906 are
comprised of the following:
Promissory notes from various individuals, secured by Company
assets, due on demand, bearing annual interest rate of 120%
$ 602,500
Promissory note from an individual, secured by Company assets,
due on demand, bearing annual interest rate of 10% 121,905
Promissory note from various individuals, secured by Company
assets, due on demand, bearing annual interest rate of 120% 1,948,501
Total notes payable $2,672,906
10. STOCK SUBSCRIPTION RECEIVABLE
In September 1999, the Company entered into a Regulation D
Common Stock Private Equity Line Subscription Agreement
("Subscription Agreement") with Alpha Venture Capital, Inc.
("Alpha"). The Subscription Agreement entitles the Company to
draw funds up to $5,000,000 from issuance of its common stock
for an amount equal to 80% of the market value at the time of
each draw request, expiring September 2000, subject to certain
terms and conditions. The Subscription Agreement required the
Company to deliver an aggregate of 1,000,000 five year warrants
to purchase its common stock at an exercise price equal to 80%
of the closing bid price on the execution of this agreement as a
commitment fee. Furthermore, the Company is required to deliver
to Alpha up to a maximum of 500,000 warrants on a pro rata basis
in conjunction with the draw request, exercisable at the closing
bid price at the date of each draw request. In October 2000,
the Company was granted a one-year extension on its Subscription
Agreement with one automatic six-month extension and an overall
increase in funds it may draw by an additional $5,000,000.
Pursuant to the October 2000 extension, the Company is required
to deliver an aggregate of 2,000,000 five year warrants to
purchase its common stock at an exercise price equal to 80% of
the closing bid price on the execution of this extension.
Furthermore, the Company is required to deliver to Alpha up to a
maximum of 1,571,428 warrants on a pro rata
basis in conjunction with the draw request, exercisable at the
closing bid price at the date of each draw request. The
Company is assessed a placement fee, as provided within the
Subscription Agreement, for funds drawn, which is equal to 8% of
each draw.
As of December 31, 2000, the Company has drawn $7,773,000 of the
available $10,000,000, and issued approximately 22,900,000 of
shares of its common stock in conjunction with this Subscription
Agreement during fiscal year 2000 of which approximately
6,600,000 of these shares were held by Alpha for future advances
on the Subscription Agreement. Accordingly, the 6,600,000
shares of the Company's common stock held by Alpha is deemed
unissued since no consideration has been given for such shares
and are not reflected as part of the outstanding shares of the
Company's common stock at December 31, 2000. As of December 31,
2000, the Company recorded the commitment and placement fees as
direct charges to the gross proceeds from this Subscription
Agreement for approximately $2,331,000. During fiscal year
2000, Alpha exercised approximately 3,050,000 warrants of the
total 5,071,000 granted related to the Subscription Agreement.
In December 2000, the Company entered into an additional
Regulation D Common Stock Private Equity Line Subscription
Agreement ("Subscription Agreement No. 2") with Alpha as noted
above. The Subscription Agreement No. 2 entitles the Company to
draw funds up to $15,000,000 from issuance of its common stock
for an amount equal to 82% of the market value for the five
business days immediately following the draw request date,
expiring December 2001 with one automatic twelve month extension
if at least 20% of the subscription amount is drawn during the
first six months as of the agreement date, subject to certain
terms and conditions. The Subscription Agreement No. 2 requires
the Company to file a registration statement on Form SB-2 with
the Securities and Exchange Commission ("Registration
Statement") for the registration of common stock for future
issuance related to the Subscription Agreement No. 2. The
Subscription Agreement No. 2 also requires the Company to
deliver an aggregate of 2,000,000 five year warrants to purchase
its common stock at an exercise price equal to the lesser of 40%
of the closing bid price of the Company's common stock at the
agreement date or 40% of the average five day closing bid price
as of the date of the effectiveness the Registration Statement.
Furthermore, the Company is required to deliver to Alpha up to a
maximum of 1,000,000 warrants on a pro rata basis in conjunction
with the draw request, exercisable at the closing bid price at
the date of each draw request. The Company is assessed a
placement fee, as provided within the Subscription Agreement No.
2, for funds drawn, which is equal to 8% of each draw. As of
December 31, 2000, the Company has not drawn upon the
Subscription Agreement No. 2. Furthermore, no warrants were
exercised of the total 3,000,000 warrants granted related to the
Subscription Agreement No. 2.
11. EMPLOYMENT AGREEMENT
During fiscal year 2000, the Company entered into an employment
agreement with its principal accountant. The agreement has a
term through June 5, 2002. The agreement provides for a base
compensation of approximately $260,000 and performance based
increases. Furthermore, the agreement provided a signing bonus
comprised of a stock option for 750,000 shares of the Company's
common stock at an exercise price of 25% of the prevailing
market price; and a warrant for 250,000 shares of the Company's
common stock at a strike price of $1.00; and cash of $100,000.
The Company recorded a stock based compensation approximating
$211,000 related to the stock options for 750,000 shares since
the strike price was below fair value at the grant date in
accordance with APB No. 25. The Company has paid $25,000 of the
cash portion of the signing bonus and the remaining $75,000 was
recorded as an accrued liability as of December 31, 2000.
12. STOCK OPTIONS AND WARRANTS
Employee stock options and warrants - During fiscal year 2000,
the Company granted options and warrants for 6,800,000 shares of
its common stock with an weighted average strike price of $0.16
per share. Certain stock options and warrants were granted in
connection with an employment agreement entered into during
fiscal year 2000, see Note 11. Certain stock options and
warrants were exercisable upon grant and have a life ranging
from 4 year to indefinitely. The following table summarizes the
Company's employee stock options and warrants activity:
Number Weighted
Of Average
Warrants Exercise Price
Balance, January 1, 2000 - -
Warrants granted and assumed 6,800,000 0.16
Warrants canceled - -
Warrants expired - -
Warrants exercised - -
Balance, December 31, 2000 6,800,000 $ 0.16
Pro forma disclosure - SFAS No. 123 requires companies that
follow APB No. 25 to provide a pro forma disclosure of the
impact of applying the fair value method of SFAS No. 123.
Accordingly, had compensation cost been recognized based on the
fair value at the date of grant for employee options granted in
fiscal year 2000, the pro forma amounts of the Company's net
loss and net loss per share for the year ended December 31, 2000
would have been as follows:
December 31,2000
Net loss - as reported $(114,661,887)
Net loss - pro forma $(117,717,053)
Basic and diluted loss per share - as reported $(0.66)
Basic and diluted loss per share - pro forma $(0.68)
The Company estimates the fair value of stock option and warrant
granted to employees using the Black-Scholes option pricing-
model with the following assumptions used for grants in 2000
using specific grant dates; no dividend yield; expected
volatility of 318%; risk free interest rates of 5.59%; and
expected lives of 1.5 years for all non-employee stock warrants.
$0.40 Stock warrants - During fiscal year 1999, the Company
granted approximately 13,770,000 stock warrants with an exercise
price of $0.40 ($0.40 warrants) per share for its common stock.
These stock warrants were granted in connection with common
stock sold during fiscal year 1998 and 1999, and consulting
services rendered to the Company during fiscal year 1999. These
stock warrants were exercisable upon issuance and expired on
December 31, 2000. The following table summarizes the Company's
$0.40 warrants activity:
Number
Of Exercise
Warrants Price
Balance, December 31, 1998 - $ -
Warrants granted and assumed 13,770,000 0.40
Warrants canceled - -
Warrants expired - -
Warrants exercised - -
Balance, December 31, 1999 13,770,000 0.40
Warrants granted and assumed - -
Warrants canceled - -
Warrants expired 3,485,000 0.40
Warrants exercised 10,285,000 0.40
Balance, December 31, 2000 - -
$0.50 Stock warrants - During the year ended December 31, 2000,
the Company granted approximately 500,000 stock warrants with an
exercise price of $0.50 ($0.50 warrants) per share of its common
stock. These stock warrants were granted in connections with
consulting services rendered to the Company during fiscal year
ended 2000. These stock warrants were exercisable upon issuance
expiring in May 2005. The following table summarizes the
Company's $0.50 stock warrants activity:
Number
Of Exercise
Warrants Price
Balance, January 1, 2000 - $ -
Warrants granted and assumed 500,000 0.50
Warrants canceled - -
Warrants expired - -
Warrants exercised - -
Balance, December 31, 2000 500,000 0.50
The Company estimates the fair value of $0.50 warrants granted
to consultants by using the Black-Scholes option pricing-model
with the following assumptions used for grants in 2000 using
specific grant dates; no dividend yield; expected volatility of
286%; risk free interest rates of 6.41%; and expected lives of
1.5 years for all non-employee stock warrants. Accordingly, the
Company recorded financing costs under SFAS No. 123 relating to
non-statutory stock options that became exercisable upon grant
in 2000 for approximately $276,000 as of December 31, 2000.
$1.00 Stock warrants - During the year ended December 31, 2000,
the Company granted approximately 22,140,000 stock warrants with
an exercise price of $1.00 ($1.00 warrants) per share of its
common stock. These stock warrants were granted in connections
with common stock sold, and consulting services rendered to the
Company during fiscal year ended 2000. These stock warrants
were exercisable upon issuance expiring at various dates ranging
from June 2002 through October 2003. The following table
summarizes the Company's $1.00 stock warrants activity:
Number
Of Exercise
Warrants Price
Balance, January 1, 2000 - $ -
Warrants granted and assumed 22,140,000 1.00
Warrants canceled - -
Warrants expired - -
Warrants exercised - -
Balance, December 31, 2000 22,140,000 $ 1.00
The Company estimates the fair value of $1.00 warrants granted
to consultants by using the Black-Scholes option pricing-model
with the following weighted average assumptions used for grants
in 2000; no dividend yield; expected volatility of 280%; risk
free interest rates of 6.2%; and expected lives of 1.5 years for
all non-employee stock warrants. Accordingly, the Company
recorded consultant expenses under SFAS No. 123 relating to non-
statutory stock options that became exercisable upon grant in
2000 for approximately $29,484,000 as of December 31, 2000.
Consultant options - During the year ended December 31, 2000,
the Company granted approximately 6,100,000 stock options for
its common stock to consultants in connection with consulting
services to the Company during fiscal year 2000. The exercise
price of these stock options is $0.40 per share if exercised on
or before December 31, 2000; thereafter the exercise price will
be 25% of the fair market value on the date of the exercise.
Approximately 1,525,000 of these stock options are exercisable
at December 31, 2000. The following table summarizes the
Company's consultant stock options activity:
Number Weighted
Of Average
Options Exercise
Price
Balance, January 1, 2000 - $ -
Options granted and assumed 6,100,000 0.14
Options canceled - -
Options expired - -
Options exercised - -
Balance, December 31, 2000 6,100,000 $ 0.14
The weighted average exercise price of these options were based
on the 30 day average fair value at December 31, 2000 The
following table summarizes information about options outstanding
and exercisable at December 31, 2000:
Shares Underlying Options Outstanding Shares Underlying
Weighted Options Exercisable
Shares Average Shares
Underlying Remaining Weighted Underlying Weighted
Options Contractual Average Options Average
Exercise Outstanding Life Exercise Exercisable Exercise
Price Price Price
$0.14 6,100,000 4 years $ 0.14 1,525,000 $ 0.14
Richard Epstein stock warrants - During the year ended December
31, 2000, the Company granted approximately 8,800,000 stock
warrants for its common stock to Richard Epstein in connection
with financing provided by Mr. Epstein to the Company during
fiscal year 2000. The exercise price of these stock warrants
primarily range from $0.25 to $0.40. Approximately 2,000,000 of
these stock warrants are exercisable at 50% below the closing
bid upon the date of exercise. These stock warrants were
exercisable upon grant and will expire on June 2002 through
September 2003. The following table summarizes the Company's
consultant stock warrants activity:
Number Weighted
Of Average
Warrants Exercise Price
Balance, January 1, 2000 - $ -
Warrants granted and assumed 8,800,000 0.48
Warrants canceled - -
Warrants expired - -
Warrants exercised - -
Balance, December 31, 2000 8,800,000 $ 0.48
The Company estimates the fair value of Mr. Epstein's stock
warrants by using the Black-Scholes option pricing-model with
the following assumptions used for grants in 2000 using specific
grant dates; no dividend yield; expected volatility of 295%;
risk free interest rates of 6.22%; and expected lives of 1.5
years for all non-employee stock warrants. Accordingly, the
Company recorded financing costs under SFAS No. 123 relating to
non-statutory stock options that became exercisable upon grant
in 2000 for approximately $4,672,000 as of December 31, 2000.
Paul Egan stock warrants - During fiscal year 1999 and 2000, the
Company granted 2,000,000 and 1,000,000, respectively, stock
warrants for its common stock to Paul Egan in connection with
the acquisition of Top Sports, S.A. with an exercise price
ranging from $0.40 to $1.00 expiring in April 2001, as discussed
in Note 3. The following table summarizes the Company's stock
warrants activity related to Mr. Egan:
Number Weighted
Of Average
Warrants Exercise Price
Balance, January 1, 1999 - $ -
Warrants granted and assumed 2,000,000 0.40
Warrants canceled - -
Warrants expired - -
Warrants exercised - -
Balance, January 1, 2000 2,000,000 0.40
Warrants granted and assumed 1,000,000 1.00
Warrants canceled - -
Warrants expired - -
Warrants exercised 500,000 0.40
Balance, December 31, 2000 2,500,000 $ 0.64
Alpha Venture Capital, Inc. stock warrants - As discussed in
Note 10, a total of 8,071,00 stock warrants were granted during
1999 and 2000. The following table summarizes the Company's
stock warrants activity related to Alpha Venture Capital, Inc.:
Number Weighted
Of Average
Warrants Exercise Price
Balance, January 1, 1999 - $ -
Warrants granted and assumed 1,500,000 0.22
Warrants canceled - -
Warrants expired - -
Warrants exercised - -
Balance, January 1, 2000 1,500,000 0.22
Warrants granted and assumed 6,571,000 0.44
Warrants canceled - -
Warrants expired - -
Warrants exercised 3,050,000 0.20
Balance, December 31, 2000 5,021,000 $ 0.43
The following table summarizes information about warrants
outstanding and exercisable at December 31, 2000:
Shares Underlying Options Outstanding Shares Underlying
Weighted Options Exercisable
Shares Average Shares
Underlying Remaining Weighted Underlying Weighted
Options Contractual Average Options Average
Exercise Outstanding Life Exercise Exercisable Exercise
Price Price Price
$0.43 5,021,000 1.5 years $ 0.43 3,322,000 $ 0.43
13. CANCELLATION OF COMMON STOCK
During fiscal year 2000, the Company cancelled a total of
10,500,000 shares of its common stock. As discussed in Note 3,
10,500,000 shares were cancelled related to the fiscal year 1999
acquisition of 777WINS. The Company recorded a total of
$984,375 as other income based on the original issuance price
during fiscal year 1999.
14. RELATED PARTY TRANSACTIONS
Stockholder receivable - As of December 31, 2000, a stockholder
and former director of the Company borrowed $111,820. The
balance is unsecured and due on demand. The Company has
reserved an allowance for doubtful accounts and expensed as bad
debt for the entire balance at December 31, 2000. However, the
Company will continue its effort in collecting the entire
balance due from this shareholder and former director.
Due to related parties - As of December 31, 2000, due to related
parties totaling $2,007,402 are comprised of the following:
Amounts due to ET&T related to the development of PERFECT $ 663,035
Advances from Alliance Equities (company controlled by Richard
Epstein, a shareholder of the Company), unsecured, bearing
annual Interest of 10% every three months, and due on demand 1,336,366
Consulting services liability due to Richard Epstein based upon
to the value of 5,000,000 shares of the Company's common stock
due to Mr. Epstein related a consulting agreement as further
discussed below 983,475
Deposit related to the purchase of 2,000 eCash pads 250,000
Value of remaining 4,800,000 common stocks and warrants for
2,500,000 shares of the Company's common stock to be issued to
Paul Egan (a shareholder of the Company) related to the fiscal
year 1999 acquisition of Top Sports, S.A., see Note 3 2,973,996
Advances from Paul Egan, unsecured, due on demand, and bearing
no interest 836,537
Total due to related parties $7,043,409
Consulting agreements - In January of 2000, the Company entered
into a Consulting Services Agreement with Richard Epstein, a
shareholder of the Company. Mr. Epstein has agreed to assist
the Company in developing a market for the usage of the eCash
Pad for a period of three years in exchange for 15,000,000
shares of the Company's common stock. The amount recorded as
consulting expense totaled $983,475 for the year ended December
31, 2000. In January 2001, the Company issued Mr. Epstein
15,000,000 shares of its common stock, see Note 19 for further
discussion.
In February 2000, the Company entered into another Consulting
Services Agreement with Mr. Epstein. Mr. Epstein agreed to
provide consulting services related to future mergers and
acquisitions in behalf of the Company for a period of 2 years in
exchange for 300,000 shares of the Company's common stock
monthly. The Company recorded consulting expenses of $3,996,630
for the year ended December 31, 2000. During fiscal year 2000,
the Company issued a total of 1,050,000 shares of the its common
stock in advance of such services having been rendered.
Accordingly, the Company has recorded a prepaid consulting
services of $1,271,655 related to such advance issuances as of
December 31, 2000.
Employee bonus - In January 2000, the Company issued 6,000,000
shares of the Company's common stock to satisfy a $4,800,000
bonus payable to Thomas S. Hughes, Chief Executive Officer and
Director, incurred during fiscal year 1999.
Due from related party - secured by Company's common stock - As
of December 31, 2000, due from related party - secured by
Company's common stock consists of $4,835,717 which has been
fully reserved as an allowance for doubtful accounts and
expensed as bad debt. This amount relates to a combination of
approximately 21% cash and 79% common stock issuance to Thomas
S. Hughes and ET&T during fiscal year 1999 and 2000.
15. STOCK BASED COMPENSATION
As of December 31, 1999 and 2000, the Company incurred expenses
resulting from stock warrants and common stock issued totaling
$10,886,992 and $83,441,832, respectively. The following table
summarizes the Company's stock based compensation activities
based on the accounts shown on the consolidated statements of operations:
December 31 December 31
1999 2000
Consulting $ 3,609,980 $ 66,496,629
Public relations 189,180 2,677,381
Research and development 1,644,072 3,001,042
Wages 4,800,000 2,562,494
Investor relations - 1,173,395
Financing fees - 4,671,559
Professional fees - 639,903
Interest expense 643,760 2,219,429
Total stock based compensation $ 10,886,992 $ 83,441,832
16. COMMITMENTS AND CONTINGENCIES
Legal proceedings - During fiscal year 2000, a class action
litigation was filed asserting the Company and Thomas S. Hughes
(an officer and director of the Company), as well as the
directors of the Company (in certain actions), have violated
Section 10(b) of the Exchange Act (false or misleading
statements and omissions which deceived stock purchasers) and
also Section 20(a) of the Exchange Act (liability as a
"controlling person" with respect to a primary violation of
securities laws). The principal allegations concern various
material misrepresentations and omissions which allegedly made
the Company's public statements, on and after November 18, 1999,
false and misleading; and artificially inflated the market for
the Company's common stock. The Company reached a settlement in
principle with the plaintiffs, pursuant to which $350,000 was
paid to plaintiffs' counsel to be held in escrow during fiscal
year 2000. A warrants component of the settlement is still
being finalized with the plaintiffs' counsel which will calls
for the issuance of 5,000,000 stock warrants of the Company's
common stock exercisable over ten years from the date of
issuance with a strike price of $1.00 per share. The Company
anticipates that the settlement will be negotiated in full by
the second quarter in fiscal year 2001. The Company has
recorded the 5,000,000 stock warrants as a legal settlement
expense totaling $1,451,959 as of December 31, 2000.
On March 22, 2000, the Company consummated an amended and
restated employment agreement with an individual and his firm to
act as outside counsel for the Company. On April 14, 2000, the
Company terminated this individual and his firm as outside
counsel. Based upon the amended and restated employment
agreement, the remaining compensation for the term of this
agreement will be due immediately upon the termination of this
individual and his firm as outside counsel if terminated for
reasons other than good cause. In addition, any common stock
and stock warrants granted through the term of this agreement
will be considered due in the event of termination for reasons
other than good cause. Accordingly, the termination of this
individual and his firm, for reasons other than good cause, may
potentially expose the Company to incur a liability of
approximately $700,000 for the remaining portion of unpaid
compensation for the first, second and third years of this
agreement. Furthermore, the termination may have accelerated
the vesting of the granted common stock and stock warrants
consisting of 600,000 common stocks and 600,000 warrants
exercisable at $1.00 per share. The Company's management
believes that the termination of this individual and his firm
was in good cause and intends to defend itself in this matter
vigorously.
On March 21, 2000, the Company consummated an amended employment
agreement with an individual for the position of President and
Chief Operating Officer for the Company. On April 17, 2000, the
Company terminated this individual as President and Chief
Operating Officer of the Company. Based upon the amended
employment agreement, the remaining salary for the term of this
agreement, will be due within 30 days upon the termination of
this individual if terminated for reasons other than good cause.
In addition, through the date of termination, all of
the granted stock options and warrants will vest and be
exercisable for their entire term. Accordingly, the termination
of this individual, for reasons other than good cause, may
potentially expose the Company to incur a liability of
approximately $1,260,000 for the remaining portion of unpaid
salary for the first, second, third, and fourth years of this
agreement. Furthermore, the termination may have accelerated
the vesting of the granted stock options and warrants consisting
of 1,000,000 warrants exercisable at $1.00 per share, 6,000,000
stock options exercisable at $0.40 per share, and 1,500,000
stock options exercisable at the lowest average daily trading
price of the Company's common stock within the first 90 days of
the executive's employment. On March 21, 2001, the former
President and Chief Operating Officer for the Company filed a
complaint for breach of contract and specific performance. The
complaint is seeking $1,260,000, 1,000,000 warrants to purchase
1,000,000 shares for $0.40 per share and vested options to
purchase 6,000,000 shares for $0.40 per share. The Company's
management believes that the termination of this individual was
in good cause and intends to defend itself in this matter vigorously.
On September 5, 2000, a consultant filed a complaint for breach
of an oral contract, money owed, and fraud against the Company,
and Thomas Hughes, alleging that the consultant and the Company
entered into an oral contract whereby the consultant was to
perform marketing and product development services for the
Company. The consultant claims that an amount totaling $128,590
is due to him by the Company. The Company's management believes
that this complaint is without merit and intends to defend
itself in this matter vigorously.
While the results of these matters cannot be predicted with
certainty, the Company's management believes that losses, if
any, resulting from the ultimate resolution of these matters
will not have a material adverse effect on the Company's
consolidated results of operations, cash flows or financial
position. However, unfavorable resolution could affect the
consolidated results of operations or cash flows for the years
in which they are resolved.
Leased facilities - The Company operates from leased facilities
under a noncancellable operating leases. The Agreements call
for an annual base rent of approximately $146,000 with a
variable escalation rate. As of December 31, 2000, total rent
expense for the leased facilities approximated $95,000. Future
minimum rental payments required under the operating lease for
the office facility as of December 31, 2000, are as follows:
2001 $ 141,000
2002 125,000
2003 49,000
$ 315,000
17. OTHER MATTERS
On March 12, 1999, the Securities and Exchange Commission
("SEC") filed a complaint alleging the Company had failed to
make available to the investing public current and accurate
information about its financial condition and results of
operations through the filing of periodic reports with the SEC
as required by the Securities Exchange Act of 1934. The SEC
sought to compel the Company to file the delinquent periodic
reports and enjoin the Company from further violations of the
Exchange Act of 1934. The Company consented to the entry of a
Final Judgment granting the relief sought by the SEC.
On March 13, 2000, the SEC ordered a ten day's suspension in
trading of the Company's common stock on the Over-the-Counter
Bulletin Board ("OTCBB"). This trading suspension was taken in
connection with an investigation of the Company by the SEC. The
Company's common stock resumed trading on March 27, 2000;
however, from that date through October 31, 2000, the Company's
common stock traded on the Pink Sheets LLC (symbol "ECNC") since
the company's common stock was delisted on that date from the
OTCBB due to the trading suspension.
In August, 2000, a market maker, on behalf of the Company, filed
with the NASD Stock Market, Inc. an application for the
Company's common stock to be relisted for trading on the OTCBB.
The Company's application with the NASD was accepted and trading
of its common stock on the OTCBB commenced on November 1, 2000.
18. GOING CONCERN
The Company incurred a net loss of approximately $115,000,000
for the year ended December 31, 2000. The Company's liabilities
exceed its assets by approximately $14,517,000, and current
liabilities exceed its current assets by approximately
$17,059,000 as of December 31, 2000. These factors create an
uncertainty about the Company's ability to continue as a going
concern. The Company's management has developed a plan to
complete the development of technology products to generate
future revenues. The Company will also seek additional sources
of capital through a combination debt equity financing and
issuance of equity for approximately $20,000,000, but there can
be no assurance that the Company will be successful in
accomplishing its objectives.
The ability of the Company to continue as a going concern is
dependent on additional sources of capital and the success of
the Company's plan. The financial statements do not include any
adjustments that might be necessary if the Company is unable to
continue as a going concern.
19. SUBSEQUENT EVENTS
In March 2001, the Company entered into an agreement with a
Alliance Equities (controlled by Richard Epstein) which would
provide borrowings up to $7,000,000 as a line of credit. The
agreement provides the Company a line of credit through December
31, 2002, interest at 12% annually, maturing on December 31, 2002.
In January 2001, the Company issued 16,800,000 shares of its
common stock to Richard Epstein related to consulting agreements
as discussed in Note 14. A total of 5,000,000 shares relate to
satisfaction of a Company obligation to Mr. Epstein totaling
$983,475 at December 31, 2000, see Note 14. The remaining
11,800,000 shares were issued in advance and has been recorded
by the Company as prepaid consulting services during this period
approximating $4,147,000.
During January 2001 through March 2001, the Company issued
approximately 2,525,000 of shares of its common stock for
services to various individuals. Approximately 2,400,000 shares
related to due to consultant liability incurred fiscal year 2000.
In March 2001, the Company issued 12,307,692 shares of its
common stock to Alpha Venture Capital, Inc. in satisfaction of
an advance on equity funding line totaling 206,600 at December
31, 2000, as discussed in Note 10 and advances of $860,100 from
January 2001 through February 2001.
During January 2001 and through the date of this report, the
Company borrowed approximately $348,000 from various parties,
due on demand with an annual interest rate of 12%.
20. SEGMENT INFORMATION
As described in Note 1, the Company adopted SFAS No. 131 in
fiscal year 1999. For the year ended December 31, 2000, the
Company has two reportable business segments: PERFECT industry
and gaming operations. The Company conducts operations in
Southern California and Dominican Republic and is managed based
upon its business segments. During fiscal year 1999, the
Company had only one business segment.
The accounting policies of the business segments are the same as
those described in the Summary of Significant Accounting
Policies as discussed in Note 1. The Company primarily
allocates resources to the PERFECT industry, however has
continued to allocate limited resources to the gaming operations
for potential short-term cash flow purposes.
The table below presents information about the Company's
reportable segments:
December 31, 2000
PERFECT Gaming
Industry Operations Eliminations Total
Revenues $ - $ (655,584) - $ (655,584)
Cost of revenues - - - -
Gross profit (loss) - (655,584) - (655,584)
Operating expenses 106,855,911 297,868 - 107,153,779
Loss from operations (106,855,911) (953,452) - (107,809,363)
Other (income) expenses 6,750,508 102,016 - 6,852,524
Loss before provision
for income taxes (113,606,419) (1,055,468) - (114,661,887)
Provision for income
taxes - - - -
Net loss (113,606,419) (1,055,468) - (114,661,887)
Total assets 2,561,768 304,370 (294,608) 2,571,530
Total liabilities 6,015,046 779,354 294,608 17,089,008
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
(a) On August 1, 1998, the company engaged the services of
George Brenner, C.P.A. of Beverly Hills, California, to provide
an audit of the company's financial statements for the fiscal
years ended August 31, 1997 and 1998. The former accountants for
the company, BDO Seidman L.L.P. of St. Louis Missouri declined
to stand for re-election for the 1997 engagement. The
independent auditor's reports for August 31, 1996 and 1995, were
modified as to the uncertainties about the company's ability to
continue as a going concern. The decision to change accountants
was approved by the company's Board of Directors with the
selection of the successor accountant.
(b) Effective on July 19, 1999, the independent accountant who
was previously engaged as the principal accountant to audit the
registrant's financial statements, resigned. This accountant's
report on the financial statements for the past two years was
modified as to uncertainty that the company will continue as a
going concern. The decision to change accountants was approved
by the Board of Directors.
(c) Effective on July 22, 1999, the firm of Farber & Hass was
engaged to serve as the new principal accountant to audit the
company's financial statements. During the company's two most
recent fiscal years, and the subsequent interim period prior to
engaging that accountant, neither the company (nor someone on
its behalf) consulted the newly engaged accountant regarding any
matter.
(d) Effective on March 8, 2000, the independent accountants who
were previously engaged as the principal accountants to audit
the company's financial statements were dismissed. These
accountants did not issue any financial statements for the
company. The decision to change accountants was approved by the
Board of Directors.
(e) Effective on March 8, 2000, the firm of L.L. Bradford &
Company was engaged to serve as the new principal accountants to
audit the company's financial statements. During the company's
two most recent fiscal years, and the subsequent interim period
prior to engaging those accountants, neither the company (nor
someone on its behalf) consulted the newly engaged accountants
regarding any matter.
During the company's two most recent fiscal years and any
subsequent interim period preceding such changes, there have
been no disagreements with former accountants on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. In addition, there
were no "reportable events" as described in Item
304(a)(1)(iv)(B)1 through 3 of Regulation S-B that occurred
within the company's two most recent fiscal years and the
subsequent interim period preceding such changes.
AVAILABLE INFORMATION
The company has filed with the U.S. Securities and Exchange
Commission, Washington, D.C. 20549, a Registration Statement on
Form SB-2 under the Securities Act of 1933 with respect to the
shares of common stock offered by this prospectus. This
prospectus does not contain all of the information set forth in
the registration statement and the exhibits and schedules filed
with the registration statement. Certain items are omitted in
accordance with the rules and regulations of the Commission.
For further information with respect to the company and the
common stock offered by this prospectus, reference is made to
the registration statement and the exhibits and schedules filed
with the registration statement. Statements contained in this
prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and in each
instance, reference is made to the copy of such contract or
other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects
by such reference.
A copy of the registration statement, and the exhibits
and schedules filed with it, may be inspected without charge at
the public reference facilities maintained by the Commission in
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of all or any part of the registration statement may be
obtained from such office upon the payment of the fees
prescribed by the Commission. The public may obtain information
on the operation of the public reference room by calling the
Commission at 1 (800) SEC-0330. The Commission maintains a
World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission, including the company. The
address of the site is http://www.sec.gov. The registration
statement, including all its exhibits and any amendments, has
been filed electronically with the Commission.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Information on this item is set forth in the prospsectus under
the heading "Disclosure of Commission Position on
Indemnification for Securities Act Liabilities."
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses in
connection with the issuance and distribution of the securities
being registered hereunder, all of which are being paid by the
company*:
Securities and Exchange Commission registration fee $ 5,258
Transfer agent's fees 1,000
Printing and engraving expenses 1,500
Legal fees and expenses 50,000
Accounting fees and expenses 5,000
State blue sky fees 10,000
Total $ 72,758*
* All fees, except the Securities and Exchange Commission
registration fee, are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES; USE OF
PROCEEDS FROM REGISTERED SECURITIES
Sales of Unregistered Securities.
Other than as set forth below, during the last three years
there have not been any sales of unregistered securities of the
company. Except as noted below, no commissions or fees were
paid in connection with these sales. All of the these sales
were undertaken pursuant to the limited offering exemption from
registration under the Securities Act of 1933 as provided in
Regulation D as promulgated by the U.S. Securities and Exchange
Commission. In addition, all the sales were made to the
following class of persons: sophisticated investors; that is,
investor either alone or with their purchaser representative(s)
have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks
of the prospective investment, or the issuer reasonably believes
immediately prior to making any sale that such purchasers comes
within this description.
(a) Prior to December 31, 1999:
The company made the following sales of unregistered securities
prior to the fiscal year ended December 31, 1999:
(1) During the fiscal year ended August 31, 1998, the company
issued a total of 5,341,000 shares of common stock for
services rendered to the company.
(2) During the fiscal year ended August 31, 1998, the company
issued a total of 350,000 shares of common stock in payment of
certain accounts payable by the company.
(3) The company had a due to stockholder payable to James S.
Clinton, former chairman of Leggoons, Inc., in the amount of
$35,135 for advances made to Leggoons, Inc., prior to March 1,
1997. This was paid in full by the issuance of 750,000 shares
of common stock during the year ended August 31, 1998.
(4) During the transition period ended on December 31, 1998,
the company issued a total of 161,000 shares of common stock for
services rendered to the company.
(5) During the period of September 28, 1998 through July 16,
1999, the company sold a total of 1,058,622 shares of common
stock to 76 individuals, at an average price of $0.40 per share.
(6) During the period of April 7, 1999 through November
24, 1999, the company issued a total of 4,484,500 shares of
common stock to 14 individuals and firms in exchange for
consulting and other services to the company.
(7) In May 1999, the company issued the following in connection
with the agreement to acquire Rogel Technologies (which was
later deemed to be consulting services for the company): (i)
2,500,000 shares of common stock; (ii) an option to purchase
500,000 shares of common stock, exercisable at $0.50 per share
upon issuance through June 30, 2000; (iii) an option to purchase
500,000 shares of common stock, exerciable at $1.00 per share
upon issuance through June 30, 2001; and (iv) an option to
purchase 250,000 shares of common stock, exerciable at $2.00 per
share through June 30, 2002.
(8) During June 1999, the company issued 5,400,000 shares of
common stock to Electronic Transactions & Technologies as
partial payment under the license agreement between this firm
and the company.
(9) During June 1999, the company issued 4,000,000 shares of
common stock to Mr. Hughes as compensation for prior services
rendered to the company
(10) During the priod of June 9, 1999 through November 24,
1999, the company issued a total of 1,850,000 shares of common
stock to James Clinton or his nominees based on the stated
reason that compliance with a 10% ownership provision contained
in a 1997 license agreement was required. Shares issued under
this provision of this license agreement were not issued for
consideration.
(11) In September 1999, the company issued 5,200,000 shares of
common stock in connection with the acquisition of Isla Escondida, S.A.
(12) In September 1999, the company issued 1,165,000 shares of
common stock in connection with the acquisition of the
TheArtauction.com website from PowerClick, Inc.
(13) In October 1999, the company issued warrants in connection
with a consulting agreement with International Investor
Relations Group, as follows: (i) a warrant covering 100,000
shares of common stock, exercisable at $0.50 per share; (ii) a
warrant covering 100,000 shares of common stock, exerciable at
$0.75 per share; and (iii) a warrant covering 100,000 shares of
common stock, exercisable at $1.00 per share. These warrants
have a two-year expiration date from the original date of
signing the agreement (September 24, 1999).
(14) In December 1999, the company issued 1,000,000 shares of
common stock in connection with the acquisition of a 50%
interest in TopSports, S.A.
