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  • 1. CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM ABC TECHNOLOGY, INC. Minimum of 1,500,000 and Maximum of 4,500,000 Units Each Unit Consists of One Share of Common Stock and a Warrant to Acquire One Share of Common Stock at $10.00 Per Share $10.00 Per Unit This is a private placement of Units of ABC Technology, Inc., a Delaware corporation (“ABC”). The Units are being offered through Investment Bank, LLC, as placement agent (the “Placement Agent”), on a best efforts basis at $10.00 per Unit. Each Unit consists of one share of common stock, $0.001 par value per share, of the Company (“Common Stock”) and a warrant (“Warrant”) to acquire one share of Common Stock at $10.00 per share. ABC is offering a minimum of 1,500,000 Units (or $10,000,000) and a maximum of 4,500,000 Units (or $30,000,000). On January 1, 2005, ABC acquired all of the operating assets, certain liabilities, and all of the employees of Acme, Inc. On March 1, 2006, ABC became a wholly-owned subsidiary of Big Brother, Inc., a public shell company (“BB”). On or prior to October 30, 2006, BB will be merged into ABC and BB will disappear, and the surviving company will be named ABC Technology, Inc. (the “Reorganization”). All references in this Memorandum to “the Company” are intended to mean ABC, after giving effect to the Reorganization. Our Common Stock trades on the Over-the-Counter Bulletin Board under the symbol “ABC.OB”. On March 29, 2006, BB obtained $50 million in acquisition financing through the sale of Senior Secured Nonconvertible Notes and Warrants, which will be assumed by the Company in the Reorganization. The Notes will be convertible into shares of Common Stock of the Company in the event that we consummate a business combination transaction under certain circumstances. The Units are being offered pursuant to Rule 506 of Regulation D under the Securities Act of 1933. To purchase Units, you must be an accredited investor and meet the other suitability requirements set forth herein under the caption “Investor Suitability Requirements and Subscription Procedures”. We will conduct an initial closing when at least the minimum offering proceeds are raised, and may conduct one or more additional closings up to the maximum offering proceeds until no later than January 1, 2008. Subscription funds will be placed in a segregated escrow account with a bank until the minimum offering proceeds have been received. Investing in the Units involves a high degree of risk. You should read carefully this entire memorandum, including the section captioned “RISK FACTORS” beginning on page 10 before purchasing any common stock. Offering Price (1) Placement Agent Cash Fee (2) Net Proceeds (3) Per Unit........................................... $ 10.00 $1.00 $9.00 Minimum Units (1,500,000)........... $ 15,000,000 $1,500,000 $13,500,000 Maximum Units (4,500,000)........... $ 45,000,000 $4,500,000 $40,500,000
  • 2. 1(1) The minimum subscription amount is $15,000,000, or 1,500,000 Units. 2(2) The Placement Agent will receive a cash commission equal to 10% of the gross offering proceeds, plus a warrant to purchase 10% of the shares sold hereunder exercisable at the offering price. 3(3) Not including fees and expenses of the offering payable by us, estimated to be $750,000. The shares of Common Stock and Warrants offered hereby have not been registered under the Securities Act of 1933 or the securities laws of any state or any other jurisdiction and unless so registered, you may not transfer or resell such securities except pursuant to an exemption from registration. Accordingly, you may be required to bear the financial risks of an investment in the common stock for an extended period of time. Neither the Securities and Exchange Commission, any state securities commission nor any other regulatory authority has approved or disapproved these securities or determined if this memorandum is truthful or complete. Any representation to the contrary is a criminal offense. Investment Bank, LLC The date of this memorandum is January 1, 2008 NOTICE TO OFFEREES The Memorandum does not constitute an offer to sell or the solicitation of an offer to buy the Units in any jurisdiction in which such offer or solicitation would be unlawful. No person has been authorized to give any information or to make any representations other than those contained in this Memorandum and, if given or made, such information or representations must not be relied upon. The delivery of this Memorandum at any time does not imply that information herein is correct as of any time subsequent to the date hereof. The information in this Memorandum is confidential and proprietary to the Company and is being submitted to you solely for your confidential use and with the explicit understanding that, without the prior written permission of the Company, you will not release this Memorandum or discuss the Memorandum, its existence, or any of the information contained herein, or make any reproduction of or use this Memorandum for any purpose other than to evaluate a potential investment in the Units offered hereby; provided, however, that you are authorized to disclose the tax treatment and the tax structure of the Company to your advisors, without limitation of any kind. The Placement Agent is acting as an agent of the Company in arranging a private sale of the Units. By accepting delivery of this Memorandum, you agree to promptly return it and any other documents or information furnished to you by the Placement Agent or the Company if you elect not to purchase any of the Units offered hereby, or if the Offering is terminated or withdrawn. This Memorandum contains summaries or explanations of certain documents that govern the transactions described herein believed to be accurate, but reference is made to the actual documents (copies of which accompany this Memorandum or are available for inspection at the office of the Placement Agent) and all of the statements and information set forth in this Memorandum are qualified in their entirety by reference to such documents. You should conduct an independent investigation of the risks posed by an investment in the Units. Prior to your purchase of any Units, you and your representatives may ask questions of the officers of ABC about any aspect of this Offering and may obtain from them any additional information necessary to verify information set forth in this Memorandum to the extent that they possess such information or can acquire it without unreasonable effort or expense.
  • 3. This Offering is made subject to withdrawal, cancellation, or modification by the Company and the Placement Agent without notice and is specifically subject to the terms described in this Memorandum. Units are being offered, subject to prior sale and to the Company’s and the Placement Agent’s right to reject any subscription in whole or in part or to allot to you less than the number of Units for which you subscribe. You should consult your own investment, legal, tax, and accounting advisors to determine whether a purchase of Units is an appropriate investment for you and the applicable legal, tax, regulatory, and accounting treatment of an investment in the Company’s stock. In making an investment decision you must rely on your own examination of the Company and the terms of the Offering, including the merits and risks involved. The Units have not been registered under the Securities Act of 1933, as amended (the “Act”), or the securities laws of any jurisdiction and is being offered and sold in reliance on exemption from the registration requirements of the Act and such laws. The Units are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Act and such laws pursuant to registration or exemption therefrom. Investors should be aware that they will be required to bear the financial risks of this investment for an indefinite period of time. The Units have not been approved or disapproved by the Securities and Exchange Commission, any state securities commissions, or any other regulatory authority, nor have any of the forgoing authorities passed upon or endorsed the merits of this Offering or the accuracy or adequacy of the Memorandum. Any representation to the contrary is a criminal offense. CONFIDENTIALITY By accepting delivery of this Memorandum, you acknowledge and agree that all of the information contained herein is of a confidential nature and may be regarded as material non-public information under Regulation FD of the Securities and Exchange Commission (the “SEC”) and that this Memorandum has been furnished to you by the Company solely for your confidential use for the purpose of enabling you to consider and evaluate an investment in the Units. You agree that you will treat such information in a confidential manner, will not use such information for any purpose other than evaluating an investment in the Units, and will not, directly or indirectly, disclose or permit your agents or affiliates to disclose any of such information without the prior written consent of the Company. You also agree to make your representatives aware of the terms of this paragraph and to be responsible for any breach of this agreement by such representatives. Likewise, without the prior written consent of the Company, you agree that you will not, directly or indirectly, make any statements, any public announcements, or any release to any trade publication or to the press with respect to the subject matter of this Memorandum. If you decide not to pursue further investigation of the Company or to not participate in the Offering, you agree to promptly return this Memorandum and any accompanying documentation to the Company. You understand that the United States securities laws provide severe civil and criminal penalties for anyone trading in securities of the Company while in possession of material non-public information. Notwithstanding the foregoing confidentiality agreement, the recipient of this Memorandum and each shareholder of the Company and their respective employees, representatives, and agents are authorized to disclose the tax treatment and tax structure of the Company to your advisors, without limitation of any kind. You and each other party may disclose all materials of any kind to the extent (but only to the extent) that they relate to the tax treatment or tax structure of the Company. This authorization is not intended to permit disclosure of any other information including (without limitation) (a) any portion of any materials to the extent not related to the tax treatment or the tax structure of the Company, (b) the identities of shareholders or potential shareholders of the Company, (c) any financial information relating to the shareholders, or (d) any other term or detail not related to the tax treatment or tax structure of the Company.
  • 4. FORWARD-LOOKING STATEMENTS This Memorandum contains or incorporates by reference forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical facts, that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Such statements are characterized by terminology such as “anticipates,” “believes,” “expects,” “future,” “intends,” “assuming,” “projects,” “plans” and similar expressions or the negative of those terms or other comparable terminology. These forward-looking statements, which include statements about the growth of the semiconductor industry; increasing costs in the semiconductor industry; market size, share and demand; product performance; our expectations, objectives, anticipations, intentions and strategies regarding the future, expected operating results, revenues and earnings and current and potential litigation are not guarantees of future performance and are subject to risks and uncertainties, including those risks described under the heading “Risk Factors” set forth this Memorandum, or in the documents incorporated by reference in this Memorandum, that could cause actual results to differ materially from the results contemplated by the forward-looking statements. All forward-looking statements included in this Memorandum are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward- looking statement or statements. It is important to note that such forward-looking statements are subject to risks and uncertainties and that our actual results could differ materially from those in such forward-looking statements. The foregoing factors, as well as those set forth in the discussion in the Executive Summary, among others, in some cases have affected, and in the future could affect, our actual operating results and could cause our actual consolidated operating results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, us. You are cautioned not to place undue reliance on forward-looking statements contained in this Memorandum. INDUSTRY AND MARKET DATA The industry and market data presented in this Memorandum are inherently estimates and are based upon third-party data, including information compiled by IDC and Gartner Group, Inc., information made public by other online market research and internet companies and ABC’s own internal estimates. While the Company believes that this data is reasonable, in some cases this data is based on ABC’s or others’ estimates and cannot be verified by the Company. Accordingly, prospective investors are cautioned not to place undue reliance on the industry and market data included in this Memorandum. ADDITIONAL INFORMATION We have retained Investment Bank, LLC to act as our exclusive placement agent in connection with arranging, on our behalf and on a “reasonable efforts” basis, the private placement of our offering of the securities. The placement agent will act as the primary contact for you and will be available to consult with you as to the terms and conditions of this Offering. All communications or inquiries relating to these materials or to a possible transaction involving us should be directed to the following individuals. Placement Agent Investment Bank, LLC 212 Avenue of the Americas, 10 Floor th New York, NY 10000 Attention: Senior Banker
  • 5. Telephone:212-212-2121 Facsimile:212-212-2122 We will undertake to make available to you, during the course of the transaction and prior to the sale of the securities, the opportunity to ask questions of and receive answers from us concerning the terms and conditions of this Offering and to obtain any additional information necessary to verify the accuracy of the information contained in this Memorandum. Any additional information will be made available to you only to the extent our management possesses the information or can obtain it without unreasonable effort or expense. TABLE OF CONTENTS Page Summary of the Offering ................................................................................................................................... 1 Summary of Terms and Conditions of the Offering ......................................................................................... 6 Summary Consolidated Financial Data ............................................................................................................. 8 Risk Factors ....................................................................................................................................................... 10 Cautionary Notice Regarding Forward Looking Statements ............................................................................. 24 Use of Proceeds ................................................................................................................................................. 25
  • 6. Dividend Policy ................................................................................................................................................. 25 Capitalization ................................................................................................................................................... .. 26 Management’s Discussion and Analysis of Financial Condition and Results of Operations of Super Widget and the Company .............................................................................................................................................. 27 Industry Overview ............................................................................................................................................. 43 Business ........................................................................................................................................................... .. 48 Management .................................................................................................................................................... .. 57 Executive Compensation ................................................................................................................................... 60 Security Ownership of Certain Beneficial Owners and Management ............................................................... 62
  • 7. Shares Eligible for Resale ................................................................................................................................. 63 Description of Capital Stock .............................................................................................................................. 63 Registration Rights Agreement ......................................................................................................................... 65 Plan of Offering ................................................................................................................................................ 66 Investor Suitability Requirements and Subscription Procedures ....................................................................... 68 Legal Matters ..................................................................................................................................................... 70 Additional Information ...................................................................................................................................... 70 Exhibits A. Unaudited Financial Statements of Super Widget, Inc. for the twelve months ended October 30, 2005 and 2004
  • 8. B. Form of Securities Purchase Agreement and Investor Questionnaire C. Form of Registration Rights Agreement D. Form of Warrant SUMMARY OF THE OFFERING The following summary is qualified in its entirety by the more detailed information appearing elsewhere herein. You should read the entire Memorandum and carefully consider, among other things, the matters set forth under the caption “Risk Factors”. You are encouraged to seek the advice of your legal counsel, tax consultant and business advisor with respect to the legal, tax and business aspects of an investment in the Company. The Company The Company is a leading provider of Widgets that automates and simplifies product pricing and configuration for companies and helps these enterprises improve order accuracy while reducing their cost of sales. The Company is actively seeking to grow its product offerings and customer base through a focused and disciplined merger and acquisition strategy focused on the widget marketplace. The Company’s sales solutions help companies to optimize their sales processes whether their need is to solve complex product or pricing configuration, create product catalogs or provide an interactive selling system and dramatically improve response time. The Company’s business was founded in 1900, and its clients include Fortune 500 companies, among others. Acquisition Strategy As the business software market continues to shift from traditional widgets to new widgets, the Company is executing a disciplined merger and acquisition strategy designed to extend its product offering as well as expand its revenue and earnings base. The Company’s research indicates that there are over 200 widget companies in existence today. The Company is approaching companies who have strategically aligned product offerings, are growing above traditional enterprise software industry averages and have proven success in the market. CAP Financing On March 1, 2006, BB obtained $25 million in acquisition financing through the sale of Senior Secured Nonconvertible Notes and Warrants, which will be assumed by the Company in the Reorganization. The Notes will be convertible into shares of Common Stock of the Company in the event that the Company proposes to consummate a business combination transaction under certain circumstances. For further information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Private Financings—CAP Financing”. Industry Overview Widgets are defined as small mechanical devices. Customers who choose widgets do not need to work very hard. The widget market has evolved from small size to medium-size very quickly. According to the government’s survey of 500 professionals across North America, 69% of respondents have already purchased or are currently reviewing widget technology.
  • 9. Product Offering The Company offers its products as an Widget Solution, also referred to as a Subscription Service. Prior to November 2005, the Company’s software solution was sold as a traditional on premise enterprise license In response to the changing customer expectations of the costs associated with software, as well as the methods of purchasing software, the Company introduced its Widget Solution. The Company offers its Widget products under the Super Widget brand name. Super Widget is an application that enables a company’s sales force and supporting organizations to configure complex products and accurately price those products. Super Widget is offered to customers independently as a Web Service or as an integrated service within the Supersales.com™ suite of products. Our product offering is branded specifically as Super Widget to Supersales.com™ customers. Super Widget is built on our core configuration engine, The Intelligent Confounder System, or ICS. ICS is a set of data maintenance tools, shared libraries and application program interfaces (APIs) that supply configuration capabilities to an application. Today, the Company sells its product lines through a mix of direct and indirect sales channels in major markets worldwide. At a strategic level, the Company’s software solutions may deliver a concrete return on investment by reducing a company’s total cost of sales and service. We believe that the Company’s software solutions provide a number of key benefits, including the following: Lowering Total Cost of Sales. Selling complex products typically requires the participation of many different parts of an organization without distracting from their primary roles including sales, engineering, manufacturing, finance, legal, and marketing. The Company’s XYZ applications empowers sales representatives with relevant and timely information from each department, such as design specifications from engineering, production constraints from manufacturing, discount authorization from finance, terms and conditions from legal, and product collateral from marketing. Reducing Order Errors. Using configuration technology, complex product recommendations are more likely to result in the right products to handle the right application. By reducing the complexity of the sales process and eliminating the potential for “human” error, the Company’s XYZ applications assists companies in ensuring that customers are asked the proper questions to reach a correct recommendation/configuration. In addition, the rules within the Company’s configuration engine verify that products requested by salespeople, channel partners or customers can be manufactured and delivered, before an order is placed. In addition, quotation errors can be reduced when sales representatives are armed with correctly configured pricing information, authorized discounts, appropriate currency conversion rates and necessary tax considerations. Accelerating Sales Cycles. By applying an intelligent and logical process flow from the time a lead is received to the moment a valid order is placed, the Company’s solutions are designed to optimize the sales process and increase the speed at which a sale can be executed. Quick turnaround in product recommendations, pricing, proposals and financing allows sales representatives to manage more simultaneous opportunities and close them faster. Eliminating the time necessary to contact the factory or engineering resources significantly reduces the time it takes for a customer to reach a “buy” decision. Customer satisfaction, in turn, increases as their questions and hesitations are immediately addressed. Further, the Company’s software helps manufacturers distribute new product and pricing information in real-time. This high degree of responsiveness helps foster a strong and lasting customer-supplier relationship that is a distinct competitive advantage for us. Unifying the Sales Process. Many large companies today deliver their products to market through multiple sales channels, including a field sales force, channel distribution partners, and via the web. The Company’s software ensures consistency of product and pricing information across multiple channels, enhancing a company’s channel management capabilities and protecting its brand reputation. For example, a customer-facing Web interface provides a self-service solution
  • 10. for selling to current customers via the Web, or can be used to generate desired configurations that can be directed to channel partners. This allows repeat customers to obtain the products they need without pulling sales’ attention from new relationships. The same experience can be presented to the customer directly using the Company’s Interactive Selling Solution “ISS” system deployed in a mobile environment on a laptop, for example, during a sales person’s visit to a prospect. Instead, a customer can again receive the same experience when visiting a dealership and interacting with a salesperson connected to the Company’s system over an intranet. The Company’s software can be accessed directly over a public Internet connection and can also run in stand alone mode for later synchronization to effectively service sales teams not connected to a network. Sales Automation Market Sales automation constitutes one element of the Customer Relationship Management (CRM) market. CRM enterprise applications automate the customer-facing business processes within an organization (i.e., sales, marketing, and customer support and contact center). Collectively, these applications serve to manage the entire lifecycle of a customer, including the conversion of a prospect to a customer, and help an organization build and maintain successful relationships. Sales automation, which is broadly defined to include sales management and sales force applications, includes functionality such as lead tracking, account management, list management, mobile sales, telemarketing, team selling, territory management, partnership relationship management and sales configuration tools. IDC projects sales automation to grow at an annual rate of 5% from 2000 to 2008. This growth is driven by the need of enterprises to increase ROI and lower sales and marketing expenses through automation and increasingly lower total cost of ownership of sales automation applications. We believe that trends within the sales automation market include the following: Increased acceptance of Software as a Service. Supersales.com’s™ success and Seibel’s recent product offering of a hosted solution mark two examples of the increasingly broad acceptance of the “software as a service” delivery model, particularly in the CRM and sales automation arenas. SaaS software businesses are growing rapidly as customers embrace the on-demand model for subscription software services which help them achieve quick implementation, lower integration and customization costs as well as total cost of ownership. Leveraging sales automation features and its growing importance in the enterprise. Many companies are now positioning sales automation as a means of leveraging their other products and features. Vendors are quickly integrating various applications in order to provide an “all-in- one” enterprise solution and sales automation is a leading, customer-driven functionality in the overall software sales process. For example, SAP AG currently offers CRM and sales automation as key components of its ERP software and Vignette offers the Dialog sales automation product as a way of adding value to its content management platform. This trend is part of an overall trend of application integration. Continued consolidation. Acquisitions such as Siebel’s purchase of UpShot (hosted CRM) and Oracle’s recent acquisition of PeopleSoft and of Siebel indicate willingness for companies to purchase rather than organically grow technology, expertise and market share. Specialization. Enterprises have begun to move away from large platform CRM implementations to more specialized CRM applications such as customer intelligence, web analytics, database marketing, customer self-service, hosted departmental CRM and other areas with rapid, tangible payback. This development favors vendors who are addressing customers’ desires for low total cost of ownership and incremental solutions in innovative ways, taking market share away from larger enterprise suite providers. Growth and Profitability Strategy
  • 11. Our goal is to become the premier worldwide SaaS provider of sales configuration and order entry solutions by consolidating and unifying the Company’s organic development, integration and service delivery infrastructure, and engaging in carefully targeted acquisitions of providers of synergistic Widget solutions. We believe that this strategy will enable the Company to deliver its products and services from a common baseline of technology, lowering its costs and shortening new product iteration life cycles. We also anticipate that the Company will expand its product markets to include small, medium and large enterprises. From this common competitive cost structure, we expect that the Company’s gross margins will become more predictable. Key elements of this strategy include: Considering Acquisition Candidates. The Company’s management team has extensive knowledge and experience in mergers and acquisitions. The Company believes that current market conditions create a consolidation opportunity within the Widget or SaaS market segment. Expanding Marketing Activities. The Company has undergone substantial reorganization over the past three years resulting in a cessation of marketing activities over that period. The Company intends to engage in aggressive marketing of its restructured Widget product offering. Expanding Partner Network. The Company’s On Demand application is tightly integrated with the Supersales.com’s™ on demand CRM offering, and is jointly sold to their customers and prospects who have a need for configuration automation. Both the Company and Supersales.com™ intend to significantly expand their integrated product functionality and joint selling activities. In addition the Company intends to expand its partner network with integrated product offerings into the Supply Chain, Content and Knowledge Management sectors of the market. The Company Super Widget, Inc., ABC’s predecessor, was founded in 1980, and completed its initial public offering in October 2002. In April 2005, Super Widget was acquired by Jaguar Technology Holdings, LLC and became a private company. On September 13, 2005, ABC acquired all of the operating assets, certain liabilities, and all of the employees of Super Widget, Inc. On March 29, 2006, ABC became a wholly- owned subsidiary of BB Enterprises USA, Inc., a public shell company (“BB”). On or prior to October 30, 2006, BB will be merged into ABC and BB will disappear (the “Reorganization”). The surviving company will be named ABC Technology, Inc. All references in this Memorandum to “the Company” refer to ABC Technology, Inc., after giving effect to the Reorganization with BB described above. The Company maintains its principal executive offices in Newton, Massachusetts, and its telephone number at that location is (617) 928-6001. The Company’s website is www.Super Widget.com. Information on the Company’s website does not constitute part of this Memorandum, nor should it be considered offering material. SUMMARY OF TERMS AND CONDITIONS OF THE OFFERING Issuer: ABC Technology, Inc., a Delaware corporation. Offering Price: $10.00 per Unit, with a minimum subscription amount of $25,000. The Company reserves the right to accept subscriptions for less than this amount in its sole discretion. Offering Size: The Company is offering a minimum of 1,500,000 Units (or $10,000,000) and a maximum of 4,500,000 Units (or $30,000,000). Each Unit consists of one share of common stock, $0.001 par value per share, of the Company (“Common Stock”) and a warrant (“Warrant”) to acquire one
  • 12. share of Common Stock at $10.00 per share. Common Stock to be Outstanding Between 6,529,012 shares and 9,386,155 shares, excluding (i) up to after the Offering: 1,766,000 shares of common stock available for future grant or issuance under a stock incentive plan to be adopted by the Company; (ii) outstanding warrants to acquire 7,265,625 shares of common stock; (iii) warrants to be issued to the Placement Agent to purchase up to 428,571 shares at $10.00 per share; and (iv) warrants to purchase between 1,500,000 and 4,500,000 shares at $10.00 per share, to be issued to investors in this Offering as part of the Units. Listing: The Company’s Common Stock trades on the Over-the- Counter Bulletin Board under the symbol “ABC.OB”. The Company intends, when eligible, to apply for inclusion of its common stock on NASDAQ or another major exchange. Ticker Symbol: ABC.OB Estimated Net Proceeds: A minimum of $8,500,000 and a maximum of $26,500,000, after deducting (a) placement agent cash commission of between $1,000,000 and $3,000,000 and (b) offering and transaction expenses, estimated to be approximately $500,000. Use of Proceeds: The net proceeds of this Offering will be used to (i) finance possible future acquisitions by the Company, (ii) repay certain indebtedness of the Company totaling up to $5,200,000, (iii) repurchase up to 623,214 shares of common stock at $10.00 per share and up to 390,625 warrants at $10.00 per share (less the applicable exercise price of $4.00 per share), and (iv) provide working capital to the Company. See “Use of Proceeds”. Investor Suitability: All investors must be “accredited investors” under Rule 501 of Regulation D of the Securities Act of 1933, as amended, and meet the other suitability requirements set forth herein in the “Investor Suitability Requirements and Subscription Procedures” section below. Registration Rights: Under a registration rights agreement to be executed by the Company and the investors in this Offering (the “Registration Rights Agreement”), no later than 45 days after the completion of this Offering, the Company will file a registration statement covering the resale of the Common Stock purchased in this Offering and the shares issuable upon exercise of the Warrants. The Company will use its best efforts to cause such registration statement to be declared effective within 90 days after filing (120 days if the registration statement is reviewed by the SEC). In the event that the Company is unable to meet these filing deadlines, the Company will make cash payments to the shareholders who are parties to the Registration Rights Agreement, as
  • 13. liquidated damages, of an amount equal to one percent (1%) per month of the purchase price of Units in this Offering. See “Registration Rights Agreement”. Closing: We will conduct an initial closing when at least the minimum offering proceeds are raised, and may conduct one or more additional closings up to the maximum offering proceeds until no later than February 31, 2006. Conditions to Closing: This Offering is conditioned on the following events: ←• Minimum gross offering proceeds of $10,000,000; and ←• Other customary closing conditions. An escrow agent will hold the funds raised from subscribers in this Offering until an initial closing occurs. In the event that the minimum number of shares is not subscribed for, no shares will be issued and all funds tendered, together with interest earned thereon, will be returned to each subscriber. In the event that the minimum number of shares is subscribed for, one or more closings will occur and the Company will receive any interest earned on funds held by in escrow. SUMMARY CONSOLIDATED FINANCIAL DATA OF SUPER WIDGET, INC. (ACTUAL), AND BB ENTERPRISES USA, INC. (ACTUAL) You should read the summary consolidated financial data of Super Widget, Inc. and the Company set forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Super Widget” and the financial statements and the related notes included elsewhere in this Memorandum. We derived the financial data as of October 30, 2005 and October 30, 2004 from the financial statements of Super Widget, Inc. included in this Memorandum. Included in the exhibits to this Memorandum are the unaudited combined financial statements of BB, ABC Technology Holdings, Inc. and Super Widget for the three month and nine month periods ended March 31, 2006. Three Nine Months Twelve Months Ended Fiscal Year months Ended October 30, Ended Ended October 30 March 31, 2006 2004 2005 2005 (8 months) (unaudited) (unaudited) (audited) (dollars in thousands) Income statement data: Revenue (net) Enterprise................................ $989 $2,744 $7,940 $8,875 $2,841 Revenue (net) Widget.............................. 108 191 - - - Total Revenue ................................................ 1,097 2,935 7,940 8,875 2,841 Cost of Sales .................................................. 420 1,392 2,782 2,596 1,269 Gross Profit ............................................... 677 1,543 5,158 6,279 1,572 865 Selling Expenses ............................................ 1,815 2,204 1,053 1,344 Research & Development .............................. 446 1,342 2,290 1,803 1,118
  • 14. General and Administrative Expenses (1)...... – – 2,751 1,199 – Amortization of goodwill and other intangible assets .............................................................. – – 60 – – (21) (16) Restructuring and other special charges......... 1,282 3,804 177 Settlement of claims....................................... – (1,713) – (1,815) (647) Operating Income (Loss)........................... (613) 115 (3,427) 235 (420) 301 128 Interest Expense (Income).............................. 275 Other Expense (Income) ............................... 15 Pretax Income (Loss) ............................... (903) 581 97 45 (944) (1,329) (28) (511) (2,580) 1,263 (520) Gain (Loss) on disposal of discontinued operations....................................................... Income Taxes ................................................ Net Income (Loss) .................................... (147) (763) 570 – 2,561 – – – – – $(1,050) $(1,274) $(2,010) 1,263 $2,041 Reconciliation to Normalized EBITDA: Net Income (Loss) ........................................ $(1,050) $(1,274) $(2,010) $1,263 2,041 Legal Settlement ........................................... – (1,713) – (1,815) (647) Interest Expense (Income) ............................ 275 581 97 301 128 Other Expense (Income)................................ 15 45 (944) (1,329) (28) Depreciation & Amortization ....................... 38 484 60 – – Income(Loss) on Discontinued Operations ... (147) (763) (570) – – (168) (779) Non-Recurring Expenses............................... 1,282 3,804 2,691 Normalized EBITDA ................................. $(1,037) $(3,419) $(2,085) $2,224 $4,185 (Footnotes) (1) In Fiscal year October 30, 2005 and for the three month and nine month periods ended March 31, 2006, Sales and General and Administrative expenses were combined to conform with audited presentation. On September 13, 2005, ABC acquired all of the operating assets, certain liabilities, and all of the employees of Super Widget, Inc. On March 29, 2006, ABC became a wholly-owned subsidiary of BB Enterprises USA, Inc., a public shell company (“BB”). On or prior to October 30, 2006, BB will be merged into ABC and BB will disappear. The surviving company will be named ABC Technology, Inc. ABC has adopted a October 30 fiscal year end. Below is a pro forma presentation of the combined companies at the dates noted.
  • 15. ABC TECHNOLOGY, INC. Combined Combined Pro forma as of October 30, 2005 as of October 30, 2004 (audited) (unaudited) (dollars in thousands) Balance sheet data: Cash & Equivalents ........................................ Other Assets (receivables and inventory) ........ Property, Plant & Equipment (net) .................. Intangibles .................................... ................. $25 $3,940 781 2,648 305 450 4,772 4,772 Total Assets................................................... $5,883 $11,810 Current Liabilities ........................................ Long Term Debt........................................... Other Liabilities ........................................... $3,587 $6,298 2,000 6,400 0 0 Total Liabilities ............................................ 5,587 12,698 Shareholders’ Equity..................................... 296 (888) Total Liabilities & Shareholders Equity ….. $5,883 $11,810 RISK FACTORS Investing in our securities involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our securities. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect us. If any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment. Risks Related To Our Business Our company has undergone significant restructuring, making it difficult to assess its ability to meet its business objectives
  • 16. Super Widget, Inc., ABC’s predecessor, was founded in 1983, and completed its initial public offering in October 2000. In April 2003, Super Widget was acquired by Jaguar Technology Holdings, LLC and became a private company. On September 13, 2005, ABC acquired all of the operating assets, certain liabilities, and all of the employees of Super Widget, Inc. On March 29, 2006, BB Enterprises USA, Inc., a public shell company (“BB”), acquired ABC. On or prior to October 30, 2006, BB will be merged into ABC and BB will disappear. Soon after going public, Super Widget experienced a number of setbacks. It was sued by a large customer, implemented a number of senior management changes and experienced a dramatic downturn in its business prospects, consistent with the downturn in the technology sector generally. After the acquisition by Jaguar Technology Holdings, Super Widget implemented a significant restructuring of its operations, business and management. Among other things, it reduced overhead substantially (including dramatic reductions in staffing, termination of all senior management and reductions in facilities costs), sold assets that were either non-core or not essential to its business, and entered into an agreement to settle litigation with a former customer. As a result of these significant restructuring transactions and events, it may be difficult to assess our performance and prospects based on our historical operations and financial results. Our planned growth could strain our personnel resources and infrastructure, and if we are unable to implement appropriate controls and procedures, we may not be able to successfully implement our business plan Our plans provide for rapid growth in headcount and operations, which will place significant strain on our management, administrative, operational and financial infrastructure. We anticipate that further growth will be required to address increases in our customer base, as well as our expansion into new geographic areas. Our success will depend in part upon the ability of our senior management to manage this growth effectively. To do so, we must continue to hire, train and manage new employees as needed. If our new hires perform poorly, or if we are unsuccessful in hiring, training, managing and integrating these new employees, or if we are not successful in retaining our existing employees, our business may be harmed. To manage the expected growth of our operations and personnel, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. The additional headcount and capital investments we are adding will increase our cost base, which will make it more difficult for us to offset any future revenue shortfalls by offsetting expense reductions in the short term. If we fail to successfully manage our growth, we will be unable to execute our business plan. The Company recently hired a new senior management team, including Bill Santo (CEO), Carol Ferrari (VP– Marketing), Jerry Keefe (VP–Operations) and Stephen Peary (CFO). This team has not worked together previously and may not work effectively together. Moreover, the new management team has limited experience in developing, marketing, selling, implementing and servicing XYZ software. The new team may not be able to meet the Company’s business objectives, including the marketing of our new Widget product. There can be no assurance that the Company will be able to successfully manage future expansion successfully, and any inability to do so could have a material adverse effect on our business, results of operations and financial condition. Our “On Demand” business is unproven, which makes it difficult to evaluate a large portion of our future business and prospects Our business is substantially dependent upon its ability to generate revenue by selling a software license to corporations that have a need for its technology. While we and our predecessors have been in business for over 20 years, the On Demand software market is a relatively new industry and Super Widget began offering theses services in late 2004, which makes evaluation of our current business and future prospects difficult. The revenue and income potential of our business and the On Demand software market are unproven. In addition, because the market for On Demand XYZ software is new and rapidly evolving, we have limited insight into trends that affect this business. You must consider our business and prospects in light of the risks and difficulties we may encounter as a company in a new and rapidly evolving market. Factors that may affect market acceptance of the On Demand software service include:
  • 17. ←• reluctance by enterprises to migrate to an on-demand application service; ←• the price and performance of this service; ←• the level of customization we can offer; ←• the availability, performance and price of competing products and services; ←• reluctance by enterprises to trust third parties to store and manage their internal data; and ←• adverse publicity about us, our service or the viability or security of on-demand application services generally from third party reviews, industry analyst reports and adverse statements made by competitors. Many of these factors are beyond our control. The inability of our On Demand application service to achieve widespread market acceptance would harm our business and have a material adverse effect on the Company. Defects in our products and services could diminish demand for our products and services and subject us to substantial liability Because our products and services are complex and have incorporated a variety of software both developed in-house and acquired from third party vendors, its products and services may have errors or defects that users identify after they begin using it that could result in unanticipated downtime for its subscribers and harm its reputation and our business. Traditional enterprise software products and Internet-based services frequently contain undetected errors when first introduced or when new versions or enhancements are released. We have from time to time found defects in our products and services and new errors in its existing products and services may be detected in the future. Since our customers use our products and services for important aspects of their business, any errors, defects or other performance problems with its products or services could hurt our reputation and may damage our customers’ businesses. If that occurs, customers could elect not to renew, or delay or withhold payment to us, we could lose future sales or customers may make warranty claims against us, which could result in an increase in our provision for doubtful accounts, an increase in collection cycles for accounts receivable or the expense and risk of litigation. Interruptions or delays in service from our third-party Web hosting facility could impair the delivery of our service and harm our business The Company provides its Widget service through computer hardware that is currently located in a third- party Web hosting facility in Minneapolis, Minnesota operated by Qwest Communications International Inc. The Company does not control the operation of this facility, which is subject to damage or interruption from earthquakes, floods, fires, power loss, telecommunications failures and similar events. It is also subject to break-ins, sabotage, intentional acts of vandalism, work stoppages, strikes and similar misconduct. Despite precautions taken at the facility, the occurrence of a natural disaster, a decision to close the facility without adequate notice or other unanticipated problems at the facility could result in lengthy interruptions in our service. In addition, the failure by the Qwest facility to provide our required data communications capacity could result in interruptions in our service. The Company is currently in the process of obtaining additional business continuity services and additional data center capacity, however, none of the services or capacity is currently operational. Any damage to, or failure of, our systems could result in interruptions in our service. Interruptions in our service may reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their subscriptions and adversely affect our renewal rates. Our business will be harmed if our customers and potential customers believe our service is unreliable. The Company and its predecessors have incurred losses in the past and we may not be able to maintain profitability in the future Super Widget has incurred quarterly and annual losses intermittently since it was formed in 1983, and regularly since fiscal 1997. Super Widget incurred net losses of, $20.6 million in fiscal 2003, $23.7 million
  • 18. in fiscal 2002, $70.3 million for fiscal 2001, and $16.3 million for fiscal 2000. Super Widget may not be able to establish or maintain profitable operations in the future. We also expect that our operating expenses will continue to increase in the future.. We cannot provide assurance that we will be able to generate sufficient revenue to establish or maintain profitability. You should not consider any historical performance of the Company or Super Widget as necessarily being indicative of our future results. The Company’s quarterly revenue and operating results are volatile and difficult to predict, and if we fail to meet the expectations of investors, the market price of our common stock would likely decline significantly Our revenue and operating results are likely to fluctuate significantly from quarter to quarter, due to a number of factors. These factors include: • our ability to retain and increase sales to existing customers, attract new customers and satisfy our customers’ requirements; ←• the timing of additional investments in our Widget application service and in our maintenance services; ←• technical difficulties or interruptions in our service; ←• the rate of expansion and effectiveness of our sales force; ←• the length of the sales cycle for our service; • our ability to form strategic relationships with third parties for the distribution of our software, and the level of costs that these arrangements entail; • our ability to promote software products, as well as the cost and effectiveness of such advertising; .1• costs or potential limitations on our business activities resulting from litigation and regulatory developments in our industry, which could be significant; .2• our ability to obtain additional customers or to derive additional revenue from our existing customers; ←• downward pricing pressures on our software licenses; .1• costs associated with any future acquisitions; .2• our ability to respond to technological developments in our industry; and ←• fluctuations in economic and market conditions, particularly those affecting the market for technology spending or the industries of our customers, such as manufacturing, insurance and financial services. Many of these factors are largely outside of our control, and there are many facets of each of these factors over which we have limited control. As a result of the factors above and the evolving nature of our business and industry, we may be unable to forecast our revenue accurately. We plan our expenses based on operating plans and estimates of future revenue. We may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfalls. Additionally, a failure to meet our revenue or expense projections would have an immediate and negative impact on our operating results. If this were to happen, the market price of our common stock would likely decline significantly. If our security measures are breached and unauthorized access is obtained to a customer’s data, our service may be perceived as not being secure, customers may curtail or stop using our service and we may incur significant liabilities The Company’s service involves the storage and transmission of customers’ proprietary information, and security breaches could expose us to a risk of loss of this information, litigation and possible liability. If our security measures are breached as a result of third-party action, employee error, malfeasance or otherwise, and, as a result, someone obtains unauthorized access to one of our customers’ data, our reputation will be damaged, our business may suffer and we could incur significant liability. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until
  • 19. launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose sales and customers. Because we will recognize revenue from subscriptions for our service over the term of the subscription, downturns or upturns in sales may not be immediately reflected in our operating results The Company generally recognizes license/subscription revenue from its traditional On Premise products ratably over the terms of their license/subscription agreements, which are typically 12 to 24 months, although terms can range from 1-60 months. As a result, much of the revenue that the Company reports in each quarter is deferred revenue from license/subscription agreements entered into during previous quarters. Consequently, a decline in new or renewed licenses/subscriptions in any one quarter will not necessarily be fully reflected in the revenue in that quarter and will negatively affect our revenue in future quarters. In addition, we may be unable to adjust our cost structure to reflect these reduced revenues. Accordingly, the effect of significant downturns in sales and market acceptance of our products and services may not be fully reflected in our results of operations until future periods. The Company’s license/ subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription term. The market for the Company’s technology delivery model and on-demand application services is immature and volatile, and if it does not develop or develops more slowly than we expect, our business will be harmed The market for on-demand application services is new and unproven, and it is uncertain whether these services will achieve and sustain high levels of demand and market acceptance. Our success will depend to a substantial extent on the willingness of enterprises, large and small, to increase their use of on-demand application services in general, and for XYZ in particular. Many enterprises have invested substantial personnel and financial resources to integrate traditional enterprise software into their businesses, and therefore may be reluctant or unwilling to migrate to Widget application services. Furthermore, some enterprises may be reluctant or unwilling to use on-demand application services because they have concerns regarding the risks associated with security capabilities, among other things, of the technology delivery model associated with these services. If enterprises do not perceive the benefits of on-demand application services, then the market for these services may not develop at all, or it may develop more slowly than we expect, either of which would significantly adversely affect our operating results. In addition, as a new company in this unproven market, we have limited insight into trends that may develop and affect our business. We may make errors in predicting and reacting to relevant business trends, which could harm our business. The Company does not have an adequate history with its subscription model to predict the rate of customer subscription renewals and the impact these renewal rates will have on our future revenue or operating results The Company’s customers have no obligation to renew their subscriptions for our service after the expiration of their initial subscription period and in fact, some customers have elected not to do so. In addition, these customers may renew for a lower priced edition of our service or for fewer subscriptions. We have limited historical data with respect to rates of customer subscription renewals, so we cannot accurately predict customer renewal rates. The Company’s customers’ renewal rates may decline or fluctuate as a result of a number of factors, including their dissatisfaction with our service and their ability to continue their operations and spending levels. If the Company’s customers do not renew their subscriptions for our service, our revenue will decline and our business will suffer. Our future success also depends in part on our ability to sell additional features or enhanced editions of our service to our current customers. This may require increasingly sophisticated and costly sales efforts that are targeted at senior management. If these efforts are not successful, our business may suffer.
  • 20. The market in which the Company participates is intensely competitive, and if we do not compete effectively, our operating results could be harmed The market for CRM and XYZ applications is intensely competitive and rapidly changing, barriers to entry are relatively low, many of our competitors are larger and have more resources than we do, and with the introduction of new technologies and market entrants, we expect competition to intensify in the future. If we fail to compete effectively, our operating results will be harmed. Some of our principal competitors offer their products at a lower price, which has resulted in pricing pressures. If we are unable to maintain our current pricing, our operating results could be negatively impacted. In addition, pricing pressures and increased competition generally could result in reduced sales, reduced margins or the failure of our service to achieve or maintain more widespread market acceptance, any of which could harm our business. Any efforts we may make in the future to expand our service beyond the XYZ market may not succeed To date, the Company has focused its business on providing on-demand application services for the XYZ market, but we may in the future seek to expand into other markets. However, any efforts to expand beyond the XYZ market may never result in significant revenue growth for us. In addition, efforts to expand our on-demand application service beyond the XYZ market may divert management resources from existing operations and require us to commit significant financial resources to an unproven business, which may harm our business. Any failure to adequately expand our direct sales force will impede our growth The Company continues to be substantially dependent on its direct sales force to obtain new customers, particularly large enterprise customers, and to manage its customer base. We believe that there is significant competition for direct sales personnel with the advanced sales skills and technical knowledge we need. Our ability to achieve significant growth in revenue in the future will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of direct sales personnel. New hires require significant training and may, in some cases, take more than a year before they achieve full productivity. Recent hires and planned hires may not become as productive as we would like, and we may be unable to hire sufficient numbers of qualified individuals in the future in the markets where we do business. If we are unable to hire and develop sufficient numbers of productive direct sales personnel, sales of our service will suffer and our growth will be impeded. The Company relies on third-party hardware and software that may be difficult to replace or which could cause errors or failures of our service The Company relies on hardware purchased or leased and software licensed from third parties in order to offer its service, including Weblogic Application Server software from BEA. This hardware and software may not continue to be available on commercially reasonable terms, or at all. Any loss of the right to use any of this hardware or software could result in delays in the provisioning of our service until equivalent technology is either developed by us, or, if available, is identified, obtained and integrated, which could harm our business. Any errors or defects in third-party hardware or software could result in errors or a failure of our service which could harm our business. If we acquire any companies or technologies in the future, they could prove difficult to integrate, disrupt our business, dilute shareholder value and adversely affect our operating results We will seek to acquire or make investments in complementary companies, services and technologies in the future. Present management has not made any acquisitions or investments to date on behalf of the Company, and therefore our ability as an organization to make acquisitions or investments is unproven. Acquisitions and investments involve numerous risks, including: ←• difficulties in integrating operations, technologies, services and personnel;
  • 21. ←• diversion of financial and managerial resources from existing operations; ←• risk of entering new markets; ←• potential write-offs of acquired assets or investments; ←• potential loss of key employees; ←• inability to generate sufficient revenue to offset acquisition or investment costs; and ←• delays in customer purchases due to uncertainty. In addition, if we finance acquisitions by issuing convertible debt or equity securities, our existing shareholders may be diluted which could affect the market price of our stock. As a result, if we fail to properly evaluate and execute acquisitions or investments, our business and prospects may be seriously harmed. The success of our business depends on the continued growth and acceptance of the Internet as a business tool Expansion in the sales of our service depends on the continued acceptance of the Internet as a communications and commerce platform for enterprises. The Internet could lose its viability as a business tool due to delays in the development or adoption of new standards and protocols to handle increased demands of Internet activity, security, reliability, cost, ease-of-use, accessibility and quality-of-service. The performance of the Internet and its acceptance as a business tool has been harmed by “viruses,” “worms” and similar malicious programs, and the Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure. If for any reason the Internet does not remain a widespread communications medium and commercial platform, the demand for our service would be significantly reduced, which would harm our business. Because competition for our employees is intense, we may not be able to attract and retain the highly skilled employees we need to support our planned growth To continue to execute on our growth plan, we must attract and retain highly qualified personnel. Competition for these personnel is intense, especially for engineers with high levels of experience in designing and developing software and Internet-related services and senior sales executives. We may not be successful in attracting and retaining qualified personnel. The Company and its predecessors have from time to time in the past experienced, and we expect to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. In addition, in making employment decisions, particularly in the Internet and high-technology industries, job candidates often consider the value of the stock options they are to receive in connection with their employment. Volatility in the price of our stock may therefore adversely affect our ability to attract or retain key employees. Furthermore, the new requirement to expense stock options may discourage us from granting the size or type of stock option awards that job candidates require to join our company. In order to attract personnel to meet our technical development needs in the future we may have to pay above market rates or open satellite offices. Such additional costs could negatively impact our profitability. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be harmed. We depend on key personnel and must attract and retain qualified personnel to be successful Our success depends upon the continued contributions of our senior management, sales, engineers, and professional services personnel, who perform important functions and would be difficult to replace. Also, we believe that our future success is highly dependent on William Santo, our chief executive officer. The loss of the services of any key personnel, particularly senior management, sales, engineers, or professional services personnel could seriously harm our business.