(15) During fiscal year 1999, the company granted approximately
13,770,000 stock warrants with an exercise price of $0.40 per
share for its common stock. These stock warrants were granted
in connection with common stock sold during fiscal year 1998 and
1999, and consulting services rendered to the company during
fiscal year 1999. These stock warrants were exercisable upon
issuance and expired on December 31, 2000.
(b) Fiscal Year Ended December 31, 2000:
The company made the following sales of unregistered securities
during the fiscal year ended December 31, 2000:
(1) On January 10, 2000, the company issued a total 666,667
shares of common stock to satisfy certain accounts payable to
the company in the amount of $550,000.
(2) On January 11, 2000, the company issued 6,000,000 shares of
common stock to Mr. Hughes in satisfaction of a bonus payable.
(3) On February 2, 2000, the company issued a total of
1,100,000 shares of common stock for James Clinton or his
nominees based on the stated reason that compliance with a 10%
ownership provision contained in a 1997 license agreement was
required. Shares issued under this provision of this license
agreement were not issued for consideration. See "Certain
Relationships and Related Transactions."
(4) During the period of February 2, 2000 through December 28,
2000, the company issued a total of 19,509,719 shares of common
stock to 43 individuals and firms in exchange for consulting and
other services performed for the company
(5) During February 2000, the company issued a total 570,000
shares of common stock in connection with employee compensation.
(6) Between February 2, 2000 and October 3, 2000, the company
sold a total of 3,335,762 shares of common stock to 129
individuals at a price of $0.40 per share, for an aggregate
consideration of $1,330,969; 472,500 of these shares had
warrants attached to them, exercisable at $1.00 per share for
the period of January 1, 2001 through June 30, 2002. In
connection with these sales, 2,500,000 shares of common stock
were issued on April 4, 2000 to two individuals for finder's
fees (included within the total issuances under paragraph (d)).
(7) On March 22, 2000, the company issued 6,000,000 of its
common stock for the acquisition of PowerClick, Inc., valued at
$975,000 (2,000,000 additional free trading shares were issued
in connection with this acquisition, for a total value of this
acquisition of $1,300,000).
(8) During the first quarter of 2000, the company issued
warrants covering a total of 13,430,060 shares of common stock
to 12 individuals under various warrant agreements for
consulting services to the company, exercisable at $1.00 per
share from June 30, 2000 through June 30, 2002.
(9) On April 4, 2000, the company issued a warrant covering
300,000 shares of common stock in connection with a consulting
agreement entered into on that date by the company, exercisable
at $1.00 per share from January 1, 2001 through June 30, 2002.
(10) On May 24, 2000, the company issued two warrants covering
a total of 500,000 shares of common stock, exercisable at $0.50
through May 24, 2005 under a warrant agreement with GunnAllen
Financial, Inc. in connection with this firm's services in
assisting the company to become relisted on the Over the Counter
Bulletin Board.
(11) On June 15, 2000, the company sold 3,000,000 shares of
common stock to an individual for $500,000 cash ($0.16 per share).
(12) On July 11, 2000, the company issued two warrants to two
individuals covering a total of 600,000 shares of common stock,
exercisable at $1.00 per share for the period of January 1, 2001
through June 30, 2002, for consulting services rendered to the company.
(13) On July 12, 2000, the company granted to an individual an
option to purchase 4,400,000 shares of common stock of the
company, exercisable upon issuance at $1.00 per share through
July 12, 2002 (3,080,000 of the total was granted as payment of
all accured interest under a $500,000 loan made by this
individual to the company; the remaining 1,320,000 were granted
as compensation for consulting services rendered to the company).
(14) On October 21, 2000, the company issued a warrant covering
the purchase of 4,000,000 shares of common stock to PowerClick,
Inc., exercisable upon issuance at $1.00 per share through
October 21, 2003 (issued in connection with the settlement of
litigation between that firm and the company, as disclosed in
the Form 10-QSB filed on November 14, 2000).
(15) At various times in the fourth quarter of 2000, the
company issued warrants to Alpha Venture Capital, Inc. for the
purchase common stock totaling 6,571,428 shares, as follows: (i)
a warrant to purchase 2,000,000 shares of common stock,
exercisable upon issuance in connection with the purchase
agreement between the company and this company, dated Decemnber
8, 2000, at a price equal to the lesser of (a) 40% of the
closing bid price of the stock on that date ($0.44), or (b) 40%
of the average five day closing bid price as of the effective
date of this registration statement; (ii) a warrant to purchase
1,000,000 shares of common stock on a pro rata basis in
conjunction with draw downs under that agreement, exercisable at
the close bid price at the date of each draw down; and (iii) a
warrant to purchase 3,571,428 shares of common stock,
exercisable at $0.08 per share as calculated under that addendum
(dated October 23, 2000) to a previous stock purchase agreement
between the parties, dated September 28, 1999.
(16) On November 7, 2000, the company's board of directors
approved an Amended and Restated Stock Incentive Plan (Amendment
No. 3) for the purpose of granting stock options and restricted
stock awards to employees and non-employees of the company. A
total of 11,200,000 options issued in December 2000 under this plan.
(17) From August 2, 2000 through December 19, 2000, the company
issued a total of 3,259,454 shares to 40 individuals and
companies as payment of interest under various short-term loans
made to the company. The company intends to review the amount
of shares paid under each promissory note to insure that
applicable state usury laws were complied with.
(18) During fiscal 2000, the company issued a total of
2,093,565 shares of common stock upon the exercise of warrants
at $0.40 per share for a total consideration of approximately
$835,000 (approximately $771,000 [1,993,488] of which consisted
of services rendered to the company).
(c) Fiscal Year Ending December 31, 2001:
The company made the following sales of unregistered securities
during the fiscal year ending December 31, 2001:
(1) On January 5, 2001, the company issued a warrant covering
the purchase of 1,000,000 shares of common stock, exercisable
upon issuance at $1.00 per share through June 30, 2002, to an
individual in connection with the repayment of a $60,000 loan
(plus accrued interest) made to the company.
(2) On January 15, 2001, the company issued 3,000,000 shares of
common stock to Paul Egan in connection with completing the
acquisition of Top Sports, S.A. by the company.
(3) In January 2001, the company issued 16,800,000 shares
of its common stock to Richard Epstein related to consulting
agreements. A total of 5,000,000 shares relate to satisfaction
of a company obligation to Mr. Epstein totaling $983,475 at
December 31, 2000. The remaining 11,800,000 shares were issued
in advance and has been recorded by the company as prepaid
consulting services during this period approximating $4,147,000.
(4) On February 2, 2001, the company issued 50,000 shares of
common stock and a warrant for the purchase of 50,000 shares of
common stock, exercisable upon issuance through June 30, 2002.
These shares and warrant were issued in connection with a
penalty in connection with the non-payment of a loan to the company.
(5) On March 1, 2001, the company issued 12,307,625 shares of
common stock purchased for cash under a common stock purchase
agreement with Alpha Venture Capital, Inc. at a price equal to
82% of the average closing bid price for the five business days
immediately following a put notice to the company.
Use of Proceeds.
The company filed a Form SB-2 with the SEC on June 1, 1999.
This offering was used exclusively for consulting and other
services provided to the company and for settling litigation
involving a debenture and certain warrants between the company
and CALP II, LP, as reported in a Form 8-K filed with the SEC on
January 18, 2000. Therefore, no cash proceeds were raised from
this offering.
On August 20, 1999, the company filed a Form SB-2 with the
SEC under Rule 415 (self offering) to register an aggregate
amount of 61,000,000 shares of common stock (aggregate offering
price of $11,590,000 under Rule 457(c)). This offering was used
primarily for consulting services and acquisitions by the
company, and commenced on the effective date of this
registration statement (September 7, 1999). However, shares of
common stock under this offering were also used for the sale of
shares under a common stock purchase agreement with Alpha
Venture Capital, Inc. (see "Certain Relationships and Related
Transactions") (through a post-effective amendment to this Form
SB-2 filed with the SEC on September 12, 2000 and effective on
September 26, 2000 - File No. 333-79739).
The total amount of shares sold under this offering through
February 12, 2001 is 61,000,000. Out of the amount sold, the
company issued the following:
(a) 22,183,381 shares in connection with various
acquisitions and consulting services for the company.
(b) 24,906,526 shares in connection with the common stock
purchase agreement with Alpha Venture Capital, Inc. (to date,
the company has sold a total of $7,773,000 in shares under this
agreement).
(c) 8,191,882 shares upon the exercise of warrants at
$0.40 per share granted for consulting services for the company,
for a total consideration of $3,276,753 (of which $400,000
[1,000,000 shares] consisted of services rendered to the company).
(d) 1,911,586 shares sold at a price of $0.30 per shares,
for a total consideration to the company of $573,475.80.
(e) 1,500,000 shares upon the exercise of warrants granted
to Alpha Venture Capital, Inc. in connection with the common
stock purchase agreement, for a total consideration of $120,000.
(f) 1,250,000 shares upon the exercise of a portion of the
warrants granted to Alpha Venture Capital, Inc. in connection
with the addendum to the common stock purchase agreement, for a
total consideration of $100,000.
(g) 300,000 shares upon the exercise of warrants at prices
ranging from $0.50 to $1.00 granted for consulting services to
the company, for a total consideration of $225,000.
(h) 756,625 shares for the repayment of loans made to the
company totaling $302,650.
The expenses involved with this offering to date have been
approximately $733,000 (which includes an 8% commission payable
on the sales made under the common stock purchase agreement
[totals $617,920). The net cash proceeds from this offering
(gross proceeds of $12,068,228 less offering expenses) of
approximately $11,335,228 have been used for working capital for
the company.
ITEM 27. EXHIBITS
The exhibits required by Item 601 of Regulation S-B, and an
index thereto, are attached.
ITEM 28. UNDERTAKINGS
The undersigned company hereby undertakes to:
(a) (1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and Notwithstanding
the forgoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be
reflected in the form of prospects filed with the U.S.
Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in the volume and price represent
no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement.
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act of 1933,
treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
(d) Provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(e) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the small
business issuer will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, the company certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
SB-2 and authorized this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorize, in the
City of San Pedro, State of California, on May 1, 2001.
eConnect
By: /s/ Thomas S. Hughes
Thomas S. Hughes, President
Special Power of Attorney
The undersigned constitute and appoint Thomas S. Hughes their
true and lawful attorney-in-fact and agent with full power of
substitution, for him and in his name, place, and stead, in any
and all capacities, to sign any and all amendments, including
post-effective amendments, to this Form SB-2 registration
statement, and to file the same with all exhibits thereto, and
all documents in connection therewith, with the U.S. Securities
and Exchange Commission, granting such attorney-in-fact the full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that
such attorney-in-fact may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the date indicated:
Signature Title Date
/s/ Thomas S. Hughes President/Chief Executive May 1, 2001
Thomas S. Hughes Officer/ Director
/s/ Jack M. Hall Secretary/Director May 1 ,2001
Jack M. Hall
/s/ Laurence Donoghue Director May 1, 2001
Laurence Donoghue
/s/ Mary Lou Garcia Accounting Manager (principal May 1, 2001
Mary Lou Garcia financial and accounting
officer)
EXHIBIT INDEX
Exhibit Description
No.
2 Agreement and Plan of Merger, dated June 1, 1999
(incorporated by reference to Exhibit 2 of the Form 10-KSB filed
on May 9, 2000).
3.1 Articles of Incorporation, March 8, 1999 (incorporated by
reference to Exhibit 3.1 of the Form SB-2/A filed on July 22, 1999).
3.2 Certificate of Amendment of Articles of Incorporation,
dated May 25, 1999 (incorporated by reference to Exhibit 3.2 of
the Form SB-2/A filed on July 22, 1999).
3.3 Certificate of Amendment of Articles of Incorporation,
dated August 20, 1999 (incorporated by reference to Exhibit 3.3
of the Form SB-2/A filed on September 3, 1999).
3.4 Certificate of Amendment of Articles of Incorporation,
dated November 20, 2000 (see below).
3.5 Bylaws, dated May 14, 1999 (incorporated by reference to
Exhibit 3.3 of the Form SB-2/A filed on July 22, 1999).
3.6 Amended and Restated Bylaws, dated September 15, 2000
(incorporated by reference to Exhibit 3.5 of the Form 10-QSB
filed on November 14, 2000).
4.1 Class A Warrant Agreement (incorporated by reference to
Exhibit 4.2 of the Form S-1 filed on October 28, 1993).
4.2 Retainer Stock Plan for Non-Employee Directors and
Consultants, dated April 26, 1999 (incorporated by reference to
Exhibit 4.1 of the Form S-8 filed on May 14, 1999).
4.3 Consulting and Service Agreement between the company and
James Wexler, dated May 20, 1998 (incorporated by reference to
Exhibit 4.2 of the Form S-8 filed on May 14, 1999).
4.4 Consulting Agreement between the company and Rogel
Patawaran, dated March 18, 1998 (incorporated by reference to
Exhibit 4.3 of the Form S-8 filed on May 14, 1999).
4.5 Consulting Agreement between the company and David Ninci,
dated February 22, 1999 (incorporated by reference to Exhibit
4.4 of the Form S-8 filed on May 14, 1999).
4.6 Consulting Agreement between the company and Harry Hargens,
dated January 17, 1999 (incorporated by reference to Exhibit 4.5
of the Form S-8 filed on May 14, 1999).
4.7 Consulting Agreement between the company and Charlene
Charles, dated March 10, 1999 (incorporated by reference to
Exhibit 4.6 of the Form S-8 filed on May 14, 1999).
4.8 Internet Consulting Services Agreement between the company
and Steve Goodman, dated May 3, 1999 (incorporated by reference
to Exhibit 4.2 of the Form S-8 filed on July 2, 1999).
4.9 Consulting Agreement between the company and Rogel
Patawaran, dated June 8, 1999 (incorporated by reference to
Exhibit 4.3 of the Form S-8 filed on July 2, 1999).
4.10 Consulting and Service Agreement between the company and
Edward Wexler, dated May 20, 1999 (incorporated by reference to
Exhibit 4.4 of the Form S-8 filed on July 2, 1999).
4.11 Consultant Agreement between the company and Richard
Epstein, dated June 3, 1999 (incorporated by reference to
Exhibit 4.5 of the Form S-8 filed on July 2, 1999).
4.12 Consultant Agreement between the company and Ezzat Jallad,
dated March 10, 1999 (incorporated by reference to Exhibit 4.6
of the Form S-8 filed on July 2, 1999).
4.13 Consultant Agreement between the company and Shar
Offenberg, dated June 20, 1998 (incorporated by reference to
Exhibit 4.7 of the Form S-8 filed on July 2, 1999).
4.14 Consultant Agreement between the company and Richard
Parnes, dated May 10, 1999 (incorporated by reference to Exhibit
4.8 of the Form S-8 filed on July 2, 1999).
4.15 Consulting Contract between the company and Robert Bragg,
dated August 19, 1999 (incorporated by reference to Exhibit 4.2
of the Form S-8 filed on August 31, 1999).
4.16 Consultant Agreement between the company and Dominique
Einhorn, dated August 9, 1999 (incorporated by reference to
Exhibit 4.3 of the Form S-8 filed on August 31, 1999).
4.17 Consultant Agreement between the company and Richard
Epstein, dated August 16, 1999 (incorporated by reference to
Exhibit 4.4 of the Form S-8 filed on August 31, 1999).
4.18 Consultant Agreement between the company and Jane Hauser,
dated August 16, 1999 (incorporated by reference to Exhibit 4.5
of the Form S-8 filed on August 31, 1999).
4.19 Form of Debenture issued by the company to CALP II, LP,
dated June 9, 1999 (incorporated by reference to Exhibit 4.3 of
the Form SB-2/A filed on July 22, 1999).
4.20 Registration Rights Agreement between the company and CALP
II, LP, dated June 9, 1999 (incorporated by reference to Exhibit
4.2 of the Form SB-2/A filed on July 22, 1999).
4.21 Form of Warrant issued by the company to CALP II, LP, dated
June 9, 1999 (incorporated by reference to Exhibit 4.4 of the
Form SB-2/A filed on July 22, 1999).
4.22 Common Stock Purchase Agreement between the company and
Alpha Venture Capital, Inc., dated September 28, 1999
(incorporated by reference to Exhibit 4.2 of the Form SB-2 POS
filed on September 29, 1999).
4.23 Registration Rights Agreement between the company and Alpha
Venture Capital, Inc., dated September 28, 1999 (incorporated by
reference to Exhibit 4.3 of the Form SB-2 POS filed on September
29, 1999).
4.24 Warrant issued by the company to Alpha Venture Capital,
Inc., dated September 28, 1999 (incorporated by reference to
Exhibit 4.4 of the Form SB-2 POS filed on September 29, 1999).
4.25 General Form of Warrant issued by the company to various
individuals and companies (see below).
4.26 Amended and Restated Retainer Stock Plan for Non-Employee
Directors and Consultants, dated February 1, 2000 (incorporated
by reference to Exhibit 4.1 of the Form S-8 filed on February
10, 2000).
4.27 Consulting Services Agreement between the company and
Laurel-Jayne Yapel Manzanares, dated February 1, 2000
(incorporated by reference to Exhibit 4.2 of the Form S-8 filed
on February 10, 2000).
4.28 Consulting Services Agreement between the company and
Marcine Aniz Uhler, dated February 1, 2000 (incorporated by
reference to Exhibit 4.3 of the Form S-8 filed on February 10,
2000).
4.29 Consulting Services Agreement between the company and
William Lane, dated February 7, 2000 (incorporated by reference
to Exhibit 4.4 of the Form S-8 filed on February 10, 2000).
4.30 Consulting Services Agreement between the company and Earl
Gilbrech, dated February 7, 2000 (incorporated by reference to
Exhibit 4.5 of the Form S-8 filed on February 10, 2000).
4.31 Consulting Services Agreement between the company and
Dominique Einhorn, dated February 7, 2000 (incorporated by
reference to Exhibit 4.6 of the Form S-8 filed on February 10,
2000).
4.32 Consulting Services Agreement between the company and
Edward James Wexler, dated February 7, 2000 (incorporated by
reference to Exhibit 4.7 of the Form S-8 filed on February 10,
2000).
4.33 Consulting Agreement between the company and R. Scott
Hatfield, dated March 6, 2000 (incorporated by reference to
Exhibit 4.32 of the Form SB-2 POS filed on September 12, 2000).
4.34 Consulting Services Agreement between the company and Chris
Jensen, dated April 24, 2000 (incorporated by reference to
Exhibit 4.33 of the Form SB-2 POS filed on September 12, 2000).
4.35 Consulting Agreement between the company and Robert Graham,
dated May 11, 2000 (incorporated by reference to Exhibit 4.34 of
the Form SB-2 POS filed on September 12, 2000).
4.36 Consulting Agreement between the company and Richard
Epstein, dated May 20, 2000 (incorporated by reference to
Exhibit 4.35 of the Form SB-2 POS filed on September 12, 2000).
4.37 Warrant Agreement between the company, GunnAllen Financial,
Inc., and David Kern Peteler, dated May 24, 2000 (incorporated
by reference to Exhibit 4.43 of the Form 10-QSB filed on
November 14, 2000).
4.38 Consulting Agreement between the company and Richard
Epstein, dated June 2, 2000 (incorporated by reference to
Exhibit 10.1 of the Form S-8 filed on July 10, 2000).
4.39 Consulting Services Agreement between the company and Rogel
Patawaran, dated June 2, 2000 (incorporated by reference to
Exhibit 10.2 of the Form S-8 filed on July 10, 2000).
4.40 Consulting Agreement between the company and Elle Travis,
dated June 2, 2000 (incorporated by reference to Exhibit 10.3 of
the Form S-8 filed on July 10, 2000).
4.41 Consulting Agreement between the company and Charles
Yourshaw, dated June 5, 2000 (incorporated by reference to
Exhibit 10.1 of the Form S-8 filed on July 10, 2000).
4.42 Consulting Agreement between the company and Nick Gorenc,
dated June 5, 2000 (incorporated by reference to Exhibit 10.2 of
the Form S-8 filed on July 10, 2000).
4.43 Consulting Agreement between the company and Louis
Sabatasso, dated June 10, 2000 (incorporated by reference to
Exhibit 10.1 of the Form S-8 filed on July 10, 2000).
4.44 Consulting Agreement between the company and Laurie Belger,
dated June 10, 2000 (incorporated by reference to Exhibit 10.2
of the Form S-8 filed on July 10, 2000).
4.45 Consulting Services Agreement between the company and
Richard Epstein, dated July 21, 2000 (incorporated by reference
to Exhibit 4.1 of the Form S-8 filed on October 10, 2000).
4.46 Amended and Restated Stock Incentive Plan, dated September
1, 2000 (incorporated by reference to Exhibit 4.1 of the Form S-
8 filed on September 12, 2000).
4.47 Amended and Restated Non-Employee Directors and Consultants
Retainer Stock Plan (Amendment No. 2), dated September 1, 2000
(incorporated by reference to Exhibit 4.2 of the Form S-8 filed
on September 12, 2000).
4.48 Consulting Services Agreement between the company and
Richard Epstein, dated September 6, 2000 (incorporated by
reference to Exhibit 4.3 of the Form S-8 filed on September 12,
2000).
4.49 Consulting Services Agreement between the company and Chris
Jensen, dated September 6, 2000 (incorporated by reference to
Exhibit 4.4 of the Form S-8 filed on September 12, 2000).
4.50 Consulting Services Agreement between the company and Jim
Pugh, dated September 12, 2000 (incorporated by reference to
Exhibit 4.2 of the Form S-8 filed on September 28, 2000).
4.51 Consulting Services Agreement between the company and
Darrel Dixon, dated September 14, 2000 (incorporated by
reference to Exhibit 4.3 of the Form S-8 filed on September 28,
2000).
4.52 Consulting Services Agreement between the company and
Robert Graham, dated September 14, 2000 (incorporated by
reference to Exhibit 4.4 of the Form S-8 filed on September 28,
2000).
4.53 Consulting Services Agreement between the company and David
Weiler, dated September 14, 2000 (incorporated by reference to
Exhibit 4.2 of the Form S-8 filed on October 10, 2000).
4.54 Consulting Services Agreement between the company and
Nathaniel Adams, dated September 18, 2000 (incorporated by
reference to Exhibit 4.5 of the Form S-8 filed on September 28,
2000).
4.55 Consulting Services Agreement between the company and Chris
Jensen, dated October 12, 2000 (incorporated by reference to
Exhibit 4.3 of the Form S-8 filed on October 10, 2000).
4.56 Consulting Services Agreement between the company and Quinn
Brady, dated October 12, 2000 (incorporated by reference to
Exhibit 4.4 of the Form S-8 filed on October 10, 2000).
4.57 Addendum To Existing Common Stock Purchase Agreement Dated
September 28, 1999 between the company and Alpha Venture
Capital, Inc., dated October 23, 2000 (see below).
4.58 Amended and Restated Non-Employee Directors and Consultants
Retainer Stock Plan (Amendment No. 3), dated November 1, 2000
(incorporated by reference to Exhibit 4.2 of the Form S-8 filed
on November 20, 2000).
4.59 Consulting Services Agreement between the company and
Michael Sitrick, dated November 4, 2000 (incorporated by
reference to Exhibit 4.3 of the Form S-8 filed on November 20,
2000).
4.60 Consulting Services Agreement between the company and Paul
Francis Peter Egan Pugh, dated November 4, 2000 (incorporated by
reference to Exhibit 4.4 of the Form S-8 filed on November 20,
2000).
4.61 Consulting Services Agreement between the company and James
Wong, dated November 4, 2000 (incorporated by reference to
Exhibit 4.5 of the Form S-8 filed on November 20, 2000).
4.62 Consulting Services Agreement between the company and
Matthew Owens, dated November 4, 2000 (incorporated by reference
to Exhibit 4.2 of the Form S-8 filed on December 12, 2000).
4.63 Consulting Services Agreement between the company and
Marisa Yance, dated November 4, 2000 (incorporated by reference
to Exhibit 4.3 of the Form S-8 filed on December 12, 2000).
4.64 Amended and Restated Stock Incentive Plan (Amendment No.
2), dated November 7, 2000 (incorporated by reference to Exhibit
4.1 of the Form S-8 filed on November 20, 2000).
4.65 Consulting Services Agreement between the company and Tony
Sandalier, dated November 8, 2000 (incorporated by reference to
Exhibit 4.6 of the Form S-8 filed on November 20, 2000).
4.66 Consulting Services Agreement between the company and Chi-
Yuan Chiu, dated November 8, 2000 (incorporated by reference to
Exhibit 4.7 of the Form S-8 filed on November 20, 2000).
4.67 Consulting Services Agreement between the company and
Hsien-Hsiang Tsai, dated November 8, 2000 (incorporated by
reference to Exhibit 4.8 of the Form S-8 filed on November 20,
2000).
4.68 Consulting Services Agreement between the company and
Richard Epstein, dated November 8, 2000 (incorporated by
reference to Exhibit 4.9 of the Form S-8 filed on November 20,
2000).
4.69 Consulting Services Agreement between the company and Bill
West, dated November 8, 2000 (incorporated by reference to
Exhibit 4.10 of the Form S-8 filed on November 20, 2000).
4.70 Consulting Services Agreement between the company and
Clinton Wong, dated November 8, 2000 (incorporated by reference
to Exhibit 4.11 of the Form S-8 filed on November 20, 2000).
4.71 Consulting Agreement between the company and Antonio
Cardenas Jr., dated November 9, 2000 (incorporated by reference
to Exhibit 4.12 of the Form S-8 filed on November 20, 2000).
4.72 Consulting Services Agreement between the company and
William Haseltine, dated November 29, 2000 (incorporated by
reference to Exhibit 4.4 of the Form S-8 filed on December 12,
2000).
4.73 Consulting Services Agreement between the company and Nick
Gorenc, dated November 29, 2000 (incorporated by reference to
Exhibit 4.5 of the Form S-8 filed on December 12, 2000).
4.74 Consulting Services Agreement between the company and Peter
Kokiousis, dated November 29, 2000 (incorporated by reference to
Exhibit 4.6 of the Form S-8 filed on December 12, 2000).
4.75 Consulting Services Agreement between the company and Kris
Narayan, dated November 29, 2000 (incorporated by reference to
Exhibit 4.7 of the Form S-8 filed on December 12, 2000).
4.76 Common Stock Purchase Agreement between the company and
Alpha Venture Capital, Inc., dated December 8, 2000 (see below).
4.77 Warrant to Purchase Shares of Common Stock, issued by the
company to Alpha Venture Capital, Inc., dated December 8, 2000
(see below).
4.78 Addendum to Common Stock Purchase Agreement between the
company and Alpha Venture Capital, Inc., dated February 13, 2001
(see below).
4.79 Line of Credit Agreement between the company and Alliance
Equities, dated March 5, 2001 (see below).
4.80 Debenture issued by the company to Richard Epstein, dated
March 20, 2001 (see below).
4.81 Amended and Restated Non-Employee Directors and Consultants
Retainer Stock Plan (Amendment No. 4), dated April 27, 2001
(incorporated by reference to Exhibit 4.1 of the Form S-8 filed
on May 2, 2001).
4.82 Consulting Services Agreement between the Registrant and
Francis Mecoli, dated March 19, 2001 (incorporated by reference
to Exhibit 4.2 of the Form S-8 filed on May 2, 2001).
4.83 Consulting Services Agreement between the Registrant and
William West, dated March 20, 2001 (incorporated by reference to
Exhibit 4.3 of the Form S-8 filed on May 2, 2001).
4.84 Consulting Services Agreement between the Registrant and
Marc Tow, dated March 20, 2001 (incorporated by reference to
Exhibit 4.4 of the Form S-8 filed on May 2, 2001).
4.85 Consulting Services Agreement between the Registrant and
Felix Campos, dated March 20, 2001 (incorporated by reference to
Exhibit 4.5 of the Form S-8 filed on May 2, 2001).
4.86 Consulting Services Agreement between the Registrant and
Marc Christ, dated March 20, 2001 (incorporated by reference to
Exhibit 4.6 of the Form S-8 filed on May 2, 2001).
4.87 Consulting Services Agreement between the Registrant and
Thomas A. Sandelier, dated March 20, 2001 (incorporated by
reference to Exhibit 4.7 of the Form S-8 filed on May 2, 2001).
4.88 Consulting Services Agreement between the Registrant and
Prince Saud Al-Faisal, dated March 20, 2001 (incorporated by
reference to Exhibit 4.8 of the Form S-8 filed on May 2, 2001).
4.89 Consulting Services Agreement between the Registrant and
Ralph DiFelice, dated March 20, 2001 (incorporated by reference
to Exhibit 4.9 of the Form S-8 filed on May 2, 2001).
5 Opinion Re: Legality (see below).
10.1 Promissory Note between Electronic Transactions &
Technologies and Unipay, Inc., dated April 26, 1999
(incorporated by reference to Exhibit 10.5 of the Form 10-KSB
filed on May 9, 2000).
10.2 Joint Venture Agreement between the company and First
Entertainment Holding Corp., dated April 29, 1999 (incorporated
by reference to Exhibit 10.6 of the Form 10-KSB filed on May 9,
2000).
10.3 Letter of Commitment between the company and Rogel
Technologies, dated May 6, 1999 (incorporated by reference to
Exhibit 2 to the Form 8-K filed on November 15, 1999).
10.4 Acquisition Agreement between the company and eBet.com,
Inc., dated August 12, 1999 (incorporated by reference to
Exhibit 2 to the Form 8-K/A filed on November 15, 1999).
10.5 Consulting Agreement between the company and eMarkit,
Incorporated, dated August 16, 1999 (incorporated by reference
to Exhibit 10.9 of the Form 10-KSB filed on May 9, 2000).
10.6 Stock Exchange Agreement between the company, La Empresa
Ranco Plasticos Limitada, Michael Lanes, and Jamie Ligator,
dated August 31, 1999 (incorporated by reference to Exhibit 2.1
to the Form 8-K filed on November 16, 1999).
10.7 Amendment to Agreement to License Assets dated February 18,
1997 between the company, Electronic Transactions &
Technologies, and James Clinton, dated September 1, 1999 (see
below).
10.8 Agreement and Plan of Acquisition between the company and
PowerClick, Inc., dated September 9, 1999 (incorporated by
reference to Exhibit 10.11 of the Form 10-KSB filed on May 9,
2000).
10.9 Consulting Agreement between the company and International
Investor Relations Group, Inc., dated September 24, 1999
(incorporated by reference to Exhibit 10.12 of the Form 10-KSB
filed on May 9, 2000).
10.10 Agreement between the company and Kanakaris
Communications, dated October 21, 1999 (incorporated by
reference to Exhibit 10.13 of the Form 10-KSB filed on May 9,
2000).
10.11 Letter of Commitment between the company and Rogel
Technologies, dated October 23, 1999 (incorporated by reference
to Exhibit 10.14 of the Form 10-KSB filed on May 9, 2000).
10.12 Capital Contribution Agreement between the company and
SafeTPay.com, dated November 5, 1999 (incorporated by reference
to Exhibit 10.15 of the Form 10-KSB filed on May 9, 2000).
10.13 Agreement between the company and Rogel Technologies,
dated November 23, 1999 (incorporated by reference to Exhibit
10.16 of the Form 10-KSB filed on May 9, 2000).
10.14 Contract of Partnership between the company and Top
Sports, S.A., dated November 20, 1999 (incorporated by reference
to Exhibit 10.17 of the Form 10-KSB filed on May 9, 2000).
10.15 Agreement between the company and Alliance Equities,
dated November 29, 1999 (incorporated by reference to Exhibit
10.18 of the Form 10-KSB filed on May 9, 2000).
10.16 Secured Promissory Note issued to the company by
Electronic Transactions & Technologies and Thomas S. Hughes,
dated December 1, 1999 (incorporated by reference to Exhibit
10.19 of the Form 10-KSB filed on May 9, 2000).
10.17 Security Agreement between the company, Electronic
Transactions & Technologies, and Thomas S. Hughes, dated
December 1, 1999 (incorporated by reference to Exhibit 10.20 of
the Form 10-KSB filed on May 9, 2000).
10.18 Business Cooperation Agreement between the company and
Top Sports, S.A., dated December 9, 1999 (incorporated by
reference to Exhibit 10.21 of the Form 10-KSB filed on May 9,
2000).
10.19 Consulting Agreement between the company and Michael
Leste, dated December 10, 1999 (incorporated by reference to
Exhibit 10.22 of the Form 10-KSB filed on May 9, 2000).
10.20 Consulting Agreement between the company and Michael
Kofoed, dated December 10, 1999 (incorporated by reference to
Exhibit 10.23 of the Form 10-KSB filed on May 9, 2000).
10.21 Agreement between the company and Top Sports S.A.,
dated December 16, 1999 (incorporated by reference to Exhibit
10.24 of the Form 10-KSB filed on May 9, 2000).
10.22 Agreement between the company and eMarkit,
Incorporated, dated December 29, 1999 (incorporated by reference
to Exhibit 10.25 of the Form 10-KSB filed on May 9, 2000).
10.23 Shares Sales Contract between the company and Paul
Egan, dated January 1, 2000 (incorporated by reference to
Exhibit 10.26 of the Form SB-2 POS filed on September 12, 2000).
10.24 Consultancy Agreement between the company and Paul
Egan, dated January 1, 2000 (incorporated by reference to
Exhibit 10.2 of the Form 10-KSB filed on April 25, 2001).
10.25 Fee Agreement between the company and Red Iguana
Trading Company, Inc., dated January 2, 2000 (incorporated by
reference to Exhibit 10.26 of the Form 10-QSB filed on May 30,
2000).
10.26 Consulting Services Agreement between the company and
Richard Epstein, dated January 3, 2000 (incorporated by
reference to Exhibit 10.4 of the Form 10-KSB filed on April 25,
2001).
10.27 Assignment of eSportsbet between the company and
PowerClick, Inc., dated January 7, 2000 (incorporated by
reference to Exhibit 10.27 of the Form 10-QSB filed on May 30,
2000).
10.28 Letter of Intent of Negotiation and Information
Exchange between eConnect2Trade.com, Incorporated, and Empire
Financial Holdings, Incorporated, dated January 21, 2000
(incorporated by reference to Exhibit 10.28 of the Form 10-QSB
filed on May 30, 2000).
10.29 Manufacturing Agreement between the company and Asia
Pacific Micro, Inc., dated January 21, 2000 (incorporated by
reference to Exhibit 10.29 of the Form 10-QSB filed on May 30,
2000).
10.30 Consulting Services Agreement between the company and
Boardwalk Associates, Inc., dated January 26, 2000 (incorporated
by reference to Exhibit 10.30 of the Form 10-QSB filed on May
30, 2000).
10.31 Consulting Services Agreement between the company and
Coldwater Capital L.L.C., dated January 26, 2000 (incorporated
by reference to Exhibit 10.31 of the Form 10-QSB filed on May
30, 2000).
10.32 Consultant Agreement between the company and Harvey M.
Burstein, dated February 2, 2000 (incorporated by reference to
Exhibit 10.32 of the Form 10-QSB filed on May 30, 2000).
10.33 Consultant Agreement between the company and Terrie
Pham, dated February 2, 2000 (incorporated by reference to
Exhibit 10.33 of the Form 10-QSB filed on May 30, 2000).