  • 22. We might require additional capital to support business growth, and this capital might not be available We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges or opportunities, including the need to develop new services or enhance our existing service, enhance our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing shareholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited. A delayed recovery in information technology spending could reduce sales of our products Average license fees for the Company’s product suite typically range from approximately less than a hundred thousand dollars to several million dollars. Often this represents a significant information technology capital expenditure for the companies to which the Company targets its sales efforts. In addition, regardless of the cost of the Company’s products, many companies may elect not to pursue information technology projects, which may incorporate either of the Company’s product suites or its individual components, as a result of the global information technology spending slowdown. Consequently, if the current global environment in information technology spending should continue, whether resulting from a weakened economy or other factors, we may be unable to maintain or increase our sales volumes and achieve our targeted revenue growth. In addition, the Company depends on its customers to pay recurring maintenance fees for technical support and product upgrades. Often, this represents a significant and recurring information technology capital expenditure for our customers. As a result, if the global environment in information technology should continue, whether resulting from a weakened economy or other factors, we may be unable to maintain our maintenance revenues at their current levels and achieve our targeted revenues. If the markets for sales configuration and customer service solutions do not expand, we may not be successful The Company’s products address a new and emerging market for solutions that optimize the “lead-to- order” process and solutions, which address guided customer service. The failure of these markets to expand, or a delay in the expansion of these markets, would seriously harm our business. The Company’s business depends on the successful customer acceptance of its products and we expect that we will continue to depend on revenue from new and enhanced versions of our products. Our business would be harmed if our target customers do not adopt and expand their use of our products. The Company depends on its direct sales force for a significant portion of its current sales and our growth depends on the ability of this direct sales force to increase sales to a level that will allow us to reach and maintain profitability Our ability to increase sales will depend on our ability to train and retain top quality sales people who are able to target prospective customers’ senior management, and who can productively and efficiently generate and service large accounts. Competition for these individuals is intense, and we may not be able to attract, assimilate or retain highly qualified personnel in the future. Turnover among our sales staff has
  • 23. been significant and a number of our employees have left or been terminated. If we are unable to retain qualified sales personnel, or if newly hired personnel fail to develop the necessary skills or to reach productivity when anticipated, we may not be able to increase sales of our products and services. In addition, in connection with the Company’s effort to streamline its operations, reduce costs and bring its staffing and infrastructure in line with industry standards, Super Widget restructured its organization and reduced its workforce. In connection with the restructurings, during fiscal 2001 Super Widget terminated 363 employees and 90 consultants, and during fiscal 2002 it terminated 93 employees. In fiscal 2003, Super Widget eliminated 55 positions and shut down its foreign offices. In fiscal 2004, Super Widget eliminated 36 positions and continued to streamline its operations by closing its Bloomington office. This restructuring may also yield unanticipated consequences, such as attrition beyond our planned reduction in workforce and loss of employee morale and decreased performance. Continuity of personnel is an important factor in the successful completion of the Company’s business plan and ongoing turnover in our personnel could materially and adversely impact our sales and marketing efforts, current customer implementations, and our development projects. We believe that hiring and retaining qualified individuals at all levels is essential to our success, and there can be no assurance that we will be successful in attracting and retaining the necessary personnel. Difficulties and financial burdens associated with mergers and acquisitions could harm our business and financial results On February 15, 2001, Super Widget acquired all of the outstanding stock of Brightware, Inc. This acquisition proved difficult to integrate into Super Widget’s operations and product base. In May 2004 Super Widget sold the Brightware assets to a third party. We will seek to acquire additional assets or companies that require integration of operations or products with our present operations or products. There can be no assurance that the integration of any acquired operations or technologies will be successful or will not result in unforeseen difficulties that may absorb significant management attention. In the future, we may acquire additional businesses or product lines or be the target of a potential merger or acquisition. Any such merger or acquisition of or by us may not produce the revenue, earnings or business synergies that we anticipated, and an acquired product, service or technology might not perform as expected. Prior to completing a merger or acquisition, however, it is difficult to determine if such benefits can actually be realized. The process of integrating companies into our business or integrating our company into another business may also result in unforeseen difficulties. Unforeseen operating difficulties may absorb significant management attention, which we might otherwise devote to our existing business. Also, the process may require significant financial resources that we might otherwise allocate to other activities, including the ongoing development or expansion of our existing operations. If we pursue a future merger or acquisition, our management could spend a significant amount of time and effort identifying and completing the merger or acquisition. If we make a future acquisition, we could issue equity securities which would dilute current shareholders’ percentage ownership, incur substantial debt, assume contingent liabilities or incur a one-time charge. Failure to expand our relationships with third party channels may adversely impact our support and maintenance of existing customers, delay the implementation of our products and delay the growth of our revenue Our business strategy includes expanding and increasing third party channels which license and support the Company’s products, such as resellers, distributors, OEMs, system integrators and consulting firms. This often requires that these third parties recommend our products to their customers and install and support our products for their customers. To increase our revenue and implementation capabilities, we must develop and expand our relationships with these third parties. In addition, if these firms fail to implement our products successfully for their clients, we may not have the resources to implement our products on the schedule required by the client which would result in our inability to recognize revenue from the license of our products to these customers. Difficulties associated with the protection of our intellectual property and potential claims alleging infringement of third party’s intellectual property could harm our ability to compete and result in
  • 24. significant expense to us and loss of significant rights Our success and ability to compete is dependent in part upon our proprietary technology. Any infringement of our proprietary rights could result in significant litigation costs, and any failure to adequately protect our proprietary rights could result in our competitors’ offering similar products, potentially resulting in loss of a competitive advantage and decreased revenue. Existing patent, copyright, trademark and trade secret laws afford only limited protection. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States. Therefore, we may not be able to protect our proprietary rights against unauthorized third party copying or use. Furthermore, policing the unauthorized use of our products is difficult. Some of our contractual arrangements provide third parties with access to our source code and other intellectual property upon the occurrence of specified events. This access could enable these third parties to use our intellectual property and source code to develop and manufacture competing products, which would adversely affect our performance and ability to compete. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. This litigation could result in substantial costs and diversion of resources and could materially adversely affect our future operating results. Further, the software industries are characterized by the existence of frequent litigation of intellectual property rights. From time to time, third parties may assert patent, copyright, trademark and other intellectual property rights to technologies that are important to our business. Any claims, with or without merit, could be time-consuming, result in costly litigation, divert the efforts of our technical and management personnel, cause product shipment delays, disrupt our relationships with our customers or require us to enter into royalty or licensing agreements, any of which could have a material adverse effect upon our operating results. Royalty or licensing agreements, if required, may not be available on terms acceptable to us. If a claim against us is successful and we cannot obtain a license to the relevant technology on acceptable terms, license a substitute technology or redesign our products to avoid infringement, our business, financial condition and results of operations would be materially adversely affected. Intense competition from other technology companies could prevent us from increasing or sustaining revenue and prevent us from achieving or sustaining profitability The market for sales configuration solutions is intensely competitive and we expect that this competition will increase. Many of our current and potential competitors have longer operating histories, greater name recognition and substantially greater resources than we do. Therefore, they may be able to respond more quickly than we can to new or changing opportunities, technologies, standards or customer requirements. If we are unable to compete effectively, our revenue could significantly decline. Our failure to successfully implement our products in a timely manner could result in negative publicity and reduced sales, both of which would significantly harm our business and operating results In the future, our customers may experience difficulties or delays in completing the implementation of our products. We have found that implementing our XYZ products may be more time consuming than we or our customers anticipate. The unique configuration or integration with our customers’ legacy systems, such as existing databases and enterprise resource planning software, may be underestimated and the deployment of our products can be delayed. Failing to meet customer expectations on deployment of our products could result in a loss of customers and negative publicity regarding us and our products, which could adversely affect our ability to attract new customers. In addition, time-consuming deployments may also increase the amount of professional services we allocate to each customer, thereby increasing our costs and adversely affecting our business and operating results. The Company depends upon technology licensed to us by third parties, the loss of which could adversely affect out competitive position The Company licenses technology from a small number of software providers for use with our products and implementation services. We anticipate that we will continue to license and rely on technology from third parties in the future. This technology may not continue to be available on commercially reasonable terms, if at all, and some of the technology we license would be difficult to replace. The loss of the use of
  • 25. this technology would result in delays in the license and implementation of our products until equivalent technology, if available, is identified, licensed and integrated. In turn, this could prevent the implementation or impair the functionality of our products, delay new product introductions, or injure our reputation. If we are unable to introduce new and enhanced products on a timely basis that respond effectively to changing technology, our revenue may decline The Company’s market is characterized by rapid technological change, changes in customer requirements, frequent new product and service introductions and enhancements, and evolving industry standards. Advances in Internet technology or in e-commerce software applications, or the development of entirely new technologies to replace existing software, could lead to new competitive products that have better performance or lower prices than our products and could render our products obsolete and unmarketable. In addition, if a new software language or operating system becomes standard or is widely adopted in our industry, we may need to rewrite portions of our products in another computer language or for another operating system to remain competitive. If we are unable to develop new and enhanced products on a timely basis that respond to changing technology, our business could be seriously harmed. If our new and sophisticated products fail to perform properly, our revenue would be adversely affected Software products as sophisticated as ours may contain undetected errors, or bugs which result in product failures, or may cause our products to fail to meet our customers’ expectations. The Company’s products may be particularly susceptible to bugs or performance degradation because of the evolving nature of Internet technologies and the stress that full deployment of our products over the Internet to thousands of end-users may cause. Product performance problems could result in loss of or delay in revenue, loss of market share, failure to achieve market acceptance, diversion of development resources or injury to our reputation. Product liability claims related to our customers’ critical business operations could result in substantial costs The Company’s products are critical to the business operations of its customers. If one of our products fails, a customer may assert a claim for substantial damages against us, regardless of our responsibility for the failure. Our product liability insurance may not cover claims brought against us. Product liability claims could require us to spend significant time and money in litigation or to pay significant damages. Any product liability claims, whether or not successful, could seriously damage our reputation and our business. Control by our principal shareholder will limit your ability to influence the outcome of director elections and other matters requiring shareholder approval Douglas Croxall, the Chairman of the Board of Directors of the Company, currently beneficially holds, directly or indirectly, 2,802,414 shares or approximately 54.9% of the issued and outstanding shares of our common stock, and will own approximately 27% of the issued and outstanding shares of the Company after giving effect to the sale of the maximum number of Units in this Offering and the repurchase of 400,000 shares from Jaguar Technology Holdings, LLC. See “Use of Proceeds”. Therefore, Mr. Croxall will have the ability to materially influence the election of the Board of Directors of the Company and the outcome of any matter presented for a vote to the shareholders of the Company. This concentration of ownership could also have the effect of delaying or preventing a change in our control or discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material adverse effect on the market price of the common stock or prevent our shareholders from realizing a premium over the market price for their shares of common stock. We may be subject to intellectual property infringement claims, which could cause us to incur significant expenses, pay substantial damages and be prevented from providing our services Third parties may claim that our products or services infringe or violate their intellectual property rights. Any such claims could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages and prevent us from providing our services. Even if we were to
  • 26. prevail, any litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations. We may also be obligated to indemnify our business partners in any such litigation, which could further exhaust our resources. Furthermore, as a result of an intellectual property challenge, we may be prevented from providing some or all of our services unless we enter into royalty, license or other agreements. We may not be able to obtain such agreements at all or on terms acceptable to us, and as a result, we may be precluded from offering most or all of our products and services. The Company’s software products are dependent, in part, on a non-exclusive worldwide license from Orion IP, LLC to utilize certain critical patents and related rights in connection with the conduct of its business. We expect that such license will be transferred to the Company in connection with the merger. As we expand the Company’s services internationally, our business will be susceptible to additional risks associated with international operations We believe we must expand the Company’s services internationally and expect to commit significant resources to this expansion. As we increase our international activities, we will be exposed to additional challenges, including: ←• fluctuations in currency exchange rates; ←• seasonal fluctuations in purchasing patterns in other countries; ←• different regulatory requirements; ←• difficulties in collecting accounts receivable in other countries; ←• the burdens of complying with a wide variety of foreign laws; ←• challenges in staffing and managing foreign operations; ←• political and economic instability; and ←• potentially adverse tax consequences, including those resulting from unexpected changes in tax laws. We have limited experience operating outside the United States and with marketing our services globally. Our presence in global markets may require significant management attention and financial resources which may adversely affect our ability to effectively manage our business. We will incur increased costs as a result of being a public company, compared to the historical operations of Super Widget As a public company, we will incur significant legal, accounting and other expenses that the Company or Super Widget did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules implemented by the SEC, require changes in corporate governance practices of public companies. In addition, if our stock is listed on NASDAQ or another major exchange, we will incur additional compliance expenses. We expect these new rules and regulations to increase our legal and financial compliance costs and to make some activities more timeconsuming and costly. In addition, we will incur additional costs associated with our public company reporting requirements. We also expect these new rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. Our compliance with the Sarbanes-Oxley Act and SEC rules concerning internal controls may be time consuming, difficult and costly. It may be time consuming, difficult and costly for us to develop and implement the additional internal controls, processes and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal auditing and other finance staff in order to develop and implement appropriate additional internal controls, processes and reporting procedures. If we are unable to comply
  • 27. with these requirements of the Sarbanes-Oxley Act, we may not be able to obtain the independent accountant certifications that the Sarbanes-Oxley Act requires publicly traded companies to obtain. If we fail to comply in a timely manner with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 regarding internal control over financial reporting or to remedy any material weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our common stock. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and current SEC regulations, beginning with our annual report on Form 10-K for the 2007 fiscal year, we will be required to furnish a report by our management on our internal control over financial reporting. Such report will contain, among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of 2007. We are just beginning the process of documenting and testing our internal control procedures in order to satisfy these requirements, which is likely to result in increased general and administrative expenses and may shift management time and attention from revenuegenerating activities to compliance activities. While our management is expending significant resources in an effort to complete this important project, there can be no assurance that we will be able to achieve our objective on a timely basis. There also can be no assurance that our auditors will be able to issue an unqualified opinion on management’s assessment of the effectiveness of our internal control over financial reporting. Failure to achieve and maintain an effective internal control environment or complete our Section 404 certifications could have a material adverse effect on our stock price. In addition, in connection with our on-going assessment of the effectiveness of our internal control over financial reporting, we may discover “material weaknesses” in our internal controls as defined in standards established by the Public Company Accounting Oversight Board, or the PCAOB. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The PCAOB defines “significant deficiency” as a deficiency that results in more than a remote likelihood that a misstatement of the financial statements that is more than inconsequential will not be prevented or detected. In the event that a material weakness is identified, we will employ qualified personnel and adopt and implement policies and procedures to address any material weaknesses that we identify. However, the process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. We cannot assure you that the measures we will take will remediate any material weaknesses that we may identify or that we will implement and maintain adequate controls over our financial process and reporting in the future. Any failure to complete our assessment of our internal control over financial reporting, to remediate any material weaknesses that we may identify or to implement new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Any such failure also could adversely affect the results of the periodic management evaluations of our internal controls and, in the case of a failure to remediate any material weaknesses that we may identify, would adversely affect the annual auditor attestation reports regarding the effectiveness of our internal control over financial reporting that are required under Section 404 of the Sarbanes-Oxley Act of 2002. Inadequate internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. A significant amount of common stock will be eligible for sale on the second year anniversary following our CAP financing, and its sale could depress the market price of our common stock.
  • 28. Members of our senior management are prohibited from selling shares of their common stock during the two year period beginning March 29, 2006. Sales of a significant number of shares of common stock in the public market commencing in a year could lower the market price of our common stock. All of the Company’s stockholders are subject to Rule 144 under the Securities Act, which, in general, permits a person who has held restricted shares for a period of one year, upon filing with the SEC a notification on Form 144, to sell into the market common stock in an amount equal to the greater of 1% of the outstanding shares or the average weekly number of shares sold in the last four weeks prior to such sale. Such sales may be repeated once each three months, and any of the restricted shares may be sold by a non-affiliate after they have been held two years. Risks Relating to our Common Stock There has been no active public market for our common stock, and prospective investors may not be able to resell their shares at or above the purchase price paid by such investor, or at all. We anticipate that the Company’s Common Stock will trade on the Over-the-Counter Bulletin Board. The OTC Bulletin Board tends to be illiquid, in part because there is no national quotation system by which potential investors can track the market price of shares, except through information received or generated by a limited number of broker-dealers that make markets in particular stocks. There is a greater chance of market volatility for securities that trade on the OTC Bulletin Board as opposed to a national exchange or quotation system. This volatility may be caused by a variety of factors including: ←• The lack of readily available price quotations. ←• The absence of consistent administrative supervision of “bid” and “ask” quotations. ←• Lower trading volume. ←• Market conditions. In addition, the value of our common stock could be affected by: ←• Actual or anticipated variations in our operating results. ←• Changes in the market valuations of other similarly situated companies developing similar software products. ←• Announcements by BB or its competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments. ←• Adoption of new accounting standards affecting our industry. ←• Additions or departures of key personnel. ←• Introduction of new product or services by BB or its competitors. ←• Sales of common stock or other securities in the open market. ←• Changes in financial estimates by securities analysts. ←• Conditions or trends in the market in which BB operates. ←• Changes in earnings estimates and recommendations by financial analysts. ←• Our failure to meet financial analysts’ performance expectations. ←• Other events or factors, many of which are beyond our control. In a volatile market, you may experience wide fluctuations in the market price of our securities. These fluctuations may have an extremely negative effect on the market price of our securities and may prevent you from obtaining a market price equal to your purchase price when you attempt to sell our securities in the open market. In these situations, you may be required either to sell our securities at a market price which is lower than your purchase price, or to hold our securities for a longer period of time than you planned. An inactive market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies or technologies by using common stock as consideration. We cannot assure you that our common stock will become listed on the American Stock Exchange,
  • 29. Nasdaq or any other securities exchange. Following this Offering, we plan to seek listing of our common stock on the American Stock Exchange or Nasdaq as soon as practicable. However, we cannot assure you that we will be able to meet the initial listing standards of either of those or any other stock exchange, or that it will be able to maintain a listing of the common stock on either of those or any other stock exchange. Pending listing, if any, we expect that our common stock would be eligible to trade on the OTC Bulletin Board, another over-the-counter quotation system, or on the “pink sheets,” where an investor may find it difficult to dispose of shares or obtain accurate quotations as to the market value of the common stock. In addition, we would be subject to an SEC rule that, if we failed to meet the criteria set forth in such rule, imposes various requirements on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors. Consequently, such rule may deter broker-dealers from recommending or selling the common stock, which may further affect its liquidity. Our common stock may be considered a “penny stock” and it may be difficult to sell. The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. If, upon development of a market, the market price of the common stock falls below $5.00 per share, the SEC’s penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and the salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that before a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s agreement to the transaction. These rules may restrict the ability of brokers-dealers to sell the common stock and may affect the ability of investors to sell their shares. Securities analysts may not initiate coverage or continue to cover our common stock and this may have a negative impact on our common stock’s market price. The trading market for our common stock may depend significantly on the research and reports that securities analysts publish about us or our business. We do not have any control over these analysts. There is no guarantee that securities analysts will cover our common stock. If securities analysts do not cover our common stock, the lack of research coverage may adversely affect our common stock’s market price. If we are covered by securities analysts, and our stock is downgraded, our stock price would likely decline. If one or more of these analysts ceases to cover us or fails to publish regularly reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline. Risks Relating to this Offering If we are unable to cause a Registration Statement to become effective in a timely manner, we will be required to pay liquidated damages to the investors in this Offering, which could materially affect our financial condition. We have agreed, at our expense, to prepare a registration statement covering the shares of common stock offered hereby with the SEC within prescribed periods. In the event the registration statement is not filed or effective within the prescribed periods, or becomes unavailable for use by the investors for an extended period, we will be required to pay to investors in this Offering liquidated damages equal to 1.0% of the total offering price for the Units purchased by such investor for each quarterly period (adjusted proportionally for an portion thereof) in which we are not in compliance with our obligation to file or make effective the registration statement. There are many reasons, including those over which we have no control, which
  • 30. could delay the filing or effectiveness of the registration statement, including delays resulting from the SEC review process and comments raised by the SEC during that process. Our financial condition may be materially adversely affected if we are required to pay such liquidated damages. Upon the effectiveness of the Registration Statement, there will be a significant number of shares of common stock eligible for sale, which could depress the market price of our stock. Following the effective date of the registration statement covering the shares of common stock offered hereby, a large number of shares of common stock would become available for sale in the public market, which could harm the market price of the stock. Further, shares may be offered from time to time in the open market pursuant to Rule 144, and these sales may have a depressive effect on the market for the common stock. In general, a person who has held restricted shares for a period of one year may, upon filing with the SEC a notification on Form 144, sell into the market common stock in an amount equal to the greater of 1% of the outstanding shares or the average weekly number of shares sold in the last four weeks prior to such sale. We have not retained independent professionals for subscribers. We have not retained any independent professionals to review or comment on this Offering or otherwise protect the interests of the subscribers hereunder. Although the Placement Agent and the Company have each retained their own counsel, none of such counsels nor any other law firms has made any independent examination of any factual matters represented by management herein, and purchasers of the Units offered hereby should not rely on any such firm so retained with respect to any matters herein described. If you purchase Units in this Offering, you will experience immediate and substantial dilution. If you purchase Units in this Offering, you will incur immediate and substantial dilution in pro forma net tangible book value. If holders of outstanding options and warrants exercise those options and warrants, you will incur further dilution. In the event we obtain any additional funding, such financings are likely to have a dilutive effect on the holders of our securities. In addition, we intend to adopt an employee stock incentive plan under which officers, directors, consultants and employees will be eligible to receive stock options exercisable for our securities at exercise prices that may be lower than the offering price of the Units. Such stock option grants, if any, may dilute the value of the securities. CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS This Memorandum contains “forward-looking statements” that include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. These forward-looking statements include, without limitation, statements regarding: proposed new services; our expectations concerning litigation, regulatory developments or other matters; statements concerning projections, predictions, expectations, estimates or forecasts for our business, financial and operating results and future economic performance; statements of management’s goals and objectives; and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes” and “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or
  • 31. suggested by the forward-looking statements. Important factors that could cause these differences include, but are not limited to: our ability to maintain and expand our user base; failure on our part to maintain and expand our existing relationships with advertisers and develop new relationships with advertisers; the level of acceptance of sales configuration software as an on demand service; industry competition; our ability to continue to execute our growth strategies; litigation, legislation, regulation or technological developments affecting online marketing; general economic conditions; and other factors discussed under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. USE OF PROCEEDS The sale of between 1,500,000 Units and 4,500,000 Units in this Offering will result in net proceeds to the Company of between $8,500,000 and $26,500,000, after deducting (a) a cash commission to the placement agent of between $1,000,000 and $3,000,000 and (b) offering and transaction expenses estimated to be approximately $500,000. We intend to use the net proceeds from this offering as follows: ←• finance possible future acquisitions by the Company; ←• repay indebtedness of the Company totaling $5,200,000; ←• fund the repurchase, at $10.00 per share, of (i) up to 400,000 shares of common stock held by Jaguar Technology Holdings, LLC; (ii) up to 232,214 shares of common stock held by Benchmark Capital and associated parties; and (iii) up to 390,625 warrants to purchase shares of common stock held by Trident Advisors (less the applicable exercise price of $4.00 per share). If less than the maximum Units are sold in the Offering, the number of shares and warrants to be repurchased will be reduced on a pro rata basis; and ←• provide working capital to the Company. The Company has executed a non-binding letter of intent to acquire the assets of another Widget software company. However, there can be no guarantee that the Company will execute a definite agreement with the other company, or that such transaction will be completed in a timely manner or at all. The amounts and timing of our actual expenditures will depend on numerous factors, including the status of our product development efforts, sales and marketing activities, technological advances, the amount of cash generated or used by our operations and competition. We may find it necessary or advisable to use the net proceeds for other purposes, and we will have broad discretion in the application of the balance of the net proceeds. Pending the uses described above, we intend to invest the net proceeds in short-term, interest- bearing, deposits or investment grade securities. DIVIDEND POLICY
  • 32. We do not currently intend to pay any cash dividends on our common stock. Any decision to declare and pay dividends in the future will be made at the discretion of our Board of Directors and will depend on, among other things, our results of operations, capital requirements, financial condition, contractual restrictions and other factors that our Board of Directors may deem relevant. CAPITALIZATION The following table sets forth our capitalization as of March 31, 2006, and our capitalization on a pro forma, as adjusted basis to give effect to: ←• the sale of the maximum of 4,500,000 Units offered in this offering at a price of $10.00 per Unit; ←• the completion of the Reorganization (pursuant to which BB will be merged into ABC and BB will disappear); and ←• the application of the net proceeds as provided in “Use of Proceeds”. You should read the information in this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Super Widget” and the consolidated financial statements included elsewhere in this Memorandum. March 31, 2006 Pro forma Actual As adjusted Shareholders’ Equity: (dollars in thousands) – Common Stock, 300,000,000 shares authorized; 5,100,440 shares issued and $ 5 $ 9 outstanding, actual, and 9,386,155 shares issued and outstanding, as adjusted ....... Additional Paid-In Capital ....................................................................................... 2,182 28,678 Retained Earnings..................................................................................................... 697 697 Deferred Compensation ........................................................................................... (551) (551) Total shareholders’ equity ........................................................................................ $ 2,333 $ 28,833 The foregoing table excludes (i) up to 1,766,000 shares of common stock available for future grant or issuance under a stock incentive plan to be adopted by the Company; (ii) outstanding warrants to acquire 7,265,625 shares of common stock; (iii) warrants to be issued to the Placement Agent to purchase up to 428,571 shares at $10.00 per share; and (iv) warrants to purchase between 1,500,000 and 4,500,000 shares at $10.00 per share, to be issued to investors in this Offering as part of the Units. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SUPER WIDGET AND THE COMPANY
  • 33. The following is a discussion and analysis of the financial condition and results of operations of Super Widget, Inc. for the twelve months ended October 30, 2004 and October 30, 2005, and the combined financial condition and results of operations for Super Widget, Inc., ABC Technology Holdings, Inc. and BB Enterprises, USA, Inc. for the three months and nine months ended March 31, 2006. This discussion and analysis should be read in conjunction with the Summary Consolidated Financial Data included elsewhere in this Memorandum as well as the financial statements and notes thereto for the above listed periods. Our discussion includes forward-looking statements, which involve certain risks and uncertainties. See “Cautionary Notice Regarding Forward-Looking Statements”. All references in this Memorandum to “the Company” refer to ABC Technology, Inc., after giving effect to the pending Reorganization whereby BB will be merged into ABC Technology Holdings, Inc. and renamed ABC Technology, Inc., described in more detail elsewhere herein. Overview The Company is a leading provider of Widget software that optimizes the process of converting leads into accurate orders. Our Super Widget sales configuration system guides sales people, channel partners and customers through the entire “lead-to-order” business process — delivering lead management, needs analysis, product and pricing configuration, quote and proposal generation, and order management. We provide interactive selling software solutions that help companies profitably acquire and retain customers. The complementary configuration, pricing and guided selling solutions are based on patented technology. Our solutions help drive new revenue streams, increase profitability, and manage customer interactions across all channels throughout the sales cycle. From the inception of our predecessor, Super Widget, Inc., in 1983 through 1997, we generated revenue primarily through providing custom development services. These services consisted of the development of highly customized applications utilizing core software technology, and related software maintenance and data maintenance services. In early fiscal 1997, Super Widget undertook a plan to change its strategic focus from a custom development services company to a software product company providing more standardized solutions. Super Widget’s first packaged software product was introduced in May 1997. Super Widget released the Super Widget Application Suite in October 1999, and renamed and repackaged the Super Widget Application Suite as the SalesPerformer Suite in April 2000. In February 2000, Super Widget completed its initial public offering. Soon thereafter, as a result of a global slowdown in information technology spending, including in the Customer Relationship Management market, Super Widget undertook a comprehensive restructuring of its operations. Super Widget incurred substantial losses from 2000 through 2003. Throughout this period Super Widget invested heavily in research and development. On April 2, 2003, Jaguar Technology Holding, LLC acquired Super Widget in exchange for cash equal to $3.16 per share, and Super Widget became a private company. On September 13, 2005, Super Widget transferred most of its assets and liabilities to ABC Technology Holdings, Inc. (“ABC”) as part of a restructuring and new financing transaction. Before and after this transaction, both Super Widget and ABC were 100% owned by the same entity. On January 17, 2006, Super Widget, Inc. was liquidated, and a liquidating trust was created to liquidate the remaining assets of Super Widget, Inc., enforce and pursue the causes of action of Super Widget, Inc., provide for a reserve against the payment of any contingent liabilities, and distribute the net proceeds to its stockholder. For the period from February 1, 2004 through September 12, 2005, the financial statements presented herein are those of Super Widget, Inc. For the period from September 13, 2005 through January 17, 2006, the financial statements presented herein are the combined financial statements of Super Widget and ABC. Pursuant to FIN 46(R), the financial statements presented herein for the three and nine month periods ended March 31, 2006 include the consolidated financial statements of FP, BB Enterprises USA, Inc. (commencing March 29, 2006) and the liquidating trust.
  • 34. Technological feasibility of our software products occurs late in the development cycle and close to general release of the products. The development costs incurred between the time technological feasibility is established and general release of the product are not material. As such, we expense these costs as incurred to research and development expense. To enhance our product offering and market position, we believe it is essential for us to continue to make significant investment in research and development. We incurred stock-based compensation during the three month period ended March 31, 2006 of $13,051. We anticipate that some stock based compensation will be incurred in fiscal 2006 through restricted stock grants and stock options to board members, executive management and employees. BB also recorded deferred compensation equal to $551,291 in the three month period ended March 31, 2006. As of April 31, 2005, we had available net operating losses of approximately $15 million, which may be available to reduce our future federal income taxes. These loss carry-forwards will expire beginning in fiscal 2022, and may be subject to review and possible adjustment by the Internal Revenue Service. Utilization of these loss carry forwards has been limited due to the ownership change limitations provided by the Internal Revenue Service Code of 1986. Recent Private Financings; Acquisition by BB Enterprises USA, Inc. Acquisition by BB Enterprises USA, Inc. On March 29, 2006, BB Enterprises USA, Inc., a public shell company, acquired ABC Technology Holdings, Inc. pursuant to an Agreement and Plan of Merger. In connection with this transaction, BB changed its fiscal year from April 31 to October 30 to conform to ABC’s fiscal year end. BB issued an aggregate of 3,991,939 shares of its common stock to the shareholders of ABC Technology Holdings, Inc. in this transaction. All references in this discussion to “the Company” refer to ABC Technology, Inc., after giving effect to the pending Reorganization whereby BB will be merged into ABC Technology Holdings, Inc. and renamed ABC Technology, Inc., described in more detail elsewhere herein. CAP Financing – Private Placement of Notes and Warrants On March 29, 2006, BB entered into a Securities Purchase Agreement (the “Purchase Agreement”) with each of the investors listed on the Schedule of Buyers attached thereto (the “Buyers”), pursuant to which the Buyers agreed to purchase (i) BB’s Senior Secured Nonconvertible Notes due 2011 (the “Nonconvertible Notes”) in an aggregate principal amount of $50,000,000, which Nonconvertible Notes may be exchanged for Senior Secured Convertible Notes due 2011 (the “Convertible Notes”, and together with the Nonconvertible Notes, the “Notes”) or redeemed under certain circumstances, and which Convertible Notes are convertible into shares of BB’s common stock (the “Conversion Shares”); and (ii) warrants (the “Warrants”) to acquire in the aggregate up to 6,875,000 shares of BB’s common stock (including warrants granted to the placement agent to acquire 625,000 shares of common stock) in such amounts set forth opposite each Buyer’s name in the Schedule of Buyers attached to the Purchase Agreement (the “Warrant Shares”), exercisable from the earlier of six months after issuance or the Threshold Acquisition Date (as such term is defined in the Indenture, described below) until March 29, 2011 at an exercise price equal to the lower of $8.00 or 125% of the per share price of BB’s common stock to be sold in this Offering. The purchase and sale of the Notes and Warrants was consummated on March 29, 2006. On March 29, 2006, BB also entered into a Registration Rights Agreement with the Buyers, whereby BB agreed to provide certain registration rights in respect of the Conversion Shares and the Warrant Shares under the Securities Act of 1933 and the rules and regulations promulgated thereunder, and applicable state
  • 35. securities laws. Pursuant to the terms of an Indenture dated as of March 29, 2006 (the “Indenture”) executed by BB, as Issuer, and The Bank of New York, as Trustee (in such capacity, the “Trustee”), BB issued the Nonconvertible Notes to the Buyers. Under the terms of the Indenture and the Escrow Agreement dated as of March 29, 2006 (the “Escrow Agreement”) between BB and the Trustee, ninety-five percent of the proceeds of the Nonconvertible Notes were paid into an interest-bearing account (the “Escrow Account”) maintained by the Escrow Agent for the benefit of the holders of the Nonconvertible Notes (the “Nonconvertible Holders”). While any Nonconvertible Notes are outstanding, BB may propose to consummate a business combination transaction in which BB will acquire by merger, securities purchase, asset purchase or otherwise, a majority of the assets or equity of another entity for a purchase price of at least $15,000,000, and each Nonconvertible Holders may vote to approve such transaction. Approval of a business combination transaction requires the affirmative vote of holders of at least 75% of the principal amount of outstanding Nonconvertible Notes. The amount funded from the Escrow Account must be (i) at least 50% of the amount required for an approved business combination transaction (including purchase price, fees and expenses of the transaction and additional working capital requirements of BB), unless the available amount from the Escrow Account at such time is less than 50% of the amount required, in which case such amount shall equal the available amount, and (ii) at least $15 million. A pro rata amount of the principal amount of the Nonconvertible Notes of each Nonconvertible Holder voting in favor of such business combination transaction will be exchanged for Convertible Notes, and an amount equal to the total principal amount of such exchanged Nonconvertible Notes will be released from the Escrow Account and used to consummate such business combination transaction. The indebtedness evidenced by the Notes is senior secured indebtedness of BB, and ranks superior to BB’s other indebtedness. As security for BB’s obligations under the Indenture, BB and ABC have each executed (i) a Security Agreement dated as of March 29, 2006 (the “Security Agreement”), pursuant to which BB and ABC granted a security interest in all assets of BB and ABC in favor of the Trustee, in its capacity as collateral agent for the Nonconvertible Holders and the holders of the Convertible Notes under the Indenture (in such capacity, the “Collateral Agent”), and (ii) a Pledge Agreement dated as of March 29, 2006, pursuant to which BB pledged its interest in ABC in favor of the Collateral Agent. ABC has executed a separate Guaranty dated as of March 29, 2006 in favor of the Collateral Agent. BB recorded debt issuance costs of $3,079,917 in connection with the warrants issued in the CAP transaction. Trident Financing On September 13, 2005, Trident Growth Fund, L.P. (“Trident”) loaned ABC Technology Holdings, Inc. $2,000,000, with interest accruing at 12% per annum. Interest is payable monthly and principal due on September 30, 2006 or on consummation of a change in control transaction. The Note was originally convertible into shares of common stock based upon a fixed ratio. On or about November 25, 2005, ABC closed an additional $500,000 note with Trident Growth Fund on the same terms and conditions as the note issued in September 2005. The funds received pursuant to these Notes were used for working capital. In connection with the acquisition of ABC by BB and the CAP Financing, on March 29, 2006 BB entered into a Master Amendment with Trident, which amended the operative documents entered into by FP and Trident in September and November 2005, and added BB as a party to certain of these agreements. Under the Master Amendment, the Notes issued to Trident were amended to be convertible into BB stock at a price of $6.40 per share, subject to the same anti-dilution adjustments applicable to the Notes issued in the CAP Financing. In addition, the Warrants issued to Trident were amended to be exercisable for BB stock and to reflect an exercise price of $4.00 per share, and the amount of shares issuable under the Trident
  • 36. Warrants was changed to 390,625 shares of BB common stock. In addition, the financial covenants under the agreements with Trident were amended to match the financial covenants contained in the CAP Financing. In addition, on March 29, 2006, BB entered into an Intercreditor and Subordination Agreement with FP and Trident (the “Subordination Agreement”), pursuant to which Trident agreed to subordinate its rights to those of the investors in the CAP Financing. Private Placement of Common Stock BB was a party to a certain Credit Agreement between Acclaim Financial Group Venture II, LLC (“BBV”) and BB dated February, 15, 2003 (the “Credit Agreement”), pursuant to which BB was indebted to BBV in the amount of approximately $313,421.44 (the “Claim”). On March 29, 2006, BBV sold its rights to the Claim to Benchmark Equity Group, Inc. (“BMEG”), which agreed with BB to cancel the Claim in full in exchange for 1,008,062 shares of common stock of BB to be issued to BMEG or its designees, pursuant to an Exchange Agreement between BB and BMEG (the “Exchange Agreement”). On March 29, 2006, BB issued 1,008,062 shares of BB’s common stock to BMEG and its designees pursuant to the Exchange Agreement in full satisfaction of the Claim. Critical Accounting Policies In April 2001, the SEC requested that all registrants list their most “critical accounting policies” in the Management’s Discussion & Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of the Company’s financial condition and results and requires our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We believe that the following accounting policies fit this definition: Enterprise Revenue Recognition The Company recognizes revenue based on the provisions of the American Institute of Certified Pubic Accountants (AICPA) Statement of Position, No. 97-2, “Software Revenue Recognition” (“SOP 97-2”), as amended, and Statement of Position No. 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” (“SOP 81-1”). The Company generates revenue from license and service revenue. License revenue is generated from licensing the rights to the use of the Company’s packaged software products. Service revenue is generated from sales of maintenance, consulting and training services performed for customers that license the Company’s products. The Company has concluded that generally, where the Company is responsible for implementation services for the SalesPerformer product suite and its components, the implementation services are essential to the customer’s use of the packaged software products. In such arrangements, the Company recognizes revenue following the percentage-of-completion method over the implementation period. Percentage of completion is measured by the percentage of implementation hours incurred to date compared to estimated total implementation hours. This method is used because management has determined that past experience has shown expended hours to be the best measure of progress on these engagements. When the current estimates of total contract revenue and contract cost indicate a loss, a provision for the entire loss on the contract is recorded. In situations where the Company is not responsible for implementation services for the SalesPerformer product suite, the Company recognizes revenue on delivery of the packaged software if there is persuasive evidence of an arrangement, collection is probable and the fee is fixed or determinable. In situations where
  • 37. the Company is not responsible for implementation services for the SalesPerformer product suite, but is obligated to provide unspecified additional software products in the future, the Company recognizes revenue as a subscription over the term of the commitment period. For product sales that are recognized on delivery, the Company will execute contracts that govern the terms and conditions of each software license, as well as maintenance arrangements and other services arrangements. If an arrangement includes an acceptance provision, acceptance occurs upon the earlier of receipt of a written customer acceptance or expiration of the acceptance period. Revenue under multiple element arrangements, which may include several different software products and services sold together, is allocated to each element based on the residual method in accordance with Statement of Position, No. 98-9, “Software Revenue Recognition with Respect to Certain Arrangements” (“SOP 98-9”). The Company uses the residual method when vendor-specific objective evidence of fair value does not exist for one of the delivered elements in the arrangement. Under the residual method, the fair value of the undelivered elements is deferred and subsequently recognized. The Company has established sufficient vendor-specific objective evidence for professional services, training and maintenance and support services based on the price charged when these elements are sold separately. Accordingly, software license revenue is recognized under the residual method in arrangements in which software is licensed with professional services, training, and maintenance and support services. Revenue from maintenance services is recognized ratably over the term of the contract, typically one year. Consulting revenue is primarily related to implementation services performed on a time-and-materials basis under separate service arrangements. Revenue from consulting and training services is recognized as services are performed. Widget Hosted Licensed Revenue For Super Widget contracts, the Company does not actually deliver a software product to a customer for installation on the customer’s in-house systems but rather makes the software available to the customer through a Company hosting arrangement. In this case the Company installs and runs the software application either on its own or a third-party’s server giving customers access to the application via the Internet or a dedicated line. Accordingly, the Company evaluates its revenue recognition in consideration of SOP 97-2 or whether such activity falls outside of such guidance. An Emerging Issues Task Force was tasked with assessing the applicability of SOP 97-2 to such hosting arrangements and considering how a vendor’s hosting obligation would impact revenue recognition. This discussion resulted in the issuance of EITF 00-03, Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored on Another Entity’s Hardware. Under this EITF, the Task Force reached a consensus that a hosting arrangement is within the scope of SOP 97-2 if: the customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty; and it is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software without significant penalty. This allows the Company the ability to recognize that portion of the fee attributable to the license on delivery, while that portion of the fee related to the hosting element would be recognized ratably as the service is provided, assuming all other revenue recognition criteria have been met. If a hosting arrangement fails to meet the requirements of EITF 00-03 then the arrangement is not considered to have a software element and therefore is outside of the scope of SOP 97-2. The hosting arrangement, which would follow a services accounting model, would then likely be accounted for in accordance with the guidance contained in SAB 101. SAB 101 contains the same four basic criteria for revenue recognition as SOP 97-2:
  • 38. Persuasive evidence of an arrangement exists; Delivery has occurred or services have been rendered; The vendor’s price to the buyer is fixed or determinable; and Collectibility is reasonably assured. Once these conditions have been met, revenue can be recognized. SAB 101 was amended by SAB 104 which codified current and existing revenue recognition issues. In consideration of the above criteria, in general terms, revenue from product-related hosted solution is recognized ratably over the term of the contract after payment has been received. Hosted solution includes unspecified upgrades, end user support up to two primary contacts and hosted server support. Revenue from maintenance services is recognized ratably over the term of the contract, typically one year. Consulting revenue is primarily related to implementation services performed on a time-and-materials basis under separate service arrangements. Revenue from consulting and training services is recognized as services are performed. Super Widget recorded deferred revenue on amounts billed or collected by Super Widget before satisfying the above revenue recognition criteria. Deferred revenue at March 31, 2006 consisted of the following: March 31, 2006 Product license .............................. $ 179,808 Product-related services ................ $ 79,291 Product- related maintenance......... $ 1,248,091 $ 1,50 7,19 0 Cost of Revenue Cost of licenses includes royalties, media, product packaging, documentation, other production costs. Cost of product-related services and maintenance and cost of custom development services revenue consist primarily of salaries, related costs for development, consulting, training and customer support personnel, including cost of services provided by third-party consultants engaged by the Company. Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, as follows: Computer equipment and software 2 to 5 years Furniture and fixtures 5 years Leasehold improvements 5 years The cost of assets retired or disposed of and the accumulated depreciation thereon is removed from the accounts with any gain or loss realized upon sale or disposal credited or charged to operations, respectively. Goodwill Prior to the January 1, 2002 implementation of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142”), goodwill was amortized on a straight-line basis over
  • 39. 5-20 years. Since that date, goodwill has been subject to periodic impairment tests in accordance with SFAS 142. The Company identifies and records impairment losses on long-lived assets, including goodwill that is not identified with an impaired asset, when events and circumstances indicate that an asset might be impaired. Events and circumstances that may indicate that an asset is impaired include significant decreases in the market value of an asset, a change in the operating model or strategy and competitive forces. If events and circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flow attributable to the asset is less than the carrying amount of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. Fair value is determined based on the present value of estimated expected future cash flows using a discount rate commensurate with the risk involved, quoted market prices or appraised values, depending on the nature of the assets. Computer Software Development Costs and Research and Development Expenses The Company incurs software development costs associated with its licensed products as well as new products. Since October 1997, the Company determined that technological feasibility occurs upon the successful development of a working model, which happens late in the development cycle and close to general release of the products. Because the development costs incurred between the time technological feasibility is established and general release of the product are not material, the Company expenses these costs as incurred. Recently Issued Accounting Pronouncements In November 2004, the FASB issued SFAS No. 151, “Inventory Costs”. SFAS No. 151 amends the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) under the guidance in ARB No. 43, Chapter 4,”Inventory Pricing”. Paragraph 5 of ARB No. 43, Chapter 4, previously stated that “. . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . .” This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after October 15, 2005. Management does not expect adoption of SFAS No. 151 to have a material impact on the Company’s financial statements. In April 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets,” an amendment to Opinion No. 29, “Accounting for Nonmonetary Transactions”. Statement No. 153 eliminates certain differences in the guidance in Opinion No. 29 as compared to the guidance contained in standards issued by the International Accounting Standards Board. The amendment to Opinion No. 29 eliminates the fair value exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. Such an exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in periods beginning after October 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in periods beginning after April 16, 2004. Management does not expect adoption of SFAS No. 153 to have a material impact on the Company’s financial statements. In May, 2005 the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 replaces APB Opinion (“APB”) No. 20, “Accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in Interim Financial
  • 40. Statements,” and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 will apply to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. APB No. 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. SFAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. When it is impracticable to determine the period-specific effects of an accounting change on one or more individual prior periods presented, SFAS No. 154 requires that the new accounting principle be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for that period rather than being reported in an income statement. When it is impracticable to determine the cumulative effect of applying a change in accounting principle to all prior periods, SFAS No. 154 requires that the new accounting principle be applied as if it were adopted prospectively from the earliest date practicable. SFAS No. 154 carries forward without change the guidance contained in APB No. 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate, and also the guidance in APB No. 20 requiring justification of a change in accounting principle on the basis of preferability. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after April 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date SFAS No. 154 was issued. The Company presently does not believe that the adoption of the provisions of SFAS No. 154 will have a material affect on its financial statements. In April 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share Based Payment,” which eliminates the use of APB Opinion No. 25 and will require the Company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the reward (the requisite service period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments. SFAS 123 (Revised) must be applied to all options granted or modified after its effective date and also to recognize the cost associated with the portion of any option awards made before its effective date for with the associated service has not been rendered as of its effective date. On April 14, 2005, the U.S. Securities and Exchange Commission announced that the effective date of SFAS 123(Revised) is deferred for calendar year companies until the beginning of 2006. The Company is still studying the requirements of SFAS No. 123 (Revised 2004) and has not yet determined what impact it will have on the Company’s results of operations and financial position. ABC issued restricted stock grants to William Santo (750,000 Common shares) and Stephen Peary (500,025 Common shares) in January 2006. In addition, ABC issued a total of 3,100,008 shares of its restricted common stock to its directors and executive officers in March 2006 in connection with the CAP Financing, which shares were exchanged for 1,250,000 shares of the Company’s restricted common stock as a result of the acquisition of ABC by BB. In March 2005, the FASB issued FASB Interpretation (“FIN”) No. 47, “Accounting for Conditional Asset Retirement Obligations”. FIN No. 47 clarifies that the term conditional asset retirement obligation as used in FASB Statement No. 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Uncertainty about the timing and/or method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. This
  • 41. interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN No. 47 is effective no later than the end of fiscal years ending after April 15, 2005 (April 31, 2005 for calendar-year companies). Retrospective application of interim financial information is permitted but is not required. Management does not expect adoption of FIN No. 47 to have a material impact on the Company’s financial statements. Changes in Fiscal Year End On March 29, 2006, BB changed from a April 31 to a October 30 fiscal year end due to its acquisition of ABC on that date. The change was made to (1) reflect business cycles of the Company, (2) conform BB to ABC’s fiscal year end of October 30, and (3) permit engagement of independent public accountants that may not be possible had a April 31 fiscal year end been maintained. Prior to September 13, 2005, the business of the Company was conducted by Super Widget, Inc., which maintained a fiscal year end of October 31. In connection with the transaction on September 13, 2005 by which Super Widget transferred most of its assets and liabilities to ABC, the fiscal year end applicable to the business of the Company became October 30, the fiscal year end of ABC. The reader is encouraged to read the discussion below comparing the results of operations of Super Widget, Inc. for the twelve months ended October 30, 2005 (pro forma) with the twelve months ended October 30, 2004 (pro forma). Financial Condition At March 31, 2006, the Company had $58.5 million in total assets and $56.2 million in total liabilities, compared to $6.1 million and $4.7 million, respectively, at April 31, 2005. At October 30, 2005 (the Company’s current fiscal year-end), the Company had $5.9 million and $5.6 million in total assets and total liabilities, respectively. Accounts payable at March 31, 2006 were $116,851 as compared to $199,546 at April 31, 2005. Accrued expenses were $2.1 million at March 31, 2006, compared to $814,799 at April 31, 2005. Notes payable increased from $2.2 million at April 31, 2005, compared to $52.4 million at March 31, 2006. As a result of these changes, the Company had a working capital deficit of $2.7 million at March 31, 2006, compared to a working capital deficit of $3.4 million at April 31, 2005. These changes primarily reflect the growth in the Company’s business and the completion of the CAP Financing on March 29, 2006. At March 31, 2006, the Company had stockholders’ equity of $2.3 million, which reflects $5,100 of common stock, additional paid in capital of $2.2 million and retained earnings of $697,423, less deferred compensation of $551,291. The deferred stock compensation amount was generated due to stock awards made to certain officers and directors. Results of Operations In reviewing the Company’s results of operations, the reader is reminded of the following factors that may bear on an analysis of the periods presented: 0• On March 29, 2006, ABC Technology Holdings, Inc. (“ABC”) was acquired by BB Enterprises USA, Inc. pursuant to an Agreement and Plan of Merger. In connection with this transaction, BB changed 1its fiscal year from April 31 to October 30. BB issued an aggregate of 3,991,939 shares of its common stock, par value $0.001 per share, to the shareholders of ABC in the transaction. The combined financial condition and results of operations for Super Widget, ABC Technology Holdings and BB are presented for the three month and nine month periods ended March 31, 2006 and March 31, 2005. ←• On September 13, 2005, Super Widget sold all of its assets and transferred most of its liabilities to ABC as part of a new financing of ABC. While this transaction created a new legal entity going forward, for accounting purposes, the two companies are treated as one. ←• At the time of the acquisition by ABC, Super Widget changed its fiscal year end to coincide with
  • 42. the fiscal year end of ABC (October 30). This change is required so that analysis of ABC’s future performance can be made over comparable twelve month periods. Thus, the audited statements for the fiscal year ended October 30, 2005 are for only an eight month period. ←• Prior to the acquisition of Super Widget by Jaguar Technology Holdings, LLC, the stock of Super Widget was publicly traded. ←• None of the members of senior management of Super Widget at the time of its acquisition by Jaguar remains with BB or ABC today. ←• From 2003 through much of 2005, Super Widget was undergoing extensive restructuring due to the worldwide down turn in technology spending and the acquisition of Super Widget by Jaguar. Management believes that the restructuring of the Company is now substantially complete. Three Months ended March 31, 2006 and March 31, 2005 Widget revenue increased from $40,684 for the quarter ended April 31, 2005 to $108,262 for the quarter ended March 31, 2006, an increase of 166.1%. This increase was attributable to subscriptions and services provided to new customers. Enterprise revenue, consisting primarily of maintenance and services associated with existing enterprise customers, decreased 8.0% from the quarter ended April 31, 2005 to the quarter ended March 31, 2006, reflecting the Company’s refocus as an Widget software provider. For the three months ended March 31, 2006, the Company sustained a net loss of $1.0 million, compared to a net loss of $394,000 for the quarter ended March 31, 2005. Revenues for the three months ended March 31, 2006 were $1.098 million, compared to revenues of $1.075 million for the three months ended March 31, 2005, or an increase of 2.1%. Cost of goods sold were $420,196 in the quarter ended March 31, 2006, compared to $413,975 in the prior year quarter or an increase of 1.5%. Operating expenses were $1.3 million in the March 31, 2006 quarter, compared to $976,099 for the quarter ended March 31, 2005, an increase of 32.2%. This increase was a result of increases in general and administrative expenses and other costs and expenses associated with the refocus to Widget software and increased interest expense. General and administrative expenses increased by $423,970, or 96.0%, primarily for salaries and other personnel-related cost for executive, financial, human resources, information services and other administrative functions, as well as legal and accounting costs associated with the closing of the merger with BB and the CAP Financing transaction. Other income and expenses increased $211,112 from $79,022 to $290,134 from the March 31, 2005 quarter to the March 31, 2006 quarter, an increase of 267.2%, due to the increase in interest expense associated with the debt financings closed in September and November of 2005. During the quarter ended March 31, 2006, the Company liquidated the last of its foreign operations, requiring the Company to record for accounting purposes a loss from discontinued operations of $146,548. Nine Months Ended March 31, 2006 and March 31, 2005 For the nine months ended March 31, 2006, the Company had revenues of $2.9 million, expenses of $2.8 million, other expenses of $626,552 and a loss from discontinued operations of $763,252. These expenses include general and administrative expenses related to the restructuring of the Company, its shift from a provider of Enterprise software to a provider of Widget services and the costs associated with the merger and capital financing transaction. Additionally, the liquidation of all remaining foreign operations was completed. For the nine months ended March 31, 2006, the Company sustained a net loss of $1.274 million, compared to a net loss of $1,218 million for the nine months ended March 31, 2005. Revenues for the nine months ended March 31, 2006 were $2.9 million, compared to revenues of $7.1 for the nine months ended March 31, 2005, a decrease of 58.8%. The decrease is a direct result of the Company’s strategic decision to focus on the Widget business. Cost of goods sold were $1.391 million in the quarter ended March 31, 2006, compared to $1.453 million in the prior year quarter, a decrease of 4.23%.