10.34 Software License, Development, and Maintenance
Agreement (Dominican Republic) between the company and eFunds
Corporation, dated February 3, 2000 (incorporated by reference
to Exhibit 10.34 of the Form 10-QSB filed on May 30, 2000).
10.35 Agreement between the company and Burbank Coach Works,
dated February 3, 2000 (incorporated by reference to Exhibit
10.35 of the Form 10-QSB filed on May 30, 2000).
10.36 Software License, Development, and Maintenance
Agreement (Ireland) between the company and eFunds Corporation,
dated February 4, 2000 (incorporated by reference to Exhibit
10.36 of the Form 10-QSB filed on May 30, 2000).
10.37 Acquisition Agreement between the company and
PowerClick, Inc., dated February 9, 2000 (incorporated by
reference to Exhibit 10.37 of the Form 10-QSB filed on May 30,
2000).
10.38 Agreement between the company and Richard Epstein,
dated February 12, 2000 (incorporated by reference to Exhibit
10.16 of the Form 10-KSB filed on April 25, 2001).
10.39 Loan Agreement between the company and Richard
Epstein, dated February 15, 2000 (incorporated by reference to
Exhibit 10.38 of the Form 10-QSB filed on May 30, 2000).
10.40 PocketPay Joint Venture Agreement between the company
and Pilot Island Publishing, Inc., dated March 1, 2000
(incorporated by reference to Exhibit 10.39 of the Form 10-QSB
filed on May 30, 2000).
10.41 Letter of Intent between the company and Real
Solutions, Ltd., dated March 9, 2000 (incorporated by reference
to Exhibit 10.40 of the Form 10-QSB filed on May 30, 2000).
10.42 Consulting Agreement between the company and Ryan
Kavanaugh, dated March 10, 2000 (incorporated by reference to
Exhibit 10.41 of the Form 10-QSB filed on May 30, 2000).
10.43 Amended Employment Agreement between the company and
Stephen E. Pazian, dated March 21, 2000 (incorporated by
reference to Exhibit 10.42 of the Form 10-QSB filed on May 30,
2000).
10.44 Amended and Restated Employment Agreement between the
company and Stanley C. Morris, dated March 22, 2000
(incorporated by reference to Exhibit 10.43 of the Form 10-QSB
filed on May 30, 2000).
10.45 China-Singapore-Hong Kong-Macao Joint Venture
Agreement between the company, and Raymond Kessler and Li-Wang
Kessler, dated March 27, 2000 (incorporated by reference to
Exhibit 10.44 of the Form 10-QSB filed on May 30, 2000).
10.46 Amended and Restated Secured Promissory Note issued to
the company by Electronic Transactions & Technologies and Thomas
S. Hughes, dated March 31, 2000 (incorporated by reference to
Exhibit 10.45 of the Form 10-QSB filed on May 30, 2000).
10.47 Amended and Restated Security Agreement between the
company, Electronic Transactions & Technologies, and Thomas S.
Hughes, dated March 31, 2000 (incorporated by reference to
Exhibit 10.46 of the Form 10-QSB filed on May 30, 2000).
10.48 Master Service Agreement between the company and REAL
Solutions, Ltd., dated April 13, 2000 (incorporated by reference
to Exhibit 10.48 of the Form SB-2 POS filed on September 12,
2000).
10.49 Consulting and Services Agreement between the company
and Peters Entertainment.com, Inc., dated April 14, 2000
(incorporated by reference to Exhibit 10.49 of the Form SB-2 POS
filed on September 12, 2000).
10.50 Letter of Intent between the company and National Data
Funding Corporation, dated May 22, 2000 (incorporated by
reference to Exhibit 10.50 of the Form 10-QSB/A filed on October
19, 2000).
10.51 Agreement between the company and Top Sports, S.A.,
dated June 20, 2000 (incorporated by reference to Exhibit 10.51
of the Form 10-QSB/A filed on October 19, 2000).
10.52 Asset Purchase Agreement between the company and
Broadband Video, Inc., dated October 4, 2000 (see below).
10.53 Agreement for Sale and Plan of Reorganization between
the company and National Data Funding Corporation, dated October
29, 2000 (see below).
10.54 Letter of Intent between the company and eConnect
Caribbean. S.A., dated March 12, 2001 (see below).
16.1 Letter on change in certifying accountant (incorporated by
reference to Exhibit 16 of the Form 8-K filed on July 23, 1999).
16.2 Letter on change in certifying accountant (incorporated by
reference to Exhibit 16 of the Form 8-K filed on March 15,
2000).
21 Subsidiaries of the company (incorporated by reference to
Exhibit 21 of the Form SB-2 POS filed on September 12, 2000).
23.1 Consent of Accountants (see below).
23.2 Consent of Auditors (see below).
23.3 Consent of Counsel (see below).
24 Special Power of Attorney (see signature page)
99.1 Patents: dated August 9, 1994, May 19, 1998, and September
15, 1998 (incorporated by reference to Exhibit 99.1 of the Form
10-KSB filed on May 9, 2000).
99.2 Trademarks: filed March 31, 1997, February 16, 1999, May 6,
1999, May 24, 1999, June 3, 1999, June 4, 1999, August 12, 1999,
and September 28, 1999 (incorporated by reference to Exhibit
99.2 of the Form 10-KSB filed on May 9, 2000).
99.3 Trademark filed on March 15, 2000 (incorporated by reference to
Exhibit 99.3 of the Form 10-QSB filed on May 30, 2000).
EX-3.4
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
OF
eCONNECT
I, Thomas S. Hughes, certify that:
1. The original articles of the Company were filed with the
Office of the Secretary of State on March 8, 1999.
2. Pursuant to a unanimous written consent of the Board of
Directors of the Company, the Company hereby adopts the
following amendment to the Articles of Incorporation of this
Corporation:
"This Corporation is authorized to issue only one class of
shares of stock, the total number of which is 300,000,000
shares, each with a par value of $0.001."
3. At the duly called and noticed annual meeting of the
shareholders of the Company, held on October 30, 2000, this
amendment was approved by the shareholders of the Company in
compliance with Nevada Revised Statues 78.390, as follows: A
total of 70,450,783 shares of common stock appeared in person or
by proxy (this exceeds the quorum requirements as set forth in
the Bylaws of the Company); a total of 70,321,492 shares voted
in favor of this amendment, 101,908 shares against the
amendment, and 27,382 shares abstained.
/s/ Jack Hall /s/ Thomas S. Hughes
Jack Hall, Secretary Thomas S. Hughes, President/Director
Verification
State of California
SS
County of Los Angeles
On this 20th day of November, 2000, before me, the
undersigned, a Notary Public in and for said State, personally
appeared Jack Hall and Thomas S. Hughes, both personally known
to me (or proved to me on the basis of satisfactory evidence) to
be the persons who subscribed their names to the Certificate of
Amendment to Articles of Incorporation and acknowledged to me
that they executed the same freely and voluntarily and for the
use and purposes therein mentioned.
By: /s/ A. J. Bayne .
Notary Public in and for said
County and State
EX-4.25
GENERAL FORM OF WARRANT
WARRANT TO PURCHASE UP TO ________________
SHARES OF COMMON STOCK
Exercisable Commencing _______________;
Void after _______________.
THIS CERTIFIES that, for value received,
________________________________, an individual [a
______________ corporation], or its registered assigns (the
"Warrantholder"), is entitled, subject to the terms and
conditions set forth in this Warrant, to purchase from eConnect,
a Nevada corporation ("Company"), up to __________________
(__________) fully paid, duly authorized and nonassessable
shares of common stock ("Shares"), $0.001 par value per share,
of the Company ("Common Stock"), at any time commencing after
_______________ and continuing up to 5:00 p.m. Pacific Time on
_______________ (the "Exercise Period") at an exercise price
equal to ________________________________________________,
subject to adjustment pursuant to Section 8 hereof.
This Warrant is subject to the following provisions, terms
and conditions:
Section 1. Transferability.
1.1 Registration. The Warrants shall be issued only in
registered form.
1.2 Transfer. This Warrant shall be transferable only on
the books of the Company maintained at its principal executive
offices upon surrender thereof for registration of transfer duly
endorsed by the Warrantholder or by its duly authorized attorney
or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. Upon any
registration of transfer, the Company shall execute and deliver
a new Warrant or Warrants in appropriate denominations to the
person or persons entitled thereto.
1.3 Common Stock to be Issued. Upon the exercise of
any Warrants and upon receipt by the Company of a facsimile or
original of Warrantholder's signed Election to Exercise Warrant
(See Exhibit A), Company shall instruct its transfer agent to
issue stock certificates, subject to the restrictive legend set
forth below, in the name of Warrantholder (or its nominee) and in
such denominations to be specified by Warrantholder representing
the number of shares of Common Stock issuable upon such exercise,
as applicable. Company warrants that no instructions, other than
these instructions, have been given or will be given to the
transfer agent and that the Common Stock shall otherwise be freely
transferable on the books and records of the Company. It shall be
the Company's responsibility to take all necessary actions and
to bear all such costs to issue the certificates of Common Stock
as provided herein, including the responsibility and cost for
delivery of an opinion letter to the transfer agent, if so
required. The person in whose name the certificates of Common
Stock is to be registered shall be treated as a shareholder of
record on and after the exercise date. Upon surrender of any
Warrant that is to be converted in part, the Company shall issue
to the Warrantholder a new Warrant equal to the unconverted
amount, if so requested by Purchaser:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER
(THE "1933 ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT.
Section 2. Exchange of Warrant Certificate. Any
Warrant certificate may be exchanged for another certificate or
certificates of like tenor entitling the Warrantholder to
purchase a like aggregate number of Shares as the certificate or
certificates surrendered then entitle such Warrantholder to
purchase. Any Warrantholder desiring to exchange a warrant
certificate shall make such request in writing delivered to the
Company, and shall surrender, properly endorsed, the certificate
evidencing the Warrant to be so exchanged. Thereupon, the
Company shall execute and deliver to the person entitled thereto
a new Warrant certificate as so requested.
Section 3. Terms of Warrants: Exercise of Warrants.
(a) Subject to the terms of this Warrant, the Warrantholder
shall have the right, at any time after ________________, but
before 5:00 p.m. Pacific Time on _______________ ("Expiration
Time"), to purchase from the Company up to the number of Shares
which the Warrantholder may at the time be entitled to purchase
pursuant to the terms of this Warrant, upon surrender to the
Company at its principal executive office, of the certificate
evidencing this Warrant to be exercised, together with the
attached Election to Exercise Warrant form duly filled in and
signed, and upon payment to the Company of the Warrant Price (as
defined in and determined in accordance with the provisions of
Section 7 and 8 hereof) or as provided in Section 3(a)(i)
hereof, for the number of Shares with respect to which such
Warrant is then exercised. Payment of the aggregate Warrant
Price shall be made in cash, wire transfer or by cashier's check
or any combination thereof.
(b) Subject to the terms of this Warrant, upon such
surrender of this Warrant and payment of such Warrant Price as
aforesaid, the Company shall promptly issue and cause to be
delivered to the Warrantholder or to such person or persons as
the Warrantholder may designate in writing, a certificate or
certificates (in such name or names as the Warrantholder may
designate in writing) for the number of duly authorized, fully
paid and non-assessable whole Shares to be purchased upon the
exercise of this Warrant, and shall deliver to the Warrantholder
Common Stock or cash, to the extent provided in Section 9
hereof, with respect to any fractional Shares otherwise issuable
upon such surrender. Such certificate or certificates shall be
deemed to have been issued and any person so designated to be
named therein shall be deemed to have become a holder of such
Shares as of the close of business on the date of the surrender
of this Warrant and payment of the Warrant Price,
notwithstanding that the certificates representing such Shares
shall not actually have been delivered or that the Share and
Warrant transfer books of the Company shall then be closed.
This Warrant shall be exercisable, at the sole election of the
Warrantholder, either in full or from time to time in part and,
in the event that any certificate evidencing this Warrant (or
any portion thereof) is exercised prior to the Expiration Time
with respect to less than all of the Shares specified therein at
any time prior to the Expiration Time, a new certificate of like
tenor evidencing the remaining portion of this Warrant shall be
issued by the Company, if so requested by the Warrantholder.
(c) Upon the Company's receipt of a facsimile or original of
Warrantholder's signed Election to Exercise Warrant, the Company
shall instruct its transfer agent to issue one or more stock
certificates representing that number of shares of Common Stock
which the Warrantholder is entitled to purchase in accordance with
the terms and conditions of this Warrant and the Election to
Exercise Warrant attached hereto. The Company shall act as
Registrar and shall maintain an appropriate ledger containing the
necessary information with respect to each Warrant.
(d) Such exercise shall be effectuated by surrendering to
the Company, or its attorney, the Warrants to be converted
together with a facsimile or original of the signed Election to
Exercise Warrant which evidences Warrantholder's intention to
exercise those Warrants indicated. The date on which the Election
to Exercise Warrant is effective ("Exercise Date") shall be deemed
to be the date on which the Warrantholder has delivered to the
Company a facsimile or original of the signed Election to Exercise
Warrant, as long as the original Warrants to be exercised are
received by the Company or its designated attorney within five (5)
business days thereafter. As long as the Warrants to be exercised
are received by the Company within five (5) business days after it
receives a facsimile or original of the signed Election to
Exercise Warrant, the Company shall deliver to the Warrantholder,
or per the Warrantholder's instructions, the shares of Common
Stock within three (3) business days of receipt of the Warrants to
be converted.
(e) Nothing contained in this Warrant shall be deemed to
establish or require the payment of interest to the Warrantholder
at a rate in excess of the maximum rate permitted by governing
law. In the event that the rate of interest required to be paid
exceeds the maximum rate permitted by governing law, the rate of
interest required to be paid thereunder shall be automatically
reduced to the maximum rate permitted under the governing law and
such excess shall be returned with reasonable promptness by the
Warrantholder to the Company.
(f) It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the
certificate of Common Stock as provided herein, including the
responsibility and cost for delivery of an opinion letter to the
transfer agent, if so required. The person in whose name the
certificate of Common Stock is to be registered shall be treated
as a shareholder of record on and after the exercise date. Upon
surrender of any Warrants that are to be converted in part, the
Company shall issue to the Warrantholder new Warrants equal to
the unconverted amount, if so requested by Warrantholder.
(g) The Company shall at all times reserve and have
available all Common Stock necessary to meet exercise of the
Warrants by all Warrantholders of the entire amount of Warrants
then outstanding. If, at any time Warrantholder submits an
Election to Exercise Warrant and the Company does not have
sufficient authorized but unissued shares of Common Stock
available to effect, in full, a exercise of the Warrants (a
"Exercise Default", the date of such default being referred to
herein as the "Exercise Default Date"), the Company shall issue
to the Warrantholder all of the shares of Common Stock which are
available, and the Election to Exercise Warrant as to any
Warrants requested to be converted but not converted (the
"Unconverted Warrants"), upon Warrantholder's sole option, may
be deemed null and void. The Company shall provide notice of
such Exercise Default ("Notice of Exercise Default") to all
existing Warrantholders of outstanding Warrants, by facsimile,
within one (1) business day of such default (with the original
delivered by overnight or two day courier), and the
Warrantholder shall give notice to the Company by facsimile
within five (5) business days of receipt of the original Notice
of Exercise Default (with the original delivered by overnight or
two day courier) of its election to either nullify or confirm
the Election to Exercise Warrant.
(h) Each person in whose name any certificate for shares
of Common Stock shall be issued shall for all purposes be deemed
to have become the holder of record of the Common Stock
represented thereby on the date on which the Warrant was
surrendered and payment of the purchase price and any applicable
taxes was made, irrespective of date of issue or delivery of
such certificate, except that if the date of such surrender and
payment is a date when the Shares transfer books of the Company
are closed, such person shall be deemed to have become the
holder of such Shares on the next succeeding date on which such
Share transfer books are open. The Company shall not close such
Share transfer books at any one time for a period longer than
seven (7) days.
(i) This Warrant is exercisable in whole or in part at the
Exercise Price per share of Common Stock (as defined hereafter)
payable hereunder, payable in cash or by certified or official
bank check, or by "cashless exercise", by means of tendering
this Warrant Certificate to the Company to receive a number of
shares of Common Stock equal to the difference between the
Market Value (as defined hereafter) of the shares of Common
Stock issuable upon exercise of this Warrant and the total cash
exercise price thereof. Upon surrender of this Warrant
Certificate with the annexed Notice of Exercise duly executed,
together with payment of the Exercise Price for the shares of
Common Stock purchased, the Holder shall be entitled to receive
a certificate or certificates for the shares of Common Stock so
purchased. For the purposes of this subsection, "Market Value"
shall be an amount equal to the average closing bid price of a
share of Common Stock for the ten (10) days preceding the
Company's receipt of the Notice of Exercise Form duly executed
multiplied by the number of shares of Common Stock to be issued
upon surrender of this Warrant Certificate.
Section 4. Payment of Taxes. The Company shall pay all
documentary stamp taxes, if any, attributable to the initial
issuance of the Shares; provided, however, that the Company
shall not be required to pay any tax or taxes which may be
payable, (i) with respect to any secondary transfer of this
Warrant or the Shares or (ii) as a result of the issuance of the
Shares to any person other than the Warrantholder, and the
Company shall not be required to issue or deliver any
certificate for any Shares unless and until the person
requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have produced evidence that such
tax has been paid to the appropriate taxing authority.
Section 5. Mutilated or Missing Warrant. In case the
certificate or certificates evidencing this Warrant shall be
mutilated, lost, stolen or destroyed, the Company shall, at the
request of the Warrantholder, issue and deliver in exchange and
substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and substitution for
the certificate or certificates lost, stolen or destroyed, a new
Warrant certificate or certificates of like tenor and
representing an equivalent right or interest, but only upon
receipt of evidence satisfactory to the Company of such loss,
theft or destruction of such Warrant and of a bond of indemnity,
if requested, also satisfactory to the Company in form and
amount, and issued at the applicant's cost. Applicants for such
substitute Warrant certificate shall also comply with such other
reasonable regulations and pay such other reasonable charges as
the Company may prescribe.
Section 6. Reservation of Shares. The issuance, sale
and delivery of the Warrants have been duly authorized by all
required corporate action on the part of the Company and when
issued, sold and delivered in accordance with the terms hereof
and thereof for the consideration expressed herein and therein,
will be duly and validly issued, fully paid, and non-assessable
and enforceable in accordance with their terms, subject to the
laws of bankruptcy and creditors' rights generally. The Company
shall pay all taxes in respect of the issue thereof. As a
condition precedent to the taking of any action that would
result in the effective purchase price per share of Common Stock
upon the exercise of this Warrant being less than the par value
per share (if such shares of Common Stock then have a par
value), the Company will take such corporate action as may, in
the opinion of its counsel, be necessary in order that the
Company may comply with all its obligations under this Agreement
with regard to the exercise of this Warrant.
Section 7. Warrant Price. During the Exercise Period,
the price per Share ("Warrant Price") at which Shares shall be
purchasable upon the exercise of this Warrant shall be -
__________________________________________________.
Section 8. Adjustment of Warrant Price and Number of
Shares. The number and kind of securities purchasable upon the
exercise of this Warrant and the Warrant Price shall be subject
to adjustment from time to time after the date hereof upon the
happening of certain events, as follows:
8.1 Adjustments. The number of Shares purchasable upon
the exercise of this Warrant shall be subject to adjustments as
follows:
(a) In case the Company shall (i) pay a dividend on Common
Stock in Common Stock or securities convertible into,
exchangeable for or otherwise entitling a holder thereof to
receive Common Stock, (ii) declare a dividend payable in cash on
its Common Stock and at substantially the same time offer its
shareholders a right to purchase new Common Stock (or securities
convertible into, exchangeable for or other entitling a holder
thereof to receive Common Stock) from the proceeds of such
dividend (all Common Stock so issued shall be deemed to have
been issued as a stock dividend), (iii) subdivide its
outstanding shares of Common Stock into a greater number of
shares of Common Stock, (iv) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, or
(v) issue by reclassification of its Common Stock any shares of
Common Stock of the Company, the number of shares of Common
Stock issuable upon exercise of the Warrants immediately prior
thereto shall be adjusted so that the holders of the Warrants
shall be entitled to receive after the happening of any of the
events described above that number and kind of shares as the
holders would have received had such Warrants been converted
immediately prior to the happening of such event or any record
date with respect thereto. Any adjustment made pursuant to this
subdivision shall become effective immediately after the close
of business on the record date in the case of a stock dividend
and shall become effective immediately after the close of
business on the effective date in the case of a stock split,
subdivision, combination or reclassification.
(b) In case the Company shall distribute, without
receiving consideration therefor, to all holders of its Common
Stock evidences of its indebtedness or assets (excluding cash
dividends other than as described in Section (8)(a)(ii)), then
in such case, the number of shares of Common Stock thereafter
issuable upon exercise of the Warrants shall be determined by
multiplying the number of shares of Common Stock theretofore
issuable upon exercise of the Warrants, by a fraction, of which
the numerator shall be the closing bid price per share of Common
Stock on the record date for such distribution, and of which the
denominator shall be the closing bid price of the Common Stock
less the then fair value (as determined by the Board of
Directors of the Company, whose determination shall be
conclusive) of the portion of the assets or evidences of
indebtedness so distributed per share of Common Stock. Such
adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date for
the determination of stockholders entitled to receive such distribution.
(c) Any adjustment in the number of shares of Common Stock
issuable hereunder otherwise required to be made by this Section
8 will not have to be adjusted if such adjustment would not
require an increase or decrease in one percent (1%) or more in
the number of shares of Common Stock issuable upon exercise of
the Warrant. No adjustment in the number of Shares purchasable
upon exercise of this Warrant will be made for the issuance of
shares of capital stock to directors, employees or independent
Warrantors pursuant to the Company's or any of its subsidiaries'
stock option, stock ownership or other benefit plans or
arrangements or trusts related thereto or for issuance of any
shares of Common Stock pursuant to any plan providing for the
reinvestment of dividends or interest payable on securities of
the Company and the investment of additional optional amounts in
shares of Common Stock under such plan.
(d) Whenever the number of shares of Common Stock issuable
upon the exercise of the Warrants is adjusted, as herein
provided the Warrant Price shall be adjusted (to the nearest
cent) by multiplying such Warrant Price immediately prior to
such adjustment by a fraction, of which the numerator shall be
the number of shares of Common Stock issuable upon the exercise
of each share of the Warrants immediately prior to such
adjustment, and of which the denominator shall be the number of
shares of Common Stock issuable immediately thereafter.
(e) The Company from time to time by action of its Board
of Directors may decrease the Warrant Price by any amount for
any period of time if the period is at least twenty (20) days,
the decrease is irrevocable during the period and the Board of
Directors of the Company in its sole discretion shall have made
a determination that such decrease would be in the best interest
of the Company, which determination shall be conclusive.
Whenever the Warrant Price is decreased pursuant to the
preceding sentence, the Company shall mail to holders of record
of the Warrants a notice of the decrease at least fifteen (15)
days prior to the date the decreased Warrant Price takes effect,
and such notice shall state the decreased Warrant Price and the
period it will be in effect.
8.2 Mergers, Etc. In the case of any (i) consolidation or
merger of the Company into any entity (other than a
consolidation or merger that does not result in any
reclassification, exercise, exchange or cancellation of
outstanding shares of Common Stock of the Company), (ii) sale,
transfer, lease or conveyance of all or substantially all of the
assets of the Company as an entirety or substantially as an
entirety, or (iii) reclassification, capital reorganization or
change of the Common Stock (other than solely a change in par
value, or from par value to no par value), in each case as a
result of which shares of Common Stock shall be converted into
the right to receive stock, securities or other property
(including cash or any combination thereof), each holder of
Warrants then outstanding shall have the right thereafter to
exercise such Warrant only into the kind and amount of
securities, cash and other property receivable upon such
consolidation, merger, sale, transfer, capital reorganization or
reclassification by a holder of the number of shares of Common
Stock of the Company into which such Warrants would have been
converted immediately prior to such consolidation, merger, sale,
transfer, capital reorganization or reclassification, assuming
such holder of Common Stock of the Company (A) is not an entity
with which the Company consolidated or into which the Company
merged or which merged into the Company or to which such sale or
transfer was made, as the case may be ("constituent entity"), or
an affiliate of a constituent entity, and (B) failed to exercise
his or her rights of election, if any, as to the kind or amount
of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer (provided that if the
kind or amount of securities, cash and other property receivable
upon such consolidation, merger, sale or transfer is not the
same for each share of Common Stock of the Company held
immediately prior to such consolidation, merger, sale or
transfer by other than a constituent entity or an affiliate
thereof and in respect of which such rights or election shall
not have been exercised ("non-electing share"), then for the
purpose of this Section 8.2 the kind and amount of securities,
cash and other property receivable upon such consolidation,
merger, sale or transfer by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a
plurality of the non-electing shares). If necessary,
appropriate adjustment shall be made in the application of the
provision set forth herein with respect to the rights and
interests thereafter of the holder of Warrants, to the end that
the provisions set forth herein shall thereafter correspondingly
be made applicable, as nearly as may reasonably be, in relation
to any shares of stock or other securities or property
thereafter deliverable on the exercise of the Warrants. The
above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers, capital
reorganizations and reclassifications. The Company shall not
effect any such consolidation, merger, sale or transfer unless
prior to or simultaneously with the consummation thereof the
successor company or entity (if other than the Company)
resulting from such consolidation, merger, sale or transfer
assumes, by written instrument, the obligation to deliver to the
holder of Warrants such shares of stock, securities or assets
as, in accordance with the foregoing provision, such holder may
be entitled to receive under this Section 8.2.
8.3 Statement of Warrants. Irrespective of any
adjustments in the Warrant Price of the number or kind of shares
purchasable upon the exercise of this Warrant, this Warrant
certificate or certificates hereafter issued may continue to
express the same price and number and kind of shares as are
stated in this Warrant.
Section 9. Fractional Shares. Any fractional shares of
Common Stock issuable upon exercise of the Warrants shall be
rounded to the nearest whole share or, at the election of the
Company, the Company shall pay the holder thereof an amount in
cash equal to the closing bid price thereof. Whether or not
fractional shares are issuable upon exercise shall be determined
on the basis of the total number of Warrants the holder is at
the time exercising and the number of shares of Common Stock
issuable upon such exercise.
Section 10. No Rights as Stockholders: Notices to
Warrantholders. Nothing contained in this Warrant shall be
construed as conferring upon the Warrantholder or its
transferees any rights as a stockholder of the Company,
including the right to vote, receive dividends, consent or
receive notices as a stockholder with respect to any meeting of
stockholders for the election of directors of the Company or any
other matter. If, however, at any time prior to the Expiration
Time and prior to the exercise of this Warrant, any of the
following events shall occur:
(a) any action which would require an adjustment pursuant
to Section 8.1; or
(b) a dissolution, liquidation or winding up of the Company or
any consolidation, merger or sale of its property, assets and
business as an entirety; then in any one or more of said events,
the Company shall give notice in writing of such event to the
Warrantholder at least ten (10) days prior to the date fixed as
a record date or the date of closing the transfer books for the
determination of the shareholders entitled to any relevant
dividend, distribution, subscription rights, or other rights or
for the effective date of any dissolution, liquidation of
winding up or any merger, consolidation, or sale of
substantially all assets, but failure to mail or receive such
notice or any defect therein or in the mailing thereof shall not
affect the validity of any such action taken. Such notice shall
specify such record date or the effective date, as the case may be.
Section 11. Miscellaneous.
(a) Benefits of this Agreement. Nothing in this Warrant shall
be construed to give to any person or corporation other than the
Company and the Warrantholder any legal or equitable right,
remedy or claim under this Warrant, and this Warrant shall be
for the sole and exclusive benefit of the Company and the
Warrantholder.
(b) Rights Cumulative; Waivers. The rights of each of the
parties under this Warrant are cumulative. The rights of each
of the parties hereunder shall not be capable of being waived or
varied other than by an express waiver or variation in writing.
Any failure to exercise or any delay in exercising any of such
rights shall not operate as a waiver or variation of that or any
other such right. Any defective or partial exercise of any of
such rights shall not preclude any other or further exercise of
that or any other such right. No act or course of conduct or
negotiation on the part of any party shall in any way preclude
such party from exercising any such right or constitute a
suspension or any variation of any such right.
(c) Benefit; Successors Bound. This Warrant and the terms,
covenants, conditions, provisions, obligations, undertakings,
rights, and benefits hereof, shall be binding upon, and shall
inure to the benefit of, the parties hereto and their heirs,
executors, administrators, representatives, successors, and
permitted assigns.
(d) Entire Agreement. This Warrant contains the entire
agreement between the parties with respect to the subject matter
hereof. There are no promises, agreements, conditions,
undertakings, understandings, warranties, covenants or
representations, oral or written, express or implied, between
them with respect to this Warrant or the matters described in
this Warrant, except as set forth in this Warrant. Any such
negotiations, promises, or understandings shall not be used to
interpret or constitute this Warrant.
(e) Assignment. This Warrant may be assigned if the Assignment
of Warrant, attached as Exhibit B to this Warrant, is properly
completed, executed and delivered to the Company.
(f) Amendment. This Warrant may be amended only by an
instrument in writing executed by the parties hereto.
(g) Severability. Each part of this Warrant is intended
to be severable. In the event that any provision of this
Warrant is found by any court or other authority of competent
jurisdiction to be illegal or unenforceable, such provision
shall be severed or modified to the extent necessary to render
it enforceable and as so severed or modified, this Warrant shall
continue in full force and effect.
(h) Notices. Notices required or permitted to be given
hereunder shall be in writing and shall be deemed to be
sufficiently given when personally delivered (by hand, by
courier, by telephone line facsimile transmission, receipt
confirmed, or other means) or sent by certified mail, return
receipt requested, properly addressed and with proper postage
pre-paid (i) if to the Company, at its executive office (ii) if
to the Subscriber, at the address set forth under its name in
the Purchase Agreement, with a copy to its designated attorney
and (iii) if to any other Subscriber, at such address as such
Subscriber shall have provided in writing to the Company, or at
such other address as each such party furnishes by notice given
in accordance with this Section 11(h), and shall be effective,
when personally delivered, upon receipt and, when so sent by
certified mail, four (4) business days after deposit with the
United States Postal Service.
(i) Governing Law. This Agreement shall be governed by the
interpreted in accordance with the laws of the State of New
York without reference to its conflicts of laws rules or
principles. Each of the parties consents to the exclusive
jurisdiction of the federal courts of the State of California in
connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non coveniens,
to the bringing of any such proceeding in such jurisdictions.
(j) Consents. The person signing this Warrant on behalf
of the Company hereby represents and warrants that he has the
necessary power, consent and authority to execute and deliver
this Warrant on behalf of the Company.
(l) Further Assurances. In addition to the instruments
and documents to be made, executed and delivered pursuant to
this Warrant, the parties hereto agree to make, execute and
deliver or cause to be made, executed and delivered, to the
requesting party such other instruments and to take such other
actions as the requesting party may reasonably require to carry
out the terms of this Warrant and the transactions contemplated hereby.
(m) Section Headings. The Section headings in this
Warrant are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Warrant.
(n) Construction. Unless the context otherwise requires, when
used herein, the singular shall be deemed to include the plural,
the plural shall be deemed to include each of the singular, and
pronouns of one or no gender shall be deemed to include the
equivalent pronoun of the other or no gender.
IN WITNESS WHEREOF, the Company has caused this Warrant to
be duly executed as of the ________ day of _____________,
20_____.
COMPANY:
eConnect
By: ________________________
Name: Thomas S. Hughes
Title: President
EXHIBIT A
ELECTION TO EXERCISE WARRANT
The undersigned hereby irrevocably elects to exercise the right
of purchase represented by the within Warrant for, and to
purchase thereunder, _______shares of Common Stock ("Shares")
provided for therein, and requests that certificates for the
Shares be issued in the name of:*
Name:___________________________________________________________
Address:________________________________________________________
Social Security
No.________________________________________________
or Tax ID
Number:_________________________________________________
and, if such number of Shares shall not be all of the Shares
purchasable under the Warrant, that a new Warrant certificate
for the balance of the Shares purchasable under the within
Warrant be registered in the name of the undersigned
Warrantholder or his Assignee* as indicated below and delivered
to the address stated below:
Dated: _________________, 20___
Name of Warrantholder of
Assignee (Please
Print)_____________________________________________
Address:________________________________________________________
Signature:______________________________________________________
Signature
Guaranteed:______________________________________________
Signature of Guarantor
* The Warrant contains restrictions on sale, assignment or transfer.
** Note: The above signature must correspond with the name as
written on the face of this Warrant certificate in every
particular, without alteration or enlargement or any change
whatever, unless this warrant has been assigned.
EXHIBIT B
ASSIGNMENT OF WARRANT
(To be signed only upon assignment of Warrant)*
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
________________________________________________________________
________________________________________________________________
(Name and Address of Assignee must be Printed or Typewritten)
the within Warrant, hereby irrevocably constituting and
appointing _________Attorney to transfer said Warrant on the
books of the Company, with full power of substitution in the premises.
Dated: ___________________, 20____
________________________________**
Signature of Registered Holder
Signature Guaranteed: ________________________________
Signature of Guarantor
* The Warrant contains restrictions on sale, assignment or transfer.
** Note: The signature of this assignment must correspond
with the name as it appears upon the face of the Warrant
certificate in every particular, without alteration or
enlargement or any change whatever.
EX-4.54
ADDENDUM TO EXISTING COMMON STOCK PURCHASE AGREEMENT
DATED
SEPTEMBER 28, 1999
Re: Extension of original Structured Equity Funding Line (SEFL)
with an additional funding commitment for $5,000,000.00.
Dear Mr. Hughes,
This letter replaces the earlier addendum, dated September 26, 2000.
This letter shall serve as an addendum to the Common Stock
Purchase Agreement entered into between the parties, Alpha
Venture Capital, Inc. ("Alpha") ("the Funds") and eConnect (the
"Company"), dated September 28, 1999.
The Funds confirm that certain investment funds advised
exclusively by First Fidelity Capital, Inc. ("FFC") are willing
to extend their commitment described in the September 15, 1999
Term Sheet with an additional Funding Commitment of
$5,000,000.00, on the same terms and conditions as stipulated in
the Term Sheet, dated and executed September 15, 1999, except
with the following amendments:
Commitment Term: One (1) year from the date of execution of
this addendum (Effective Date), with one automatic six month
extension if at least 20% (i.e. $1,000,000.00) of the Commitment
is drawn down during the first six (6) months as of the
Effective Date.
Commitment Fees; Warrants: On the Effective Date, pursuant
to a definitive warrant purchase agreement, the Company shall
deliver to the Funds an aggregate of 2,000,000 five year
warrants to purchase Common Stock (the Warrant Shares), with an
exercise price equal to 80% of the average 5 (Five) day closing
bid price of the Common Stock commencing on the Effective Date
(the "Warrants"). The Company shall in addition deliver to the
Funds up to a maximum of 1,571,428 warrants on a pro rata basis
in conjunction with their draw downs, exercisable at the close
bid price at the date of each draw down (the "Further Warrant Shares").