  • 43. Operating expenses were $1.4 million in the March 31, 2006 quarter, compared to $5.9 million for the quarter ended March 31, 2005, a decrease of 75.9%. In the prior period, the Company had substantially completed a restructuring and had recorded $3.6 million in restructuring costs. Additionally, in the nine months ended March 31, 2006, the Company recorded a settlement with General Motors, which resulted in a favorable reduction in expenses of $1.7 million. Sales, general and administrative expense increased as a result of increases in general and administrative expenses and other costs and expenses associated with the refocus to Widget software and increased interest expense. General and administrative expenses increased by $217,015 or 13.6% primarily for salaries and other personnel-related cost for executive, financial, human resource, information services and other administrative functions, as well as legal and accounting costs associated with the closing of the merger and the financing transaction. Other income and expenses increased $117,639 from $508,913 to $626,552 from the March 31, 2005 quarter to the March 31, 2006 quarter, an increase of 23.1% due to the increase in interest expense associated primarily with the debt financings closed in September and November of 2005. During the nine months ended March 31, 2006, Super Widget liquidated the last of its foreign operations requiring the Company for accounting purposes to record a loss from discontinued operations of $763,252 in connection with this activity. Twelve months ended October 30, 2005 (pro forma) and October 30, 2004 (pro forma) The following table presents income statement and other data of Super Widget, Inc. for the twelve months ended October 30, 2005 (pro forma) and October 30, 2004 (pro forma). The data have been adjusted to reflect a October 30 fiscal year end for the business of Super Widget, Inc., instead of the October 31 fiscal year end that was maintained by Super Widget until the transfer of its assets and liabilities to ABC on September 13, 2005. Twelve Months Ended October 30, 2004 (pro forma) 2005 (pro forma) (unaudited) Income statement data: Revenue (net) ...................................................................................... $7,940,430 $8,875,220 Cost of Revenue .................................................................................. 2,781,677 2,595,710 Gross Profit ....................................................................................... 5,158,753 6,279,510 Selling Expenses................................................................................... 2,204,191 1,053,244 Research & Development..................................................................... 2,289,477 1,802,511 General and Administrative Expenses.................................................. 2,750,977 1,198,840 Amortization of intangible assets ......................................................... 60,123 – Restructuring and other special charges ............................................... 1,281,737 3,803,650 Settlement of claims ............................................................................. – (1,815,000) Interest (Expense)Income ..................................................................... (96,946) (301,067) Other (Expense)Income ....................................................................... 944,170 1,328,883 Pretax Income ................................................................................... (2,580,528) 1,264,081 Income Taxes ...................................................................................... – – Income (Loss) on discontinued operations ........................................... 570,275 – Net Income (Loss) ........................................................................... $(2,010,253) $1,264,081 Reconciliation to Normalized EBITDA: Net Income (Loss) ............................................................................... $(2,010,253) $1,264,081
  • 44. Legal Settlement .................................................................................. – (1,815,000) Interest Expense (Income) ................................................................... 96,946 301,067 Other Expense (Income) ...................................................................... (944,170) (1,328,883) Depreciation & Amortization .............................................................. 60,123 – Income (Loss) on discontinued operations ........................................... (570,275) – Non-Recurring Expenses...................................................................... 1,281,737 3,803,650 Sources of Revenue Super Widget generates revenue from license and service revenue. License revenue is generated from licensing the rights to the use of Super Widget’s packaged software products. Service revenue is generated from sales of maintenance, consulting and training services performed for customers that license Super Widget’s products. In the twelve months ended October 30, 2004 and October 30, 2005, Super Widget generated the follow revenues from these sources: Twelve Months Ended Twelve Months Ended October 30, 2004 October 30, 2005 License........................................... $ 592,053 $ 4,887,964 Services and Maintenance ............ $ 7,348,377 $ 3,987,256 The increase in Product License revenue in the 12 months ended October 30, 2005 is attributable to the renewal of a license with a legacy client. This renewal changed a periodic license to a permanent license and made up 61.4% of Product License revenues in the period. Service and Maintenance revenue fell 45.7% as Super Widget refocused efforts to launch its Widget product rather than focus on legacy enterprise software services and maintenance contracts. Total revenue increased 11.8% year over year due primarily to the noted permanent license renewal. Cost of Revenue Total cost of revenue decreased $ 0.2 million, or 6.7%, to $2.6 million in the twelve months ended October 30, 2005 from $2.8 million in the twelve months ended October 30, 2004. Total cost of revenue as a percentage of total revenue decreased to 29.2% in the twelve months ended October 30, 2005 from 35.0% in the twelve months ended October 30, 2004. Cost of licenses includes costs of royalties, media, product packaging, documentation, other production costs and the amortization of capitalized software development costs (if any) Cost of product-related services and maintenance and cost of custom development services revenue consist primarily of salaries, related costs for development, consulting, training and customer support personnel, including cost of services provided by third-party consultants engaged by Super Widget or ABC. In the twelve months ended October 30, 2004 and October 30, 2005, Super Widget incurred the following costs of revenues from the sources indicated below:
  • 45. Cost of Product License................................. Cost of Product Services/Maintenance .......... Twelve Months Ended Twelve Months Ended October 30, 2004 October 30, 2005 $ 112,915 $ 48,393 $ 2,668,762 $2,547,317 Cost of license revenue decreased $64,522, or 57.1%, in the twelve months ended October 30, 2005 from the same period ended October 30, 2004. Cost of license revenue as a percentage of license revenue decreased to 1.0% in the twelve months ended October 30, 2005 from 19.1% in the twelve months ended October 30, 2004. The decrease in absolute dollars and as a percentage of license revenue is due primarily to a refocusing of operations to our Widget products. Cost of product-related services and maintenance revenue decreased $0.1 million, or 4.6%, to $2.5 million in the twelve months ended October 30, 2005 from $2.7 million in the twelve months ended on October 30, 2004. Cost of product-related services and maintenance revenue as a percentage of product-related services and maintenance revenue increased to 63.9 % in the twelve months ended October 30, 2005 from 36.3% in the twelve months ended October 30, 2004. The increase as a percentage of total product-related services and maintenance revenue is due the drop in real dollar product related service and maintenance revenues from 2004 to 2005 without a commensurate adjustment in salaries and personnel providing such services. Components of Operating Expenses and Other Items Sales and Marketing Expenses In the twelve months ended October 30, 2004 and October 30, 2005, Super Widget incurred the following sales and marketing expenses: Twelve Months Ended Twelve Months Ended October 30, 2004 October 30, 2005 Sales and Marketing ........................... $2,204,191 $1,053,224 Sales and marketing expenses consist primarily of salaries, commissions and bonuses for sales and marketing personnel and promotional expenses. Sales and marketing expenses decreased $1.15 million, or 52.2% in the twelve months ended October 30, 2005. Sales and marketing expenses as a percentage of total revenue decreased to 11.9% for the twelve months ended October 30, 2005 from 27.8% for the twelve months ended October 30, 2004. Sales and marketing expenses decreased in absolute dollars and as a percentage of total revenue primarily due to the decrease in headcount in our sales and marketing operations as we continued to restructure our operations and decrease our marketing program spending. We expect sales and marketing expenses will increase for the next fiscal year as we expand our sales force to promote our recently released Widget products. We will also invest in marketing programs as necessary. Research and Development Expenses In the twelve months ended October 30, 2004 and October 30, 2005, Super Widget incurred the following research and development expenses:
  • 46. Twelve Months Ended Twelve Months Ended October 30, 2004 October 30, 2005 Research and Development ................ $2,289,477 $1,802,511 Research and development expenses consist primarily of salaries and personnel-related costs and the costs of contractors associated with the development of new products, the enhancement of existing products, and the performance of quality assurance and documentation activities. Research and development expenses decreased $0.5 million, or 21.3% for the twelve month period ended October 30, 2005. Research and development expenses as a percentage of total revenue increased to 20.3% in the twelve months ended October 30, 2005 from 28.8% in the twelve months ended October 30, 2004. These expenses decreased in absolute dollars as a result of our restructuring efforts, including the reduction in headcount and decreased utilization of engineering and product development contractors. Research and development expenses decreased as a percentage of total revenue primarily due to a combination of increased revenue and decreased research and development expenses. We expect research and development expenses will increase for the next fiscal year as we roll out our new Widget products, including additional applications. We will continue to make necessary investments to enhance our existing products and develop new products. General and Administrative Expenses In the twelve months ended October 30, 2004 and October 30, 2005 Super Widget incurred the following general and administrative expenses: Twelve Months Ended Twelve Months Ended October 30, 2004 October 30, 2005 General and Administrative ............... $2,750,977 $1,198,840 General and administrative expenses consist primarily of salaries and other personnel- related cost for executive, financial, human resource, information services, and other administrative functions, as well as legal and accounting costs. General and administrative expenses decreased $1.5 million, or 56.4%, in the twelve months ended October 30, 2005 from the same twelve month period ended October 30, 2004. General and administrative expenses as a percentage of total revenue decreased to 13.5% in the twelve months ended October 30, 2005 from 34.6% for the twelve months ended October 30, 2004. These expenses decreased in absolute dollars primarily as a result of decreased headcount, especially for executive management, which resulted in reduced payroll and other related expenses. Also legal expenses and insurance costs decreased during the period. The decrease in general and administrative expenses as a percentage of total revenue is attributable to higher revenue against lower costs. We expect that general and administrative expenses will increase moderately for the next fiscal year as additional personnel are hired to execute our Widget business requirements.
  • 47. Litigation Settlement Expense In the twelve months ended October 30, 2004 and October 30, 2005 Super Widget incurred litigation settlement expenses primarily related to litigation instituted by a former customer as follows: Twelve Months Ended Twelve Months Ended October 30, 2004 October 30, 2005 Litigation Settlement Expense............ $0 $(1,815,000) On April 8, 2004 Super Widget entered in an agreement with General Motors Corporation settling all matters between the companies arising under prior management for the sum of $7 million. Super Widget executed a note payable to GM as part of the settlement. During the twelve month period ended October 30, 2005 Super Widget made payments on the GM note in the form of both cash and assignment of certain notes receivable related to the sale of former subsidiaries of Super Widget In conjunction with these payments, GM agreed to reduce the note obligation by $1,815,000 in excess of the payments made on the note. This reduction is reflected as a negative adjustment to Litigation Settlement Expense. Amortization of Intangible Assets Expense In April 2003 Super Widget was acquired in a merger such that 100% of Super Widget’s equity was acquired by Jaguar Technology Holdings, LLC. This transaction has been accorded purchase accounting treatment for the fiscal year 2004. As such, Super Widget shareholders’ equity was treated as if Super Widget were a new entity. The stated equity of the new owner became the shareholder equity of Super Widget. This treatment required Super Widget to revalue all of its assets consistent with the purchase price paid for Super Widget. Super Widget’s intangible assets were revalued from $23,767 at November 30, 2003 to $1,731,200 at the time of the closing of the acquisition of Super Widget. The remaining portion of the purchase price not allocated to shareholder equity or intangible assets was allocated to Goodwill ($5,581,088) In the twelve months ended October 30, 2004 and October 30, 2005 Super Widget incurred amortization of intangible assets expense as follows: Twelve Months Ended Twelve Months Ended October 30, 2004 October 30, 2005 Amortization of Intangible Assets ..... $60,123 $0 The amortization adjustment in the twelve months ended October 30, 2004 is related to a final adjustment regarding the sale of a former subsidiary as a result of the our adoption of SFAS No. 142 Goodwill and Other Intangible Assets. Restructuring and other Special Charges Expense In the twelve months ended October 30, 2004 and October 30, 2005 Super Widget incurred the following restructuring and other special charges expenses:
  • 48. Twelve Months Ended Twelve Months Ended October 30, 2004 October 30, 2005 Restructuring Charges ........................ $1,281,737 $3,803,650 During the fiscal year ended October 31, 2003 and continuing into fiscal year 2005, Super Widget undertook plans to restructure its operations as a result of a prolonged slowdown of global information technology spending, specifically within the enterprise software marketplace. As such, Super Widget announced a strategic realignment to better align its cost structure with projected revenue and preserve cash. Super Widget reduced its headcount and facilities as well as wrote-off excess equipment and terminated and restructured certain contractual relationships. During the twelve month period ended October 30, 2004 and October 30, 2005 Super Widget terminated several employees. The restructuring and other special charges for the twelve month period ended October 30, 2004 and October 30, 2005 totaled $1,281,737 and $3,803,650, respectively. The Company believes restructuring efforts are ended. There may be reversals of previous reserves taken with respect to restructuring issues in subsequent periods, especially those reserves related to discontinued operations in Europe. However, the Company does not expect any additional cash expenditures related to the restructuring efforts begun in 2003. Other Income (Expense) Net In the twelve months ended October 30, 2004 and October 30, 2005 Super Widget incurred the following other income (expense), net: Twelve Months Ended Twelve Months Ended October 30, 2004 October 30, 2005 Other Income (Expense), Net ............. $847,224 $1,027,816 Other income (expense), net primarily consists of interest expense or income, bank fees, certain state and local taxes and foreign currency transaction gains/losses. Other income (expense), net increased $180,592, or 21.3%, in the twelve months ended October 30, 2005 from the twelve months ended October 30, 2004. The increase is due primarily to gain from the transfer of certain intellectual property rights to a third party and the sale of assets of a former subsidiary. Income(Loss) from Continuing Operations: The above resulted in a loss from continuing operations of $2,580,528 for the twelve months ended October 30, 2004 and an income from continuing operations of $1,264,081 for the twelve months ended October 30, 2005. Liquidity and Capital Resources On March 29, 2006, the Company consummated a transaction (the “CAP Financing”) pursuant to which it sold to certain institutional investors (i) Senior Secured Nonconvertible Notes due 2011 in an aggregate principal amount of $50,000,000, which Nonconvertible Notes may be exchanged for Senior Secured Convertible Notes due 2011 or redeemed, and which Convertible Notes are convertible into shares of the Company’s common stock; and (ii) warrants to acquire shares of the Company’s common stock. For
  • 49. further details, please see “— CAP Financing — Private Placement of Notes and Warrants” above. At March 31, 2006, the Company had cash and cash equivalents of $2.4 million, compared to $471,527 at April 31, 2005. Restricted cash equaled $47.5 million. Working capital was a deficit $2.7 million at March 31, 2006, compared to a deficit of $3.4 million at April 31, 2005. At March 31, 2006, the Company had $56.2 million in current liabilities, of which $52.4 million was due to short-term notes payable. The remaining portion of the Company’s current liabilities is primarily comprised of accounts payable of $116,851, accrued liabilities of $2.1 million and deferred revenue of $1.5 million. The increase in restricted cash and current liabilities reflects the completion of the CAP Financing. The Company will require additional working capital in the near future. The Company believes it has access to additional sources of equity and debt financing, including this Offering, but can provide no assurance that additional funds will be available at all, or if available, on commercially acceptable terms or in a timely manner to enable the Company to continue its operations in the normal course. Since April 31, 2005, the Company’s cash position has increased. At April 31, 2005, the Company had available cash of $471,527, as compared to available cash of $2.4 million at March 31, 2006. The increase in cash is a result of the Company’s recently issued Senior Secured Nonconvertible Notes, a portion of which was released to the Company for operating activities. Quantitative and Qualitative Disclosures about Market Risk We develop products in the United States and sell them in the United States and Europe as well as Japan through a channel partner. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Since our sales are currently priced in U.S. dollars and are translated to local currency amounts, a strengthening of the dollar could make our products less competitive in foreign markets. Interest income and expense are sensitive to changes in the general level of U.S. interest rates, particularly since our investments are in short-term instruments. Based on the nature of our investments, however, we have concluded that there is no material market risk exposure to the Company. The Company has no off-balance sheet arrangements. INDUSTRY OVERVIEW Industry Overview On Demand, or “Software as a Service” (SaaS), is defined as the delivery of software applications to end users via a network, such as the public Internet, intranets, or extranets. Customers who choose to access software applications from SaaS Vendors do not need to support hardware or software at their locations, often resulting in considerable cost savings. We believe that the SaaS market has evolved from, and gained critical momentum in, both large enterprises as well as small and medium-sized enterprises. According to IDC’s April 2005 SaaS Survey of 512 IT professionals across North America, 79% of respondents have already purchased or are currently reviewing SaaS offerings. We believe that the value proposition for Software as a Service have been forged by two main factors: (1) more predictable costs for the corporation using a SaaS solution and (2) a greater ability for the SaaS customer to focus on its core competencies while leveraging the expertise of a specialist service provider, like ABC. According to SIIA, TripleTree Industry Analysis February 2004, additional value propositions include: ←• Lower cash outlays for enterprise-class software purchases by replacing large, upfront cash outlays for software license with a smaller, subscription-based pricing model that is much more frequent but at a fraction of the cost. Such a shift in pricing moves a great deal of enterprises’ expenditures from fixed costs to variable costs, increasing the flexibility of their cost structures.
  • 50. ←• Ease of implementation and quicker time-to-market with deployments generally requiring less than three months compared to six to 18 months with traditional software. The focus of a deployment is on end-user training and acceptance, since customers do not have to install or maintain servers, networking equipment, security products, or other hardware. ←• Reduced technology investment risk and higher ROI with lower upfront capital, resource commitment, and levels of complexity. The customer avoids the risk of additional “hidden costs” that creep up over the application lifecycle such as ongoing support and maintenance costs, upgrades, user acceptance risks, among others. Many On Demand providers are able to provide a breakeven point in six months or less while licensing models require a longer payback period. In some regards, the timing for software as a service could not be any more opportune with small and large companies alike trying to maximize every dollar spent on IT and demanding a clear and measurable ROI before each investment decision is made. ←• Frees up internal resources by reducing internal IT staff required to manage applications, keep track of upgrades, and maintain performances, among others. ←• Full application lifecycle involvement, from initial deployment through ongoing support, maintenance and upgrade that ensures complete alignment of interests with the SaaS vendor having a vested stake in the success of the application beyond initial deployment. Consequently, SaaS firms are redefining the relationships with clients by managing the application and the client relationship over the full lifecycle of use. ←• Continuous support and seamless upgrades with new features and functionality, upgrades, customer support, and other operational services all included instead of being treated as incremental costs. ←• Shared risks and single-source accountability with customers demanding a different vendor relationship that results in more accountability and flexibility in the actual execution of the software. Just as importantly, the SaaS firm “shares” in the execution risk of the application, since the SaaS provider also earns their own return over the term of the relationship and consequently “loses” in the equation when customers are dissatisfied and seek other alternatives. 0• New functionality and improved application performance with on-demand firms receiving continual client feedback in a service-based relationship and often interacting with end-users in the application environment itself to determine priorities for new features and to fix bugs and glitches. A critical differentiator is that new product revisions are made more frequently- three to four times a year or more – compared to one new release every 12 – 18 months with traditional software 1vendors. Consequently, SaaS firms are able to continually refine the product with new releases that add customer-driven functionality that can be utilized by all clients in a shared application and across a multi- tenant model. Major new product releases and application improvements can literally be made overnight or during off-hours such as weekends resulting in little service disruption of the end-users. ←• Lower total cost of ownership (TCO) with licensing, implementation, customization, maintenance, upgrades, and hardware and support costs being bundled into an on-demand service relationship. The first year total cost of ownership can be five to ten times less expensive than enterprise software with the majority of savings resulting from the elimination of upfront integration and customization projects. Therefore, the payback period is considerably shortened. Increasing Use of Hosted and Subscription-based Software as a Service The wide availability of the Internet and web browsers has made it possible to deliver important components of the information technology infrastructure over the Internet as a service. This has enabled organizations to outsource the provision and administration of software to third-party application service providers that design, host, maintain and update systems and software remotely over the Internet. IDC projects, in a report dated May 2005, that the market for on-demand application services will grow from $2.3 billion in 2003 to $10.7 billion in 2009, representing an average annual growth rate of approximately 26%. Much of this growth is expected to occur within the next two years with on-demand application services expected to average 60% growth from 2004 to 2006. The market demand for on-demand applications is expected to be driven by several factors, including: Lower total cost of ownership – Customer IT staffs do not need to dedicate as many resources to implementation and maintenance of the applications because most of the administration and
  • 51. support for on-demand applications are effectively outsourced to the application service provider. Decreased complexity – On-demand applications typically reduce IT complexity, increase task automation and are immediately updatable and deployable to the entire customer base. Increased flexibility – On-demand applications allow enterprises to choose flexible plans in number of seats or subscriptions without the upfront costs of perpetual licenses. This model also allows maximum flexibility as an enterprise moves forward in a deployment to eventually migrate to a more traditional model when appropriate and depending on the vendor. Access to a new customer base – Service providers in the ASP space are having success targeting customers that are not veteran application customers. ASPs report that almost 50% of their current customers were not running packaged applications to automate the specific process or processes prior to the ASP service. Increased granularity in functionality – The increased granularity and complexity of Widget applications implies the increased ability to reach a larger customer base. Currently, the mid- market dominates the customer base of on-demand application providers. A recent IDC report stated that 48% of 2003 on-demand revenues came from companies with 1,000 to 9,999 employees. As the on-demand applications continue to move towards a “one-to-many” utility, various market segments, such as small or large enterprises will be able to utilize a non-customized on-demand solution without sacrificing functionality normally associated with licensed software. On-demand Applications Market Projections – Software as a Service Revenue Source: IDC, May 2004 Sales Configuration, Pricing and Quotation Software Market Companies with complex products and services typically require a lengthy, consultative sales process to convert a lead into an order. For manufacturers, this process often involves numerous meetings between sales and engineering, manufacturing, finance, or other departments before a product recommendation can be made or before a quote can be delivered. This complex, iterative approach is often both time consuming and error prone – driving up costs into the sales process and eroding both profit margins and
  • 52. competitiveness. Removing complexity from the sales process, however, is no simple task. Complexity can be determined by the range of different product features or by the number of different possible option combinations. Complexity can also be determined by the range of different pricing factors, such as discounts, rebates, taxes, or other special pricing calculations. Complexity can also be determined by the range of channels that make up a company’s distribution network, such as the web, a direct field sales force, resellers, distributors, or dealers. There are a number of software vendors that have created solutions to address these needs, including ABC. This market, which is generally called sales configuration or interactive selling, is today considered a high-value segment of the overall enterprise software market. ABC has distinguished itself within the broad category of sales configuration software by focusing primarily on solving specific problems for customers in ABC’s target markets, such as the sale of complex products. For example, ABC’s software can reduce a company’s total cost of sales by delivering solutions that improve the productivity and effectiveness of sales people, and sales channels (including the web). In fact, Gartner Group, Inc., a leading industry analyst firm, in a recent report, identified four areas directly addressed by ABC’s product line – product configuration, price configuration, quote generation, and proposal generation – as software applications that deliver a high return on investment to manufacturing companies. Sales Automation Market Sales automation constitutes one element of the Customer Relationship Management (CRM) market. CRM enterprise applications automate the customer-facing business processes within an organization (i.e., sales, marketing, and customer support and contact center). Collectively, these applications serve to manage the entire lifecycle of a customer, including the conversion of a prospect to a customer, and help an organization build and maintain successful relationships. Sales automation, which is broadly defined to include sales management and sales force applications, includes functionality such as lead tracking, account management, list management, mobile sales, telemarketing, team selling, territory management, partnership relationship management and sales configuration tools. IDC projects sales automation to grow at an annual rate of 7.5% from 2003 to 2008. This growth is driven by the need of enterprises to increase ROI and lower sales and marketing expenses through automation and increasingly lower total cost of ownership of sales automation applications. We believe that trends within the sales automation market include: Increased acceptance of Software as a Service – Supersales.com’s™ success and Seibel’s recent offering of a hosted solution mark two examples of the increasingly broad acceptance of the “software as a service” delivery model, particularly in the CRM and sales automation arenas. Saas software businesses are growing rapidly as customers embrace the on-demand model for subscription software services which help them achieve quick implementation, lower integration and customization costs as well as total cost of ownership. Leveraging sales automation features and its growing importance in the enterprise – Many companies are now positioning sales automation as a means of leveraging their other products and features. Vendors are quickly integrating various applications in order to provide an “all-in-one” enterprise solution and sales automation is a leading, customer- driven functionality in the overall software sales process. For example, SAP AG currently offers CRM and sales automation as key components of its ERP software and Vignette offers the Dialog sales automation product as a way of adding value to its content management platform. This trend is part of an overall trend of application integration. Continued consolidation – Acquisitions such as Siebel’s purchase of UpShot (hosted CRM) and Oracle’s recent acquisitions of PeopleSoft and Seibel indicate willingness for
  • 53. companies to purchase rather than organically grow technology, expertise and market share. Specialization – Enterprises have begun to move away from large enterprise platform CRM implementations to more specialized CRM applications delivered as web services, such as customer intelligence, web analytics, database marketing, customer self-service, hosted departmental CRM and other areas with rapid, tangible payback. This development favors nimble vendors capable of rapid deployment and application integration based on product architecture, taking market share away from larger enterprise suite providers. Sales Automation Applications Projections (Revenue) Source: IDC, October 2004 BUSINESS Summary The Company is a leading provider of XYZ, or “Configure, Price, Quote”, Widget software that automates and simplifies product pricing and configuration for companies and helps these enterprises improve order accuracy and reduce their total cost of sales. The Company’s predecessor, Super Widget, Inc. (“Super Widget”), was founded in 1983. The Company’s suite of products help companies configure, price and quote complex products during the sales process, such as machinery, high technology products or insurance services. The Company’s sales solutions help companies optimize their sales processes, whether their need is to solve complex product or pricing configuration, create product catalogs or provide an interactive selling system, and dramatically improves response time. The Company’s current clients include Fortune 1000 companies such as Freightliner, John Deere, Case New Holland, Steelcase and Renault. The Company markets it products under the Super Widget brand name: ←• Super Widget is an application that enables a company’s sales force and supporting organizations to configure complex products, and accurately price those products. Super Widget is offered to customers independently or as an integrated service within the Supersales.com product called Super Widget for Supersales.com™.
  • 54. ←• The Interactive Configurator Suite is a set of data maintenance tools, shared libraries and application program interfaces (APIs) that supply configuration capabilities to an application. Super Widget is built on the ICS technology platform. The Company has offered its Widget application service since November 2005. The Company executes its sales and marketing strategy through direct and indirect channels, and currently has sales relationships with several system integrators and resellers. The recent increase in interest in XYZ applications, combined with the acceptance of the on-demand business model, has opened new opportunities for the Company in the form of partnerships with Supersales.com and other enterprise applications providers, which the Company is actively pursuing. The Company executes its sales and marketing strategy through direct and indirect channels, and currently has sales relationships with over eight original equipment manufacturers, or OEMs, system integrators and resellers. The recent increase in interest in XYZ applications, combined with the acceptance of the on- demand business model, has opened new opportunities for the Company in the form of partnerships with Supersales.com and other enterprise applications providers, which the Company is actively pursuing. We believe that the Company’s software allows customers to reduce their total cost of sales and service. The Company’s software solutions provide a number of key benefits, including: ←• Lowering Total Cost of Sales: Selling complex products typically requires the participation of many different parts of an organization without distracting from their primary roles including sales, engineering, manufacturing, finance, legal, and marketing. The Company’s solution empowers sales representatives with relevant and timely information from each department, such as design specifications from engineering, production constraints from manufacturing, discount authorization from finance, terms and conditions from legal, and product collateral from marketing. ←• Reducing Order Errors: Using configuration technology, complex product recommendations are more likely to result in the right products to handle the right application. By reducing the complexity of the sales process and eliminating the potential for “human” error, the Company’s XYZ solution assists companies in ensuring that customers are asked the proper questions to reach a correct recommendation/configuration. In addition, the rules within the the Company configuration engine verify that products requested by salespeople, channel partners or customers can be manufactured and delivered, before an order is placed. In addition, quotation errors can be reduced when sales representatives are armed with correctly configured pricing information, authorized discounts, appropriate currency conversion rates and necessary tax considerations. ←• Accelerating Sales Cycles: By applying an intelligent and logical process flow from the time a lead is received to the moment a valid order is placed, the Company’s solutions are designed to optimize the sales process and increase the speed at which a sale can be executed. Quick turnaround in product recommendations, pricing, proposals and financing allows sales representatives to manage more simultaneous opportunities and close them faster. Eliminating the time necessary to contact the factory or engineering resources significantly reduces the time it takes for a customer to reach a “buy” decision. Customer satisfaction, in turn, increases as their questions and hesitations are immediately addressed. Further, the Company’s XYZ solution helps manufacturers distribute new product and pricing information in real-time. This high degree of responsiveness helps foster a strong and lasting customer-supplier relationship that is a distinct competitive advantage for us. ←• Unifying the Sales Process: Many large companies today deliver their products to market through multiple sales channels, including a field sales force, channel distribution partners, and even via the web. The Company’s XYZ solution ensures consistency of product and pricing information across multiple channels, enhancing a company’s channel management capabilities and protecting its brand reputation. For example, a customer-facing Web interface provides a self-service solution for selling to current customers via the Web, or can be used to generate desired configurations that can be directed to channel partners. This allows repeat customers to obtain the products they need without pulling sales’ attention from new relationships. The same experience can be presented to the customer directly using the Company’s XYZ solution deployed in a mobile environment on a laptop, for example, during a sales person’s visit to a
  • 55. prospect. Or, a customer can again receive the same experience when visiting a dealership and interacting with a salesperson connected to the the Company system over an intranet. Our principal place of business is located at 181 Wells Avenue, Suite 100, Newton, Massachusetts 02459. The Company’s Common Stock trades on the Over-the-Counter Bulletin Board under the symbol “ABC.OB”. Corporate History Super Widget, Inc., ABC’s predecessor, was founded in 1983, and completed its initial public offering in October 2000. In April 2003, Super Widget was acquired by Jaguar Technology Holdings and became a private company. On September 13, 2005, ABC acquired all of the operating assets, certain liabilities, and all of the employees of Super Widget, Inc. On March 29, 2006, BB Enterprises USA, Inc., a public shell company (“BB”), acquired ABC. On or prior to October 30, 2006, BB will be merged into ABC, and BB will disappear (the “Reorganization”). The surviving company will be named ABC Technology, Inc. All references in this Memorandum to “the Company” refer to ABC Technology, Inc., after giving effect to the Reorganization. The Company maintains its principal executive offices in Newton, Massachusetts, and its telephone number at that location is (617) 928-6001. The Company’s website is www.Super Widget.com. Products and Services The Company’s products are delivered Widget. The Widget products are delivered as independent, Widget applications, which can either be hosted by the Company or another outsourced service provider. For example, Super Widget for Supersales.com™ is an integrated on-demand XYZ application offered from within Supersales.com’s™ on-demand CRM application suite with services, maintenance and upgrades included in the monthly subscription model. The typical term on a contract for the Widget business is between one and two years. The Company offers two products marketed under the Super Widget brand name, Super Widget, and Interactive Configurator Suite (ICS): Super Widget Super Widget is a tool that enables a company’s sales force and supporting organizations to configure complex products and services, accurately price those products and services, develop price quotes and generate high quality proposals. The configured products are build able when the order is sent to the factory (or the configured services are accepted when sent to the home office) because the database contains all the rules necessary to ensure error-free configurations. The rules represent the knowledge of a company’s engineers, legal staff, product specialists and marketing experts. In addition to error-free configurations, Super Widget provides rules-based pricing to handle complex multilevel pricing schemes and it produces reports that can be printed and included in automated proposals to customers. Super Widget provides significant cost savings over traditional highly-customized configuration systems. There is no software distribution, no hardware expenditures and limited support requirements. The Company also offers help desk services to decrease the customer’s total cost of ownership. With Super Widgets application, smaller companies and divisions of larger companies can afford to implement a XYZ application without having to secure a multi-million dollar enterprise license. Super Widget application allows its customers to eliminate any hardware purchases and allows for a quick and easy deployment, and provides the following benefits:
  • 56. ←• Unique XYZ solution ←• Low cost of ownership ←• Easy to deploy ←• Easy to configure ←• Easy to use ←• No software or hardware ←• No dedicated staff ←• Deploy onto server – all users have access simultaneously ←• Painless upgrades Super Widget is deployed as a Web service and can be accessed by customers independently or as an integrated service within the Supersales.com™ product. Super Widget for Supersales.com™ enables a company’s sales force and supporting organizations to configure complex products and services and accurately price those products and services all from within Supersales.com™. Currently, Super Widget is tightly integrated with the Salesfrorce.com™ application at both the data and process layer. Additionally, the Company has created a joint product demonstration that is used by the Company’s sales team as well as Supersales.com’s™ sales representatives and sales engineers. Super Widget’s Widget solution has been the Company’s focus since its launch in November 2005. On Premise solutions will be available only for legacy customers. Interactive Configurator Suite (ICS) The Company’s Interactive Configurator Suite (ICS) is a set of data maintenance tools, shared libraries and application programming interfaces, or APIs, that supply configuration capabilities to an application. Specifically, the ICS includes: Product Data Manager (PDM) – Used to create, populate and maintain the configuration database. Data entry personnel do not need to be programmers. The companion Product Data Tester (PDT) allows the data to be tested to ensure it produces the desired results. Importers – A variety of importers provide the ability to import data from a variety of sources. The PDM also directly imports XML and ODBC data sources. Configuration Engine – The engine uses many “solvers” to ensure the product and option selections are valid, and that the correct pricing is applied. SDK – The software development kit includes a variety of APIs to integrate the Configuration Engine into existing applications. Enterprise Resource Planning (ERP) Connector – An optional ERP Plug-In allows users to import ERP data (in an XML format) and export PDM data (to an XML format) to an ERP system such as SAP’s R/3. The Configuration Engine and the data set created with the PDM are used by the Company’s front-end selling systems such as Super Widget. However, several the Company customers had existing sales systems and wanted only to integrate the Configuration Engine into their systems. The ICS Software Development Kit provides many options for integrating the Company’s configuration technology into existing systems. Key benefits of ICS include: Scalable – The Configuration Engine is multi-threaded and is designed to handle hundreds of concurrent configurations. Its scalability is increased through the optimization of the data and the use of a scalable
  • 57. memory manager. Testable – Since the Configuration Engine is data driven, it is vital that the data is correct for the engine to produce correct results. As part of processing data, the PDM checks the data for many common errors and warns the user if any are found. Additionally, the PDT allows the data to be exercised through a simple user interface. The PDT contains a built in debugger that allows the configuration state to be examined. Deployable – The Configuration Engine runs on a variety of platforms including many of the Windows versions, Solaris and Red Hat Linux. It may be accessed on these platforms using the C, C++ and Java interfaces. It may be accessed from other platforms using the Remote Method Invocation (RMI) and Enterprise JavaBeans (EJB) interfaces. It has been implemented in client / server, standalone and Web environments. International Capabilities – The ICS supports multi-language and multi-currency systems. The database is doublebyte enabled. Proven technology – the Company’s ICS technology has been used for over 20 years – receiving many enhancements over that time. The result is a stable, robust system that is applicable to nearly all types of product configuration. Marketing Strategy Overall, our marketing strategy is to be the leading provider of intelligence-driven software systems that solve the most difficult aspects of customer acquisition and retention and quantifiably improve sales and service effectiveness. To achieve this goal, key elements of our marketing strategy include the following: ←• Market and sell the Company’s products and services to “sweet spot” vertical market segments. The Company currently offers its Product Suite of guided selling solutions to targeted vertical market segments, primarily discrete manufacturing (including high technology, transportation, construction machinery, agricultural equipment, and others) and service based companies selling complex combinations of services and products. The Company has targeted and will continue to target companies within these selected vertical industries with complex products, services or channel relationships as well as organizations with a distributed and connected customer base or dealer/broker network. We believe that the Company’s focused pursuit of these targeted markets increases its ability to offer solutions that meet the unique needs of the Company’s target customers, which may vary greatly across industry segments. .1• Offer packaging flexibility to strategically penetrate the Company’s target markets. The Company offers a variety of packaging options for its software products to achieve flexibility in aligning its technology with companies in different stages of executing their business strategies. For example, customers that .2have already made a significant investment in applications for enterprise resource planning, supply chain management, customer relationship management, or others, can extend the value of their existing infrastructure through an investment in the Company. As such, selected components of each product line are available as individual packaged solutions tailored to specific sales or service channel needs, or specific vertical industry segments. With each of these product lines, additional functional and technology components are available as options, such as integration capabilities with third party applications. By offering this variety of packaging options, the Company allows its customers to make strategic investments in its technology, without necessarily committing to a larger enterprise platform. We will continue to package the Company’s product offerings in a manner designed to remove sales barriers and create recurring revenue streams. ←• Continue to develop and implement leading-edge products. We will continue to seek to provide products that deliver the most robust functionality and that provide the Company’s customers the greatest return on their investment. The Company has assembled a world-class engineering organization and continues to invest in research and development activities. In addition, the Company has tremendous depth in its domain expertise from a professional services standpoint. Although we plan to work with systems
  • 58. integrator partners more in fiscal 2006, we will continue to maintain our own professional services organization and leverage the domain expertise of these individuals to help us successfully, and more rapidly, implement our software solutions. .1• Work with partners to extend the Company’s footprint. The Company’s partner program is focused on developing four types of relationships: (1) strategic implementation relationships focused on co- selling; .2(2) complementary software relationships focused on pre-built integration and co-selling; .3(3) complementary technology relationships focused on hardware and platform standards; and .4(4) indirect distribution channels. Our goal is for these alliances to help extend the Company’s market coverage from both a sales and implementation perspective, provide us with new business leads, and allow us to provide the Company’s customers with a broader solution. We will seek to strengthen the Company’s relationship with partners that support its global strategy and partners that work with the Company’s key clients. The Company has developed a set of advanced inference engines called “solvers.” Solvers, in effect, are pre-defined rule types that can be selected and applied to any configuration problem. As an alternative to companies trying to solve a configuration problem with one or two rule types (which can result in slow rule evaluation and difficult maintenance), the Company’s configuration engine provides a wide range of solver types that address the different types of representations that can be found in a configuration problem. These solvers act upon the customer-defined data model, creating attributes in the data structures that help the Company’s solution interpret the data based on user selections. The Company’s solvers are loaded dynamically based on the behavior represented in the data model. Solver examples include the following: Constraint Based Relationship Based Other Solvers • Boolean logic • Includes • Calculations • Requirements • Fuzzy Logic • Complex Pricing • Effectivity • Resources • Customer values • Categorical • Nested Configuration • Simulation • Aggregate Each solver addresses a different type of configuration problem. These solvers create attributes in the data model that define how the data will be interpreted when users make selections at run-time. In effect, this interpretation of the data relationships and constraints is the application of the “rules” that configure orders, make product recommendations, and generate price quotes. Professional Services and Support The Company offers a range of professional services in major markets worldwide. These services help companies use the packaged software functionality of the Company product line to create deployments that are highly specific to their businesses. The Company’s professional services personnel typically have extensive experience in the deployment of enterprise-scale selling systems. When the Company assists companies in the implementation of its products, or their components, the Company helps them determine how their individual selling strategies can be reflected in the Company’s packaged technology. We have developed an innovative approach and rigorous methodology for industry- specific implementations. Offered in specific vertical industries, the Company’s implementation templates help customers achieve a rapid and successful deployment of
  • 59. the Company’s applications. The Company’s expert professional services team helps customers and third party integrators implement its products. In addition, the Company has made it a priority to work with partners in order to provide its customers with greater flexibility in their implementation choices. The maturity and stability of the Company’s product has enabled the Company to experience strong success in working with implementation partners. Quality training offers the most effective way for customers to derive maximum benefit from their investment. The Company trains users in major markets worldwide and it tailors training materials to the unique requirements of individual customers. The Company also has training programs for its implementation partners. The Company offers comprehensive support for its product lines to its customers and partners in major markets worldwide. Support services are provided under annual software maintenance contracts. These contracts are renewable at the customer’s option and provide for online access to product documentation and frequently-asked-questions, support by e-mail or telephone to report problems or request technical assistance, and notification of service pack and upgrade availability. Phone support is available on a 24x7 basis for critical issues. The Company’s technical support team also provides data maintenance, enhancement, and end-user support services on a time and materials basis when not covered by the Company’s maintenance agreement. The Company’s technical support analysts are highly trained and have extensive experience with the Company’s products. The Company has support resources in the United States, Europe and Japan. Customers The Company has targeted, and will continue to target, selected vertical industries with complex products, services or channel relationships as well as organizations with a distributed and connected customer base or dealer/broker network. Target vertical markets for our software are discrete manufacturing companies, including high technology, transportation, construction machinery and agricultural equipment, and health insurance providers. Current customers of the Company include Freightliner, Cummins Power Generation, Deere & Company, Horizon Blue Cross Blue Shield, Renault Trucks, Scania, Siemens Building Technologies, Steelcase International, and Case New Holland. In fiscal 2003, three customers accounted for approximately 44.2% of the Company’s net revenue. In fiscal 2004, two customers accounted for approximately 55.7% of the Company’s net revenue. In fiscal 2005, four customers accounted for approximately 47.9% of the Company’s net revenue. Sales and Marketing Execution The Company executes its sales and marketing strategy through direct and indirect channels, and currently has sales partnerships with system integrators and resellers. The recent increase in interest in XYZ applications combined with the acceptance of the on-
  • 60. demand business model has opened up opportunities for partnerships with Supersales.com™ and other enterprise applications providers which the Company is actively pursuing. Additionally, the Company’s partner in Japan is Kozo Keikaku Engineering (KKE), one of the country’s largest engineering firms. KKE resells and implements the Company’s products, on a non-exclusive basis, in the Japanese market only. The Company’s sales team is organized geographically, with a focus for its product line on discrete manufacturing (including high technology, transportation, construction machinery, agricultural equipment, and others). The Company is continually driving market awareness and developing leads in its target markets through a series of integrated sales and marketing campaigns. The Company’s marketing organization utilizes a variety of programs to support its sales efforts, including market and product research and analysis, product and strategy updates with industry analysts, public relations activities and speaking engagements, Internet-based and direct mail marketing programs, seminars and trade shows, brochures, data sheets and white papers, and web site marketing. Research and Development Our research and development team is responsible for product planning, design and development of functionality within our software products, general release and quality assurance functions, third party integration and developing templates for target vertical industries. The Company expects to continue to invest in research and development in the future. Competition The markets for sales configuration are intensely competitive, constantly evolving, and subject to rapid technological change. The Company encounters competition for its product line from a number of different sources, including in-house technical staffs, traditional customer relationship management vendors, enterprise resource planning vendors, and other vendors of sales configuration point solutions. Of these vendors, the Company’s principal competitors include SAP, Oracle, Trilogy, Siebel Systems, Selectica, Big Machines, Webcom, QuoteWerks among others. There are a substantial number of other companies focused on providing Internet-based software applications for customer relationship management that may offer competitive products in the future. However, we believe that the market for sales configuration solutions is still in its formative stage, and that no currently identified competitor represents a dominant presence in this market. We expect competition to increase as a result of software industry consolidation. For example, a number of enterprise software companies have acquired point solution providers to expand their product offerings. The Company’s competitors may also package their products in ways that may discourage users from purchasing its products. Current and potential competitors may establish alliances among themselves or with third
  • 61. parties or adopt aggressive pricing policies to gain market share. In addition, new competitors could emerge and rapidly capture market share. Although we believe we have advantages over the Company’s competitors in terms of the functionality and comprehensiveness of its solution, as well as its targeted vertical focus, there can be no assurance that we can maintain the Company’s competitive position against current and potential competitors, especially those with longer operating histories, greater name recognition or substantially greater financial, technical, marketing, management, service, support and other resources. We believe that the principal competitive factors in the Company’s target markets include: ←• adherence to emerging Internet-based technology standards; ←• comprehensiveness of applications; ←• adaptability, flexibility and scalability; ←• real-time, interactive capability with customers, partners, vendors and suppliers; ←• ability to support vertical industry requirements; ←• ease of application use and deployment; ←• speed of implementation; ←• customer service and support; and ←• initial price and total cost of ownership. Intellectual Property Third parties may assert claims or initiate litigation against us or the Company’s technology partners alleging that the Company’s existing or future products infringe their proprietary rights. We could be increasingly subject to infringement claims as the number of products and competitors in the market for the Company’s technology grows and the functionality of products overlaps. In addition, we may in the future initiate claims or litigation against third parties for infringement of the Company’s proprietary rights to determine the scope and validity of the Company’s proprietary rights. Any claims, with or without merit, could be time-consuming, result in costly litigation and diversion of technical and management personnel, or require us to develop non-infringing technology or enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may not be available on acceptable terms, if at all. The Company’s software products are dependent, in part, on a non-exclusive worldwide license from Orion IP, LLC to utilize certain critical patents and related rights in connection with the conduct of its business. We expect that such license will be transferred to the Company in connection with the merger. Employees At March 31, 2006, the Company had a total of 47 employees, of which 19 were in research and development, 15 were in professional services and support, four were in
  • 62. sales and marketing, and nine were in finance and administration. None of the Company’s employees are represented by a labor union. Facilities The Company currently leases three commercial properties. The Company’s business operations are headquartered in Mankato, Minnesota. The address in Mankato is 11 Civic Center Plaza, Suite 310, Mankato, MN 56001. This office occupies 7,491 square feet, and rent, including on-site storage, is $10,550 per month. Common area charges are assessed on an annual basis. The lease expires on February 28, 2011. The Company leases its principal executive offices in Newton, Massachusetts. This office occupies 1,322 square feet. Rent is $2,120.71 per month, and common area charges are assessed on an annual basis. The lease expires on March 31, 2007. The Company also currently leases space in Beverly Hills, California. The office occupies 1,800 square feet, and monthly rent is $3,800. The lease expires on January 1, 2007. The Company also reimburses certain employees for remote office space located in Sausalito, California. The monthly reimbursement totals $1,556.80 per month. Legal Proceedings IPO Litigation In November, 2001, Super Widget, Inc. was named as a defendant in a securities class action filed in United States District Court for the Southern District of New York related to its initial public offering (“IPO”) in February, 2000. The lawsuit also named certain of the underwriters of the IPO, including FleetBoston, Dain Rauscher, and SG Cowan, as well as officers and directors of Super Widget, Klaus P. Besier and Paul K. McDermott, as defendants. Approximately 300 other issuers and their underwriters have had similar suits filed against them, all of which have been included in a single coordinated proceeding in the Southern District of New York (the “IPO Litigations”). The complaints allege that the prospectus and the registration statement for the IPO failed to disclose that the underwriters allegedly solicited and received “excessive” commissions from investors and that some investors in the IPO allegedly agreed with the underwriters to buy additional shares in the aftermarket in order to inflate the price of Super Widget’s stock. An amended complaint was filed April 19, 2002. Super Widget, Inc. and the officers and directors identified above were named in the suits pursuant to Section 11 of the Securities Act of 1933, Section 10(b) of the Exchange Act of 1934, and other related provisions. The complaints seek unspecified damages, attorney and expert fees, and other unspecified litigation costs. In October 2003, a proposed settlement of this litigation was structured between the plaintiffs, the issuer defendants in the consolidated actions, the issuer officers and directors named as defendants, and the issuers’ insurance companies. On or about February 30, 2003, a committee of Super Widget’s Board of Directors conditionally approved the proposed partial settlement. The settlement would provide, among other things, a release of Super Widget and of the individual defendants for the conduct alleged to be wrongful in the amended complaint. Super Widget would agree to undertake other responsibilities under the partial settlement, including agreeing to assign away, not assert, or release certain potential claims the Company may have against its underwriters. Any direct financial impact of the proposed settlement is expected to be borne by Super Widget’s insurance carriers.