The Company represents and warrants that the Company is not at
present engaged in discussions, and will not be so engaged, with
any persons, except the Funds for the placement of any equity
financing for the Company via any offerings and the Company will
not be permitted to issue any of its equity securities (or
instruments convertible into or exercisable for equity
securities) in any offerings except to the Funds, until the
latter of a) all of the above commitment has been drawn down, or
b) in a period from today's date until October 23, 2001.
The Company will file with the Commission, no later than
November 25, 2000, a Registration Statement on Form SB-2 (the
"Registration Statement") to register the resale of the shares
of Common Stock purchased by the Funds pursuant to the
Commitment and the shares of Common Stock issuable upon exercise
of the Warrants. The amount of shares to be registered is
agreed to be 25,000,000. The Company will cause the
Registration Statement to become effective within ninety (90)
days from November 25, 2000. If the Registration Statement is
not declared effective within such ninety (90) day period, the
Commitment will terminate and the Funds will retain the Warrants
and non-refundable fee described below.
The Company hereby agrees to cause the Registration Statement to
continue to be effective for a one-year period from the date the
post-effective amendment is declared effective by the Securities
and Exchange Commission.
The terms of this letter are expressively agreed by the parties
to be non-binding, except that, if this letter is signed by both
parties.
Sincerely,
Alpha Venture Capital, Inc.
By: /s/ Barry Herman
Barry Herman, President
Acknowledged and Accepted:
eConnect
By: /s/ Thomas S. Hughes
Thomas S. Hughes, President
EX-4.75
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement ("Agreement") by and
between eConnect, a Nevada corporation (the "Company"), and
Alpha Venture Capital, Inc., a Cook Islands corporation
("Purchaser"), is dated as of December 8, 2000.
Recitals
A. Purchaser desires to purchase, and the Company desires to
sell, shares of the Company's common stock, on the terms and
conditions as are set forth below.
B. The parties intend that the purchase and sale of the shares
as anticipated by this Agreement shall be accomplished without
registration under the Securities Act of 1933, as amended (the
"Securities Act"), and without registration or qualification
under the securities laws of any state or other jurisdiction in
reliance on exemptions from the registration requirements of the
Securities Act, including without limitation Regulation D under
the Securities Act and Section 4(2) of the Securities Act,
provided, however, that except as expressly otherwise provided
in this Agreement, nothing in this Agreement shall act or be
construed as a limitation on Purchaser's right to sell any of
the securities to be acquired pursuant to this Agreement
pursuant to the Registration Statement (as defined below) or in
accordance with applicable laws.
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth below and for other good and valuable
consideration, the receipt and sufficiency of which the parties
acknowledge by their signatures below, the parties agree as
follows (capitalized terms shall have the meanings ascribed to
such terms in Exhibit A hereto, unless otherwise indicated):
1. Purchase of Common Stock.
1.1 Shares.
(a) Subject to the terms and conditions of this Agreement, the
Company agrees to issue and sell to Purchaser, and Purchaser
agrees to acquire from the Company, at each Closing, a number of
shares of Common (the "Shares") at a price equal to eighty-two
percent (82%) of the average Market Price for the five (5)
Business Days immediately following the Put Notice Date (the
"Purchase Price").
(b) The number of Shares to be issued with respect to
each Put shall equal the Put Amount divided by the Market Price.
1.2 Registration. The Company shall file with the
SEC, within fifteen (15) days of the date hereof, a registration
statement on Form SB-2 or other appropriate form (the
"Registration Statement") to register the shares of Common Stock
purchased by Purchaser pursuant to this Agreement. The Company
shall cause the Registration Statement to become effective
within ninety (90) days from the date hereof. If the
Registration Statement is not declared effective within such
ninety (90) day period, the Commitment may terminate at the
option of Purchaser and Purchaser shall retain the Initial Warrant.
2. Closings and Escrow.
2.1 Closing. Each Closing shall occur on the Share Payment
Date at the offices of the Escrow Agent or at such other place,
time or date as the parties may mutually agree to in writing.
At each Closing, Purchaser shall deliver written instructions to
the Escrow Agent to deliver to the Company (against receipt by
the Escrow Agent of a certificate or certificates evidencing the
Additional Shares), the Escrow Funds in U.S. dollars by wire
transfer of immediately available funds to an account designated
by the Company. At the Initial Closing,
(a) the Company shall deliver to Purchaser (i) a certificate or
certificates evidencing the shares to be delivered at the
Initial Closing (the "Initial Shares") and (ii) the Initial
Warrant, duly executed on behalf of the Company; and
(b) Purchaser shall deliver to the Company for the Put Amount
the Purchase Price times the number of Initial Shares, in U.S.
dollars by wire transfer of immediately available funds to an
account designated by the Company.
2.2 Purchases.
(a) The Purchaser hereby unconditionally and irrevocably agrees
to purchase from the Company up to $15,000,000 of Common Stock
(the "Commitment") in one or more tranches on and subject to the
terms and conditions provided this Section 2.2.
(b) Commencing on or after the Effective Date, the Company may
give a notice (a "Put Notice") to the Purchaser, with a copy to
the Escrow Agent. The Put Notice shall specify the dollar
amount (the "Put Amount") of the Common Stock to be purchased by
the Purchaser (which amount shall be not be less than one
hundred fifty thousand dollars ($150,000) and not more than five
million dollars ($5,000,000) in any given Put Notice).
(c) Except as specifically provided in this Section 2.3, the
purchase and sale of Additional Shares effected on each
Additional Closing Date shall be conducted as if it were the
transactions referred to in the Transaction Agreements (other
than Section 2.3 hereof). By way of illustration, and not in
limitation, of the foregoing, each of the Company and the
Purchaser shall be deemed to have made all of the
representations, warranties and covenants set forth in the
Transaction Documents as of the Additional Closing Date.
(d) It shall be a condition to the Company's right to issue a
Put Notice that, as of the Put Notice Date and the relevant
Additional Closing Date, (A) the Registration Statement or
Statements for all Securities purchased prior to the Additional
Closing Date contemplated by the current Put Notice shall have
been declared effective and shall continue to be effective (the
"Registration Statement") and (B) the representations and
warranties of the Company contained in Article 4 hereof shall be
true and correct in all material respects (and the Company's
issuance of the Additional Common Stock shall constitute the
Company's making each such representation and warranty as of
such date) and there shall have been no material adverse changes
(financial or otherwise) in the business or conditions of the
Company from the Initial Closing Date through and including the
Additional Shares (and the Company's issuance of the Additional
Common Stock shall constitute the Company's making such
representation and warranty as of such date).
(e) As of each Put Notice Date and Closing Date, the minimum
Put Amount shall not be less than one hundred fifty thousand
dollars ($150,000) and the maximum Put Amount shall not exceed
the lesser of two hundred percent (200%) of the average Trading
Volume for the twenty (20) consecutive trading days ending the
day before the relevant Put Notice and Closing Date, or $5,000,000.
(f) Except to the extent specifically contemplated by the
provisions of this Section, each Additional Closing shall be
conducted upon the same terms and conditions as those applicable
to the closing held on the Initial Closing Date.
(g) The Purchaser's obligations under this Section 2.2 shall
terminate at the later of (i) twelve (12) months after the
Initial Closing Date, or (ii) the date at which the Company has
sold $15,000,000 worth of Common Stock to the Purchaser,
provided, however, that the Company shall be entitled to one
automatic twelve (12) month extension if at least twenty percent
(20%) (i.e. $3,000,000) of the Commitment is drawn down during
the first six (6) months from the Effective Date.
2.3 Escrow. Within three (3) Business Days after the Company
has delivered a written notice to Purchaser that the SEC has
declared the Registration Statement effective.
(a) the Company shall deliver to the Escrow Agent the Joint
Escrow Instructions and the Initial Put Notice, duly executed on
behalf of the Company; and
(b) Purchaser shall deliver to the Escrow Agent, (i) the Joint
Escrow Instructions in the form annexed hereto as Exhibit B,
duly executed on behalf of Purchaser, and (ii) the Put Amount
reflected in the Initial Put Notice, in U.S. dollars by wire
transfer of immediately available funds to such account as may
be designated by the Escrow Agent.
2.4 Share Escrow.
(a) Simultaneous with the execution of this Agreement, the
Company agrees to deliver thirty million (30,000,000) shares of
Common Stock to the Escrow Agent to be held in Escrow, pursuant
to the terms of the Joint Escrow Instructions annexed hereto as
Exhibit B.
(b) Simultaneous with the effectiveness of the Registration
Statement, the Company shall deliver to the Transfer Agent and
the Escrow Agent, the Joint Escrow Instructions in the form
annexed hereto as Exhibit B.
(c) The Common Stock shall be maintained with the Escrow Agent
until the termination of Purchaser's obligations under this
Agreement ("Escrow Period"). At such time, the Escrow Agent,
upon written notice from the Company, shall release the unissued
share certificates back to the Transfer Agent within five (5)
Business Days thereafter.
2.5 Share Issuance.
(a) Not later than two (2) Business Days after the Share
Valuation Date, the Purchaser shall deliver a letter to the
Escrow Agent, advising the Escrow Agent of the maximum number of
shares that may be sold by the Purchaser free of restrictive
legend pursuant to the relevant Put Notice (the "Share Valuation
Letter"). Purchaser shall make payment of the Put Amount (less
any applicable legal or other fees) within three (3) Business
Days after delivery of the Share Valuation Letter to the Escrow
Agent ("Share Payment Date").
(b) In the event the Company does not deliver the requisite
instructions under Section 2.5(a) to the Escrow Agent within
two (2) Business Days after the Share Valuation Date, the
Purchaser may at its option, elect to treat the Put Notice as
null and void.
(c) If the effectiveness of the Registration Statement shall be
suspended for any reason, Purchaser shall be under no obligation
to accept or honor any Put Notice for a minimum period of
fifteen (15) days after the lifting of such suspension of the
Registration Statement.
3. Representations and Warranties of Purchaser. To induce the
Company's acceptance of this Agreement, Purchaser hereby
certifies, represents and warrants to the Company and its agents
and attorneys as follows, which representations and warranties
are solely for the benefit of the Company and may be waived in
whole or in part at any time prior to Closing by the Company:
3.1 Intent. Purchaser will be acquiring the Securities for its
own account, and Purchaser has no present intent (whether or not
legally binding) to sell any of the Securities to or through any
Person; provided, however, that by making the representations
herein, Purchaser 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 U.S.
federal and state securities laws applicable to such disposition
and any restrictions imposed on such transfer by this Agreement
or the instruments and documents executed in connection with
this Agreement. Purchaser understands that the Securities must
be held indefinitely unless the Securities are subsequently
registered under the Securities Act or an exemption from
registration is available. Purchaser has been advised or is
aware of the provisions of Rule 144 promulgated under the
Securities Act.
3.2 Sophisticated Investor; Domicile. Purchaser and each of
its stockholders is a "sophisticated investor" (as described in
Rule 506(b)(2)(ii) of Regulation D under the Securities Act) and
an "accredited investor" (as defined in Rule 501(a) of
Regulation D under the Securities Act), and Purchaser has such
knowledge and experience in business and financial matters that
it is capable of evaluating the merits and risks of an
investment in the Company's Securities. Purchaser was not formed
exclusively for the purpose of entering into the transactions
contemplated hereby.
3.3 Ability of Purchaser to Bear Risk of Investment. Purchaser
acknowledges that the Securities are speculative investments and
involve a high degree of risk and Purchaser is able to bear the
economic risk of an investment in the Securities, and, at the
present time, is able to afford a complete loss of such investment.
3.4 Authority. This Agreement has been duly authorized and
validly executed and delivered by Purchaser and (assuming due
authorization and valid execution by the Company) is a legal,
valid and binding agreement of Purchaser enforceable against
Purchaser in accordance with its terms, subject to general
principles of equity and to bankruptcy, insolvency or similar
laws relating to, or affecting generally the enforcement of
creditors' rights and remedies or by other equitable principles
of general application. The person or persons executing this
Agreement and all exhibits to this Agreement and documents or
instruments executed in connection with this Agreement on behalf
of Purchaser have all requisite authority to do so on behalf of
Purchaser.
3.5 Brokers, Finders. Purchaser has taken no action which
would give rise to any claim by any Person for brokerage
commission, finder's fees or similar payments by the Company
relating to this Agreement or the transactions contemplated
hereby. The Company shall have no obligation with respect to
such fees or with respect to any claims made by or on behalf of
other Persons for fees of a type contemplated in this Section
3.5 that may be due in connection with the transactions
contemplated hereby, except as expressly provided in Section 4.14.
3.6 Organization; Authority. Purchaser is an entity organized,
validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and
authority to enter into and to consummate the transactions
contemplated by this Agreement and to carry out its obligations
thereunder. The acquisition of the Securities and the payment
of the Purchase Price therefor by Purchaser have been duly
authorized by all necessary action on the part of Purchaser.
3.7 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in
connection herewith (collectively with this Agreement, the
"Transaction Documents"), and the consummation of the
transactions contemplated by the Transaction Documents, and
compliance with the requirements thereof, will not violate any
law, rule, regulation, order, writ, judgment, injunction, decree
or award binding on Purchaser, or the provision of any
indenture, instrument or agreement to which Purchaser is a party
or is subject, or by which Purchaser or any of its assets is
bound, or conflict with or constitute a material default
thereunder, or require the approval of any third-party pursuant
to any material contract, agreement, instrument, relationship or
legal obligation to which Purchaser is subject or to which any
of its assets, operations or management may be subject.
3.8 Disclosure; Access to Information. Purchaser has received
copies of or has had access to all documents, records, books and
other information pertaining to Purchaser's investment in the
Company and the Securities that have been requested by
Purchaser. Purchaser has been afforded the opportunity to ask
questions of and receive answers from the Company and its
management concerning all aspects of the Company and of this
transaction. Purchaser further acknowledges that it understands
that the Company is subject to the periodic reporting
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and Purchaser has reviewed or received
copies of any such reports that have been requested by it.
Purchaser further acknowledges that it has been provided with
copies of the Company's certificate of incorporation, as amended
(the "Certificate"), and the Company's by-laws (the "By-Laws").
3.9 Manner of Sale. At no time was Purchaser presented with or
solicited by or through any leaflet, public promotional meeting,
television advertisement or any other form of general
solicitation or advertising with respect to the Securities.
3.10 Accuracy of Other Materials. To the extent Purchaser has
received from the Company documents or other materials which
constitute summaries, projections, forecasts or estimates,
Purchaser acknowledges the following with respect to such
documents or other materials: Such documents or other materials
are intended to illustrate projected financial and other results
based upon a set of assumptions (in some cases based on
information obtained by the Company from outside sources) the
Company views as reasonable and obtainable; all such summaries,
projections, forecasts or estimates pertaining to revenue
growth, profitability and other similar financial or market data
are forward-looking statements; such statements are subject to
certain risks and uncertainties that could cause actual results
to differ materially from those projected; and no
representations or warranties of future performance by or market
trends for the Company are intended, and such are expressly disclaimed.
3.11 Accuracy of Representations and Information. All
representations made by Purchaser in this Agreement and all
documents and instruments related to this Agreement, and all
information provided by Purchaser to the Company concerning
Purchaser are correct and complete in all material respects as
of the date hereof.
4. Representations and Warranties of the Company. Except as
otherwise set forth in the schedules hereto, the Company hereby
represents and warrants to Purchaser as follows, which
representations and warranties are solely for the benefit of
Purchaser and may be waived in whole or in part by Purchaser at
any time prior to Closing:
4.1 Company Status. The Company has registered the Common
Stock pursuant to Section 12(g) of the Exchange Act, is in full
compliance with all reporting requirements of the Exchange Act,
and the Company has maintained all requirements for the
continued listing of the Common Stock, and such Common Stock is
currently listed on the Over the Counter Bulletin Board.
4.2 Current Public Information. The Company has furnished or
made available to Purchaser true and correct copies of all
registration statements, reports and documents, including proxy
statements (other than preliminary proxy statements), filed with
SEC by or with respect to the Company since December 31, 1999
and prior to the date of this Agreement, pursuant to the
Securities Act or the Exchange Act (collectively, the "SEC
Documents"). The SEC Documents are the only filings made by or
with respect to the Company since December 31, 1999 pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act or
pursuant to the Securities Act. The Company has filed all
reports, schedules, forms, statements and other documents
required to be filed under Sections 13(a), 13(c), 14 and 15(d)
of the Exchange Act since December 31, 1999 and prior to the
date of this Agreement.
4.3 No General Solicitation. Neither the Company, nor any of
its affiliates, nor any Person acting on its or their behalf,
has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the
Securities Act) in connection with the offer or sale of the Securities.
4.4 Valid Issuance of Common Stock. The Company has an
authorized capitalization consisting of 300,000,000 shares of
Common Stock, and no shares of preferred stock. As of December
7, 2000, the Company has issued and outstanding 215,359,897
shares of Common Stock. The number of shares of Common Stock
which are subject to issuance upon the conversion or exercise of
presently issued and outstanding warrants and options of the
Company are as set forth in Schedule 4.4. Schedule 4.4 sets
forth the number of shares of Common Stock which are reserved
for issuance under the Company's existing stock option plans. No
shares of the Company's preferred stock are issued and
outstanding. All of the shares of Common Stock outstanding have
been duly and validly authorized and issued and are fully paid
and non-assessable. Except as set forth above or as disclosed
in Schedule 4.4, as of the date of this Agreement, (i) there are
no outstanding 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 redeem or
issue additional shares of capital stock of the Company or any
of the 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 the
Subsidiaries, (ii) there are no outstanding debt securities of
the Company or any of its Subsidiaries, other than indebtedness
to banks and other institutional lenders set forth on Schedule
4.4, and (iii) there are no agreements or arrangements under
which the Company or any of the Subsidiaries is obligated to
register the sale of any of their securities under the
Securities Act. Except as disclosed in Schedule 4.4, there are
no securities or instruments containing any anti-dilution, right
of first refusal, preemptive rights or similar provisions that
will be triggered by the issuance of the Securities as described
in this Agreement. Upon issuance of the Securities, such
securities will be duly and validly issued, fully paid and
non-assessable.
4.5 Organization and Qualification. The Company is a
corporation duly incorporated and existing in good standing
under the laws of the State of Nevada and has the requisite
corporate power to own its properties and to carry on its
business as now being conducted. The Company does not have any
Subsidiaries, except for those listed on Schedule 4.5 attached
to this Agreement (the "Subsidiaries"). The Subsidiaries are
duly incorporated and existing in good standing under the laws
of the jurisdictions of their incorporation. The Company and
each of the Subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, other
than those in which the failure to qualify would not have a
Material Adverse Effect. "Material Adverse Effect" means any
effect on the business, operations, properties or financial
condition of the entity or entities with respect to which such
term is used and which is material and adverse to such entity or
to other entities controlling or controlled by such entity,
and/or any condition or situation which would prohibit or
otherwise interfere with the ability of the entity or entities
with respect to which said term is used to enter into and
perform its or their obligations under the Transaction Documents.
4.6 Authorization: Enforcement. (i) The Company has the
requisite corporate power and authority to enter into and
perform its obligations under the Transaction Documents and to
issue the Securities in accordance with the terms of the
Transaction Documents, (ii) the execution, issuance and delivery
of the Transaction Documents by the Company and the consummation
by it of the transactions contemplated by the Transaction
Documents have been duly authorized by all necessary corporate
action, and no further consent or authorization of the Company
or its board of directors or stockholders is required, (iii) the
Transaction Documents have been duly executed and delivered by
the Company, and (iv) the Transaction Documents (assuming due
authorization and valid and legal execution by Purchaser)
constitute legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
4.7 Corporate Documents. The Company has furnished or made
available to Purchaser true and correct copies of the
Certificate and the Bylaws.
4.8 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, including
without limitation the issuance of the Securities, do not and
will not (i) result in a violation of the Company's Certificate
or Bylaws, or (ii) conflict with, or result in a breach of or
forfeiture of any rights (or result in an event which with
notice or lapse of time or both would become a breach of or
forfeiture of any rights) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument to which the Company
or any of the Subsidiaries is a party, or (iii) result in a
violation of any federal or state law, rule, regulation, order,
judgment or decree (including federal and state securities laws
and regulations) applicable to the Company or any of the
Subsidiaries or by which any property or asset of the Company or
any of the Subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in
the aggregate, have a Material Adverse Effect). The business of
the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for
possible violations which either singly or in the aggregate do
not and will not have a Material Adverse Effect. The Company is
not required under federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental
agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the
Securities in accordance with the terms of this Agreement (other
than any SEC, NASD or state securities filings which may be
required to be made by the Company subsequent to any Closing
hereunder, and any Registration Statement which may be filed in
furtherance of this Agreement); provided that, for purposes of
the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant
representations and agreements of Purchaser herein. Neither the
Company nor any of the Subsidiaries is in violation of any
material term of or in material default under its Certificate or
By-laws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree of order
or any statute, rule or regulation applicable to the Company or
the Subsidiaries, which has not been duly waived as of the date
of this Agreement.
4.9 SEC Documents. As of their respective dates, the SEC
Documents complied, and all similar documents filed with the SEC
prior to each Closing Date will comply, in all material respects
with the requirements of the Securities Act or the Exchange Act,
as the case may be, and the rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws,
rules and regulations applicable to such SEC Documents, and none
of the SEC Documents contained, nor will any similar document
filed with the SEC prior to each Closing Date contain, any
untrue statement of a material fact or omitted or omit to state
a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC
Documents, as of the dates thereof, complied, and all similar
documents filed with the SEC prior to each Closing Date will
comply, as to form in all material respects with applicable
accounting requirements and the published rules and regulations
of the SEC and other applicable rules and regulations with
respect thereto. Such financial statements were prepared in
accordance with generally accepted accounting principles applied
on a consistent basis during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may
be condensed or summary statements as permitted by Form 10-QSB
of the SEC) and fairly present in all material respects the
financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated
results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal
year-end audit adjustments).
4.10 No Undisclosed Liabilities. Except to the extent described
in Schedule 4.10, the Company and the Subsidiaries have no
liabilities or obligations of a financial nature (whether
accrued, absolute, contingent or otherwise), which are material,
individually or in the aggregate, and are not disclosed in the
SEC Documents, other than those incurred in the ordinary course
of the Company's or the Subsidiaries' respective businesses
consistent with past practice since September 30, 2000, and
which, individually or in the aggregate, do not or would not
have a Material Adverse Effect on the Company.
4.11 Litigation and Other Proceedings. Except as may be set
forth in the SEC Documents or otherwise disclosed in writing to
Purchaser, there are no lawsuits or proceedings pending or to
the best knowledge of the Company threatened, against the
Company, nor has the Company received any written or oral notice
of any such action, suit, proceeding or investigation, which
might have a Material Adverse Effect on the Company or which
might materially adversely affect the transactions contemplated
by this Agreement. Except as set forth in the SEC Documents, no
judgment, order, writ, injunction, decree or award has been
issued by or, to the best knowledge of the Company, requested of
any court, arbitrator or governmental agency which might result
in a Material Adverse Effect or which might materially adversely
affect the transactions contemplated by this Agreement.
4.12 Other Documents or Materials. With respect to any document
or other materials received by Purchaser from the Company or its
representatives other than the Transaction Documents and the SEC
Documents, (i) the Company has no reason to believe any of such
documents and materials or any projections contained therein, as
of the date of such other documents or materials, contained
material errors or misstatements or did not adequately describe
the status of the development of the Company's technologies or
its business as of such date, and (ii) such documents, materials
and projections were prepared by the Company and its management
in good faith.
4.13 Nature of Company. The Company is not an open ended
investment company or a unit investment trust, registered or
required to be registered, or a closed end investment company
required to be registered, but not registered, under the
Investment Company Act of 1940.
4.14 Brokers, Finders. Except for payment of commitment fees to
Purchaser equal to eight percent (8%) of the amount specified in
each Put Notice, payment of which is the sole responsibility of
the Company, the Company has taken no action which would give
rise to any claim by any Person for brokerage commission,
finder's fees or similar payments by Purchaser relating to this
Agreement or the transactions contemplated hereby. Purchaser
shall have no obligation with respect to such fees or with
respect to any claims made by or on behalf of other Persons for
fees of a type contemplated in this Section 4.14 that may be due
in connection with the transactions contemplated hereby.
4.15 Absence of Certain Changes. Since September 30, 2000,
no Material Adverse Effect has been suffered by, and no material
adverse development has occurred in the business, properties,
operations, financial condition or results of operations of the
Company or the Subsidiaries. The Company has not taken any
steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy law nor does the Company
or any of the Subsidiaries have any knowledge or reason to
believe that its creditors intend to initiate involuntary
bankruptcy proceedings.
4.16 Intellectual Property Rights. The Company and the
Subsidiaries own or possess adequate rights or licenses to use
all trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct
their respective businesses as now conducted. None of the
Company's trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, government
authorizations, trade secrets or other intellectual property
rights have expired or terminated, or are expected to expire or
terminate in the near future. The Company and the Subsidiaries
do not have any knowledge of any infringement by the Company or
the Subsidiaries of trademarks, trade name rights, patents,
patent rights, copyrights, inventions, licenses, service names,
service marks, service mark registrations, trade secrets or
other similar rights of others, or of any such development of
similar or identical trade secrets or technical information by
others and, there is no claim, action or proceeding being made
or brought against, or to the best knowledge of the Company,
being threatened against, the Company or the Subsidiaries
regarding trademark, trade name, patent, patent rights,
invention, copyright, license, service name, service mark,
service mark registration, trade secret or other infringement;
and the Company and the Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
The Company and the Subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of
all of their intellectual properties.
4.17 Internal Accounting Controls. The Company is not aware in
any respect in which its system of internal accounting controls
is not sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting
principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general
or specific authorization and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
4.18 Tax Status. The Company and the Subsidiaries have made or
filed all federal and state income and all other tax returns,
reports and declarations required by any jurisdiction to which
any of them is subject and have paid all taxes and other
governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports,
declarations, except those being contested in good faith and
have set aside on their books provisions reasonably adequate for
the payment of all taxes for periods subsequent to the periods
to which such returns, reports, or declarations apply. There
are no unpaid taxes in any material amount claimed to be due by
the taxing authority of any jurisdiction, and the officers of
the Company know of no basis for any such claim.
4.19 Certain Transactions. Except as set forth in Schedule 4.19
or in the SEC Documents and except for arm's length
transactions pursuant to which the Company makes payments in the
ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the
grant of stock options, none of the officers, directors, or
employees of the Company (or any spouse or relative of any such
person) is presently a party to any transaction with the Company
(other than for services as employees, officers, consultants and
directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or
otherwise requiring payments to or from any officer, director or
such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.
4.20 Dilution. The Company's executive officers and directors
have studied and fully understand the nature of the transactions
contemplated by this Agreement and recognize that such
transactions have a potential dilutive effect. The board of
directors of the Company has concluded, in its good faith
business judgment, that such issuance is in the best interests
of the Company.
4.21 OTC BB Listing. The Company's Common Stock is presently
quoted on the Over the Counter Bulletin Board under the symbol
"ECNC." The Company is not in receipt of any written notice
from any stock exchange, market or trading facility on which the
Common Stock is or has been listed (or on which it is or has
been quoted) to the effect that the Company is not in compliance
with the listing or maintenance requirements of such stock
exchange, market or trading facility or that the Common Stock
will be delisted from such stock exchange, market or trading facility.
4.22 No Integrated Offering. Neither the Company nor any
of its affiliates nor any Person acting on its or their behalf
has, directly or indirectly, at any time since December 31,
1999, made any offer or sales of any security or solicited any
offers to buy any security under circumstances that would
eliminate the availability of the exemption from registration
under Regulation D in connection with the offer and sale of the
Securities as contemplated hereby.
5. Use and Disposition of Proceeds. The Company will use the
proceeds from the sale of the Common Stock (excluding amounts
paid by the Company for legal fees and finder's fees in
connection with the sale to Purchaser) for general corporate
purposes, but shall not, directly or indirectly, use such
proceeds for investment in any other Affiliate or to repay debt
to Affiliates.
6. Company Reliance on Purchaser's Representations. Purchaser
understands that the Company is relying on the truth and
accuracy of the representations and warranties made herein by
Purchaser in offering the Securities for sale and in relying
upon applicable exemptions available under the Securities Act
and applicable state securities laws.
7. Restricted Shares. Purchaser understands and acknowledges
that if the Securities have not been, and will not as of the
time issued be, registered under the Securities Act, they will
be issued in reliance upon exemptions from the registration
requirements of the Securities Act, and thus cannot be resold
unless they are included in an effective Registration Statement
filed under the Securities Act or unless an exemption from
registration is available for such resale. With regard to the
restrictions on resales of the Securities, Purchaser is aware
(a) that the Company will issue stop transfer orders to its
stock transfer agent in the event of attempts to improperly
transfer any Securities; and (b) that a restrictive legend will
be placed on certificates representing the Securities, which
legend will read substantially as follows:
THESE SECURITIES ARE NOT REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE ACT AND REGULATIONS PROMULGATED UNDER THE
ACT, INCLUDING EXEMPTIONS UNDER SECTIONS 3(b) AND 4(2) OF THE
ACT AND THE PROVISIONS OF REGULATION D UNDER SUCH ACT, AND
SIMILAR EXEMPTIONS UNDER STATE LAW. ACCORDINGLY, THESE
SECURITIES MAY NOT BE RESOLD, TRANSFERRED, PLEDGED, ASSIGNED OR
HYPOTHECATED UNLESS SUCH SECURITIES ARE COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER THE ACT OR AN EXEMPTION FROM
SUCH REGISTRATION REQUIREMENT IS AVAILABLE AND THE COMPANY HAS
RECEIVED AN OPINION OF SECURITIES COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH EXEMPTION IS AVAILABLE.
The legend set forth above shall be promptly removed without
additional cost or delay, and the Company shall issue a
certificate without such legend to the holder of any of the
Securities upon which such legend is stamped (or to the holder's
assignee), if, unless otherwise required by state securities
laws, (i) such securities are registered for resale, or have
been sold, under an effective registration statement under the
Securities 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 the Securities may be made without
registration under the Securities Act, or (iii) such holder
provides the Company with reasonable assurances that the
Securities can be sold pursuant to Rule 144 promulgated under
the Securities Act without any restriction as to the number of
securities acquired as of a particular date that can then be
immediately sold. Notwithstanding the removal of the legend set
forth above, in the event the Securities are registered for
resale on an effective registration statement, the Company
reserves the right to affix a legend on certificates
representing the Securities that any selling shareholder named
in the registration statement must comply with the prospectus
delivery requirements of the Securities Act in connection with
any resale. The Company shall bear the cost of the removal of
any legend as anticipated by this Section 7.
8. Other Covenants of the Company.
8.1 Furnishing of Information. As long as Purchaser owns
Securities, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable
grace period) all reports required to be filed by the Company
after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. If at any time prior to the date on which
Purchaser may resell all of the Securities without volume
restrictions pursuant to Rule 144(k) promulgated under the
Securities Act (as determined by counsel to the Company pursuant
to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent for the benefit of
and enforceable by Purchaser) the Company is not required to
file reports pursuant to such sections, it will prepare and
furnish to Purchaser and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act annual and
quarterly financial statements, together with a discussion and
analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required
to be included in reports required by Section 13(a) or 15(d) of
the Exchange Act in the time period that such filings would have
been required to have been made under the Exchange Act. The
Company further covenants that it will take such further action
as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell
Securities without registration under the Securities Act within
the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act.
8.2 Certain Agreements. The Company covenants and agrees that
it will not, without the prior written consent of Purchaser
enter into any subsequent or further offer or sale of Common
Stock or securities convertible into Common Stock with any third
party or issue any shares of Common Stock to any consultant or
other third party utilizing a registration statement on Form S-8
until the later of December 4, 2001 or upon the total Put
Amounts reaching fifteen million dollars ($15,000,000), other
than as agreed to in writing by the parties. The provisions of
this Section 8.2 will not apply to (a) the issuance of
securities (other than for cash) in connection with a merger,
consolidation, sale of assets, disposition or the exchange of
the capital stock for assets, stock or other joint venture
interests, or (b) upon conversion or exercise of any convertible
or derivative securities outstanding on the date hereof, as set
forth on Schedule 8.2.
8.3 Warrants. The Company agrees to issue to Purchaser
transferable divisible warrants (i) upon execution hereof, to
purchase two million (2,000,000) shares of Common Stock at an
exercise price equal to the lesser of (a) forty percent (40%) of
the Market Price of the Common Stock as of the date hereof (the
"Initial Warrant"), or (b) forty percent (40%) of the average
five (5) day Market Price as of the Effective Date of the
Registration Statement; and (ii) to purchase a maximum of one
million (1,000,000) shares of Common Stock ("Additional
Warrants") on a pro rata basis in conjunction with each
Additional Closing, exercisable at forty percent (40%) of the
Market Price, at the date of each Additional Closing.
8.4 Liquidated Damages. If on any Closing Date or
any Delivery Date, the Company fails to deliver the Shares to be
purchased by Purchaser, and such failure continues for three (3)
Business Days, the Company shall pay to Purchaser, in cash, as
liquidated damages and not as a penalty, an amount equal to $500
per each $100,000 funded for each day that the Shares purchased
by Purchaser are not delivered up to ten (10) days, and $1,000
per each $1,000,000 funded for each day that the Shares
purchased by Purchaser are not delivered in excess of ten (10)
days until such failure has been cured. Cash payments to be
made pursuant to this Section 8.4 shall be due and payable
immediately upon demand in immediately available cash funds.
8.5 Available Shares. The Company shall have at all
times authorized and reserved for issuance, free from preemptive
rights, a sufficient number of shares under the terms of this
Agreement and Common Stock for issuance pursuant to the exercise
of the Warrants.
8.6 Reimbursement. If (i) Purchaser, other than by reason of
its gross negligence or willful misconduct, becomes involved in
any capacity in any action, proceeding or investigation brought
by any stockholder of the Company, in connection with or as a
result of the consummation of the transactions contemplated by
the Transaction Documents, or if Purchaser is impleaded in any
such action, proceeding or investigation by any Person, or (ii)
Purchaser, other than by reason of its gross negligence or
willful misconduct or by reason of its trading of the Common
Stock in a manner that is illegal under applicable securities
laws, becomes involved in any capacity in any action, proceeding
or investigation brought by the SEC against or involving the
Company or in connection with or as a result of the consummation
of the transactions contemplated by the Transaction Documents,
or if Purchaser is impleaded in any such action, proceeding or
investigation by any Person, then in any such case, the Company
will reimburse Purchaser for its reasonable legal and other
expenses (including the cost of any investigation and
preparation) incurred in connection therewith, as such expenses
are incurred. In addition, other than with respect to any
matter in which Purchaser is a named party, the Company will pay
Purchaser the charges, as reasonably determined by Purchaser,
for the time of any officers or employees of Purchaser devoted
to appearing and preparing to appear as witnesses, assisting in
preparation for hearings, trials or pretrial matters, or
otherwise with respect to inquiries, hearing, trials, and other
proceedings relating to the subject matter of this Agreement.
The reimbursement obligations of the Company under this
paragraph shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and
conditions to any Affiliates of Purchaser who are actually named
in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any),
as the case may be, of Purchaser and any such Affiliates, and
shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the
Company, Purchaser and any such Affiliates and any such Person.
The Company also agrees that neither any Purchaser nor any such
Affiliates, partners, directors, agents, employees or
controlling persons shall have any liability to the Company or
any person asserting claims on behalf of or in right of the
Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses,
claims, damages, liabilities or expenses incurred by the Company
result from the gross negligence or willful misconduct of
Purchaser or any inaccuracy in any representation or warranty of
Purchaser contained in herein or any breach by Purchaser of any
of the provisions hereof.
9. Transfer Agent Instructions.
9.1 Irrevocable Instructions. Subject to the provisions of
Section 2.5, the Company will irrevocably instruct the Transfer
Agent to issue securities from time to time in such amounts as
shall be required hereunder and as specified from time to time
by the Company to the Transfer Agent, bearing the restrictive
legend specified in Section 7 of this Agreement prior to
registration of the Securities under the Securities Act,
registered in the name of Purchaser and in such denominations to
be specified by Purchaser in connection with each Closing
hereunder. The Company warrants that no instruction other than
such instructions referred to in this Section 9 and stop
transfer instructions to give effect to Section 7 hereof prior
to registration and sale of the Securities under the Securities
Act will be given by the Company to the Transfer Agent and that
the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided
in this Agreement and applicable law. Nothing in this Section 9
shall affect in any way Purchaser's obligations and agreement to
comply with all applicable securities laws upon resale of the
Securities.
9.2 Transmission of Certificates. Subject to Section 7, the
Company will transmit the certificates representing any
unlegended securities to be issued to Purchaser via express
courier, by electronic transfer or otherwise, within three (3)
Business Days after receipt by the Transfer Agent of the
certificate representing the legended Common Stock or the date
unlegended Common Stock is required to be issued pursuant to
Section 7, as applicable (the "Delivery Date").
9.3 Electronic Transfer. In lieu of delivering physical
certificates representing the unlegended securities issuable
after the Effective Date as provided in Section 7, provided the
Transfer Agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer program, upon request
of Purchaser and its compliance with the provisions contained in
this paragraph, so long as the certificates therefor do not bear
a legend and Purchaser thereof is not obligated to return such
certificates for the placement of a legend thereon, the Company
shall use its reasonable best efforts to cause the Transfer
Agent to electronically transmit the Common Stock issuable on
the Closing Date or upon exercise of the Warrants by crediting
the account of Purchaser's prime broker with DTC through its
Deposit Withdrawal Agent Commission system.
9.4 Bankruptcy. Purchaser shall be entitled to exercise its
right under Section 2.3 notwithstanding the commencement of any
case under 11 U.S.C. Section 101 et seq. (the "Bankruptcy
Code"). The Company agrees, without cost or expense to the
holder, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. Section 362.
10. Closing Conditions
10.1 Conditions to the Company's Obligation to Sell. The
Purchaser understands that the Company's obligation to sell the
Initial Shares and the Additional Shares on the Initial Closing
Date and each Additional Closing Date, respectively, pursuant to
this Agreement is conditioned upon:
(a) the accuracy on each such date of the representations and
warranties of Purchaser contained in this Agreement as if made
thereon, and the performance by Purchaser on or before such date
of all covenants and agreements of Purchaser required to be
performed on or before such date;
(b) there not being in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby,
or requiring any consent or approval which shall not have been
obtained, nor there being any pending or threatened proceeding
or investigation which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement.
10.2. Conditions to Purchaser's Obligation To Purchase. The
Company understands that Purchaser's obligation to purchase the
Initial Shares and the Additional Shares on the Initial Closing
Date and each Additional Closing Date, respectively, pursuant to
this Agreement is conditioned upon:
(a) the accuracy in all material respects on each such date of
the representations and warranties of the Company contained in
this Agreement as if made on such date and the performance by
the Company on or before each such date of all covenants and
agreements of the Company required to be performed on or before
such date;
(b) on or before each such date, Purchaser having received an
opinion of counsel for the Company, dated on each such date, in
the form of Exhibit D hereto;
(c) there not being in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby,
or requiring any consent or approval which shall not have been
obtained, nor there being any pending or threatened proceeding
or investigation which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement;
(d) from and after the date hereof to and including the Initial
Closing Date and the Additional Closing Date, the trading of the
Common Stock shall not have been suspended by the SEC or the NASD;
(e) the Registration Statement relating to the
Common Stock and related Warrants shall have been declared
effective by the SEC and shall continue to be effective;
(f) the Company's Common Stock continues to be
traded on the Over the Counter Bulletin Board;
(g) the Company's compliance with all blue sky
laws to enable the Shares to be issued and resold through a
broker in the State of California;
(h) the number of Shares to be purchased on the
Closing Date shall not exceed the number of such shares that,
when aggregated with all other shares of Common Stock then owned
by the Purchaser beneficially, would result in the Purchaser
owning more than 4.99% of all of such Common Stock as would be
outstanding on such Closing Date, as determined in accordance
with Section 16 of the Exchange Act and the regulations
promulgated thereunder. For purposes of this Section 10.2(h),
in the event that the amount of Common Stock outstanding as
determined in accordance with Section 16 of the Exchange Act and
the regulations promulgated thereunder is greater on a Closing
Date than on the date upon which the Put Notice associated with
such Closing Date is given, the amount of Common Stock
outstanding on such Closing Date shall govern for purposes of
determining whether the Purchaser, when aggregating all
purchases of Common Stock made pursuant to this Agreement would
own more than 4.99% of the Common Stock following such Closing
Date.; and
(i) no disputes arise as a result of periodic
due diligence investigations conducted by the Purchaser.
11. General Provisions.
11.1 Assignment. Neither this Agreement nor any rights of
Purchaser hereunder may be assigned by either party to any other
person without the prior written consent of the Company.
11.2 Attorneys' Fees. In the event any dispute arises under
this Agreement or the documents or instruments executed and
delivered in connection with this Agreement, and the parties
hereto resort to litigation to resolve such dispute, the
prevailing party in any such litigation, in addition to all
other remedies at law or in equity, shall be entitled to an
award of costs and fees from the other party, which costs and
fees shall include, without limitation, reasonable attorneys'
fees and legal costs.
11.3 Choice of Law; Venue. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of New
York for contracts to be wholly performed in such state and
without giving effect to the principles thereof regarding the
conflict of laws. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any
part of the City of New York or the state courts of the State of
New York sitting in the City of New York in connection with any
dispute arising under this Agreement and hereby waives, to the
maximum extent permitted by law, any objection, including any
objection based on forum non coveniens, to the bringing of any
such proceeding in such jurisdictions.
11.4 Costs and Expenses. The parties shall be responsible for
and shall pay their own costs and expenses, including without
limitation attorneys' fees and accountants' fees and expenses,
in connection with the conduct of the due diligence inquiry,
negotiation, execution and delivery of this Agreement and the
instruments, documents and agreements executed in connection
with this Agreement, except that the Company shall pay an amount
of $10,000 to legal counsel of Purchaser to cover legal fees and
due diligence expenses upon execution hereof, and a legal fee of
$2,500 in connection with each Additional Closing hereunder. In
addition, the Company shall pay all reasonable fees and expenses
incurred by Purchaser in connection with any amendments,
modifications or waivers of this Agreement, including, without
limitation, all reasonable attorneys fees and expenses. The
Company shall pay all stamp or other similar taxes and duties
levied in connection with the issuance of the Shares pursuant hereto.
11.5 Counterparts/Facsimile Signatures. This Agreement may be
executed in one or more counterparts, each of which when so
signed shall be deemed to be an original, and such counterparts
together shall constitute one and the same instrument. In lieu
of the original, a facsimile transmission or copy of the
original shall be as effective and enforceable as the original.
11.6 Entire Agreement: Amendment. This Agreement, together with
the exhibits to this Agreement and the other instruments and
documents delivered in connection with this Agreement constitute
the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof, and no
party shall be liable or bound to any other party in any manner
by any warranties, representations or covenants except as
specifically set forth in this Agreement or therein. Except as
expressly provided in this Agreement, neither this Agreement nor
any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against
whom enforcement of any such amendment, waiver, discharge or
termination is sought.
11.7 Headings. The headings of the sections and paragraphs of
this Agreement have been inserted for convenience of reference
only and do not constitute a part of this Agreement.
11.8 Notices. All notices or other communications provided for
under this Agreement shall be in writing, and mailed, telecopied
or delivered by hand delivery or by overnight courier service,
as follows:
If to the Company:
eConnect
2500 Via Cabrillo Marina, Suite 112
San Pedro, California 90731
Attention: Thomas Hughes
Fax No.: (310) 514-9442
With a copy to:
Brian F. Faulkner, Esq.
3900 Birch Street, Suite 113
Newport Beach, California 92660
Fax No.: (949) 975-0596
If to Purchaser:
Alpha Venture Capital, Inc.
P.O. Box 11
Avarua Rarotonga
Cook Islands
Attention: Mr. Barry Herman, Director
Fax No.: (242) 356-0037
All notices and communications shall be effective as follows:
When mailed, upon three (3) business days after deposit in the
mail (postage prepaid); when telecopied, upon confirmed
transmission of the telecopied notice; when hand delivered, upon
delivery; and when sent by overnight courier, the next business
day after deposit of the notice with the overnight courier.
11.9 Publicity. Purchaser acknowledges that this Agreement and
all or part of the Transaction Documents may be deemed to be
"material contracts" as that term is defined by Item 601(b)(10)
of Regulation S-K, and that the Company may therefore be
required to file such documents as exhibits to reports or
registration statements filed under the Securities Act or the
Exchange Act. Purchaser further agrees that the status of such
documents and materials as material contracts shall be
determined solely by the Company, in consultation with its
counsel. Purchaser consents to the Company's public disclosure
of this Agreement in accordance with the Securities Act and the
Exchange Act.
11.10 Severability. Should any one or more of the
provisions of this Agreement be determined to be illegal or
unenforceable, all other provisions of this Agreement shall be
given effect separately from the provision or provisions
determined to be illegal or unenforceable and shall not be
affected thereby.
11.11 Survival Of Representations And Warranties. The
Company's representations and warranties herein shall survive
the execution and delivery of this Agreement and the delivery of
the Securities, and shall inure to the benefit of Purchaser and
its successors and permitted assigns.
11.12 Schedules and Exhibits. The schedules and exhibits
attached to this Agreement are a part hereof, as if fully set
forth herein.
IN WITNESS WHEREOF, the parties named below have caused
this Agreement to be executed and delivered as of the date first
above written.
COMPANY:
eConnect
By : Thomas S. Hughes
Thomas S. Hughes, President
PURCHASER:
Alpha Venture Capital, Inc.
By: /s/ Barry Herman
Barry Herman, Director
EXHIBIT A
DEFINITIONS
"Additional Closing" means the closing of the purchase and sale
of Common Stock pursuant to each additional Put Notice issued
after the Initial Put Notice.
"Additional Closing Date" means the date on which each
Additional Closing takes place.
"Additional Shares" means the shares of Common Stock to be
delivered at each Additional Closing.
"Additional Warrants" means a warrant in the form of Exhibit E
hereto to purchase a number of shares of Common Stock specified
in Section 8.3 hereof.
"Affiliate" has the meaning set forth in the Exchange Act and
the rules and regulations thereunder.
"Business Day" means a day on which the Nasdaq stock market is
open for regular trading.
"Closing" means either the Initial Closing or any Additional
Closing.
"Closing Date" means either the Initial Closing Date or the
Additional Closing Date.
"Commitment " is defined in Section 2.2(a).
"Common Stock" means common stock, $0.001 par value per share,
of the Company.
"Effective Date" means the effective date of the Registration
Statement.
"Escrow Agent" means Dundee Securities Corporation.
"Escrow Funds" means the funds held by the Escrow Agent under
the Joint Escrow Instructions together with all interest and
income earned thereon.
"Escrow Period" is defined in Section 2.4(c).
"Exchange Act" is defined in Section 3.8.
"Initial Closing" means the closing of the purchase and sale of
Common Stock pursuant to the Initial Put Notice.
"Initial Closing Date" means the date on which the Initial
Closing takes place.
"Initial Put Notice" means the first Put Notice delivered to
Purchaser pursuant to the terms of this Agreement.
"Initial Shares" is defined in Section 2.1.
"Initial Warrant" means a warrant in the form of Exhibit E
hereto to purchase the number of shares of Common Stock
specified in Section 8.3 hereof.
"Joint Escrow Instructions" means the joint escrow instructions
in the form of Exhibit B hereto.
"Market Price" means the closing bid price of the Common Stock
as reported, at the option of Purchaser, by Bloomberg, LP or the
National Association of Securities Dealers.
"Material Adverse Effect" is defined in Section 4.5.
"Person" means an individual, corporation, partnership,
association, trust, estate or other entity or organization,
including a governmental entity or agency.
"Purchase Price" is defined in Section 1.1
"Put Amount" is defined in Section 2.2(b).
"Put Notice" shall mean the notice delivered by the Company to
the Purchaser by in compliance with the notice provisions of
Section 2.2 hereof.
"Put Notice Date" is the date the Put Notice is delivered to
the Purchaser by the Company.
"Registration Statement" is defined in Section 2.2(d).
"Restrictive Period" is defined in Section 8.2.
"SEC" means the U.S. Securities and Exchange Commission.
"SEC Documents" is defined in Section 4.2.
"Securities" means the Initial Shares, the Additional Shares,
the Initial Warrant, the Additional Warrants and the shares
issuable under the Warrants.
"Securities Act" is defined in Recital B.
"Share Valuation Date" shall mean the fifth (5th) business day
after delivery of the Put Notice.
"Share Payment Date" is defined in Section 2.5.
"Shares" is defined in Section 1.1(a)
"Subsidiaries" is defined in Section 4.5
"Trading Volume" shall mean the dollar amount of the average
daily trading volume of the Common Stock, calculated based upon
the average closing bid price and average daily trading volume
over the twenty (20) trading days preceding the Put Notice Date,
as reported by Bloomberg, LP.
"Transaction Documents" is defined in Section 3.7.
"Transfer Agent" shall mean Corporate Stock Transfer, Inc., the
transfer agent for the Company's Common Stock.
"Warrants" means the Initial Warrant and any Additional Warrants.
EXHIBIT B
FORM OF
JOINT ESCROW INSTRUCTIONS
December __, 2000
Dundee Securities Corporation
Suite 3424 Four Bentall Centre
1055 Dunsmuir Street
P.O. Box 49207
Vancouver, BC V7X1K8
Attention: Chris Dabbs
RE: Alpha Venture Capital, Inc.
Dear Mr. Dabbs:
As escrow agent for both eConnect, Inc., a Nevada corporation
(the "Company"), and Alpha Venture Capital, Inc., a Cook Islands
corporation (the "Purchaser") of Securities of the Company, who
is named in the Common Stock Purchase Agreement (the
"Agreement") between the Company and the Purchaser to which a
copy of these Joint Escrow Instructions is attached as Exhibit
B, you (hereafter, the "Escrow Agent") are hereby authorized and
directed to hold the shares of Common Stock of the Company,
along with immediately available funds for the purchase of the
Securities (the "Escrow Funds") delivered to the Escrow Agent
pursuant to the terms of the Agreement in accordance with the
following instructions. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings
provided in the Agreement.
1. Upon its acceptance of the Agreement, the Company shall
deliver or cause to be delivered to the Escrow Agent, common
stock share certificates ("Share Certificates") of thirty
million (30,000,000) unlegended shares in ten (10) certificates
of three million (3,000,000) each.
2. The Share Certificates delivered to the Escrow Agent
pursuant hereto shall be deposited for safekeeping with the
Escrow Agent (the "Escrow Account"). During the Escrow Period
(hereinafter defined), none of the Share Certificates deposited
in the Escrow Account shall become the property of Purchaser or
any other entity or be subject to the debts of Purchaser or any
other entity except as expressly provided herein, and the Escrow
Agent shall neither make nor permit any disbursements or
deliveries from the Escrow Account except as expressly provided herein.
3. The Escrow Period shall begin on the effective date of the
Agreement and, except as provided in Section 4 below, shall
continue until terminated under Section 2.4(c) of the Agreement.
Notwithstanding the foregoing, if there remain Share
Certificates in the Escrow Account, all such Share Certificates
then remaining in the Escrow Account shall forthwith be
forwarded to Corporate Stock Transfer, Inc., the transfer agent
for the Company (the "Transfer Agent"), within five (5) business
days thereafter upon written request given to Escrow Agent by
the Company.
4. Not later than two (2) business days after the Share
Valuation Date, the Purchaser shall deliver a letter to the
Escrow Agent advising the Escrow Agent of the maximum number of
shares that may be sold by the Purchaser free of restrictive
legend pursuant to a Put Notice. Purchaser shall make payment
of the Put Amount (less any applicable legal or other fees)
within three (3) business days after delivery of such share
letter to the Escrow Agent ("Share Payment Date").
5. The Escrow Agent shall promptly, upon receipt of such
notice, deliver one or more Share Certificates to the Transfer
Agent for removal of legend pursuant to the Irrevocable
Instructions annexed hereto, and upon receipt of such Share
Certificates, shall cause same to be delivered to or for the
benefit of the Purchaser pursuant to written instructions of the
Purchaser.
6. The Company shall deliver to the Escrow Agent appropriate
written notice of any extension or amendment to the Agreement.
7. The Escrow Agent's duties hereunder may be altered,
amended, modified or revoked only by a writing signed by the
Company, the Purchaser and the Escrow Agent.
8. The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein
and may rely and shall be protected in relying or refraining
from acting on any instrument reasonably believed by the Escrow
Agent to be genuine and to have been signed or presented by the
proper party or parties. The Escrow Agent shall not be
personally liable for any act the Escrow Agent may do or omit to
do hereunder as Escrow Agent while acting in good faith, and any
act done or omitted by the Escrow Agent pursuant to the advice
of the Escrow Agent's attorneys-at-law shall be conclusive
evidence of such good faith.
9. The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties
hereto or by any other person or corporation, excepting only
orders or process of courts of law and is hereby expressly
authorized to comply with and obey orders, judgments or decrees
of any court. In case the Escrow Agent obeys or complies with
any such order, judgment or decree, the Escrow Agent shall not
be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such decree being subsequently
reversed, modified, annulled, set aside, vacated or found to
have been entered without jurisdiction.
10. The Escrow Agent shall not be liable in any respect on
account of the identity, authorities or rights of the parties
executing or delivering or purporting to execute or deliver the
Agreement or any documents or papers deposited or called for hereunder.
11. The Escrow Agent shall be entitled, at its own expense, to
employ such legal counsel and other experts as the Escrow Agent
may deem necessary properly to advise the Escrow Agent in
connection with the Escrow Agent's duties hereunder, may rely
upon the advice of such counsel, and may pay such counsel
reasonable compensation therefor.
12. The Escrow Agent's responsibilities as Escrow Agent
hereunder shall terminate if the Escrow Agent shall resign by
written notice to the Company and the Purchaser. In the event
of any such resignation, the Purchaser and the Company shall
appoint a successor Escrow Agent.
13. If the Escrow Agent reasonably requires other or further
instruments in connection with these Joint Escrow Instructions
or obligations in respect hereto, the necessary parties hereto
shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise
with respect to the delivery and/or ownership or right of
possession of the documents held by the Escrow Agent hereunder,
the Escrow Agent is authorized and directed in the Escrow
Agent's sole discretion (a) to retain in the Escrow Agent's
possession without liability to anyone all or any part of said
documents or Escrow Funds until such disputes shall have been
settled either by mutual written agreement of the parties
concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and
no appeal has been perfected, but the Escrow Agent shall be
under no duty whatsoever to institute or defend any such
proceedings, or (b) to deliver the Escrow Funds and any other
property and documents held by the Escrow Agent hereunder to a
state or federal court having competent subject matter
jurisdiction and located in the State and City of New York in
accordance with the applicable procedure therefor.
15. The Company and the Purchaser agree jointly and severally
to indemnify and hold harmless the Escrow Agent from any and all
claims, liabilities, costs or expenses in any way arising from
or relating to the duties or performance of the Escrow Agent
hereunder other than any such claim, liability, cost or expense
to the extent the same shall have been determined by final,
unappealable judgment of a court of competent jurisdiction to
have resulted from the gross negligence or willful misconduct of
the Escrow Agent.
16. Any notice required or permitted hereunder shall be given
in writing (unless otherwise specified herein) and shall be
deemed effectively given upon personal delivery or three
business days after deposit in the United States Postal Service,
by registered or certified mail with postage and fees prepaid,
addressed to each of the other parties thereunto entitled at the
following addresses, or at such other addresses as a party may
designate by ten days advance written notice to each of the
other parties hereto.
If to Company:
eConnect
2500 Via Cabrillo Marina, Suite 112
San Pedro, California 90731
Attention: Thomas Hughes
Fax No.: (310) 514-9442
With a copy to:
Brian F. Faulkner, Esq.
3900 Birch Street
Suite 113
Newport Beach, California 92660
Fax No.: (949) 975-0596
If to Purchaser:
Alpha Venture Capital, Inc.
P.O. Box 11
Avarua Rarotonga
Cook Islands
Attention: Mr. Barry Herman, Director
Fax No.: (242) 356-0037
With a copy to:
Parker Chapin LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
Attention: Christopher S. Auguste, Esq.
Fax No.: (212) 704-6288
If to Escrow Agent:
Dundee Securities Corporation
Suite 3424 Four Bentall Centre
1055 Dunsmuir Street
P.O. Box 49207
Vancouver, BC V7X 1K8
Attention: Chris Dabbs
Fax No.: (604) 642-0388
16. By signing these Joint Escrow Instructions, the Escrow
Agent becomes a party hereto only for the purpose of these Joint
Escrow Instructions. The Escrow Agent does not become a party
to the Agreement. The Company and the Purchaser have become
parties hereto by their execution and delivery of the Agreement,
as provided therein.
17. This instrument shall be binding upon and inure to the
benefit of the parties hereto, and their respective successors
and permitted assigns and shall be governed by the laws of the
State of New York without giving effect to principles governing
the conflicts of laws. A facsimile transmission of these
instructions signed by the Escrow Agent shall be legal and
binding on all parties hereto.
18. The rights and obligations of any party hereto are not
assignable without the written consent of the other parties hereto.
IN WITNESS WHEROF, the parties hereto have caused these
Joint Escrow Instructions to be executed by the undersigned,
thereunto duly authorized, as of the date first set forth above.
eConnect
By:______________________________
Thomas S. Hughes, President
Alpha Venture Capital, Inc.
By: _____________________________
Name:
Title:
____________________________
Dundee Securities Corporation
By: _____________________________
Name:
__________________________
Title:
____________________________
EX-4.76
WARRANT TO PURCHASE UP TO 2,000,000
SHARES OF COMMON STOCK
Exercisable Commencing December 8, 2000;
Void after December 8, 2005
THIS CERTIFIES that, for value received, Alpha Venture
Capital, Inc., a Cook Islands corporation or its registered
assigns (the "Warrantholder"), is entitled, subject to the terms
and conditions set forth in this Warrant, to purchase from
eConnect, a Nevada corporation ("Company"), up to two million
(2,000,000) fully paid, duly authorized and nonassessable shares
of common stock ("Shares"), $0.001 par value per share, of the
Company ("Common Stock"), at any time commencing after December
8, 2000 and continuing up to 5:00 p.m. Pacific Daylight Time on
December 8, 2005 (the "Exercise Period") at an exercise price
equal to the lesser of (a) forty percent (40%) of the closing
bid price of the Common Stock on December 8, 2000, or (b) forty
percent (40%) of the average five (5) day closing bid price as
of the Effective Date of the Registration Statement, as defined
in the accompanying Common Stock Purchase Agreement, as reported
by Bloomberg, LP, subject to adjustment pursuant to Section 8 hereof.
This Warrant is subject to the following provisions, terms
and conditions:
Section 1. Transferability.
1.1 Registration. The Warrants shall be issued only in
registered form.
1.2 Transfer. This Warrant shall be transferable only on
the books of the Company maintained at its principal executive
offices upon surrender thereof for registration of transfer duly
endorsed by the Warrantholder or by its duly authorized attorney
or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. Upon any
registration of transfer, the Company shall execute and deliver
a new Warrant or Warrants in appropriate denominations to the
person or persons entitled thereto.
1.3 Common Stock to be Issued. Upon the exercise of
any Warrants and upon receipt by the Company of a facsimile or
original of Warrantholder's signed Election to Exercise Warrant
(See Exhibit A), Company shall instruct its transfer agent to
issue stock certificates, subject to the restrictive legend set
forth below, in the name of Warrantholder (or its nominee) and in
such denominations to be specified by Warrantholder representing
the number of shares of Common Stock issuable upon such exercise,
as applicable. Company warrants that no instructions, other than
these instructions, have been given or will be given to the
transfer agent and that the Common Stock shall otherwise be freely
transferable on the books and records of the Company. It shall be
the Company's responsibility to take all necessary actions and
to bear all such costs to issue the certificates of Common Stock
as provided herein, including the responsibility and cost for
delivery of an opinion letter to the transfer agent, if so
required. The person in whose name the certificates of Common
Stock is to be registered shall be treated as a shareholder of
record on and after the exercise date. Upon surrender of any
Warrant that is to be converted in part, the Company shall issue
to the Warrantholder a new Warrant equal to the unconverted
amount, if so requested by Purchaser:
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER
(THE "1933 ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT.
Section 2. Exchange of Warrant Certificate. Any
Warrant certificate may be exchanged for another certificate or
certificates of like tenor entitling the Warrantholder to
purchase a like aggregate number of Shares as the certificate or
certificates surrendered then entitle such Warrantholder to
purchase. Any Warrantholder desiring to exchange a warrant
certificate shall make such request in writing delivered to the
Company, and shall surrender, properly endorsed, the certificate
evidencing the Warrant to be so exchanged. Thereupon, the
Company shall execute and deliver to the person entitled thereto
a new Warrant certificate as so requested.
Section 3. Terms of Warrants: Exercise of Warrants.
(a) Subject to the terms of this Warrant, the Warrantholder
shall have the right, at any time after December 8, 2000, but
before 5:00 p.m. Pacific Daylight Time on December 8, 2005
("Expiration Time"), to purchase from the Company up to the
number of Shares which the Warrantholder may at the time be
entitled to purchase pursuant to the terms of this Warrant, upon
surrender to the Company at its principal executive office, of
the certificate evidencing this Warrant to be exercised,
together with the attached Election to Exercise Warrant form
duly filled in and signed, and upon payment to the Company of
the Warrant Price (as defined in and determined in accordance
with the provisions of Section 7 and 8 hereof) or as provided in
Section 3(a)(i) hereof, for the number of Shares with respect to
which such Warrant is then exercised. Payment of the aggregate
Warrant Price shall be made in cash, wire transfer or by
cashier's check or any combination thereof.
(b) Subject to the terms of this Warrant, upon such
surrender of this Warrant and payment of such Warrant Price as
aforesaid, the Company shall promptly issue and cause to be
delivered to the Warrantholder or to such person or persons as
the Warrantholder may designate in writing, a certificate or
certificates (in such name or names as the Warrantholder may
designate in writing) for the number of duly authorized, fully
paid and non-assessable whole Shares to be purchased upon the
exercise of this Warrant, and shall deliver to the Warrantholder
Common Stock or cash, to the extent provided in Section 9
hereof, with respect to any fractional Shares otherwise issuable
upon such surrender. Such certificate or certificates shall be
deemed to have been issued and any person so designated to be
named therein shall be deemed to have become a holder of such
Shares as of the close of business on the date of the surrender
of this Warrant and payment of the Warrant Price,
notwithstanding that the certificates representing such Shares
shall not actually have been delivered or that the Share and
Warrant transfer books of the Company shall then be closed.
This Warrant shall be exercisable, at the sole election of the
Warrantholder, either in full or from time to time in part and,
in the event that any certificate evidencing this Warrant (or
any portion thereof) is exercised prior to the Expiration Time
with respect to less than all of the Shares specified therein at
any time prior to the Expiration Time, a new certificate of like
tenor evidencing the remaining portion of this Warrant shall be
issued by the Company, if so requested by the Warrantholder.
(c) Upon the Company's receipt of a facsimile or original of
Warrantholder's signed Election to Exercise Warrant, the Company
shall instruct its transfer agent to issue one or more stock
certificates representing that number of shares of Common Stock
which the Warrantholder is entitled to purchase in accordance with
the terms and conditions of this Warrant and the Election to
Exercise Warrant attached hereto. The Company shall act as
Registrar and shall maintain an appropriate ledger containing the
necessary information with respect to each Warrant.
(d) Such exercise shall be effectuated by surrendering to
the Company, or its attorney, the Warrants to be converted
together with a facsimile or original of the signed Election to
Exercise Warrant which evidences Warrantholder's intention to
exercise those Warrants indicated. The date on which the Election
to Exercise Warrant is effective ("Exercise Date") shall be deemed
to be the date on which the Warrantholder has delivered to the
Company a facsimile or original of the signed Election to Exercise
Warrant, as long as the original Warrants to be exercised are
received by the Company or its designated attorney within five (5)
business days thereafter. As long as the Warrants to be exercised
are received by the Company within five (5) business days after it
receives a facsimile or original of the signed Election to
Exercise Warrant, the Company shall deliver to the Warrantholder,
or per the Warrantholder's instructions, the shares of Common
Stock within three (3) business days of receipt of the Warrants to
be converted.
(e) Nothing contained in this Warrant shall be deemed to
establish or require the payment of interest to the Warrantholder
at a rate in excess of the maximum rate permitted by governing
law. In the event that the rate of interest required to be paid
exceeds the maximum rate permitted by governing law, the rate of
interest required to be paid thereunder shall be automatically
reduced to the maximum rate permitted under the governing law and
such excess shall be returned with reasonable promptness by the
Warrantholder to the Company.
(f) It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the
certificate of Common Stock as provided herein, including the
responsibility and cost for delivery of an opinion letter to the
transfer agent, if so required. The person in whose name the
certificate of Common Stock is to be registered shall be treated
as a shareholder of record on and after the exercise date. Upon
surrender of any Warrants that are to be converted in part, the
Company shall issue to the Warrantholder new Warrants equal to
the unconverted amount, if so requested by Warrantholder.
(g) The Company shall at all times reserve and have
available all Common Stock necessary to meet exercise of the
Warrants by all Warrantholders of the entire amount of Warrants
then outstanding. If, at any time Warrantholder submits an
Election to Exercise Warrant and the Company does not have
sufficient authorized but unissued shares of Common Stock
available to effect, in full, a exercise of the Warrants (a
"Exercise Default", the date of such default being referred to
herein as the "Exercise Default Date"), the Company shall issue
to the Warrantholder all of the shares of Common Stock which are
available, and the Election to Exercise Warrant as to any
Warrants requested to be converted but not converted (the
"Unconverted Warrants"), upon Warrantholder's sole option, may
be deemed null and void. The Company shall provide notice of
such Exercise Default ("Notice of Exercise Default") to all
existing Warrantholders of outstanding Warrants, by facsimile,
within one (1) business day of such default (with the original
delivered by overnight or two day courier), and the
Warrantholder shall give notice to the Company by facsimile
within five (5) business days of receipt of the original Notice
of Exercise Default (with the original delivered by overnight or
two day courier) of its election to either nullify or confirm
the Election to Exercise Warrant.
(h) The Company shall furnish to Warrantholder such number
of prospectuses and other documents incidental to the
registration of the shares of Common Stock underlying the
Warrants, including any amendment of or supplements thereto.
Warrantholder shall acknowledge in writing the receipt, the
careful reading, and the understanding thereof, prior to any
exercise under this Section 3.
(i) Each person in whose name any certificate for shares
of Common Stock shall be issued shall for all purposes be deemed
to have become the holder of record of the Common Stock
represented thereby on the date on which the Warrant was
surrendered and payment of the purchase price and any applicable
taxes was made, irrespective of date of issue or delivery of
such certificate, except that if the date of such surrender and
payment is a date when the Shares transfer books of the Company
are closed, such person shall be deemed to have become the
holder of such Shares on the next succeeding date on which such
Share transfer books are open. The Company shall not close such
Share transfer books at any one time for a period longer than
seven (7) days.
(j) This Warrant is exercisable in whole or in part at the
Exercise Price per share of Common Stock (as defined hereafter)
payable hereunder, payable in cash or by certified or official
bank check, or by "cashless exercise", by means of tendering
this Warrant Certificate to the Company to receive a number of
shares of Common Stock equal to the difference between the
Market Value (as defined hereafter) of the shares of Common
Stock issuable upon exercise of this Warrant and the total cash
exercise price thereof. Upon surrender of this Warrant
Certificate with the annexed Notice of Exercise duly executed,
together with payment of the Exercise Price for the shares of
Common Stock purchased, the Holder shall be entitled to receive
a certificate or certificates for the shares of Common Stock so
purchased. For the purposes of this subsection, "Market Value"
shall be an amount equal to the average closing bid price of a
share of Common Stock for the ten (10) days preceding the
Company's receipt of the Notice of Exercise Form duly executed
multiplied by the number of shares of Common Stock to be issued
upon surrender of this Warrant Certificate.
Section 4. Payment of Taxes. The Company shall pay all
documentary stamp taxes, if any, attributable to the initial
issuance of the Shares; provided, however, that the Company
shall not be required to pay any tax or taxes which may be
payable, (i) with respect to any secondary transfer of this
Warrant or the Shares or (ii) as a result of the issuance of the
Shares to any person other than the Warrantholder, and the
Company shall not be required to issue or deliver any
certificate for any Shares unless and until the person
requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have produced evidence that such
tax has been paid to the appropriate taxing authority.
Section 5. Mutilated or Missing Warrant. In case the
certificate or certificates evidencing this Warrant shall be
mutilated, lost, stolen or destroyed, the Company shall, at the
request of the Warrantholder, issue and deliver in exchange and
substitution for and upon cancellation of the mutilated
certificate or certificates, or in lieu of and substitution for
the certificate or certificates lost, stolen or destroyed, a new
Warrant certificate or certificates of like tenor and
representing an equivalent right or interest, but only upon
receipt of evidence satisfactory to the Company of such loss,
theft or destruction of such Warrant and of a bond of indemnity,
if requested, also satisfactory to the Company in form and
amount, and issued at the applicant's cost. Applicants for such
substitute Warrant certificate shall also comply with such other
reasonable regulations and pay such other reasonable charges as
the Company may prescribe.
Section 6. Reservation of Shares. The issuance, sale
and delivery of the Warrants have been duly authorized by all
required corporate action on the part of the Company and when
issued, sold and delivered in accordance with the terms hereof
and thereof for the consideration expressed herein and therein,
will be duly and validly issued, fully paid, and non-assessable
and enforceable in accordance with their terms, subject to the
laws of bankruptcy and creditors' rights generally. The Company
shall pay all taxes in respect of the issue thereof. As a
condition precedent to the taking of any action that would
result in the effective purchase price per share of Common Stock
upon the exercise of this Warrant being less than the par value
per share (if such shares of Common Stock then have a par
value), the Company will take such corporate action as may, in
the opinion of its counsel, be necessary in order that the
Company may comply with all its obligations under this Agreement
with regard to the exercise of this Warrant.