  • 63. In October 2003, the action involving Super Widget was designated (along with several other actions) as a test or “focus” case for purposes of class certification and merits discovery in the actions proceeding against the Underwriter defendants. The fact that Super Widget is a defendant in a “focus” case does not impact its participation in the settlement. However, as a “focus” case defendant, Super Widget may be subjected to additional discovery and other involvement in the proceedings against the Underwriter defendants as compared to other issuer defendants. In October 2004, an agreement of settlement was submitted to the court for preliminary approval. The court granted the preliminary approval motion on February 15, 2005, subject to certain modifications. On November 31, 2005, the court issued a preliminary order further approving the modifications to the settlement and certifying the settlement classes. The court also appointed the Notice Administrator for the settlement and ordered that notice of the settlement be distributed to all settlement class members beginning on November 15, 2005. The settlement fairness hearing was held on April 24, 2006, and the court reserved decision. If the court determines that the settlement is fair to the class members, the settlement will be approved. There can be no assurance that this proposed settlement would be approved and implemented in its current form, or at all. Due to the inherent uncertainties of litigation and because the settlement approval process is at a preliminary stage, we cannot accurately predict the ultimate outcome of the matter. The Company may from time to time also be subject to various other claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material effect on the Company’s business, financial condition, or results of operations. MANAGEMENT Executive Officers and Directors The following table sets forth the name, age and position of each of our directors, executive officers and significant employees at the closing of this Offering: Name Age Position(s) Douglas Croxall..................................................... 37 Chairman of the Board William Santo........................................................ 51 Chief Executive Officer, Director Stephen Peary ........................................................ Jerry Keefe ............................................................ Carol Ferrari .......................................................... Mark Campion....................................................... 57 Chief Financial Officer, Secretary 44 Vice President of Operations 41 Vice President of Marketing 50 Director William Santo serves as the Chief Executive Officer and a director of the Company, and served as the Chief Executive Officer of Super Widget and ABC since October 1, 2005. Prior to joining the Company, Bill was a Managing Director at Sanders Morris Harris, a publicly traded diversified financial services firm. Prior to joining SMH, Bill was a successful entrepreneur involved in numerous start-up opportunities,
  • 64. primarily in the software industry. Most recently, Mr. Santo co-founded Magnetic Alliance, an online marketplace, facilitating co-marketing and co-branding opportunities between consumer brands and entertainment content producers. Before that Mr. Santo co-founded the Web acceleration firm, wwWhoosh, Inc., and served as its Chief Executive Officer from 2000 through 2001. Prior to wwWhoosh, he founded and was Chief Executive Officer of InfoCellular, a company that developed customer acquisition software for the wireless communications industry. InfoCellular was founded in 1993 with four employees, and within five years 26 wireless carriers in five countries used its products. Mr. Santo graduated from the University of Massachusetts, Amherst with a B.S. in Political Science. He also holds a Juris Doctor degree from New England School of Law. Stephen Peary serves as the Chief Financial Officer and Secretary of the Company, and served as the Chief Financial Officer of ABC since April 28, 2005. He has been consulting with ABC regarding restructuring operations, finance, audit and insurance matters since September 2004. From 2001 to 2005, Mr. Peary was Managing Director of Stinson Capital Management, Ltd., a Bermuda corporation, and its affiliates managing investment portfolios and financing marine and energy related assets. From 1997 to 2001 he was Managing Director of Liverpool & London Protection and Indemnity Association, a mutual manager of marine assets and liability risks located in Liverpool, England. From 1987 to 1997, Mr. Peary was Senior Vice President at PLM International, Inc. (AMEX:PLM), manager of diversified investment portfolios focused on transportation related equipment, including ships, commercial aircraft, marine containers, and oil drilling rigs. He is a graduate of the University of Illinois (BA, Economics), Georgetown University Law Schools (J.D.) and Boston University (LLM – Taxation). Douglas Croxall has served as the Chairman of the Board of Directors of the Company since April 3, 2003, and was the Chief Executive Officer of Super Widget and ABC from April 2003 until May 2005. A company controlled by Mr. Croxall is the managing member of Jaguar Technology Holdings, LLC. Since April 2001, Mr. Croxall has served as the managing member of Riverland Enterprises LLC, a privately- held company which holds investments and provides strategic advisory services. Since November 2001, Mr. Croxall has served as an officer of Acclaim Financial Group Venture III, LLC, which provides strategic advisory services. From September 1999 until May 2001, Mr. Croxall served as the Chief Financial Officer of Load Media Network, Inc., an Internet and software company based in Hollywood, California. From November 1995 until September 1999, Mr. Croxall served as a Manager for KPMG in the Strategic Transaction Services Group. Mr. Croxall received his Bachelor of Arts degree in Political Science from Purdue University and his Master Degree in Finance from Pepperdine University. Jerry Keefe has served as Vice President of Operations since April 24, 2006. Prior to joining the Company, Jerry was the Director of Sales and Business Development at Videolink, a provider of webcasts and video productions since 2005. Prior to joining Videolink, he was a business operations consultant at ISG. Just before ISG, Jerry was the President and CEO of Lexys Technology, a provider of on demand retail transaction management software. This position he held for two years, from 2001-2003. Prior to 2001, Jerry held positions at InfoCellular, Inc. and LHS Group, which later became Sema InfoCell (being purchased by Sema Group), as General Manager, Vice President of Technology, and Director of Quality and Operations spanning 1994-2001. Jerry started out his career at Digital Equipment Corporation as a manager and program analyst from 1986-1994. Jerry holds a Master of Arts in Business Administration from Framingham State College, and a Bachelor of Science in Computer Science from North Adams State College. Carol Ferrari has served as Vice President of Marketing since April 24, 2006. Prior to joining the Company, Carol held the positions of Vice President of Business Development and Vice President of Marketing for SoundBite Communications, an on demand provider of voice messaging products from 2004-2006. Prior to SoundBite, Carol was the Vice President of Marketing for Concerto Software, a provider of contact center software products. She held that position from 2002-2004. Prior to Concerto, Carol was Director and then Vice President of Marketing for InfoCellular, Inc. and LHS Group, which later became Sema Group from 1996-2000. Prior to 1996, Carol was the Telecommunications Marketing Manager at Gensym Corp. from 1995-1996. Before that she held a Senior Associate position at the Yankee
  • 65. Group for the year prior, and a product planning manager role at Motorola Inc. from 19861994. Carol holds a Master of Business Administration from Illinois Institute of Technology and a Bachelor of Science in Marketing from Rochester Institute Of Technology. Mark Campion has served as a member of the Company’s Board of Directors since March 2006. Mr. Campion joined PolyFuel as Chief Financial Officer in April 2003. Mark personally led PolyFuel’s equity raise and listing on the London AIM in February 2005. Mark has more than 20 years of experience across a broad range of financial and operational disciplines, including public and private financing, treasury, corporate operations, information technology, planning and budgeting, credit and risk management, accounting and taxation, human resources and corporate administration. He has held senior-level positions with a number of public and private companies, including Atomic Tangerine, Trans Ocean, GRI International, Activision, and KPMG. Mark received a B.S. in business from the University of California at Berkeley and is a graduate of the Harvard Business School’s Advanced Executive Management Program. He is a Certified Public Accountant. We may add other directors to the Board of Directors in the future, as qualified candidates become available. Election of Directors and Officers Holders of our Common Stock are entitled to one (1) vote for each share held on all matters submitted to a vote of the shareholders, including the election of directors. Cumulative voting with respect to the election of directors is not permitted by the Company’s Certificate of Incorporation. The board of directors shall be elected at the annual meeting of the shareholders or at a special meeting called for that purpose. Each director shall hold office until the next annual meeting of shareholders and until the director’s successor is elected and qualified. If a vacancy occurs on the board of directors, including a vacancy resulting from an increase in the number of directors, then the shareholders may fill the vacancy at the next annual meeting or at a special meeting called for the purpose, or the board of directors may fill such vacancy. Board Committees Our Board of Directors will form certain Committees including Compensation, Audit and Nominating and Governance Committees. If we proceed with the listing of our common stock on Nasdaq, each member of the Compensation, Audit and Nominating and Governance Committees will be determined by the Board of the Directors to be “independent” within the meaning of Nasdaq Rule 4200(a)(15) and, in addition, each member of the Audit Committee will be “independent” within the meaning of applicable rules and regulations of the Securities and Exchange Commission regarding the independence of audit committee members. Compensation Committee. The Compensation Committee will be charged with recommending to the Board the compensation for the Company’s executives and administering the Company’s stock incentive and benefit plans. Audit Committee. The Audit Committee will be charged with, among other things, the appointment of independent auditors of the Company, as well as discussing and reviewing with the independent auditors the scope of the annual audit and results thereof, pre-approving the engagement of the independent auditors for all auditrelated services and permissible non-audit related services, and reviewing and approving all related-party transactions. The Audit Committee will also review interim financial statements included in the Company’s quarterly reports and will review documents filed with the SEC. Mr. Campion will be Chairman of the Audit Committee. Nominating and Governance Committee. The Nominating and Governance Committee will be charged with assisting the Board in its selection of individuals as nominees for election to the Board at annual meetings of the Company’s shareholders and to fill any vacancies or newly created directorships on the
  • 66. Board. Code of Business Conduct and Ethics. We intend to adopt a Code of Business Conduct and Ethics applicable to our directors, officers (including our principal executive officer, principal financial officer, principal accounting officer and controller) and employees. We intend to satisfy the disclosure requirement under Item 10 of Form 8-K relating to amendments or waivers from any provision of the Company’s Code of Business Conduct and Ethics applicable to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller by either filing a Form 8-K or posting this information on the Company’s website within five days business days following the date of amendment or waiver. EXECUTIVE COMPENSATION Prior to the acquisition of ABC, BB did not pay any compensation to its executive officers. The following table sets forth the cash compensation earned for services performed for ABC and its predecessors during the calendar years ended April 31, 2005, April 31, 2004 and April 31, 2003 by the Company’s Chief Executive Officer and its other executive officers serving at April 31, 2005, collectively referred to as the “Named Executive Officers.” Summary Compensation Table Long-Term Compensation Awards Payouts Annual Compensation Restricted Stock Securities LTIP Award(s) Underlying Payouts Name and Principal Position Year Salary($) Bonus($) ($) Options/SARs(#) ($) All Other Compensation ($)(3) Stephen Peary(2) 2005 106,250 – – – – 50,000(4) Chief Financial Officer 2004 0 – – – – 20,000(5) 2003 – – – – .1(1) William Santo was appointed Chief Executive Officer on October 1, 2005. .2(2) Stephen Peary was appointed Chief Financial Officer on April 28, 2005. Prior to that time Mr. Peary served as an independent consultant to ABC. .3(3) Amounts represent ABC’s Profit Sharing and 401(k) Plan contributions, payments of term life insurance premiums and medical cost reimbursement. In the year ended April 31, 2004 and April 31, 2005, ABC did not make any contributions to the ABC’s Profit Sharing and 401(k) Plan. The Company did not pay any life insurance premiums on behalf of listed executives in the year ended April 31, 2004. In the year ended April 31, 2004, medical reimbursements were $ 8,502.27 for Messr. Croxall. In the year ended
  • 67. April 31, 2005, life insurance premium payments by the Company were $ 240.00 and $204.00 for Messrs. Santo and Peary,, respectively. In the year ended April 31, 2005, medical reimbursements were $ 9,398.43, $4,699.89 and $4,699.89, for Messrs. Croxall, Santo, Peary, , respectively. .4(4) Mr. Peary received $50,000 for services rendered to ABC as a consultant prior to Mr. Peary’s appointment as Chief Financial Officer. .5(5) Mr. Peary received $20,000 for services rendered to ABC as a consultant prior to Mr. Peary’s appointment as Chief Financial Officer. Employment Agreements of Named Executive Officers On May 16, 2005, Super Widget entered into three-year employment agreements with William Santo, its CEO, and Stephen Peary, its CFO, on the following material terms: ←• CEO base salary of $200,000 per year; ←• Bonus as determined by the Board of Directors; ←• Restricted stock grant – 750,000 common shares in ABC Technology, all of which vest on January 5, 2009. This restricted stock was exchanged for 302,419 shares of restricted stock in BB upon the acquisition of ABC by BB; ←• Medical and dental insurance; and ←• Up to three weeks vacation annually. ←• CFO base salary of $170,000 per year; ←• Bonus as determined by the Board of Directors; ←• Restricted stock grant – 500,025 common shares, all of which vest on January 5, 2009. This restricted stock was exchanged for 201,622 shares of restricted stock in BB upon the acquisition of ABC by BB; ←• Medical and dental insurance; and ←• Up to three weeks vacation annually. The employment contracts with Messrs. Santo and Peary were re-executed by ABC Technology Holdings, Inc. Pursuant to these re-executed agreements, the current base salaries of Messrs. Santo and Peary are now $300,000 and $250,000 per year, respectively. Compensation of Directors Each member of our board of directors who is not an employee of the Company (a “non- employee director”) will receive an annual retainer of $10,000 and will receive $1,000 for each meeting of our board of directors attended either in person or telephonically. Non-employee directors will receive $500 for each committee meeting attended either in person or telephonically, unless such committee meeting shall last more than one hour. In such case the committee meeting fee will be $1,000. Non-employee directors may also receive additional compensation for attending special meetings of the board of directors and such additional compensation may not be equal among the individual non- employee directors. Such additional compensation is intended to reflect special efforts of such board members. Board members will be reimbursed for reasonable travel expenses
  • 68. associated with attending any meetings of the board of directors or committees of the board of directors. We intend to adopt a Stock Incentive Plan designed to assist us in recruiting and retaining key employees, directors and consultants. The plan will permit us to grant to our key employees, directors and consultants up to 1,766,000 shares of Common Stock pursuant to stock option awards, restricted stock grants and other stock-based awards. In connection with this plan, we intend to grant to our non-employee directors annually an option to purchase 5,000 shares of our common stock on the day following our annual meeting of shareholders, with an exercise price per share equal to the fair market value of our common stock on such date. We intend that this will increase to 7,500 shares of our common stock per annum after such non-employee director has been on the board of directors for more than three years. Each such option will have a ten year term and will vest on the date of the next annual meeting of shareholders. In addition, each such option will become fully vested upon a “change in control” (as defined in the plan) of the Company or such director’s death. In the event a non-employee director ceases to be a director for any reason (other than death), such director may exercise his or her then vested options for six months. In the event of death, his or her options shall remain exercisable for a period of twelve months. In addition, upon becoming a member of the board of directors, each director will receive restricted stock grants ranging from 60,000 shares of common stock to 101,000 shares. Our employee directors do not receive any additional compensation for serving on our board of directors or any committee of our board of directors. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information known to us with respect to the beneficial ownership of common stock as of March 31, 2006 by (i) each person who is known by us to own beneficially more than 5% of our common stock, (ii) each of our directors and Named Executive Officers and (iii) all of our executive officers and directors as a group. Except as otherwise listed below, the address of each person is c/o BB Enterprises USA, Inc., 181 Wells Avenue, Suite 100, Newton, Massachusetts 02459. As of March 31, 2006, there were outstanding 5,100,440 shares of our common stock. Name of Beneficial Owner Shares (1) Percent 5% or Greater Stockholders: Jaguar Technology Holdings, LLC ................................................ 2,177,414 42.7% Benchmark Equity Group, Inc. ........................................................ 508,942 9.9% Directors and Executive Officers: Douglas Croxall ............................................................................... 2,802,414 (2) 54.9% William Santo ................................................................................. 614,919(3) 12.0% Stephen Peary.................................................................................. 514,122(4) 10.1% Mark Campion ................................................................................ 60,484(5) 1.2% Jerry Keefe ...................................................................................... 0 0%
  • 69. Carol Ferrari.................................................................................... 0 0% All current directors and executive officers as a group (6 persons) ..... 3,991,939 78.3% .1(1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options and warrants currently exercisable or convertible, or exercisable or convertible within 60 days of March 31, 2006 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person. Except as pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned. .2 (2) Includes 2,177,414 shares held by Jaguar Technology Holdings, LLC. Mr. Croxall is the sole member of Riverland Enterprises LLC, which is the sole member-manager of Jaguar Technology Holdings LLC. Mr. Croxall disclaims beneficial ownership, except to the extent of his pecuniary interest therein, if any, of the shares held by Jaguar Technology Holdings LLC. Also includes 625,000 shares of restricted common stock, all of which will vest on the second anniversary of the financing transaction by the Company of $50 million in Senior Secured Convertible and Nonconvertible Notes Due 2011 and Warrants (the “CAP Financing”). Vesting of the restricted common stock of the Company is contingent upon Mr. Croxall’s continuous service with the Company and the meeting of certain conditions of the CAP Financing. .3 (3) Consists of (i) 302,419 shares of restricted common stock, all of which will vest on January 5, 2009, and (ii) 312,500 shares of restricted common stock, all of which will vest on the second anniversary of the CAP Financing, contingent upon (a) Mr. Santo’s continuous service with the Company and (b) the meeting of certain conditions of the CAP Financing. .4(4) Consists of (i) 201,622 shares of restricted common stock, all of which will vest on January 5, 2009, and (ii) 312,500 shares of restricted common stock, all of which will vest on the second anniversary of the CAP Financing contingent upon (a) Mr. Peary’s continuous service with the Company and (b) the meeting of certain conditions of the CAP Financing. .5(5) Consists of 60,484 shares of restricted common stock, all of which will vest on March 31, 2008. SHARES ELIGIBLE FOR RESALE Future sales of a substantial number of shares of our Common Stock in the public market could adversely affect market prices prevailing from time to time. Under the terms of this Offering, the shares of Common Stock offered may be resold without restriction after registration under the Securities Act, except that any shares purchased by our “affiliates,” as that term is defined under the Securities Act, may generally only be sold in compliance with Rule 144 under the Securities Act.