Section 7. Warrant Price. During the Exercise Period,
the price per Share ("Warrant Price") at which Shares shall be
purchasable upon the exercise of this Warrant shall be forty
percent (40%) of the closing bid price of the Common Stock on
the Effective Date, as defined in the accompanying Common Stock
Purchase Agreement, as reported by Bloomberg, LP, subject to
adjustment pursuant to Section 8 hereof.
Section 8. Adjustment of Warrant Price and Number of
Shares. The number and kind of securities purchasable upon the
exercise of this Warrant and the Warrant Price shall be subject
to adjustment from time to time after the date hereof upon the
happening of certain events, as follows:
8.1 Adjustments. The number of Shares purchasable upon
the exercise of this Warrant shall be subject to adjustments as
follows:
(a) In case the Company shall (i) pay a dividend on Common
Stock in Common Stock or securities convertible into,
exchangeable for or otherwise entitling a holder thereof to
receive Common Stock, (ii) declare a dividend payable in cash on
its Common Stock and at substantially the same time offer its
shareholders a right to purchase new Common Stock (or securities
convertible into, exchangeable for or other entitling a holder
thereof to receive Common Stock) from the proceeds of such
dividend (all Common Stock so issued shall be deemed to have
been issued as a stock dividend), (iii) subdivide its
outstanding shares of Common Stock into a greater number of
shares of Common Stock, (iv) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, or
(v) issue by reclassification of its Common Stock any shares of
Common Stock of the Company, the number of shares of Common
Stock issuable upon exercise of the Warrants immediately prior
thereto shall be adjusted so that the holders of the Warrants
shall be entitled to receive after the happening of any of the
events described above that number and kind of shares as the
holders would have received had such Warrants been converted
immediately prior to the happening of such event or any record
date with respect thereto. Any adjustment made pursuant to this
subdivision shall become effective immediately after the close
of business on the record date in the case of a stock dividend
and shall become effective immediately after the close of
business on the effective date in the case of a stock split,
subdivision, combination or reclassification.
(b) In case the Company shall distribute, without
receiving consideration therefor, to all holders of its Common
Stock evidences of its indebtedness or assets (excluding cash
dividends other than as described in Section (8)(a)(ii)), then
in such case, the number of shares of Common Stock thereafter
issuable upon exercise of the Warrants shall be determined by
multiplying the number of shares of Common Stock theretofore
issuable upon exercise of the Warrants, by a fraction, of which
the numerator shall be the closing bid price per share of Common
Stock on the record date for such distribution, and of which the
denominator shall be the closing bid price of the Common Stock
less the then fair value (as determined by the Board of
Directors of the Company, whose determination shall be
conclusive) of the portion of the assets or evidences of
indebtedness so distributed per share of Common Stock. Such
adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date for
the determination of stockholders entitled to receive such distribution.
(c) Any adjustment in the number of shares of Common Stock
issuable hereunder otherwise required to be made by this Section
8 will not have to be adjusted if such adjustment would not
require an increase or decrease in one percent (1%) or more in
the number of shares of Common Stock issuable upon exercise of
the Warrant. No adjustment in the number of Shares purchasable
upon exercise of this Warrant will be made for the issuance of
shares of capital stock to directors, employees or independent
Warrantors pursuant to the Company's or any of its subsidiaries'
stock option, stock ownership or other benefit plans or
arrangements or trusts related thereto or for issuance of any
shares of Common Stock pursuant to any plan providing for the
reinvestment of dividends or interest payable on securities of
the Company and the investment of additional optional amounts in
shares of Common Stock under such plan.
(d) Whenever the number of shares of Common Stock issuable
upon the exercise of the Warrants is adjusted, as herein
provided the Warrant Price shall be adjusted (to the nearest
cent) by multiplying such Warrant Price immediately prior to
such adjustment by a fraction, of which the numerator shall be
the number of shares of Common Stock issuable upon the exercise
of each share of the Warrants immediately prior to such
adjustment, and of which the denominator shall be the number of
shares of Common Stock issuable immediately thereafter.
(e) The Company from time to time by action of its Board
of Directors may decrease the Warrant Price by any amount for
any period of time if the period is at least twenty (20) days,
the decrease is irrevocable during the period and the Board of
Directors of the Company in its sole discretion shall have made
a determination that such decrease would be in the best interest
of the Company, which determination shall be conclusive.
Whenever the Warrant Price is decreased pursuant to the
preceding sentence, the Company shall mail to holders of record
of the Warrants a notice of the decrease at least fifteen (15)
days prior to the date the decreased Warrant Price takes effect,
and such notice shall state the decreased Warrant Price and the
period it will be in effect.
8.2 Mergers, Etc. In the case of any (i) consolidation or
merger of the Company into any entity (other than a
consolidation or merger that does not result in any
reclassification, exercise, exchange or cancellation of
outstanding shares of Common Stock of the Company), (ii) sale,
transfer, lease or conveyance of all or substantially all of the
assets of the Company as an entirety or substantially as an
entirety, or (iii) reclassification, capital reorganization or
change of the Common Stock (other than solely a change in par
value, or from par value to no par value), in each case as a
result of which shares of Common Stock shall be converted into
the right to receive stock, securities or other property
(including cash or any combination thereof), each holder of
Warrants then outstanding shall have the right thereafter to
exercise such Warrant only into the kind and amount of
securities, cash and other property receivable upon such
consolidation, merger, sale, transfer, capital reorganization or
reclassification by a holder of the number of shares of Common
Stock of the Company into which such Warrants would have been
converted immediately prior to such consolidation, merger, sale,
transfer, capital reorganization or reclassification, assuming
such holder of Common Stock of the Company (A) is not an entity
with which the Company consolidated or into which the Company
merged or which merged into the Company or to which such sale or
transfer was made, as the case may be ("constituent entity"), or
an affiliate of a constituent entity, and (B) failed to exercise
his or her rights of election, if any, as to the kind or amount
of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer (provided that if the
kind or amount of securities, cash and other property receivable
upon such consolidation, merger, sale or transfer is not the
same for each share of Common Stock of the Company held
immediately prior to such consolidation, merger, sale or
transfer by other than a constituent entity or an affiliate
thereof and in respect of which such rights or election shall
not have been exercised ("non-electing share"), then for the
purpose of this Section 8.2 the kind and amount of securities,
cash and other property receivable upon such consolidation,
merger, sale or transfer by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a
plurality of the non-electing shares). If necessary,
appropriate adjustment shall be made in the application of the
provision set forth herein with respect to the rights and
interests thereafter of the holder of Warrants, to the end that
the provisions set forth herein shall thereafter correspondingly
be made applicable, as nearly as may reasonably be, in relation
to any shares of stock or other securities or property
thereafter deliverable on the exercise of the Warrants. The
above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers, capital
reorganizations and reclassifications. The Company shall not
effect any such consolidation, merger, sale or transfer unless
prior to or simultaneously with the consummation thereof the
successor company or entity (if other than the Company)
resulting from such consolidation, merger, sale or transfer
assumes, by written instrument, the obligation to deliver to the
holder of Warrants such shares of stock, securities or assets
as, in accordance with the foregoing provision, such holder may
be entitled to receive under this Section 8.2.
8.3 Statement of Warrants. Irrespective of any
adjustments in the Warrant Price of the number or kind of shares
purchasable upon the exercise of this Warrant, this Warrant
certificate or certificates hereafter issued may continue to
express the same price and number and kind of shares as are
stated in this Warrant.
Section 9. Fractional Shares. Any fractional shares of
Common Stock issuable upon exercise of the Warrants shall be
rounded to the nearest whole share or, at the election of the
Company, the Company shall pay the holder thereof an amount in
cash equal to the closing bid price thereof. Whether or not
fractional shares are issuable upon exercise shall be determined
on the basis of the total number of Warrants the holder is at
the time exercising and the number of shares of Common Stock
issuable upon such exercise.
Section 10. No Rights as Stockholders: Notices to
Warrantholders. Nothing contained in this Warrant shall be
construed as conferring upon the Warrantholder or its
transferees any rights as a stockholder of the Company,
including the right to vote, receive dividends, consent or
receive notices as a stockholder with respect to any meeting of
stockholders for the election of directors of the Company or any
other matter. If, however, at any time prior to the Expiration
Time and prior to the exercise of this Warrant, any of the
following events shall occur:
(a) any action which would require an adjustment pursuant
to Section 8.1; or
(b) a dissolution, liquidation or winding up of the Company or
any consolidation, merger or sale of its property, assets and
business as an entirety; then in any one or more of said events,
the Company shall give notice in writing of such event to the
Warrantholder at least ten (10) days prior to the date fixed as
a record date or the date of closing the transfer books for the
determination of the shareholders entitled to any relevant
dividend, distribution, subscription rights, or other rights or
for the effective date of any dissolution, liquidation of
winding up or any merger, consolidation, or sale of
substantially all assets, but failure to mail or receive such
notice or any defect therein or in the mailing thereof shall not
affect the validity of any such action taken. Such notice shall
specify such record date or the effective date, as the case may be.
Section 11. Registration. The Company shall file with
the SEC, within fifteen (15) days of the date hereof, a
registration statement on Form SB-2 or other appropriate form
("Registration Statement") covering a sufficient number of
shares of Common Stock to cover the conversion of this Warrant.
If at any time the number of shares of Common Stock into which
this Warrant shall be converted exceeds the aggregate number of
shares of Common Stock then registered, the Company shall,
within ten (10) business days after receipt of written notice
from the Warrantholder, file with the SEC an additional
Registration Statement on Form SB-2 or any other appropriate
registration statement, to register the shares of Common Stock
into which this Warrant may be converted that exceed the
aggregate number of shares of Common Stock already registered.
Section 12. Miscellaneous.
(a) Benefits of this Agreement. Nothing in this Warrant shall
be construed to give to any person or corporation other than the
Company and the Warrantholder any legal or equitable right,
remedy or claim under this Warrant, and this Warrant shall be
for the sole and exclusive benefit of the Company and the
Warrantholder.
(b) Rights Cumulative; Waivers. The rights of each of the
parties under this Warrant are cumulative. The rights of each
of the parties hereunder shall not be capable of being waived or
varied other than by an express waiver or variation in writing.
Any failure to exercise or any delay in exercising any of such
rights shall not operate as a waiver or variation of that or any
other such right. Any defective or partial exercise of any of
such rights shall not preclude any other or further exercise of
that or any other such right. No act or course of conduct or
negotiation on the part of any party shall in any way preclude
such party from exercising any such right or constitute a
suspension or any variation of any such right.
(c) Benefit; Successors Bound. This Warrant and the terms,
covenants, conditions, provisions, obligations, undertakings,
rights, and benefits hereof, shall be binding upon, and shall
inure to the benefit of, the parties hereto and their heirs,
executors, administrators, representatives, successors, and
permitted assigns.
(d) Entire Agreement. This Warrant contains the entire
agreement between the parties with respect to the subject matter
hereof. There are no promises, agreements, conditions,
undertakings, understandings, warranties, covenants or
representations, oral or written, express or implied, between
them with respect to this Warrant or the matters described in
this Warrant, except as set forth in this Warrant. Any such
negotiations, promises, or understandings shall not be used to
interpret or constitute this Warrant.
(e) Assignment. This Warrant may be assigned if the Assignment
of Warrant, attached as Exhibit B to this Warrant, is properly
completed, executed and delivered to the Company.
(f) Amendment. This Warrant may be amended only by an
instrument in writing executed by the parties hereto.
(g) Severability. Each part of this Warrant is intended
to be severable. In the event that any provision of this
Warrant is found by any court or other authority of competent
jurisdiction to be illegal or unenforceable, such provision
shall be severed or modified to the extent necessary to render
it enforceable and as so severed or modified, this Warrant shall
continue in full force and effect.
(h) Notices. Notices required or permitted to be given
hereunder shall be in writing and shall be deemed to be
sufficiently given when personally delivered (by hand, by
courier, by telephone line facsimile transmission, receipt
confirmed, or other means) or sent by certified mail, return
receipt requested, properly addressed and with proper postage
pre-paid (i) if to the Company, at its executive office (ii) if
to the Subscriber, at the address set forth under its name in
the Purchase Agreement, with a copy to its designated attorney
and (iii) if to any other Subscriber, at such address as such
Subscriber shall have provided in writing to the Company, or at
such other address as each such party furnishes by notice given
in accordance with this Section 12(h), and shall be effective,
when personally delivered, upon receipt and, when so sent by
certified mail, four (4) business days after deposit with the
United States Postal Service.
(i) Governing Law. This Agreement shall be governed by the
interpreted in accordance with the laws of the State of New
York without reference to its conflicts of laws rules or
principles. Each of the parties consents to the exclusive
jurisdiction of the federal courts of the State of New York in
connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non coveniens,
to the bringing of any such proceeding in such jurisdictions.
(j) Consents. The person signing this Warrant on behalf
of the Company hereby represents and warrants that he has the
necessary power, consent and authority to execute and deliver
this Warrant on behalf of the Company.
(l) Further Assurances. In addition to the instruments
and documents to be made, executed and delivered pursuant to
this Warrant, the parties hereto agree to make, execute and
deliver or cause to be made, executed and delivered, to the
requesting party such other instruments and to take such other
actions as the requesting party may reasonably require to carry
out the terms of this Warrant and the transactions contemplated hereby.
(m) Section Headings. The Section headings in this
Warrant are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Warrant.
(n) Construction. Unless the context otherwise requires, when
used herein, the singular shall be deemed to include the plural,
the plural shall be deemed to include each of the singular, and
pronouns of one or no gender shall be deemed to include the
equivalent pronoun of the other or no gender.
IN WITNESS WHEREOF, the parties have caused this Warrant to
be duly executed, all as of the day and year first above
written.
COMPANY:
eConnect
By: /s/ Thomas S. Hughes
Name: Thomas S. Hughes
Title: President
EXHIBIT A
ELECTION TO EXERCISE WARRANT
The undersigned hereby irrevocably elects to exercise the right
of purchase represented by the within Warrant for, and to
purchase thereunder, _______shares of Common Stock ("Shares")
provided for therein, and requests that certificates for the
Shares be issued in the name of:*
Name:___________________________________________________________
Address:________________________________________________________
Social Security
No.________________________________________________
or Tax ID
Number:_________________________________________________
and, if such number of Shares shall not be all of the Shares
purchasable under the Warrant, that a new Warrant certificate
for the balance of the Shares purchasable under the within
Warrant be registered in the name of the undersigned
Warrantholder or his Assignee* as indicated below and delivered
to the address stated below:
Dated: _________________, 20___
Name of Warrantholder of
Assignee (Please
Print)_____________________________________________
Address:________________________________________________________
Signature:______________________________________________________
Signature
Guaranteed:______________________________________________
Signature of Guarantor
* The Warrant contains restrictions on sale, assignment or transfer.
** Note: The above signature must correspond with the name as
written on the face of this Warrant certificate in every
particular, without alteration or enlargement or any change
whatever, unless this warrant has been assigned.
EXHIBIT B
ASSIGNMENT OF WARRANT
(To be signed only upon assignment of Warrant)*
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
________________________________________________________________
________________________________________________________________
(Name and Address of Assignee must be Printed or Typewritten)
the within Warrant, hereby irrevocably constituting and
appointing _________Attorney to transfer said Warrant on the
books of the Company, with full power of substitution in the premises.
Dated: ___________________, 20____
________________________________**
Signature of Registered Holder
Signature Guaranteed: ________________________________
Signature of Guarantor
* The Warrant contains restrictions on sale, assignment or transfer.
** Note: The signature of this assignment must correspond
with the name as it appears upon the face of the Warrant
certificate in every particular, without alteration or
enlargement or any change whatever.
EX-4.77
ADDENDUM TO COMMON STOCK PURCHASE AGREEMENT
This Addendum to Common Stock Purchase Agreement ("Agreement")
by and between eConnect, a Nevada corporation (the "Company"),
and Alpha Venture Capital, Inc., a Cook Islands corporation
("Purchaser"), is dated as of February 13, 2001.
Paragraph 2.2(d) shall be reworded in its entirety as follows:
(d) It shall be a condition to the Company's right to issue a
Put Notice that, as of the Put Notice Date and the relevant
Additional Closing Date, (A) the Registration Statement or
Statements for all Securities purchased prior to the Additional
Closing Date contemplated by the current Put Notice shall have
been declared effective and shall continue to be effective (the
"Registration Statement") and (B) the representations and
warranties of the Company contained in Article 4 hereof shall be
true and correct in all material respects (and the Company's
issuance of the Additional Common Stock shall constitute the
Company's making each such representation and warranty as of
such date) and Purchaser shall make a determinaton that there
shall have been no material adverse changes (financial or
otherwise) in the business or conditions of the Company from the
Initial Closing Date through and including the Additional Shares
(and the Company's issuance of the Additional Common Stock shall
constitute the Company's making such representation and warranty
as of such date).
COMPANY:
eConnect
By : Thomas S. Hughes
Thomas S. Hughes, President
PURCHASER:
Alpha Venture Capital, Inc.
By: /s/ Barry Herman
Barry Herman, Director
EX-4.78
LINE OF CREDIT AGREEMENT
AGREEMENT dated as of the 5th day of March 2001 (the
"Agreement") between Alliance Equities (the "Investor") and
eConnect Inc., a corporation organized and existing under the
laws of the State of Nevada (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to
the conditions contained herein, the Company shall extend the
Company $7,000,000 line of credit through December 31,2002.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Credit Line
1.0 The Investor agrees to enable the Company to access a
credit line of $7,000,000 with the following terms and
conditions applying:
(a) Advances. The Company may access up to an amount that
mutually agreed upon with a maximum of $400,000 per month from
the Credit Line at the rate of 12% per year APR.
ARTICLE II
Mechanics
2.0 Advance Notice. At any time during the Commitment Period,
the Company may deliver an Advance Notice to the Investor, at
the amount mutually agreed upon, provided, however, the amount
for each Advance as designated by the Company in the applicable
Advance Notice shall not be more than the Maximum Advance
Amount. The aggregate amount of the Advances pursuant to this
Agreement shall not exceed the Commitment Amount, unless
otherwise agreed by the Investor in the Investor's sole and
absolute discretion.
(b) Date of Delivery of Advance Notice.
"Advance Notice Date" shall mean each date the Company delivers
to the Investor an Advance Notice requiring the Investor to
advance funds to the Company, subject to the terms of this
Agreement. No Advance Notice Date shall be less than
eleven (11) Trading Days after the prior Advance Notice Date.
An Advance Notice shall be deemed delivered on (i) verbal
discussions between the Company and the Investor or written
Advance Notice 48 hours preceeding requested delivery of funds
to the Company.
ARTICLE III
Agreement to Advance Funds
3.0 The Company shall receive funds with the following in place:
(a) Reporting. The Company shall have filed with the
Commission in a timely manner all reports, notices and other
documents required of a "reporting company" under the Exchange
Act and applicable Commission regulations;
(b) Board of Directors Approval. The Company's obligations
under this Agreement are approved and agreed to by the Board of
Directors.
ARTICLE IV
Repayment of Funds
4.0 The Investor may elect to be repaid in either cash or stock
or a combination of both at terms to be mutually agreed upon
between the Company and the Investor.
ARTICLE V
Usage of Funds
5.0 The Company will use the funds from the Line of Credit
towards the implemention of the Interface server system in the
United States which shall act as the intermediary between the
eCashPad originated transaction and the receiving Host which in
turn shall route the financial card transaction originated by
the eCashPad into the respective financial network for
authorization and settlement.
ARTICLE VI
Representations and Warranties of Investor
6.0 Investor hereby represents and warrants to, and agrees
with, the Company that the following are true and as of the date
hereof and as of each Advance Date:
(a) Organization and Authorization. Investor is duly
incorporated or organized and validly existing in the
jurisdiction of its incorporation or organization and has all
requisite power and authority to purchase and hold the
securities issuable hereunder. The decision to invest and the
execution and delivery of this Agreement by such Investor, the
performance by such Investor of its obligations hereunder and
the consummation by such Investor of the transactions
contemplated hereby have been duly authorized and requires no
other proceedings on the part of the Investor. The undersigned
has the right, power and authority to execute and deliver this
Agreement and all other instruments (including, without
limitations, the Registration Rights Agreement), on behalf of
the Investor. This Agreement has been duly executed and
delivered by the Investor and, assuming the execution and
delivery hereof and acceptance thereof by the Company, will
constitute the legal, valid and binding obligations of the
Investor, enforceable against the Investor in accordance with its terms.
(b) Evaluation of Risks. The Investor has such knowledge and
experience in financial tax and business matters as to be
capable of evaluating the merits and risks of, and bearing the
economic risks entailed by, an investment in the Company and of
protecting its interests in connection with this transaction.
It recognizes that its investment in the Company involves a high
degree of risk.
(c) No Legal Advice From the Company. The Investor
acknowledges that it had the opportunity to review this
Agreement and the transactions contemplated by this Agreement
with his or its own legal counsel and investment and tax
advisors. The Investor is relying solely on such counsel and
advisors and not on any statements or representations of the
Company or any of its representatives or agents for legal, tax
or investment advice with respect to this investment, the
transactions contemplated by this Agreement or the securities
laws of any jurisdiction.
(d) Accredited Investor. Investor is an "accredited investor"
that term is defined in Rule 501(a)(3) of Regulation D of the
Securities Act.
(e) Information. Such Investor and its advisors (and his or
its counsel), if any, have been furnished with all materials
relating to the business, finances and operations of the Company
and information it deemed material to making an informed
investment decision. Such Investor and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and its management.
Neither such inquiries nor any other due diligence investigations conducted
by such Investor or its advisors, if any, or its representatives
shall modify, amend or affect the Investor's right to rely on
the Company's representations and warranties contained in this
Agreement. Such Investor understands that its investment
involves a high degree of risk. Such Investor is in a position
regarding the Company, which, based upon employment, family
relationship or economic bargaining power, enabled and enables
each Investor to obtain information from the Company in order to
evaluate the merits and risks of this investment.
Such Investor has sought such accounting, legal and tax advice,
as it has considered necessary to make an informed investment
decision with respect to this transaction.
(f) No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf,
has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the
Securities Act) in connection with the offer or sale of the
shares of Common Stock offered hereby.
(g) Not an Affiliate. The Investor is not an officer, director
or a person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common
control with the Company "an Affiliate," as that term is defined
in Rule 405 of the Securities Act, of the Company. The Investor agrees that
it will not, and that it will cause its affiliates not to, engage in any short
sales of or hedging transactions with respect to the Common Stock.
ARTICLE VII
Representations and Warranties of the Company
7.0 Except as stated below or on the disclosure schedules
attached hereto, the Company hereby represents and warrants to,
and covenants with, the Investor that the following are true and
correct as of the date hereof and as of each Advance Date:
(a) Organization and Qualification. The Company is duly
incorporated or organized and validly existing in the
jurisdiction of its incorporation or organization and has all
requisite power and authority corporate power 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 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 on the
Company and its subsidiaries taken as a whole.
(b) Authorization, Enforcement, Compliance with Other
Instruments. The Company has the requisite corporate power and
authority to enter into and perform this Agreement.
(c) SEC Documents; Financial Statements. The Company has
filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC under of the
Exchange Act (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by
reference therein, being hereinafter referred to as the "SEC
Documents"). The Company has delivered to the Investor or its
representatives, or made available through the SEC's website at
http://www.sec.gov true and complete copies of the SEC
Documents. As of their respective dates, the financial
statements of the Company disclosed in the SEC Documents (the
"Financial Statements") complied as to form in all material
respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto.
Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise=20
indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent
they may exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and
the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). No other information
provided by or on behalf of the Company to the Investor which is
not included in the SEC Documents contains any untrue statement
of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(d) Intellectual Property Rights. The Company and its
subsidiaries own or possess adequate rights or licenses to use
all trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct
their respective businesses as now conducted. The Company and
its subsidiaries do not have any knowledge of any infringement
by the Company or its subsidiaries of trademark, trade name
rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service mark
registrations, trade secret or other similar rights of others,
and, to the knowledge of the Company, there is no claim, action
or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its
subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service
marks, service mark registrations, trade secret or other
infringement; and the Company and its subsidiaries are unaware
of any facts or circumstances which might give rise to any of
the foregoing.
(e) Employee Relations Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the
knowledge of the Company or any of its subsidiaries, is any such
dispute threatened. None of the Company's or its subsidiaries'
employees is a member of a union and the Company and its
subsidiaries believe that their relations with their employees
are good.
(f) Regulatory Permits. The Company and its subsidiaries
possess all certificates, authorizations and permits issued by
the appropriate federal, state or foreign regulatory authorities
necessary to conduct their respective businesses, and neither
the Company nor any such subsidiary has received any notice of
proceedings relating to the revocation or modification of any
such certificate, authorization or permit.
(g) Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions
are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization
and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(h) No Material Adverse Breaches, etc. Except as set forth in
the SEC Documents, neither the Company nor any of its
subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company's officers has or is expected in the
future to have a Material Adverse Effect on the business, properties,
operations, financial condition, results of operations or prospects of the
Company or its subsidiaries. Neither the Company nor any of its
subsidiaries is in breach of any contract or agreement which
breach, in the judgment of the Company's officers, has or is
expected to have a Material Adverse Effect on the business,
properties, operations, financial condition, results of
operations or prospects of the Company or its subsidiaries.
(i) Absence of Litigation. Except as set forth in the SEC
Documents, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government
agency, self-regulatory organization or body pending against or
affecting the Company, the Common Stock or any of the Company's
subsidiaries, wherein an unfavorable decision, ruling or finding
would (i) have a Material Adverse Effect on the transactions
contemplated hereby (ii) adversely affect the validity or
enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of the
documents contemplated herein, or (iii) except
as expressly disclosed in the SEC Documents, have a Material
Adverse Effect on the business, operations, properties,
financial condition or results of operation of the Company and
its subsidiaries taken as a whole.
(j) Tax Status. The Company and each of its subsidiaries has
made or filed all federal and state income and all other tax
returns, reports and declarations required by any jurisdiction
to which it is subject and (unless and only to the extent that
the Company and each of its subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) has paid all taxes and other governmental assessments and charges that
are material in amount, shown or determined to be due on such returns,
reports and declarations, except those being contested in good
faith and has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis
for any such claim.
(k) Certain Transactions. None of the officers, directors,
or employees of the Company is presently a party to any
transaction with the Company (other than for services as
employees, officers and directors), including any contract,
agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to
or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or
other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director,
trustee or partner.
ARTICLE VIII
Indemnification
The Investor and the Company represent to the other the
following with respect to itself:
(a) Indemnification. In consideration of the Investor's
execution and delivery of this Agreement, and in addition to all
of the Company's other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless the
Investor(s), and all of their officers, directors, employees and
agents (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement)
(collectively, the "Investor Indemnitees") from and against any
and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Investor
Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"), incurred by
the Investor Indemnitees or any of them as a result of, or
arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in
this Agreement or the Registration Rights Agreement or any other
certificate, instrument or document contemplated hereby or
thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement or the
Registration Rights Agreement or any other certificate,
instrument or document contemplated hereby or thereby, or (c)
any cause of action, suit or claim brought or made against such
Investor Indemnitee not arising out of any action or inaction of
an Investor Indemnitee, and arising out of or resulting from the
execution, delivery, performance or enforcement of this
Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the Indemnitees. To the
extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities, which is permissible under
applicable law.
(b) In consideration of the Company's execution and delivery of
this Agreement, and in addition to all of the Investor's other
obligations under this Agreement, the Investor shall defend,
protect, indemnify and hold harmless the Company and all of its
officers, directors, employees and agents (including, without
limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Company
Indemnitees") from and against any and all Indemnified
Liabilities incurred by the Indemnitees or any of them as a
result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty
made by the Investor(s) in this Agreement or any instrument or
document contemplated hereby or thereby executed by the
Investor, (b) any breach of any covenant, agreement or
obligation of the Investor(s) contained in this Agreement, the
Registration Rights Agreement or any other certificate,
instrument or document contemplated hereby or thereby executed
by the Investor, or (c) any cause of action, suit or claim
brought or made against such Company Indemnitee based on
material misrepresentations or due to a material breach by the
Investor and arising out of or resulting from the execution,
delivery, performance or enforcement of this Agreement or
any other instrument, document or agreement executed pursuant
hereto by any of the Company Indemnitees. To the extent that
the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified
Liabilities, proceeding for such purpose; (iv) the happening of
any event that makes any statement made in the Registration
Statement or related prospectus of any document incorporated or
deemed to be incorporated therein by reference untrue in any
material respect or that requires the making of any changes in
the Registration Statement, related prospectus or documents so
that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to
make the statements therein not misleading, and that in the case
of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under
which they were made, not misleading; and (v) the Company's
reasonable determination that a post-effective amendment to the
Registration Statement would be appropriate; and the Company
will promptly make available to the Investor any such supplement
or amendment to the related prospectus. The Company shall not
deliver to the Investor any Advance Notice during the
continuation of any of the foregoing events.
ARTICLE IX
Choice of Law/Jurisdiction
Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Florida
without regard to the principles of conflict of laws.
ARTICLE X
Assignment; Termination
Assignment. Neither this Agreement nor any rights of the
Company hereunder may be assigned to any other Person.
Termination. The obligations of the Investor to make Advances
shall terminate December 31,2002.
ARTICLE XI
Notices
Section 11.1 Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms
of this Agreement must be in writing and will be deemed to have
been delivered (i) upon receipt, when delivered personally; (ii)
upon receipt, when sent by facsimile, provided a copy is mailed
by U.S. certified mail, return receipt requested; (iii) three
(3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company, to:
eConnect Inc.
Attention: Thomas S. Hughes
Telephone: 310-514-9482
Facsimile: 310- 514-9442
If to the Investor(s), to its address:
12147 N.W. 9th Drive
Coral Springs, Florida 33071
Each party shall provide five (5) days' prior written notice to
the other party of any change in address or facsimile number.
ARTICLE XII
Miscellaneous
Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and
the same agreement and shall become effective when counterparts
have been signed by each party and delivered to the other
party. In the event any signature page is delivered by
facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature
pages to be physically delivered to the other party within five
(5) days of the execution and delivery hereof.
Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Investor(s),
the Company, their affiliates and persons acting on their behalf
with respect to the matters discussed herein, and this Agreement
and the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein
or therein, neither the Company nor any Investor makes any
representation, warranty, covenant or undertaking with respect
to such matters. No provision of this Agreement may be waived
or amended other than by an instrument in writing signed by the
party to be charged with enforcement.
Confidentiality. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the
parties hereto shall keep confidential any information obtained
from any other party (except information publicly available or
in such party's domain prior to the date hereof, and except as required by
court order) and shall promptly return to the other parties all schedules,
documents, instruments, work papers or other written information without
retaining copies thereof, previously furnished by it as a result
of this Agreement or in connection herein.
IN WITNESS WHEREOF, the parties hereto have caused this Line of
Credit Agreement to be executed by the undersigned, thereunto
duly authorized, as of the date first set forth above.
eConnect
By: /s/ Thomas S. HughesHughe
Thomas S. Hughes, Chairman and CEO
Alliance Equities
By: /s/ Richard Epstein
Richard Epstein, President
EX-4.79
DEBENTURE
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS
AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM
THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE SECURITIES ARE
SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS
PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON
OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR
ADEQUACY OF THE OFFERING MATERIALS. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
ISSUANCE DATE: March 20, 2001
DUE DATE: April 5, 2002
AMOUNT: $1,653,000
FOR VALUE RECEIVED, eConnect, a Nevada corporation ("Company"),
hereby promises to pay to Alliance Equities or registered
assigns (the "Holder") on April 5, 2001, ("Maturity Date"), the
principal amount of One Million Six Hundred Fifty-Three Thousand
Dollars ($1,653,000) U.S., and to pay interest on the principal
amount hereof, in such amounts, at such times and on such terms
and conditions as are specified herein.
1. Interest.
The Company shall pay interest on the unpaid principal amount of
this Debenture (the "Debenture") at the rate of twelve percent
(12.50%) per annum, payable at the time of each conversion,
with respect to the principal amount of the Debenture being
converted, until the principal amount hereof is paid in full or
has been converted. Interest shall be computed on the basis of a
three hundred sixty (360) day year of twelve (12), thirty (30)
day months. Each payment shall be paid in cash or in Common
Stock of the Company, at the Company's option. If the interest
is to be paid in cash, the Company shall make such payment
within five (5) business days of the of "Conversion Date" as
that term is defined in Section 3.2(b). If the interest is to
be paid in Common Stock, said Common Stock shall be delivered to
the Holder, or per Holder's instructions, within five (5)
business days of the date of conversion. The Debentures are
subject to automatic conversion at the end of one year from the
date of issuance at which time all Debentures outstanding will
be automatically converted based upon the formula set forth in
Section 3.2. The closing shall be deemed to have occurred on
the date the funds are received by the Company or its Counsel
("Closing Date").
2. Method of Payment.
This Debenture must be surrendered to the Company in order for
the Holder to receive payment of the principal amount hereof.
The Company shall have the option of paying the interest on this
Debenture in United States dollars or in common stock upon
conversion pursuant to Article 1 hereof. The Company may draw a
check for the payment of interest to the order of the Holder of
this Debenture and mail it to the Holder's address as shown on
the Register (as defined in Section 7.2 below). Interest and
principal payments shall be subject to withholding under
applicable United States Federal Internal Revenue Service Regulations.
3. Conversion.
3.1. Conversion Privilege.
(a) The Holder of this Debenture shall have the right, at
its option, to convert it into shares of common stock, par value
$0.001 per share, of the Company ("Common Stock") at any time
after the issuance date subject to the registration rights as
set forth hereafter up to 5:00 p.m. Pacific Standard Time on
April 5, 2002 (the "Conversion Period"), except as set forth in
Section 3.1(c) below. The number of shares of Common Stock
issuable upon the conversion of this Debenture is determined
pursuant to Section 3.2 and rounding the result to the nearest
whole share.
(b) Less than all of the principal amount of this
Debenture may be converted into Common Stock if the portion
converted is five thousand dollars ($5,000) or a whole multiple
of five thousand dollars ($5,000) and the provisions of this
Article 3 that apply to the conversion of all of the Debenture
shall also apply to the conversion of a portion of it. This
Debenture may not be converted, whether in whole or in part,
except in accordance with Article 3.
(c) In the event all or any portion of this Debenture
remains outstanding on the first anniversary of the date hereof,
the unconverted portion of such Debenture will automatically be
converted into shares of Common Stock on such date in the manner
set forth in Section 3.2.
3.2. Conversion Procedure.
(a) Debentures. Upon the Company's receipt of a facsimile
or original of Holder's signed Notice of Conversion and the
original Debenture to be converted, the Company shall instruct
its transfer agent to issue one or more Certificates representing
that number of shares of Common Stock into which the Debenture, or
portion thereof is convertible in accordance with the provisions
regarding conversion set forth in the conversion notice. The
Company or its counsel shall act as Registrar and shall maintain
an appropriate ledger containing the necessary information with
respect to each Debenture.
(b) Conversion Date. The face amount of the Debentures,
plus accrued interest, may be converted anytime during the
Conversion Period. Such conversion shall be effectuated by
surrendering to the Company, or its attorney, this Debenture to be
converted together with a facsimile or original of the signed
Notice of Conversion which evidences Holder's intention to convert
the Debenture indicated. The date on which the Notice of
Conversion is effective ("Conversion Date") shall be deemed to be
the date on which the Holder has delivered to the Company a
facsimile or original of the signed Notice of Conversion, as long
as the original Debentures to be converted are received by the
Company or its designated attorney within five (5) business days
thereafter. As long as the Debentures to be converted are
received by the Company or its designated attorney within five (5)
business days after it receives a facsimile or original of the
signed Notice of Conversion, the Company shall deliver to the
Holder, or per the Holder's instructions, the shares of Common
Stock under the provisions of subparagraph (c) within four (4)
business days of receipt of the facsimile Conversion Notice.
(c) Issuance of Common Stock. Upon the conversion of any
Debentures and upon receipt by the Company or its attorney of a
facsimile or original of Holder's signed conversion notice Company
shall instruct Company's transfer agent to issue Stock
Certificates without restrictive legend or stop transfer
instructions, in the name of Holder (or its nominee) and in such
denominations to be specified at conversion representing the
number of shares of Common Stock issuable upon such conversion, as
applicable. Company warrants that no instructions, other than
these instructions, have been given or will be given to the
transfer agent and that the Common Stock shall otherwise be freely
transferable on the books and records of Company.
(d) Conversion Rate. Anytime during the Conversion Period,
Holder is entitled to convert the face amount of this Debenture,
plus accrued interest, into Common Stock at seventeen cents
($0.17) per share ("Conversion Price"). No fractional shares or
scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded up
or down, as the case may be, to the nearest whole share.
The Debentures are subject to a mandatory conversion feature
at the end of which all Debentures outstanding will be
automatically converted, upon the terms set forth in this section
("Mandatory Conversion Date").
(e) Issuance of Share Certificate. It shall be the
Company's responsibility to take all necessary actions and to
bear all such costs to issue the Certificate of Common Stock as
provided herein, including the responsibility and cost for
delivery of an opinion letter to the transfer agent, if so
required. The person in whose name the certificate of Common
Stock is to be registered shall be treated as a shareholder of
record on and after the conversion date. Upon surrender of any
Debentures that are to be converted in part, the Company shall
issue to the Holder a new Debenture equal to the unconverted
amount, if so requested in writing by Holder.
(f) Non-Deliverance of Shares. In the event the Common
Stock is not delivered per the written instructions of the
Holder, within four (4) business days after the Conversion
Date, then in such event the Company shall pay to Holder one
percent (1%) in cash, of the dollar value of the Debentures
being converted per each day after the fourth (4th) business day
following the Conversion Date that the Common Stock is not delivered.
The Company acknowledges that its failure to deliver the Common
Stock within four (4) business days after the Conversion Date
will cause the Holder to suffer damages in an amount that will
be difficult to ascertain. Accordingly, the parties agree that
it is appropriate to include in this Agreement a provision for
liquidated damages. The parties acknowledge and agree that the
liquidated damages provision set forth in this section
represents the parties' good faith effort to qualify such
damages and, as such, agree that the form and amount of such
liquidated damages are reasonable and will not constitute a
penalty. The payment of liquidated damages shall not relieve
the Company from its obligations to deliver the Common Stock
pursuant to the terms of this Agreement.
To the extent that the failure of the Company to issue the
Common Stock pursuant to this Section 4 is due to the
unavailability of authorized but unissued shares of Common
Stock, the provisions of this Section 4(f) shall not apply but
instead the provisions of Section 4(g) shall apply.
The Company shall make any payments incurred under this
Section 4(g) in immediately available funds within three (3)
business days from the date of issuance of the applicable Common
Stock. Nothing herein shall limit a Holder's right to pursue
actual damages or cancel the conversion for the Company's
failure to issue and deliver Common Stock to the Holder within
six (6) business days after the Conversion Date.
(g) Insufficient Authorized but Unissued Shares. The
Company shall at all times reserve and have available all Common
Stock necessary to meet conversion of the Debentures by all
Holders of the entire amount of Debentures then outstanding.
If, at any time Holder submits a Notice of Conversion and the
Company does not have sufficient authorized but unissued shares
of Common Stock available to effect, in full, a conversion of
the Debentures (a "Conversion Default", the date of such default
being referred to herein as the "Conversion Default Date"), the
Company shall issue to the Holder all of the shares of Common
Stock which are available, and the Notice of Conversion as to
any Debentures requested to be converted but not converted (the
"Unconverted Debentures"), upon Holder's sole option, may be
deemed null and void. The Company shall provide notice of such
Conversion Default ("Notice of Conversion Default") to all
existing Holders of outstanding Debentures, by facsimile, within
three (3) business day of such default (with the original
delivered by overnight or two day courier), and the Holder shall
give notice to the Company by facsimile within five (5) business
days of receipt of the original Notice of Conversion Default
(with the original delivered by overnight or two day courier) of
its election to either nullify or confirm the Notice of Conversion.
The Company agrees to pay to all Holders of outstanding
Debentures payments for a Conversion Default ("Conversion
Default Payments") in the amount of (N/365) x (.12) x the
initial issuance price of the outstanding and/or tendered but
not converted Debentures held by each Holder where N = the
number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Company authorizes a sufficient
number of shares of Common Stock to effect conversion of all
remaining Debentures. The Company shall send notice
("Authorization Notice") to each Holder of outstanding
Debentures that additional shares of Common Stock have been
authorized, the Authorization Date and the amount of Holder's
accrued Conversion Default Payments. The accrued Conversion
Default shall be paid in cash or shall be convertible into
Common Stock at the Conversion Rate, at the Holder's option,
payable as follows: (i) in the event Holder elects to take such
payment in cash, cash payments shall be made to such Holder of
outstanding Debentures by the fifth (5th) day of the following
calendar month, or (ii) in the event Holder elects to take such
payment in stock, the Holder may convert such payment amount
into Common Stock at the conversion rate set forth in Section
3.2(d) at anytime after the fifth (5th) day of the calendar month
following the month in which the Authorization Notice was
received, until the expiration of the mandatory twelve (12)
month conversion period. The Company acknowledges that its
failure to maintain a sufficient number of authorized but
unissued shares of Common Stock to effect in full a conversion
of the Debentures will cause the Holder to suffer damages in an
amount that will be difficult to ascertain. Accordingly, the
parties agree that it is appropriate to include in this
Debenture a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set
forth in this section represents the parties' good faith effort
to quantify such damages and, as such, agree that the form and
amount of such liquidated damages are reasonable and will not
constitute a penalty. The payment of liquidated damages shall
not relieve the Company from its obligations to deliver the
Common Stock pursuant to the terms of this Debenture. Nothing
herein shall limit the Holder's right to pursue actual damages
or cancel the conversion for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock.
(h) Furnishing of Prospectus. The Company shall furnish
to Holder such number of prospectuses and other documents
incidental to the registration of the shares of Common Stock
underlying the Debentures, including any amendment of or
supplements thereto. Holder shall acknowledge in writing the
receipt, the careful reading, and the understanding thereof,
prior to any conversion under Article 3 hereof.
(i) Maximum Payment of Interest. Nothing contained in the
Debenture shall be deemed to establish or require the payment of
interest to the Purchaser at a rate in excess of the maximum rate
permitted by governing law. In the event that the rate of
interest required to be paid under the Debenture exceeds the
maximum rate permitted by governing law, the rate of interest
required to be paid thereunder shall be automatically reduced to
the maximum rate permitted under the governing and any amounts
collected in excess of the permissible amount shall be deemed a
payment of principal. To the extent that such excess amount
exceeds the aggregate principal amount of the Debenture, such
excess shall be returned with reasonable promptness by the Holder
to the Company.
(j) Redemption. The Company reserves the right, at its
sole option, to call a mandatory redemption of any percentage of
the balance on the Debentures as follows: In the event the
Company exercises such right of redemption anytime following the
Closing Date, it shall pay the Holder, in U.S. currency the
benefit of the bargain (intrinsic value), that is, the principal
amount of the Debenture being redeemed, plus accrued interest
and the profit the Holder would have received upon conversion of
that portion of the Debenture being redeemed and sale of the
Common Stock. The date by which the Debentures must be
delivered to the Escrow Agent shall not be later than five (5)
business days following the date the Company notifies the Holder
by facsimile of the redemption. The Company shall give the
Holder at least twenty (20) business days advance written notice
of its intent to redeem.
(k) Investment Intent. The Holder of this Debenture by
acceptance hereof, agrees that this Debenture is being acquired
for investment and that such Holder will not offer, sell or
otherwise dispose of this Debenture or the shares of Common Stock
issuable upon conversion thereof except under circumstances which
will not result in violation of the 1933 Act or any applicable
state Blue Sky law or similar laws relating to the sale of
securities.
(l) Adjustment. In case any provision of this Debenture is held
by a court of competent jurisdiction to be excessive in scope or
otherwise invalid or unenforceable, such provision shall be
adjusted rather than voided, if possible, and the validity and
enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby.
3.3. Fractional Shares. The Company shall not issue fractional
shares of Common Stock, or scrip representing fractions of such
shares, upon the conversion of this Debenture. Instead, the
Company shall round up or down, as the case may be, to the
nearest whole share.
3.4. Taxes on Conversion. The Company shall pay any
documentary, stamp or similar issue or transfer tax due on the
issue of shares of Common Stock upon the conversion of this
Debenture. However, the Holder shall pay any such tax which is
due because the shares are issued in a name other than its name.
3.5. Company to Reserve Stock. The Company shall reserve the
number of shares of Common Stock required pursuant to and upon
the terms set forth in Section 3(a) of the Subscription
Agreement entered into by the Company and Holder, to permit the
conversion of this Debenture. All shares of Common Stock which
may be issued upon the conversion hereof shall upon issuance be
validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issuance thereof.
3.6. Restrictions on Transfer. This Debenture has not been
registered under the Securities Act of 1933, as amended, (the
"Act") and is being issued under Section 4(2) of the Act and
Rule 506 of Regulation D promulgated under the Act. This
Debenture and the Common Stock issuable upon the conversion
thereof may only be offered or sold pursuant to registration
under or an exemption from the Act.
3.7. Mergers, Etc. If the Company merges or consolidates with
another corporation or sells or transfers all or substantially
all of its assets to another person and the holders of the
Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as
a condition of such merger, consolidation, sale or transfer, the
Company and any such successor, purchaser or transferee shall
amend this Debenture to provide that it may thereafter be
converted on the terms and subject to the conditions set forth
above into the kind and amount of stock, securities or property
receivable upon such merger, consolidation, sale or transfer by
a holder of the number of shares of Common Stock into which this
Debenture might have been converted immediately before such
merger, consolidation, sale or transfer, subject to adjustments
which shall be as nearly equivalent as may be practicable to
adjustments provided for in this Article 3.
4. Mergers and Adjustments.
4.1. Mergers. The Company shall not consolidate or merge into,
or transfer all or substantially all of its assets to, any
person, unless such person assume in writing the obligations of
the Company under this Debenture and immediately after such
transaction no Event of Default exists. Any reference herein to
the Company shall refer to such surviving or transferee
corporation and the obligations of the Company shall terminate
upon such written assumption.
4.2. Adjustments. The number of shares of Common Stock
purchasable upon the conversion of this Debenture shall be
subject to adjustments as follows:
(a) In case the Company shall (i) pay a dividend on Common
Stock in Common Stock or securities convertible into,
exchangeable for or otherwise entitling a holder thereof to
receive Common Stock, (ii) declare a dividend payable in cash on
its Common Stock and at substantially the same time offer its
shareholders a right to purchase new Common Stock (or securities
convertible into, exchangeable for or other entitling a holder
thereof to receive Common Stock) from the proceeds of such
dividend (all Common Stock so issued shall be deemed to have
been issued as a stock dividend), (iii) subdivide its
outstanding shares of Common Stock into a greater number of
shares of Common Stock, (iv) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock, or
(v) issue by reclassification, reorganization or
recapitalization of its Common Stock any shares of Common Stock
or other securities of the Company, the number of shares of
Common Stock issuable upon conversion of this Debenture
immediately prior thereto shall be adjusted so that the Holder
of this Debenture shall be entitled to receive after the
happening of any of the events described above that number and
kind of shares as the Holder would have received had this
Debenture been converted immediately prior to the happening of
such event or any record date with respect thereto. Any
adjustment made pursuant to this subdivision shall become
effective immediately after the close of business on the record
date in the case of a stock dividend and shall become effective
immediately after the close of business on the effective date in
the case of a stock split, subdivision, combination or reclassification.
(b) In case the Company shall distribute, without receiving
consideration therefor, to all holders of its Common Stock
evidences of its indebtedness or assets (excluding cash
dividends other than as described in Section 4.2(a)), or
rights, options or warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase
shares of Common Stock, then in such case, the number of shares
of Common Stock thereafter issuable upon conversion of this
Debenture shall be determined by multiplying the number of
shares of Common Stock theretofore issuable upon conversion of
this Debenture, by a fraction, of which the numerator shall be
the closing bid price per share of Common Stock on the record
date for such distribution, and of which the denominator shall
be the closing bid price of the Common Stock less the then fair
value (as determined by the Board of Directors of the Company,
whose determination shall be conclusive) of the portion of the
assets or evidences of indebtedness so distributed or of such
subscription rights, options or warrants, or of such convertible
or exchangeable securities applicable to one share of Common
Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately
after the record date for the determination of stockholders
entitled to receive such distribution.
(c) Any adjustment in the number of shares of Common Stock
issuable hereunder otherwise required to be made by this Section
4.2 will not have to be adjusted if such adjustment would not
require an increase or decrease in one percent (1%) or more in
the number of shares of Common Stock issuable upon conversion of
this Debenture. No adjustment in the number of shares of Common
Stock issuable upon conversion of this Debenture will be made
for the issuance of shares of capital stock to directors,
employees or independent contractors pursuant to the Company's
or any of its subsidiaries' stock option, for the purpose of the
Company's Common Stock warrants issued, issuable or to be issued
for services rendered by others to the Company, stock ownership
or other benefit plans or arrangements or trusts related thereto
or for issuance of any shares of Common Stock pursuant to any
plan providing for the reinvestment of dividends or interest
payable on securities of the Company and the investment of
additional optional amounts in shares of Common Stock under such plan.
5. Reports.
The Company will mail to the Holder hereof at its address as
shown on the Register a copy of any annual, quarterly or current
report that it files with the Securities and Exchange Commission
promptly after the filing thereof and a copy of any annual,
quarterly or other report or proxy statement that it gives to
its shareholders generally at the time such report or statement
is sent to shareholders.
6. Defaults and Remedies.
6.1. Events of Default. An "Event of Default" occurs if (a) the
Company does not make the payment of the principal of this
Debenture when the same becomes due and payable at maturity,
upon redemption or otherwise, (b) the Company does not make a
payment, other than a payment of principal, for a period of five
(5) business days thereafter, (c) the Company fails to comply
with any of its other agreements in this Debenture and such
failure continues for the period and after the notice specified
below, (d) the Company pursuant to or within the meaning of any
Bankruptcy Law (as hereinafter defined): (i) commences a
voluntary case; (ii) consents to the entry of an order for
relief against it in an involuntary case; (iii) consents to the
appointment of a Custodian (as hereinafter defined) of it or for
all or substantially all of its property or (iv) makes a general
assignment for the benefit of its creditors or (v) a court of
competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (A) is for relief against the Company in
an involuntary case; (B) appoints a Custodian of the Company or
for all or substantially all of its property or (C) orders the
liquidation of the Company, and the order or decree remains
unstayed and in effect for sixty (60) days, (e) the Company's
Common Stock is no longer listed on any recognized exchange
including electronic over-the-counter bulletin board. As used
in this Section 6.1, the term "Bankruptcy Law" means Title 11 of
the United States Code or any similar federal or state law for
the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any
Bankruptcy Law. A default under clause (c) above is not an
Event of Default until the holders of at least twenty-five
percent (25%) of the aggregate principal amount of the
Debentures outstanding notify the Company of such default and
the Company does not cure it within five (5) business days after
the receipt of such notice, which must specify the default,
demand that it be remedied and state that it is a "Notice of Default".
6.2. Acceleration. If an Event of Default occurs and is
continuing, the Holder hereof by notice to the Company, may
declare the remaining principal amount of this Debenture to be
due and payable. Upon such declaration, the remaining principal
amount shall be due and payable immediately
7. Registered Debentures.
7.1. Series. This Debenture is one of a numbered series of
Debentures which are identical except as to the principal amount
and date of issuance thereof and as to any restriction on the
transfer thereof in order to comply with the Securities Act of
1933 and the regulations of the Securities and Exchange
Commission promulgated thereunder. Such Debentures are referred
to herein collectively as the "Debentures". The Debentures
shall be issued in whole multiples of five thousand dollars ($5,000).
7.2. Record Ownership. The Company, or its attorney, shall
maintain a register of the holders of the Debentures
("Register") showing their names and addresses and the serial
numbers and principal amounts of Debentures issued to or
transferred of record by them from time to time. The Register
may be maintained in electronic, magnetic or other computerized
form. The Company may treat the person named as the Holder of
this Debenture in the Register as the sole owner of this
Debenture. The Holder of this Debenture is the person
exclusively entitled to receive payments of interest on this
Debenture, receive notifications with respect to this Debenture,
convert it into Common Stock and otherwise exercise all of the
rights and powers as the absolute owner hereof.
7.3. Registration of Transfer. Transfers of this Debenture may
be registered on the books of the Company maintained for such
purpose pursuant to Section 7.2 above (i.e., the Register).
Transfers shall be registered when this Debenture is presented
to the Company with a request to register the transfer hereof
and the Debenture is duly endorsed by the appropriate person,
reasonable assurances are given that the endorsements are
genuine and effective, and the Company has received evidence
satisfactory to it that such transfer is rightful and in
compliance with all applicable laws, including tax laws and
state and federal securities laws. When this Debenture is
presented for transfer and duly transferred hereunder, it shall
be canceled and a new Debenture showing the name of the
transferee as the record holder thereof shall be issued in lieu
hereof. When this Debenture is presented to the Company with a
reasonable request to exchange it for an equal principal amount
of Debentures of other denominations, the Company shall make
such exchange and shall cancel this Debenture and issue in
lieu thereof Debentures having a total principal amount equal to
this Debenture in such denominations as agreed to by the Company
and Holder.
7.4. Worn or Lost Debentures. If this Debenture becomes worn,
defaced or mutilated but is still substantially intact and
recognizable, the Company or its agent may issue a new Debenture
in lieu hereof upon its surrender. Where the Holder of this
Debenture claims that the Debenture has been lost, destroyed or
wrongfully taken, the Company shall issue a new Debenture in
place of the original Debenture if the Holder so requests by
written notice to the Company actually received by the Company
before it is notified that the Debenture has been acquired by a
bona fide purchaser and the Holder has delivered to the Company
an indemnity bond in such amount and issued by such surety as
the Company deems satisfactory together with an affidavit of the
Holder setting forth the facts concerning such loss, destruction
or wrongful taking and such other information in such form with
such proof or verification as the Company may request.
8. Registration Rights.
The Company shall prepare and file with the U.S. Securities and
Exchange Commission ("SEC"), no later than twelve months after
the Effective Date, as defined therein, of an accompanying
Registration Rights Agreement, a Registration Statement on Form
SB-2 ("Registration Statement"), covering a sufficient number of
shares of Common Stock to cover the conversion of this
Debenture. If at any time the number of shares of Common Stock
into which this Debenture shall be converted exceeds the
aggregate number of shares of Common Stock then registered, the
Company shall, within ten (10) business days after receipt of
written notice from the Holder, file with the SEC an additional
Registration Statement on Form SB-2 or any other applicable
registration statement, to register the shares of Common Stock
into which this Debenture may be converted that exceed the
aggregate number of shares of Common Stock already registered.
9. Time.
Where this Debenture authorizes or requires the payment of money
or the performance of a condition or obligation on a Saturday or
Sunday or a public holiday, or authorizes or requires the
payment of money or the performance of a condition or obligation
within, before or after a period of time computed from a certain
date, and such period of time ends on a Saturday or a Sunday or
a public holiday, such payment may be made or condition or
obligation performed on the next succeeding business day, and if
the period ends at a specified hour, such payment may be made or
condition performed, at or before the same hour of such next
succeeding business day, with the same force and effect as if
made or performed in accordance with the terms of this
Debenture. A "business day" shall mean a day on which the banks
in New York are not required or allowed to be closed.
10. Miscellaneous.
10.1 Benefits of this Agreement. Nothing in this Debenture
shall be construed to give to any person or corporation other
than the Company and the Holder any legal or equitable right,
remedy or claim under this Debenture, and this Debenture shall
be for the sole and exclusive benefit of the Company and the Holder.
10.2 Rights Cumulative; Waivers. The rights of each of the
parties under this Debenture are cumulative. The rights of each
of the parties hereunder shall not be capable of being waived or
varied other than by an express waiver or variation in writing.
Any failure to exercise or any delay in exercising any of such
rights shall not operate as a waiver or variation of that or any
other such right. However, the holders of a majority in
principal amount of the Debentures may waive a default or
rescind the declaration of an Event of Default and its
consequences except for a default in the payment of principal or
conversion into Common Stock. Any defective or partial exercise
of any of such rights shall not preclude any other or further
exercise of that or any other such right. No act or course of
conduct or negotiation on the part of any party shall in any way
preclude such party from exercising any such right or constitute
a suspension or any variation of any such right.
10.3 Benefit; Successors Bound. This Debenture and the terms,
covenants, conditions, provisions, obligations, undertakings,
rights, and benefits hereof, shall be binding upon, and shall
inure to the benefit of, the parties hereto and their heirs,
executors, administrators, representatives, successors, and
permitted assigns.
10.4 Entire Agreement. This Debenture contains the entire
agreement between the parties with respect to the subject matter
hereof. There are no promises, agreements, conditions,
undertakings, understandings, warranties, covenants or
representations, oral or written, express or implied, between
them with respect to this Debenture or the matters described in
this Debenture, except as set forth in this Debenture. Any such
negotiations, promises, or understandings shall not be used to
interpret or constitute this Debenture.
10.5 Assignment. This Debenture may be assigned if the
Assignment of Debenture, attached as Exhibit B to this
Debenture, is properly completed, executed and delivered to the Company.
10.5 Amendment. This Debenture may be amended only by an
instrument in writing executed by the parties hereto.
10.7 Severability. Each part of this Debenture is intended
to be severable. In the event that any provision of this
Debenture is found by any court or other authority of competent
jurisdiction to be illegal or unenforceable, such provision
shall be severed or modified to the extent necessary to render
it enforceable and as so severed or modified, this Debenture
shall continue in full force and effect.
10.8 Notices. Notices required or permitted to be given
hereunder shall be in writing and shall be deemed to be
sufficiently given when personally delivered (by hand, by
courier, by telephone line facsimile transmission, receipt
confirmed, or other means) or sent by certified mail, return
receipt requested, properly addressed and with proper postage
pre-paid (i) if to the Company, at its executive office (ii) if
to the Holder, at the address set forth under its name in the
subscription agreement for this Debenture, with a copy to its
designated attorney and (iii) if to any other Holder, at such
address as such Holder shall have provided in writing to the
Company, or at such other address as each such party furnishes
by notice given in accordance with this section, and shall be
effective, when personally delivered, upon receipt and, when so
sent by certified mail, four (4) business days after deposit
with the United States Postal Service.
10.9 Governing Law. This Agreement shall be governed by the
interpreted in accordance with the laws of the State of Arizona
without reference to its conflicts of laws rules or principles.
10.10 Forum Selection and Consent to Jurisdiction. Any
litigation based thereon, or arising out of, under, or in
connection with, this agreement or any course of conduct, course
of dealing, statements (whether oral or written) or actions of
the Company or Holder shall be brought and maintained
exclusively in the federal courts of the State of Arizona
without reference to its conflicts of laws rules or principles.
The Company hereby expressly and irrevocably submits to
jurisdiction exclusively with the federal Courts of the State of
Arizona for the purpose of any such litigation as set forth
above and irrevocably agrees to be bound by any final judgment
rendered thereby in connection with such litigation. The
Company further irrevocably consents to the service of process
by registered mail, postage prepaid, or by personal service
within or without the State of Arizona. The Company hereby
expressly and irrevocably waives, to the fullest extent
permitted by law, any objection which it may have or hereafter
may have to the laying of venue of any such litigation brought
in any such court referred to above and any claim that any such
litigation has been brought in any inconvenient forum. To the
extent that the Company has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal
process (whether through service or notice, attachment prior to
judgment, attachment in aid of execution or otherwise) with
respect to itself or its property. The Company hereby
irrevocably waives such immunity in respect of its obligations
under this agreement and the other loan documents.
10.11 Waiver of Jury Trial. The Holder and the Company
hereby knowingly, voluntarily and intentionally waive any rights
they may have to a trial by jury in respect of any litigation
based hereon, or arising out of, under, or in connection with,
this agreement, or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Holder or
the Company. The Company acknowledges and agrees that it has
received full and sufficient consideration for this provision
and that this provision is a material inducement for the Holder
entering into this agreement.
10.12 Consents. The person signing this Debenture on
behalf of the Company hereby represents and warrants that he has
the necessary power, consent and authority to execute and
deliver this Debenture on behalf of the Company.
10.13 Further Assurances. In addition to the
instruments and documents to be made, executed and delivered
pursuant to this Debenture, the parties hereto agree to make,
execute and deliver or cause to be made, executed and delivered,
to the requesting party such other instruments and to take such
other actions as the requesting party may reasonably require to
carry out the terms of this Debenture and the transactions
contemplated hereby.
10.14 Section Headings. The Section headings in this
Debenture are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Debenture.
10.15 Construction. Unless the context otherwise requires,
when used herein, the singular shall be deemed to include the
plural, the plural shall be deemed to include each of the
singular, and pronouns of one or no gender shall be deemed to
include the equivalent pronoun of the other or no gender.
IN WITNESS WHEREOF, the Company has duly executed this Debenture
as of the date first written above.
COMPANY:
eConnect
By: /s/ Thomas S. Hughes
Thomas S. Hughes, President
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Debentures.)
The undersigned hereby irrevocably elects, as of
___________________, ______ to convert $_________________ of the
Debentures into Shares of Common Stock (the "Shares") of
eConnect (the "Company") according to the conditions set forth
in the Subscription Agreement dated __________________, _______.
Date of Conversion_________________________________________
Applicable Conversion Price_________________________________
Number of Shares Issuable upon this conversion______________
Signature___________________________________________________
[Name]
Address_____________________________________________________
____________________________________________________________
Phone______________________ Fax___________________________
EXHIBIT B
ASSIGNMENT OF DEBENTURE
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
(name, address and SSN or EIN of assignee)
Dollars ($ )
(principal amount of Debenture, $10,000 or integral multiples of $10,000)
of principal amount of this Debenture together with all accrued
and unpaid interest hereon.
Date: Signed:
(Signature must conform in all respects to name of Holder shown
of face of Debenture)
Signature Guaranteed:
EX-5
OPINION RE: LEGALITY
Brian F. Faulkner
A Professional Law Corporation
3900 Birch Street, Suite 113
Newport Beach, California 92660
(949) 975-0544
April 30, 2001
U.S. Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: eConnect - Form SB-2
Dear Sir/Madame:
I have acted as counsel to eConnect, a Nevada corporation
("Company"), in connection with its Registration Statement on
Form SB-2 relating to the registration of 90,755,365 shares of
its common stock ("Shares"), $0.001 par value per Share.
In my representation I have examined such documents, corporate
records, and other instruments as I have deemed necessary or
appropriate for purposes of this opinion, including, but not
limited to, the Articles of Incorporation, and all amendments
thereto, and Bylaws of the Company.
Based upon and in reliance on the foregoing, and subject to the
qualifications and assumptions set forth below, it is my opinion
that the Company is duly organized and validly existing as a
corporation under the laws of the State of Nevada, and that the
Shares, when issued and sold, will be validly issued, fully
paid, and non-assessable.
My opinion is limited by and subject to the following:
(a) In rendering my opinion I have assumed that, at the time of
each issuance and sale of the Shares, the Company will be a
corporation validly existing and in good standing under the laws
of the State of Nevada.
(b) In my examination of all documents, certificates and
records, I have assumed without investigation the authenticity
and completeness of all documents submitted to me as originals,
the conformity to the originals of all documents submitted to me
as copies and the authenticity and completeness of the originals
of all documents submitted to me as copies. I have also assumed
the genuineness of all signatures, the legal capacity of natural
persons, the authority of all persons executing documents on
behalf of the parties thereto other than the Company, and the
due authorization, execution and delivery of all documents by
the parties thereto other than the Company. As to matters of
fact material to this opinion, I have relied upon statements and
representations of representatives of the Company and of public
officials and have assumed the same to have been properly given
and to be accurate.
(c) My opinion is based solely on and limited to the federal
laws of the United States of America and the Nevada Revised
Statutes. I express no opinion as to the laws of any other
jurisdiction.
Sincerely,
/s/ Brian F. Faulkner
Brian F. Faulkner, Esq.
EX-10.7
AMENDMENT TO AGREEMENT TO LICENSE ASSETS
September 1, 1999
Amendment #4 to Agreement to License Assets dated February 18,
1997 between Leggoons, Inc., a Missouri corporation and its
assigns ("Leggoons") and Home Point of Sale, Inc., a Nevada
corporation ("HPOS"), now also known as Electronic Transactions
& Technologies ("ET&T").
WHEREAS, paragraph 12(L) of the "Agreement" provides that
modification and amendments thereto can only be made with the
express written consent of James S. Clinton and Thomas S. Hughes;
WHEREAS, Leggoons, Inc. is now known as eConnect ("ECNC");
WHEREAS, eConnect has issued and outstanding 60,523,775 shares
of common stock as of August 13, 1999;
WHEREAS, paragraph 4 of the Agreement as previously amended
provides for termination of the Agreement as of September 1,
1999, unless certain conditions have been met;
WHEREAS, those conditions have not been met; and
WHEREAS, ET&T, eConnect, James S. Clinton, and Thomas S. Hughes
desiring to further extend the Agreement in order to allow more
time for the conditions of the Agreement to be met, hereby amend
the Agreement as follows:
(1) All references to a cancellation/termination date of
September 1, 1999 contained in the Agreement, as previously
amended, shall be changed to September 1, 2001 provided that the
following specific conditions have been met by ET&T:
(a) Pursuant to the provisions of Para. 2(d) of the Agreement,
ET&T and Hughes will cause eConnect, fomerly known as Betting,
Inc., formerly known as Leggoons, Inc., to immediately issue
1,792,377 shares of its common stock (inclusive of the
contemplated 5% stock dividend) to certain shareholders as
directed by James S. Clinton, in order to restore those
shareholders to their 10% position as provided in said Para. 2(d).
(b) Thereafter, at the end of each quarter of the fiscal year
of eConnect and within 45 days thereof, Hughes and ET&T will
cause eConnect to issue additional shares if/as needed (as
directed by James S. Clinton) to maintain the interest of
certain shareholders of the company at February 18, 1997 at 10%
of the total shares outstanding.
(c) All shares issued under the provisions of Para. 4(a), (b)
above shall be fully registered and free trading unless this
provision shall be specifically waived in writing by James S. Clinton.
(d) That all other conditions set forth in the Agreement of
February 18, 1997 (as previously amended) have been met by ET&T
on or before September 1, 2001, except that all parties to the
Agreement specifically waive Para. 1(b) and 1(c) of Amendment #2
to the Agreement, dated April 20, 1998.
(2) All parties to the Agreement acknowledge that eConnect was
formerly known as Betting, Inc., which was formerly known as
Leggoons, Inc.
In witness whereof, the parties have executed this Amendment #4
this 1st day fo September 1999.
ET&T
By: /s/ Thomas S. Hughes
Thomas S. Hughes, President
eConnect
By: /s/ Thomas S. Hughes
Thomas S. Hughes, President
/s/ Thomas S. Hughes
Thomas S. Hughes
/s/ James S. Clinton
James S. Clinton
EX-10.52
ASSET PURCHASE AGREEMENT
AGREEMENT AND PLAN OF REORGANIZATION, dated this 4th day of
October, 2000 (the "Agreement"), among EConnect, Inc., a Nevada
corporation with offices located at 2500 Via Cabrillo Marina,
Suite 112, San Pedro, CA 90731 (hereinafter "EConnect"); and
Broadband Video, Inc., a California corporation withoffices
located at 4839 E. Sunnyside Drive, Scottsdale, AZ 85254
(hereinafter "Broadband Video").
WITNESSETH:
WHEREAS EConnect and Broadband Video desire, pursuant to
this Agreement, to exchange all of the Assets of Broadband Video
(as hereinafter defined) solely for the Common Stock of EConnect
upon the terms and conditions hereinafter set forth and for the
purpose of carrying out a tax free exchange within the meaning
of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as
amended (the "Code"),
NOW, THEREFORE, for good and valuable consideration the receipt
and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Plan of Reorganization. Broadband Video agrees to
sell all of the Assets of Broadband Video to EConnect solely in
exchange for Six Million (6,000,000) free trading shares of
Common Stock of EConnect as provided for herein.
Description of the Assets. The Assets consist 100% of all
right, title and interest of Broadband Video in and to Zoom-TV software
technology.
3. The Common Stock. Econnect agrees to immediately
deliver 400,000 of free trading common stock to the shareholders
of the Broadband Video within one week after shareholders
meeting is held, 80,000 shares in the name of Anthony E.
DePrima, 80,000 shares in the name of C & P Development Corp.,
and 240,000 shares in the name of Richard Gnant, all of which
shares shall be non-refundable, and the balance of the shares of
stock at the at the Closing shall be Nine Million Six Hundred
Thousand (9,600,000) shares of stock shall be delivered at
Closing to Arizona Escrows, 3700 N. 24th Street, Phoenix, AZ
85016, who shall act as Escrow Agent and hold the shares of
stock and deliver the shares of stock to the shareholders of
Broadband Video named below.
4. Closing. The closing of the sale and acquisition of
the Assets in exchange for the Common Stock (the "Closing")
shall take place at 10:00 AM. local time one week after share
holders meeting is held or at such other time as the parties may
mutually agree. In event the Closing shall not occur as a result
of the fault of EConnect, EConnect agrees to pay the
shareholders of Broadband Video liquidated damages in an amount
equal to immediate delivery of One Million Six Hundred Thousand
(1,600,000) additional free trading shares and One Million
warrants for purchase of free trading shares priced at the lower
exercisable price of the following, either $1.00 per share or
the exercise price equal to 25% below the average 5-day trading
price, 5 business prior to one week after shareholders meeting
is held. The term for exercising the warrants will be one year
from date of issue. The shares of EConnect common stock are to
be issued in the same proportion and ratio of shares as provided
in paragraph 5 of this Agreement.
5. Exchange of the Assets for the Common Stock. Two days
before the Closing Date Broadband Video shall deliver to the
Escrow Agent a duly executed and notarized bill of sale
transferring the Assets to EConnect, and EConnect shall deliver
to the Escrow Agent three certificates of stock, One Million
Nine Hundred Twenty Thousand (1,920,000) shares in the name of
Anthony E. DePrima, 6991 E. Camelback Road, Suite B-305,
Scottsdale, AZ 85251, One Million Nine Hundred Twenty Thousand
(1,920,000) shares in the name of C & P Development Corp. 2222
Foothill Blvd., Suite 323, La Canada, CA 91011, and Five Million
Seven Hundred Sixty Thousand (5,760,000) shares in the name of
Richard Gnant, 4839 E. Sunnyside Drive, Scottsdale, AZ 85254,
all such persons being the sole and only shareholders of
Broadband Video. Upon the Closing the Escrow Agent shall
deliver the shares of stock to the persons entitled to receive
them and the bill of sale transferring Zoom-TV to EConnect.
6. Tax-Free Exchange. Each party hereto intends that
the transaction embodied by this Agreement shall be and shall
qualify, as a reorganization and a tax-free exchange under
Section 368(a)(1)(C) of the Code; and in furtherance thereof,
each party hereby agrees not to take any action which would
impair the treatment of the exchange as a tax-free
reorganization for tax purposes. However, the inability to
consummate the transaction on a tax free basis will not affect
the validity or enforceability of this Agreement.
7. Expenses. Each party shall pay its own costs and
expenses incurred by it in conjunction with this transactions.
8. Entire Agreement. Each of the parties hereto, covenants
that this Agreement is intended to and does contain and embody
herein all of the understandings and agreements, both written
and oral, of the parties hereby with respect to the subject
matter of this Agreement and that there exists no oral agreement
or understanding express or implied, whereby the absolute, final
and unconditional character and nature of this Agreement shall
be in any way invalidated, impaired or affected.
9. Governing Law. This Agreement shall be governed by and
interpreted under and construed in all respects in accordance
with the laws of the State of California, irrespective of the
place of domicile or residence of any party.
10. Originals. This Agreement may be executed in counterparts
each of which so executed shall be deemed an original and
constitute one and the same agreement.
11.Notices. Any notice required or contemplated by this
Agreement shall be deemed sufficiently given when served in
person, or by registered or certified mail, postage prepaid and
addressed, with return receipt requested the party entitled to
the notice at their address provided herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the day and year as first above written.
EConnect, Inc. Broadband Video, Inc.
By: /s/ Thomas S. Hughes By: /s/ Richard Gnant
Thomas S. Hughes, Chairman & CEO Richard Gnant, President
AMENDMENT TO ASSET PURCHASE AGREEMENT
The Asset Purchase Agreement entered into between EConnect,
Inc. (hereinafter "EConnect") and Broadband Video, Inc.
(hereinafter "Broadband Video) dated October
4, 2000, is amended to provide as follows:
Paragraph "1. The Plan of Reorganization" is amended to provide
for Ten Million (10,000,000) shares of 144 shares of common
stock and Three Million (3,000,000) warrants to buy Three
Million (3,000,000) shares of EConnect common stock for $1.00
per share, which warrants must be all exercised by 5:00 pm
December 31, 2001.
Paragraph "3. The Common Stock" is amended to provide for the
delivery of the shares of stock and the warrants directly to the
shareholders of Broadband Video in the same ratio of ownership
upon Closing.
Paragraph "4. Closing" shall take place upon the next filing
for registration of stock by EConnect (SB-2) which shall take
place on or before December 1,2000. EConnect agrees to register
the shares of stock and warrants for purchase of shares in such
registration (SB-2) which shares of stock and warrants shall all
become free trading shares upon approval of the SB-2 by the SEC.
Paragraph "5. Exchange of the Assets for the Common Stock" is
amended to provide for delivery by source code to the Zoom-TV
technology and Bill of Sale by Broadband Video to EConnect when
the Ten Million (10,000,000) shares of stock and the Warrants
shall become free trading and unrestricted shares and warrants
without any restrictive legend.
In Witness Whereof the parties have executed this Amendment To
Asset Purchase Agreement the day and year set forth above.
EConnect, Inc. Broadband Video, Inc.
By: /s/ Thomas S. Hughes By: /s/ Richard Gnant
Thomas S. Hughes, Chairman & CEO Richard Gnant, President
EX-10.53
AGREEMENT FOR SALE AND PLAN OF REORGANIZATION
This Agreement for Sale and Plan of Reorganization ("Agreement")
is entered into effective October 29, 2000, by and between
eConnect, a Nevada Corporation ("Buyer"), and all Shareholders
of National Data Funding Corporation, a California Corporation,
as indicated on Exhibit "A" attached hereto and incorporated
herein (collectively "Sellers").
RECITALS
A. WHEREAS, all the outstanding shares of stock of National
Data Funding Corporation ("NDFC"), a California corporation, are
owned by the Sellers;
B. WHEREAS, Buyer desires to purchase and Sellers desire to
sell to Buyer five million (5,000,000) shares of stock of NDFC,
under the terms and conditions hereinafter provided;
C. WHEREAS, the parties desire to enter into certain binding
agreements regarding the operation of NDFC after the sale;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the
parties hereby agree as follows:
1. Sale and Purchase. Sellers agree to sell, convey, and
transfer to Buyer, and Buyer agrees to purchase and assume from
Sellers, the assets hereinafter described for the purchase price
and upon and subject to the terms and conditions hereafter set forth.
2. Shares. The shares to be sold and purchased (collectively
"Shares") are the following: five million (5,000,000) shares of
stock in NDFC which is fifty percent (50%) of the total
authorized shares of NDFC.
3. Purchase Price.
(a) Buyer shall pay to Sellers ten million dollars
($10,000,000.00) and ten million (10,000,000) shares of eConnect
Section 144 stock, the total of both money and shares being the
"Purchase Price", in consideration for five million (5,000,000)
shares of the total of ten million (10,000,000) shares of
authorized NDFC stock.
(b) The Purchase Price shall be allocated to NDFC's
shareholders of record as of the Closing Date (as defined in
subsection 4(a)) in an amount equal to their respective equity
interest in NDFC.
(c) The Purchase Price shall be paid at the Closing as follows:
(1) Buyer shall deliver a certified, cashier's, or other check
acceptable to Sellers in the amount of ten million dollars
($10,000,000.00);
(2) Buyer shall deliver ten million (10,000,000) Section 144
shares of eConnect common stock to Sellers. For purposes of
this subsection, "deliver" means to transfer the said ten
million (10,000,000) Section 144 shares into the names of the
Sellers on the Day of Closing, with no acts left to be done by
Buyer, or any party, for Sellers to have full legal and physical
possession of said shares.
4. Closing.
(a) The transaction shall be closed and possession of the
Shares shall be given to Buyer at a closing to be held at 801 K
Street, 23rd Floor, Sacramento, California, on October 31, 2000,
at 11:00 a.m., or on such other date as the parties may agree
("Closing Date").
(b) At the closing:
(1) Sellers shall execute and deliver to Buyer all documents
and instruments necessary to carry out the terms and provisions
of this Agreement and to effectuate the purpose of the
transaction as shall be necessary to transfer the Shares to
Buyer and to fulfill the obligations of Seller hereunder which
are herein provided to be fulfilled on the Closing Date.
(2) Buyer shall pay to Sellers the Purchase Price, in
negotiable funds, and all other instruments as shall be
necessary to fulfill the obligations of Buyer hereunder which
are herein provided to be fulfilled on the Closing Date.
(c) Unless otherwise provided herein, all such instruments so
delivered shall be dated as of the Closing Date and, unless
attached hereto as an exhibit, shall be satisfactory as to form
and content to each party and its respective counsel.
5. Title. Title to all shares conveyed pursuant to this
Agreement shall be conveyed free and clear of all encumbrances.
6. Due Diligence Period. The parties have both engaged in a
period (the "Due Diligence Period") within which to inspect and
investigate the assets and liabilities of NDFC and eConnect,
respectively. The Due Diligence Period has passed as of the
effective date of this Agreement.
7. Representations, Undertakings, and Warranties by Sellers.
Sellers represent, agree, and warrant that:
(a) Sellers have good and marketable title to the Shares,
subject to no mortgage, pledge, lien, encumbrance, charge or
security interest, and the Shares shall be transferred to Buyer
so that they shall vest in Buyer free and clear of all liens,
encumbrances, and adverse claims of every character.
(b) The Shares are in existence and in the possession of Sellers.
(c) Seller is not in violation of or in default with respect to
any term or provision of any indenture, contract, agreement,
lease, or instrument to which Seller may be a party or by which
Seller may be bound.
(d) There is no litigation pending against Sellers or NDFC,
except as will be fully disclosed prior to the Closing Date, and
Sellers are not aware of any threatened litigation. All tax
returns required to be made by Seller have been properly
prepared, executed, and filed pursuant to applicable law, and
all taxes due have been paid. Except as otherwise provided in
this Agreement, Seller has no known liabilities for injury to
person or damage to property, no contingent liabilities. and no
liabilities not disclosed in writing to Buyer.
(e) NDFC has good and marketable title to its business assets
including cash, name, patents, intangibles, equipment,
inventory, fixtures, real property, leasehold improvements,
goods, receivables and instruments (referred to collectively in
this letter as the "Assets"), and all of the trademarks,
licenses, patents and copyrights necessary for the conduct of
the business.
(f) NDFC is in compliance with applicable laws the violation of
which would have a material adverse affect on NDFC's operations
or financial condition. Without limitation of the foregoing,
NDFC has complied with all laws regulating the discharge and
disposal of hazardous waste.
(g) NDFC's real property included in the Assets and all leased
premises are adequate for the present operations of NDFC and, as
presently used by NDFC, comply with all zoning and land use laws
and do not contain any hazardous wastes below the ground surface.
(h) NDFC is in compliance with all governmental licenses and
permits necessary of the operation of its business, the absence
of which or the noncompliance with which would have a material
adverse affect on the operations or financial condition of NDFC.
(i) NDFC's financial statements as delivered to Buyer are true
and correct and there has been no adverse change in the business
of NDFC since the date of such financial statements to the Closing.
(j) NDFC's products and all components thereof are of a
commercial quality and are sufficient to satisfy open orders
pending with NDFC.
(k) NDFC's reserve for warranty repair as shown on financial
statements is adequate to cover future warranty repairs.
(l) NDFC's account receivable arose from valid sales in the
ordinary course of business and, subject to a reasonable bad
debt allowance, are collectible without extraordinary efforts.
(m) At the Closing, NDFC shall deliver to Buyer and warrant as
true and correct a schedule of all bank accounts of NDFC.
(n) NDFC shall deliver to Buyer at the Closing and warrant as
true and correct a schedule of all NDFC's employees, their
present compensation levels, their scheduled salary review date,
their accrued and unpaid sick leave and vacation and all other
items of compensation due or to come due to NDFC's employees.
(o) None of the documents delivered to Buyer (taken together)
by Sellers contain any untrue statement of a material fact or
omit a statement of any material fact necessary in order to make
the statements contained therein not misleading in light of the
circumstances under which the statements were made.
(p) Between the date of Execution of this Agreement and the
Closing Date:
(1) Except for such changes as shall occur in the ordinary
course of business, and those changes discussed in Paragraph 10,
below, no changes have been made and no change shall be made in
NDFC's business or in the Shares.
(2) Seller has conducted and shall conduct the Business in a
diligent and businesslike manner, consistent with Seller's
normal and ordinary operation.
(3) Seller has used and shall use Seller's best efforts to
maintain the business organization intact, to retain the present
employees, and to maintain relationships with customers so that
all of them will be preserved for Buyer on or after the Closing Date.
(4) Sellers have maintained and shall maintain casualty
insurance in the amount of the full replacement value of the Shares.
(5) Buyer and Buyer's agents, employees, accountants, and
attorneys shall have full access to and the opportunity to
examine and make copies of all such books, records, documents,
instruments and papers of Seller pertaining to the Business.
8. Representations, Undertakings, and Warranties by Buyer.
Buyer represents, agrees, and warrants that:
(a) Buyer is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Nevada, and
has the power, all necessary corporate authorizations, and
capacity to enter into the transaction.
(b) There is no pending litigation against Buyer except as will
be fully disclosed prior to close of escrow.
(c) Consummation of the sale by Buyer will not violate any
contract or agreement to which Buyer is a party.
(d) Buyer has prepared and filed all federal, state and local
income, withholding, sales, real property, personal property and
other tax returns and has paid all required taxes.
(e) Buyer is in compliance with applicable laws the violation
of which would have a material adverse affect on Buyer's
operations or financial condition. Without limitation on the
foregoing, Buyer has complied with all laws regulating the
discharge and disposal of hazardous waste.
(f) Buyer's real property included in its assets, if any, and
all leased premises are adequate for the present operations of
Buyer and, as presently used by Buyer, comply with all zoning
and land use laws and do not contain any hazardous wastes below
the ground surface.
(g) Buyer is in compliance with all governmental licenses and
permits necessary for the operation of its business, the absence
of which or the noncompliance with which would have a material
adverse affect on the operations or financial condition of Buyer.
(h) Buyer maintains appropriate insurance policies relating to
its assets and the conduct of its business.
(i) Buyer's financial statements as delivered to Sellers are
true and correct and there has been no adverse change in the
business of Buyer since the date of such financial statements to
the Closing.
(j) At close of escrow Buyer will be in compliance with all
Securities and Exchange Commission filing requirements.
(k) Buyer's accounts receivable arose from valid sales in the
ordinary course of business and, subject to a reasonable bad
debt allowance, are collectible without extraordinary efforts.
(l) None of the documents delivered to Sellers (taken together)
by Buyer contain any untrue statement of a material fact or omit
a statement of any material fact necessary in order to make the
statements contained therein not misleading in light of the
circumstances under which the statements were made.
9. Conditions Precedent.
(a) Buyer's obligation to purchase the Shares and to close the
transaction contemplated by this Agreement is expressly
conditioned upon Seller's performance of each and every
obligation to be performed by Seller prior to or as of the
Closing Date, including, but not limited to, those actions set
forth in Paragraph 10, below.
(b) Sellers' obligation to transfer the Shares and to close the
transaction contemplated by this Agreement is expressly
conditioned upon Buyer's performance of each and every
obligation to be performed by Buyer prior to the closing Date,
and the complete satisfaction of each and every one of the
following conditions:
(1) Buyer shall enter into a consulting contract with R. Scott
Hatfield, (AHatfield) current Executive Vice President of NDFC.
This contract shall be for a period of three years and shall
call for Hatfield to, in addition to serving as president and
chief executive officer of NDFC after the Closing Date pursuant
to a contract with NDFC, serve as a consultant to Buyer
regarding its financial processing activities. It will include a
stock incentive plan which will call for Hatfield to receive one
million six hundred thousand (1,600,000) shares of NDFC's stock
from Buyer payable in equal quarterly payments during the term
of the contract. Those payments shall continue during the
contract so long as Hatfield remains available to serve as a
consultant to Buyer at reasonable times and places, and does not
voluntarily terminate or is not involuntarily terminated for
cause (which shall be defined as willfully breaching his
employment contract; habitually neglecting his duties; or,
committing acts of dishonesty, fraud, misrepresentation or other
acts of moral turpitude that would prevent the effective
performance of his duties) from his employment contract with
NDFC. The contract shall also give Hatfield the right to vote
all 1,600,000 of the shares during the term of the agreement,
even if not all shares have been transferred, and shall provide
that, on breach by eConnect, the remaining shares shall be
immediately transferred. Additionally, Buyer shall pay Hatfield
a cash salary under the contract equal to the actual Federal and
State income tax he pays as a result of the stock transfers;
such payments to be made on or before the due date of said taxes.
(2) Buyer shall provide operating capital to NDFC in the amount
of one million dollars ($1,000,000.00). Buyer shall also
transfer one million (1,000,000) shares of Section 144 stock of
Buyer, in addition to any other Buyer stock contemplated under
this Agreement, to NDFC. When negotiable, NDFC shall have the
right to sell, transfer, or otherwise utilize said one million
(1,000,000) shares for operating capital, at NDFC's discretion.
Said stock shall be transferred in such a way that, except for
the passage of time, no further action will be required of any
party before possession and ownership of such shares are legally
transferred to NDFC. Said capital contributions of cash and
stock shall occur at the Closing.
(3) Buyer shall provide Sellers, at the Closing, a certificate
from the Secretary of Buyer that the Board of Directors and
Shareholders of Buyer has approved the transaction as provided
in this Agreement and that the officers executing this Agreement
have full authority to do so as well as execute all other
documents and instruments necessary to carry out the transaction
contemplated by this Agreement.
10. Pre-Purchase Operation and Structure. In order to
accomplish the mutual intent of the parties, the parties agree that prior to
the Closing Date, and contingent on the close (i.e. if this transaction is
not closed, these actions will be nullified), Sellers will
accomplish the following:
(a) Change the corporate structure such that NDFC
will no longer be a California Statutory Close Corporation;
(b) Cause NDFC to issue the currently authorized, but
unissued shares of NDFC to bring the total authorized and issue
shares to ten million (10,000,000).
(c) Sellers each will agree to retire thirty percent
(30%) of their shares for a total of three million (3,000,000)
shares of NDFC stock, which will thus become authorized, but
not issued stock. The parties agree that two million
(2,000,000) of those shares will be designated for an Employee
Stock Incentive Plan which will be created and maintained by
NDFC after the Closing Date. The balance of one million
(1,000,000) authorized, but unissued shares will be used at the
discretion of NDFC for operating capital.
(d) Cause NDFC to enter into an employment contract
with R. Scott Hatfield (AHatfield) to serve as the president
and chief executive officer of NDFC after the Closing Date for a
period of three years. The contract shall call for reasonable
salary and benefits of not less than those currently received by
the existing president of NDFC. It shall provide that Hatfield
may not be terminated except for cause, which shall be defined
as existing only if he willfully breaches or habitually neglects
the reasonable duties of his office or commits an act of
dishonesty, fraud, misrepresentation or other acts of moral
turpitude, that would prevent the effective performance of his duties.
11. Post Purchase Operation and Structure. It is the intent of
Buyer and Seller that certain restrictions and limitations be
placed on the operation of NDFC after the Closing Date.
Additionally, the parties have reached certain agreements
concerning the operational plans for NDFC, which shall bind the
parties after the Close. These restrictions, limitations and
plans, shall include the following:
(a) As indicated in Paragraph 9(b)(1) above, it
is a condition precedent to closing, that R. Scott Hatfield
("Hatfield") enter into an employment contract with Buyer under
which he shall act as president and chief executive officer of
NDFC and receive one million six hundred thousand (1,600,000)
shares of Buyers stock under a stock incentive plan.
(b) The parties agree that it is their intent, and
that it is in the best interests of Buyers, Buyer's
shareholders, Sellers, NDFC and all other concerned there be an
initial public offering (IPO) of NDFC stock within one year of
the Closing Date. The parties agree that they will cooperate to
make a bona fide and good faith effort to accomplish the IPO.
Further, Buyer agrees to contribute additional capitol to NDFC
for the purpose of retaining an Investment Banking firm or other
similar consultant, to advise the parties on an appropriate
method for structuring the IPO. However, the parties agree
that, subject to the advise of the consultants, they would
intend to authorize an additional two million shares of NDFC,
and then do a five for one split, which would result in there
being sixty million total shares of authorized stock of NDFC.
The then anticipated share distribution would be as follows:
10,000,000 To be sold to the public
10,000,000 Sellers
17,000,000 Buyers
10,000,000 Employee
Incentive Plan
8,000,000 Hatfield
5,000,000 Unissued and held for generation of capital
12. Extension Agreement. The parties acknowledge that
notwithstanding any other provision of this agreement, the
parties have entered into an extension agreement. The Closing
Date has already been extended and consideration has been
received by both Sellers and NDFC. That consideration includes
payments to NDFC of fifty thousand ($50,000.00) dollars in
September, 2000 and October, 2000 and transfer of 240,000 shares
of eConnect stock to NDFC. Additionally, should Buyer be unable
to close for any reason on or before October 31, 2000, then the
Closing Date will be extended to January 2, 2001, if and only if
Buyer agrees to and does all of the following:
(a) On or before November 1, 2000, Buyer pays to the
trust account of Todd A. Murray, for the benefit of Sellers and
NDFC equally, five hundred thousand dollars ($500,000.00). Said
funds to be used by them as they determine in their sole
discretion;
(b) Pays fifty thousand dollars ($50,000.00) to NDFC
on November 1, 2000, and fifty thousand dollars ($50,000.00) to
NDFC on December 1, 2000. Said funds to be used by NDFC as it
shall determine in its sole discretion;
(c) Should Buyer fail to perform any of the acts
provided in Paragraph 12 (a)or (b) above, and after five (5)
days written notice from Sellers or NDFC, fail to cure any such
failure, then the extension to purchase shall immediately
terminate. NDFC and Sellers may retain all consideration paid
hereunder, and Buyer shall have no rights of any kind with
respect to NDFC or Sellers.
(d) All consideration previously paid to NDFC for any
reason or referenced in Paragraphs 12(a) and (b) is paid in
consideration of this extension and shall not be credited to the
purchase price provided for in the Agreement. All such
consideration shall belong to NDFC or Sellers, respectively,
whether or not Buyer ever is able to close on the purchase of
NDFC shares. Sellers and NDFC shall have no duty to account to
Buyer for said funds and may use such funds as they determine in
their sole discretion.
(e) During the extension period provided herein,
Sellers may negotiate to sell their shares to other parties, but
Sellers shall not sell or transfer their shares of NDFC (except
a conveyance or transfer by gift, bequest, or inheritance, which
shall be subject to this agreement) to any other party during
the extension period.
(f) Should Buyer fail to make any payments as
provided for herein, or fail to perform under the Agreement,
including any extensions thereof as provided herein, then
Buyer shall fully release and discharge Sellers and NDFC, and
their representatives, successors, assigns, and heirs from all
claims, demands, actions, debts, controversies, liabilities, and
damages, including, without limitation, those arising out of or
relating to Buyer's rights under this Agreement; Buyer further
agrees never to commence, aid, prosecute, or cause to be
commenced or prosecuted against Sellers or NDFC, or their
agents, representatives, successors, assigns, or heirs any
action or proceeding based directly or indirectly on this
Agreement; Buyer further agrees to defend, indemnify, and hold
Sellers and NDFC, and their agents, representatives, successors,
assigns, and heirs harmless against all claims, demands,
actions, debts, controversies, liabilities, and damages,
including court costs and attorney's fees, arising from or
related to any action or proceeding brought by or prosecuted by
or on behalf of Buyer, its shareholders, officers, agents,
employees, investors, successors or, assigns, or by third
parties, regulatory agencies of any nature or any other party or
entity, which is contrary to this agreement, or results from,
directly or indirectly, this Agreement. Buyer agrees that this
is a general release and expressly waives Civil Code Section
1542, which provides:
"A general release does not extend to claims which the
creditor does not know or expect to exist in his favor at the
time of executing the release, which if known by him must have
materially affected his settlement with the debtor."
13. Other Covenants and Agreements.
(a) Sellers agree to pay and discharge and to indemnify,
defend, and hold Buyer and the property of Buyer, including the
Shares purchased by Buyer, free and harmless from any and all
causes of action, obligations, claims, demands, damages, and
expenses (including attorneys' fees) arising in connection with
Sellers' operation of its business which shall relate, arise, or
accrue prior to and until the sale of the Shares, which claims
and losses are not disclosed to Buyer and for which it is
alleged Buyer has some direct liability. In the event Seller
fails to pay when due any such undisclosed obligations, Buyer
may make payment and withhold the amount thereof from any
payment owing to Sellers.
(b) Buyer agrees to pay and discharge and to indemnify, defend,
and hold Sellers and the property of Sellers free and harmless
from any and all causes of action, obligations, claims, demands,
damages, and expenses (including attorneys' fees) arising in
connection with the operation of Buyer before or after the sale
of the Shares, or of NDFC after the sale of the Shares.
(c) Sellers shall indemnify Buyer against any loss, cost or
liability incurred by Buyer as a result of the breach of any
representation or warranty by Sellers contained in the purchase
documentation. Buyer shall indemnify Sellers against any loss,
cost or liability incurred by Sellers as a result of the breach
of any representation or warranty by Buyer contained in the
purchase documentation.
(d) The parties acknowledge that the financial information,
customer list, sales information, records, general files,
papers, and documents relating to the respective businesses are
secret, confidential, and sensitive information and would be
harmful if disclosed to competitors, suppliers, members, or any
other person or entity. The parties shall not disclose any such
trade secrets, directly or indirectly, or use them in any way,
whether for commercial purposes or otherwise.
14. Expenses. At the Closing Date, Buyer shall pay all costs
and expenses, including attorney's fees, incurred or to be
incurred by Seller or NDFC in negotiating and preparing this
Agreement and all prior proposed agreements relating to the
transaction, including the Extension Agreement. All costs and
expenses, including attorney's fees, incurred in the Closing and
carrying out the transactions contemplated by this Agreement
shall be paid for by Buyer, even to the extent Sellers'
attorneys perform such services. Any party engaging a broker or
finder shall be solely responsible for that broker's or finder's fee.
15. Entire Agreement. This document constitutes the entire
agreement between the parties, all oral agreements being merged
herein, and supersedes all prior representations. There are no
representations, agreements, arrangements, or understandings,
oral or written, between or among the parties relating to the
subject matter of this Agreement that are not fully expressed herein.
16. Survival of Representations. All representations,
warranties, covenants, and agreements of the parties contained
in this Agreement, or in any instrument, certificate, opinion,
or other writing provided for in it, shall survive the Closing.
17. Amendment. The provisions of this Agreement may be
modified at any time by agreement of the parties. Any such
agreement hereafter made shall be ineffective to modify this
Agreement in any respect unless in writing and signed by the
parties against whom enforcement of the modification or
discharge is sought.
18. Waiver. Any of the terms or conditions of this Agreement
may be waived, in writing, at any time by the party entitled to
the benefit thereof, but no such waiver shall affect or impair
the right of the waiving party to require observance,
performance, or satisfaction either of that term or condition as
it applies on a subsequent occasion or of any other term or
condition hereof.
19. Nonassignability. This Agreement shall not be assigned by
any party without the prior written consent of all the other
parties hereto. Any assignment contrary to the provisions of
this Agreement shall be deemed a default under the Agreement,
allowing the nondefaulting party or parties to exercise all
remedies available under law.
20. Succession. Subject to the provisions otherwise contained
in this Agreement, this Agreement shall inure to the benefit of
and be binding on the successors and assigns of the respective
parties hereto.
21. Specific Performance. Each party's obligations under this
Agreement are unique. The parties each acknowledge that, if any
party should default in performance of the duties and
obligations imposed by this Agreement, it would be extremely
impracticable to measure the resulting damages. Accordingly,
the nondefaulting party, in addition to any other available
rights or remedies, may sue in equity for specific performance,
and the parties each expressly waive the defense that a remedy
in damages will be adequate.
22. Notices. Any notice under this Agreement shall be in
writing, and any written notice or other document shall be
deemed to have been duly given on the date of personal service
on the parties or on the second business day after mailing, if
the document is mailed by registered or certified mail addressed
to the parties at the addresses set forth below or at the most
recent address specified by the addressee through written notice
under this provision. Failure to conform to the requirement
that mailings be done by registered or certified mail shall not
defeat the effectiveness of notice actually received by the addressee.
23. Attorneys' Fees; Prejudgment Interest. If the services of
an attorney are required by any party to secure the performance
hereof or otherwise upon the breach or default of another party,
or if any judicial remedy or arbitration is necessary to enforce
or interpret any provision of this Agreement or the rights and
duties of any person in relation thereto, the prevailing party
shall be entitled to reasonable attorneys' fees, costs, and
other expenses, in addition to any other relief to which he may
be entitled. Any award of damages following judicial remedy or
arbitration as a result of the breach of this Agreement or any
of its provisions shall include an award of prejudgment interest
from the date of the breach at the maximum amount of interest
allowed by law.
24. Counterparts. This Agreement may be executed in any number
of counterparts with the same effect as if the parties had all
signed the same document. All counterparts shall be construed
together and shall constitute one agreement.
25. Captions. All paragraph captions are for reference only
and shall not be considered in construing this Agreement.
26. Severability. If any provision of this Agreement is held
by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of the Agreement shall continue in
full force and effect and shall in no way be impaired or invalidated.
27. Governing Law. The rights and obligations of the parties
and the interpretation and performance of this Agreement shall
be governed by the law of California, excluding its conflict of
laws rules.
28. Exhibits. All exhibits to which reference is made are
deemed incorporated in this Agreement whether or not actually attached.
29. Gender and Number. As used in this Agreement, the
masculine, feminine, or neuter gender, and the singular or
plural number, shall each be deemed to include the others
whenever the context so indicates.
30. Cumulative Remedies. No remedy or election hereunder shall
be deemed exclusive but shall whenever possible be cumulative
with all other remedies at law or in equity.
31. Time. Time is of the essence of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first set forth herein above.
National Data Funding Corporation
By: /s/ R. Scott Hatfield
R. Scott Hatfield, Executive Vice President
By: /s/ R. Scott Hatfield
R. Scott Hatfield, Secretary
Address: 290 Airpark Boulevard, Chico, California 95973
eConnect
By: /s/ Thomas S. Hughes
Thomas S. Hughes, Chief Executive Officer
By: /s/ Jack Hall
Hack Hall, Secretary
Address: 2500 Via Cabrillo Marina, Suite 112, San Pedro,
California 90731
EX-10.54
AGREEMENT FOR SALE AND PLAN OF REORGANIZATION
LETTER OF INTENT
Econnect Inc., a Nevada corporation (ECNC), lawfully represented
by its Chief Executive Officer Mr. Thomas S. Hughes and eConnect
Caribbean, S. A. (ECCB) a Dominican created and regulated
corporation, lawfully represented by its President Mr. Paul Egan,
Do hereby enter into the obligations contained in the letter
hereof. The parties agree that a more complete, detailed and
definitive contract containing their mutual obligations shall be
drafted no later than thirty (30) working days after the
signature of this letter of intent.
THE PARTIES HAVE AGREED TO THE FOLLOWING:
It is agreed that eConnect Caribbean, S. A. shall become a
separate entity, through a divestiture in which ECNC shall
retain at least twenty-five (25%) percent of equity in the to-be
formed entity.
ECNC shall have a shareholders interest in that new entity of no
less than twenty-five (25%) equity of the new to-be formed
entity. This interest shall be subject to, among other things,
the laws of each party's state and/or country.
ECNC shall transfer to eConnect Caribbean, S. A. the amount
US$60,000.00, twenty (20) working days after the moment of
signature of this letter of intent.
Econnect Inc. shall transfer and deliver, via air-courier, to
eConnect Caribbean, S. A. a minimum of five hundred (500)
ecashpads at the moment of signature of this letter of intent.
The parties agree that ECNC from its twenty-five (25%) percent
equity in the to-be formed entity, it will reserve a portion,
still to be determined by ECNC management, to be distributed
pro-rata between the shareholders of record of ECNC as of the
date of the signature of this letter of intent.
Econnect Inc. shall issue a press release confirming the
divestiture of eConnect Caribbean, S. A. no later than two (2)
days after said divestiture occurs.
Econnect Inc. shall pay eFunds Inc. the amount of US$145,000.00
for previously ordered software vital and necessary for
completion of eCashpad deployment.
Econnect Inc. shall support with its positive and affirmative
vote the candidacy of Mr. Paul Egan to the Chairmanship and
Directorship of the Board of both the yet to be formed entity
and eConnect Caribbean, S. A., as well for his designation of
Chief Executive Officer of the said corporations.
Any additional fundraising, to be realized after the divestiture
of ECCB, not withstanding everything agreed the parties
herewith, will be done through and by the to-be formed entity.
ECNC shall execute a confidentiality agreement in favor of those
parties that ECCB so designates;
7. ECCB agrees to take those steps necessary to provide ECNC
with assurances that ECCB is poised to enter into contractual
relations with those parties for whom ECCB has ECNC execute
confidentiality agreements with.
ECCB agrees to cooperate with ECNC in conducting any audit, and
provide the results and copies of the supporting documents
relied upon by the auditors to ECNC.
Both parties agree to enter into a Technology Sharing Agreement
(TSA) concurrent with the formation of the new entity to be created.
The Parties agree that the terms of the divestiture shall
include a Transaction Revenue Sharing Agreement (TRSA) between
the yet to be formed new entity and eConnect, Inc.
The Parties agree to appoint Mr. Paul Egan as the project
manager to complete the execution of the agreed upon
divestiture. ECCB agrees that ECNC may appoint a representative
to assist Mr. Egan during this period.
ECNC agrees to cooperate with the divestiture process.
This letter of intent is legally binding and obligatory, and
serves as a contract between and to both the parties.
ECCB shall continue to be run as a subsidiary as a "going
concern" basis until the completion of the divestiture process.
ECCB shall not incur any debt, contingent or otherwise,
outside the normal course of business at any time during the
divestiture process.
The parties agree that none of the obligations stated herewith,
can be ceded, transfer, translated or consigned to any other
person, moral of physical, without the previous written consent
of both parties.
This letter of intent is done in two (2) originals, one for each
party. Both parties recognize the validity, regularity and
legality of signed fax copies of this letter of intent, both in
the Dominican Republic and in the United States of America.
In the city of Santo Domingo, National District, at the twelve
(12) days of the month of March of the year two thousand and one (2001).
/s/ Thomas S. Hughes
Thomas S. Hughes
For Eonnect Inc.
/s/ Paul Peter Francis Egan
Paul Peter Francis Egan
For Econnect Caribbean, S. A.
EX-23.1
CONSENT OF ACCOUNTANTS
L.L. BRADFORD & COMPANY, LLC
Certified Public Accountants & Consultants
3441 South Eastern Avenue
Las Vegas, Nevada 89102
(702) 735-5030
May 1, 2001
U.S. Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: eConnect - Form SB-2
Dear Sir/Madame:
As independent certified public accountants, we hereby consent
to the incorporation by reference in this Registration Statement
on Form SB-2 of our report dated March 30, 2001 in eConnect's
Form 10-KSB, and to all references to our firm included in this
Registration Statement.
Sincerely,
/s/ L.L. Bradford & Company, LLC
L.L. Bradford & Company, LLC
EX-23.2
CONSENT OF AUDITORS
ORTEGA & ASOCIADOS
Auditing & Consulting
Ave. Jose Ortega & Gasset No. 46
P.O. Box 2289, Santo Domingo, Rep. Dom.
(809) 472-1565
April 27, 2001
U.S. Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: eConnect - Form SB-2
Dear Sir/Madame:
As independent certified auditors, we hereby consent to the
incorporation by reference in this Registration Statement on
Form SB-2 of our reports dated March 16, 2001 concerning
eConnect Caribbean, S.A. and Top Sports, S.A. in eConnect's Form
10-KSB, and to all references to our firm included in this
Registration Statement.
Sincerely,
ORTEGA & ASOCIADOS
/s/ Carlos A. Ortega
Carlos A. Ortega, Partner
EX-23.3
CONSENT OF COUNSEL
Brian F. Faulkner
A Professional Law Corporation
3900 Birch Street, Suite 113
Newport Beach, California 92660
(949) 975-0544
April 30, 2001
U.S. Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: eConnect - Form SB-2
Dear Sir/Madame:
I have acted as counsel to eConnect, a Nevada corporation
("Company"), in connection with its Registration Statement on
Form SB-2 relating to the registration of 90,755,365 shares of
its common stock ("Shares"), $0.001 par value per Share. I
hereby consent to all references to my firm included in this
Registration Statement, including the opinion of legality.
Sincerely,
/s/ Brian F. Faulkner
Brian F. Faulkner, Esq.