  • 70. Certain shares of our outstanding common stock were issued and sold by us in private transactions in reliance upon exemptions from registration under the Securities Act and have not been registered for resale. Additional shares may be issued pursuant to warrants and options. Such shares may be sold only pursuant to an effective registration statement filed by us or an applicable exemption, including the exemption contained in Rule 144 promulgated under the Securities Act. In general, under Rule 144 as currently in effect, a shareholder, including one of our affiliates, may sell shares of Common Stock after at least one year has elapsed since such shares were acquired from us or our affiliate. The number of shares of Common Stock which may be sold within any three-month period is limited to the greater of: (i) one percent of our then outstanding Common Stock, or (ii) the average weekly trading volume in our common stock during the four calendar weeks preceding the date on which notice of such sale was filed under Rule 144. Certain other requirements of Rule 144 concerning availability of public information, manner of sale and notice of sale must also be satisfied. In addition, a shareholder who is not our affiliate, who has not been our affiliate for 90 days prior to the sale, and who has beneficially owned shares acquired from us or our affiliate for over two years may resell the shares of Common Stock without compliance with many of the foregoing requirements under Rule 144. DESCRIPTION OF CAPITAL STOCK BB is a Nevada corporation and its authorized capital stock currently consists of 300,000,000 shares of common stock, par value $.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share. After completion of the Reorganization (the merger of BB into ABC), the surviving company will be a Delaware corporation and our authorized shares will consist of 100,000,000 shares of common stock, par value $.001 per share, and 5,000,000 shares of preferred stock, par value $.001 per share. After the closing of this offering, 9,386,155 shares of common stock of the Company will be issued and outstanding, assuming the sale of the maximum shares being offered in the Offering. There are no, and after the closing there will not be any, shares of preferred stock designated, issued or outstanding. The following description of our capital stock reflects our proposed Delaware charter, which will be our charter after the Reorganization. The discussion does not purport to be complete and is subject to and qualified by our Certificate of Incorporation and By-laws, and by the applicable provisions of Delaware law. Common Stock Subject to preferences that may be applicable to any rights of holders of outstanding stock having prior rights as to dividends, the holders of outstanding shares of our common stock are entitled to receive dividends out of assets legally available therefore at such times and in such amounts as the Board of Directors from time to time may determine. Holders of our common stock are entitled to one (1) vote for each share held on all matters submitted to a vote of the shareholders. Cumulative voting with respect to
  • 71. the election of directors is not permitted by the Certificate of Incorporation. The common stock is not entitled to preemptive rights and is not subject to conversion or redemption. Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to shareholders are distributable ratably among the holders of the common stock after payment of liquidation preferences, if any, on any outstanding stock having prior rights on such distributions and payment of other claims of creditors. Each share of common stock outstanding as of the date of this Memorandum is validly issued, fully paid and non-assessable. Warrants In connection with the Offering, we will issue warrants to the investors in the Offering and to the Placement Agent, with each Warrant exercisable to purchase one share of our common stock at $10.00 per share. The form of Warrant is attached as Exhibit D to this Memorandum. The Warrants will be exercisable for five years from the closing of this Offering. The Warrants will be exercisable for cash or pursuant to a cashless exercise provision. The shares of Common Stock underlying the Warrants will be registered under the same registration statement that will be filed to register the shares offered hereby, and the Warrants will contain certain customary anti-dilution provisions which will adjust the number of shares underlying the Warrants and the exercise price in the event of stock splits, stock dividends or other recapitalizations of the Company. Including the Warrants issued as part of the Offering and assuming that a maximum $30 million is raised in this Offering, at closing the Company will have outstanding warrants to acquire 11,979,910 shares of Common Stock at a weighted-average exercise price of $7.48 per share. Indemnification Matters Our Certificate of Incorporation limit the personal liability of our officers and directors for monetary damages for breach of their fiduciary duty as directors, except for (i) liability that cannot be eliminated under applicable Delaware law, (ii) any breach of such director’s duty of loyalty to the Company or its shareholders, (iii) for acts or omissions not in good faith which involve intentional misconduct or a knowing violation of law, or (iv) for any transaction from which such director derived improper personal benefit. Our Bylaws also provide for the Company to indemnify directors and officers to the fullest extent permitted by applicable Delaware law. These provisions may have the practical effect in certain cases of eliminating the ability of shareholders to collect monetary damages from directors or officers. The indemnification provisions described above provide coverage for claims arising under the Securities Act of 1933 and the Securities Exchange Act of 1934. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the Company’s Certificate of Incorporation, Bylaws, Delaware law, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
  • 72. Transfer Agent and Registrar The transfer agent and registrar of the Company’s common stock is Corporate Stock Transfer, Inc., Denver, Colorado. REGISTRATION RIGHTS AGREEMENT Under a registration rights agreement (the “Registration Rights Agreement”) to be entered into by the Company and the subscribers who purchase Units in this Offering (a copy of which is attached as Exhibit C), no later than 45 days after the completion of this Offering (the “Registration Filing Date”), the Company will file a shelf registration statement (the “Registration Statement”) on Form SB-2 or S-1 covering the resale of the Common Stock purchased in this Offering and the shares issuable upon exercise of the Warrants. The Company will use its best efforts to cause the Registration Statement to be declared effective by the SEC within 90 days after filing (120 days if the Registration Statement is reviewed by the SEC); provided, however, that the Company will not be obligated to effect any such registration, qualification or compliance or keep such registration effective: (a) in any particular jurisdiction in which the Company would be required to qualify to do business as a foreign corporation or as a dealer in securities under the securities or blue sky laws of such jurisdiction or to execute a general consent to service of process in effecting such registration, qualification or compliance, in each case where it has not already done so, or (b) during any “blackout period” during which the Company determines that the distribution of its shares covered by the Registration Statement would be detrimental to the Company and its shareholders, in which case the Registration Filing Date is extended to the date immediately following the last day of such “blackout” period. Prior to the date the Registration Statement is declared effective by the SEC (the “SEC Effective Date”), the Company will not, without the prior written consent of the holders of a majority of the Registrable Securities, file or request the acceleration of any other registration statement filed with the SEC. In addition, during any time subsequent to the SEC Effective Date when the Registration Statement is unavailable for use by any holder for the resale of any Registrable Securities, the Company will not without the consent of the holders of a majority of the Registrable Securities, file any other registration statement or amendment any registration statement filed with the SEC or request the acceleration of effectiveness of any other registration statement previously filed with the SEC, other than any registration statement on Form S-8 or Form S-4 and any registration statement or amendment which the Company is required to file or as to which the Company is required to request acceleration pursuant to any obligation in effect on the date of execution and delivery of the Registration Rights Agreement. The Company will make payments to purchasers (including the Placement Agent to the extent it has exercised its Warrant) who are parties to the Registration Rights Agreement as liquidated damages in an amount equal to one percent (1%) of the Offering Price per month (adjusted proportionally for an portion thereof) if any of the following events (“Registration Events”) occurs and remains uncured:
  • 73. .1(a) The Company fails to file with the SEC the Registration Statement on or before the Registration Filing Date; .2(b) The Company fails to file with the SEC a request for acceleration of the Registration Statement within certain timeframes; .3(c) Prior to its the SEC Effective Date, if the Company fails to file a pre-effective amendment or otherwise respond in writing to comments made by the SEC within 10 calendar days after the receipt of comments by or notice from the SEC that such amendment is required in order for a Registration Statement to be declared effective .4(d) The Registration Statement is not declared effective by the SEC by the 90 day after th filing (or the 120 day after filing if the Registration Statement is subject to review by the SEC); or th .5(e) After the SEC Effective Date, a Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities for which it is required to be effective, or the holders are otherwise not permitted to utilize the Prospectus therein to resell such Registrable Securities, for more than 30 consecutive calendar days or more than an aggregate of 40 calendar days during any 12-month period (which need not be consecutive calendar days). PLAN OF OFFERING Securities Purchase Agreement You should carefully review the Securities Purchase Agreement which is attached to this Memorandum as Exhibit B (the “Subscription Agreement”). To subscribe for the Units offered hereby, you must properly complete two originals of the signature page for the Subscription Agreement, and deliver such originals to the Placement Agent: Investment Bank, LLC, 1270 Avenue of the Americas, New York, New York 10020, Attention: Mr. Noam Rubinstein, accompanied by a wire transfer or check payable to “Bank of New York, as Escrow Agent for BB Enterprises USA, Inc.” in the amount for which you subscribe. If you wish to deliver the purchase price for the Units in the form of a wire transfer, you may contact Mr. Stephen Guirlando at Bank of New York at (212) 815-7143 for instructions on wire transfer. The minimum subscription is $25,000, although with our consent and the consent of the Placement Agent, you may subscribe for a lesser amount. All subscription funds will be deposited in an interest-bearing escrow account maintained with Bank of New York, acting as escrow agent (the “Escrow Agent”), until the earliest of the time at which the closing for such subscription is held, the rejection of the subscription or the termination of this Offering. No interest will be paid to any potential investors on funds deposited in the escrow account. Accordingly, you will not have the use of your funds while they remain in escrow. Subscription funds will be held by the Escrow Agent pursuant to the terms of an escrow agreement among us, the Placement Agent and the Escrow Agent. The Escrow Agent will not accept or reject any subscriptions or review the adequacy of any documents delivered to prospective investors. Subject to applicable state securities laws, you may not revoke any subscription that you deliver to the Placement Agent. Promptly after we close this Offering, we will issue certificates for the common stock subscribed for by all subscribers whose subscriptions have been received and accepted together with their respective signature pages for the Subscription Agreement countersigned by us, and the funds representing such subscriptions will be released from the escrow account to us. You must acquire the Units for your own account and not for the account of others, for investment purposes only and not with a view to or for resale or distribution. You agree that any dispute arising in connection with the Subscription Agreement that cannot be resolved shall be submitted to, and settled by, arbitration before the NASD in accordance with the Code of Arbitration of the NASD then in effect. An investment in the Units will be made pursuant to a Subscription Agreement containing, among other things, an Accredited Investor Certification to be completed by each prospective investor to represent as to its status as an accredited investor. The Subscription Agreement also contains representations and warranties certifying that, among other things, the purchaser has reviewed this Memorandum and has had
  • 74. an opportunity to ask questions of and receive answers from our representatives with respect to this Offering, it has acquired the Units only for its own account for investment and not with a view toward resale or distribution within the meaning of the Securities Act and that it is an “accredited investor” and has sufficient net worth to invest in the Company, including in the event of a complete loss of investment. We, in our sole discretion, reserve the right to reject any offer to purchase Units made to or through us along with Investment Bank, LLC, in whole or in part, for any reason without notice. Placement Agent We have engaged Investment Bank, LLC as our exclusive placement agent to offer the Units on a “best efforts” basis. R&R may also utilize selected dealers to assist it in the sale of the Units. Pursuant to the terms of our engagement, we are obligated to pay to R&R in connection with this Offering (i) a cash fee equal to 10% of the gross proceeds from sale of the Units, (ii) warrants (the “Placement Warrants”), and (iii) reimbursement of all expenses actually incurred by the Placement Agent, including but not limited to, fees of the Placement Agent’s counsel. We have agreed to sell to the Placement Agent, for nominal consideration, the Placement Warrants which will be exercisable for that number of shares of common stock equal to 10% of the shares sold in this Offering at an exercise price of $10.00 per share. The Placement Warrants will also provide for a cashless exercise right and customary anti-dilution provisions. The Placement Warrants will be exercisable commencing three months after the effective date of the Registration Statement to be filed covering the resale of the common stock sold in the Offering, and will terminate upon the fifth anniversary of issuance. The Placement Agent will be afforded registration rights with respect to the shares of common stock underlying its Placement Warrants which are identical to those being granted to the investors in this Offering under the Registration Rights Agreement, except that the Placement Agent will not be entitled to liquidated damages in the event the registration statement is not filed or declared effective within the Prescribed Periods. The price of the Units and the exercise price of the Placement Warrants have been determined by our negotiations with the Placement Agent. Among the factors considered in the negotiations were our limited operating history, the unknown outcome and possible costs of our research and development activities, an assessment of our management and our past and present operations, our financial condition, the prospects for the industry in which we operate, the prospects for the development of our business with the capital raised in this Offering and the general condition of the securities markets at the time of this Offering. The value of the Units does not necessarily bear any relationship to our assets, book value or results of operations or any other generally accepted criteria of value. We have agreed to indemnify the Placement Agent against certain liabilities that may be incurred in connection with this Offering, including certain civil liabilities under the Securities Act, and, where such indemnification is not available, to contribute to the payments the Placement Agent may be required to make in respect of such liabilities. Restrictions on Transfers of Securities The shares of common stock underlying the Units are subject to restrictions on transfer. These shares or the Units have not been registered under the Securities Act. You must hold any shares or Units that you acquire indefinitely and may not transfer your shares or Units unless your transfer is permitted as described in the following paragraph. You may not transfer any shares or Units unless (1) a registration statement is in effect under the Securities Act covering your proposed transfer and you make the transfer in accordance with such registration statement, or (2) you sell the shares or Units in a transaction exempt from the Securities Act registration requirements and any related requirements imposed by applicable state securities laws. In case of any transfer under clause (2), you must notify us of your proposed transfer and, at our request, furnish us with an opinion of counsel reasonably satisfactory to us that your transfer will not require registration under the Securities Act. The shares will contain a legend referring to these restrictions on transfer and any legends required by state securities laws. Plan of Distribution
  • 75. The Units will be offered by the Placement Agent to investors who meet the suitability requirements. Pending receipt of subscription funds for the minimum offering amount, each prospective investor’s payment accompanying the Subscription Agreement will be deposited with Bank of New York, as Escrow Agent. We will conduct an initial closing when at least the minimum offering proceeds are raised, and may conduct one or more additional closings up to the maximum offering proceeds until no later than February 1, 2005. Purchasers of the Units will be required to execute and deliver to us or to the Placement Agent a Subscription Agreement, together with a Form W-8 or W-9. The Company and the Placement Agent, in either of our sole discretion, reserve the right to reject any offer to purchase Units, in whole or in part, for any reason without notice and to accept subscriptions for less than $25,000. The Offering Price of the Units has been determined by negotiation between us and the Placement Agent and does not necessarily bear any relationship to our assets value, net worth, revenues or other established criteria of value, and should not be considered indicative of the actual value of the Units. Our officers, directors or principal stockholders may invest in the Offering, although there can be no assurance that any Units will be purchased by such persons. Any such investments will be included in calculating the number of Units sold in the Offering. INVESTOR SUITABILITY REQUIREMENTS AND SUBSCRIPTION PROCEDURES The Units are being offered for sale pursuant to Rule 506 of Regulation D of the Securities Act to an unlimited number of persons who meet the definition of “accredited investors” under Regulation D. An “accredited investor” under Regulation D includes any person who we reasonably believe comes within any of the following categories: 1.1. any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of purchase exceeds $1.0 million; 2.2. any natural person who had an income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; 3.3. any trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2) (ii) under the Securities Act; 4.4. a corporation, partnership, limited liability company, Massachusetts or similar business trust, or an organization described in Section 501(c)(3) of the Internal Revenue Code, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000; 5.5. an employee benefit plan (a) if the investment decision is made by a plan fiduciary, which is a bank, an insurance company, a savings and loan association, or a registered investment advisor, (b) which has assets in excess of $5,000,000, or (c) which is a self-directed plan (such as a self-directed IRA, Keogh, or SEP plan) with investment decisions made solely by persons that are accredited investors; 6.6. any bank or any savings and loan association whether acting in its individual or fiduciary capacity; any registered broker or dealer; any insurance company; any registered investment company; and business development company; and SBIC; and any government employee benefit plan with total assets in excess of $5,000,000; or 7.7. any entity in which all of the equity owners are accredited investors. If you are an entity that qualifies as an accredited investor only because all of your equity owners are accredited investors (as described in paragraph 7 above), each equity owner of the investing entity must represent to the Company that he or she is an accredited investor. Other representations of the subscriber are set forth in the Subscription Agreement attached hereto as Exhibit A. You must, prior to execution of the Securities Purchase Agreement, carefully review the same to insure that the representations are in fact true and correct. If any of these representations are made falsely, the investor and the Company could be found to be in violation of federal and state securities laws.
  • 76. Ability to Accept Limitations on Transfer You will not be able to liquidate your investments in the event of emergency or for any other reason due to the substantial restrictions on transfer imposed under federal and state securities laws on resale thereof. The qualification standards for accredited investors are a minimum requirement for qualification of purchasers of Units and the satisfaction of such standards does not necessarily mean that the Units are a suitable investment. THE COMPANY RESERVES THE RIGHT TO REJECT ANY SUBSCRIPTION OR TO ACCEPT LESS THAN ALL OF A SUBSCRIPTION FROM ANY PROSPECTIVE INVESTOR. How to Subscribe You may purchase Units in this Offering by completing and signing the Securities Purchase Agreement and Purchaser Questionnaire in the form attached to this Memorandum and delivering them and the subscription amount to the Placement Agents prior to the expiration date of this Offering. The subscription amount must be paid in the manner described above under “Plan of Offering”. All subscription funds will be deposited into a segregated bank account where they may be invested in high-quality, liquid short-term investments. The Securities Purchase Agreement contains numerous warranties, representations and agreements on the part of the subscriber. Therefore, you should read the Securities Purchase Agreement carefully before subscribing to purchase. Units will be issued as soon as practicable after subscriptions have been received and accepted by the Company and the Offering has been closed. If you retain an investor representative to assist in evaluating the merits and risks associated with investing in the Units, you must have your investor representative complete and return the Investor Representative Questionnaire to us. We will thereafter review the qualifications of the proposed investor representative and will notify you if such investor representative is not acceptable to the Company as an investor representative. Your investor representative will be required to disclose to you any past, present or proposed future relationship between the investor representative or its affiliates and the Company or its affiliates. You may not withdraw funds deposited into the Escrow Account. In the event we do not accept your subscription, your subscription funds will be returned to you without interest or deduction immediately upon rejection of a subscription. We may accept any subscription in whole or in part. In addition, we reserve the right to reject any subscription in our sole discretion for any reason whatsoever and terminate the Offering at any time prior to our acceptance of subscriptions. LEGAL MATTERS The validity of the securities offered hereby will be passed upon for the Company by its outside legal counsel, Morrison & Foerster LLP. Certain legal matters in connection with the Offering will be passed upon for the Placement Agent by Morse Zelnick Rose & Lander, LLP. ADDITIONAL INFORMATION The Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Reports filed with the SEC pursuant to the Exchange Act, including proxy statements, annual and quarterly reports, and other reports filed by the Company, can be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. You can request copies of these documents upon payment of a duplicating fee by writing to the SEC. The Company’s filings are also available on the SEC’s Internet site (http://www.sec.gov).
  • 77. The Company currently files its periodic reports with the SEC under the name “BB Enterprises USA, Inc.” and after the Reorganization (which will occur on or prior to October 30, 2006), the Company will file its periodic reports under the name “ABC Technology, Inc.” Prior to mid-2005, BB Enterprises USA, Inc. was named “In Store Media Systems, Inc.”, and filed its periodic reports with the SEC under that name. EXHIBIT A FINANCIAL STATEMENTS OF SUPER WIDGET, INC. FOR THE TWELVE MONTHS ENDED OCTOBER 30, 2005 AND 2004 SUPER WIDGET, INC. and Subsidiaries (Consolidated) Twelve Months ended October 30 EXH IBIT B SECURITIES PURCHASE AGREEMENT This Securities Purchase Agreement (this “Agreement”) is dated as of _________, 2006, among BB Enterprises USA, Inc., a Nevada corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a “Purchaser” and collectively the “Purchasers”). WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the
  • 78. Company, securities of the Company as more fully described in this Agreement. NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows: ARTICLE I. DEFINITIONS 1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings indicated in this Section 1.1: “Action” shall have the meaning ascribed to such term in Section 3.1(j). “Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person as such terms are used in and construed under Rule 144 under the Securities Act. With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser. “Business Day” means any day except Saturday, Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close. “Closing” means each closing of the purchase and sale of the Securities pursuant to Section 2.1. “Closing Date” means a Trading Day when all of the Transaction Documents to be delivered as of a particular Closing have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount as of such Closing, and (ii) the Company’s obligations to deliver the Units as of such Closing, have been satisfied or waived. “Closing Price” means on any particular date (a) the last reported closing bid price per share of Common Stock on such date on the Trading Market (as reported by Bloomberg L.P. at 4:15 PM (New York time)), or (b) if there is no such price on such date, then the closing bid price on the Trading Market on the date nearest preceding such date (as reported by Bloomberg L.P. at 4:15 PM (New York time)), or (c) if the Common Stock is not then listed or quoted on the Trading Market and if prices for the Common Stock are then reported in the “pink sheets” published by Pink Sheets LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) if the shares of Common Stock are not then publicly traded the fair market value of a share of Common Stock as determined by an appraiser selected in good faith by the Purchasers of a majority in interest of the Shares then outstanding.
  • 79. “Commission” means the Securities and Exchange Commission. “Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed into. “Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock. “Company Counsel” means Morrison & Foerster LLP, Los Angeles, California. “Disclosure Schedules” means the Disclosure Schedules of the Company delivered concurrently herewith. “Effective Date” means the date that the initial Registration Statement filed by the Company pursuant to the Registration Rights Agreement is first declared effective by the Commission. “Escrow Agent” means Bank of New York, having an office at 101 Barclay Street, 8th Floor East, New York, NY 10286. “Escrow Agreement” shall mean the Escrow Agreement, dated on or about the date hereof, by and among Investment Bank, LLC, the Company and the Escrow Agent pursuant to which the Purchasers, prior to the date hereof, deposited Subscription Amounts with the Escrow Agent to be applied to the transactions contemplated hereunder. “Evaluation Date” shall have the meaning ascribed to such term in Section 3.1(r). “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. “Exempt Issuance” means the issuance of (a) shares of Common Stock or options granted to employees, officers or directors of the Company pursuant to any stock option agreements existing on the date of this Agreement or any other stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, provided, that any such grant does not vest under its terms before the earlier of 90 days after the Effective Date or one year following the date of grant, (b) securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement; provided, that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of any such securities, and (c) securities issued pursuant to mergers, acquisitions or strategic transactions approved by a majority of the disinterested directors
  • 80. of the Company’s Board of Directors; provided that any such issuance shall only be to a Person (including such Person’s security holders, officers or employees) which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities. “GAAP” shall have the meaning ascribed to such term in Section 3.1(h). “Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o). “Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(c). “Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction. “Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b). “Material Permits” shall have the meaning ascribed to such term in Section 3.1(m). “Per Unit Purchase Price” equals $10.00, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement and prior to the applicable Closing Date. “Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. “Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened. “Purchaser Party” shall have the meaning ascribed to such term in Section 4.9. “Registration Rights Agreement” means the Registration Rights Agreement, dated the date hereof, among the Company and the Purchasers, in the form of Exhibit A attached hereto. “Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale by the Purchasers of the Shares and the Warrant Shares. “Required Approvals” shall have the meaning ascribed to such term in Section
  • 81. 3.1(e). “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. “SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h). “Securities” means the Shares, the Warrants and the Warrant Shares. “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. “Shares” means the shares of Common Stock issued or issuable to each Purchaser pursuant to this Agreement. “Short Sales” shall include all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock). “Subscription Amount” means, as to each Purchaser, the aggregate amount to be paid for Shares and Warrants purchased hereunder as specified below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States Dollars and in immediately available funds. “Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a). “Trading Day” means a day on which the Common Stock is traded on a Trading Market. “Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the New York Stock Exchange or the Nasdaq National Market. “Transaction Documents” means this Agreement, the Warrants and the Registration Rights Agreement and any other documents or agreements executed in connection with the transactions contemplated hereunder. “Unit” means one share of Common Stock and a Warrant to purchase an additional share of Common Stock. “Warrants” means collectively the Common Stock purchase warrants, in the form of Exhibit C hereto, delivered to the Purchasers at each Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable when issued and have an exercise term of five years.
  • 82. “Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants. ARTICLE II. PURCHASE AND SALE 2.1 Closings. .1(a) On each Closing Date, upon the terms and subject to the conditions set forth herein, the Company agrees to sell, and each Purchaser agrees to purchase, severally and not jointly, such number of Units equal to the Subscription Amount for such Purchaser set forth on such Purchaser’s signature page hereto, divided by the Per Unit Purchase Price. Each Purchaser shall deliver to the Escrow Agent, via wire transfer or a certified check, immediately available funds equal to such Purchaser’s Subscription Amount, and the Company shall deliver to each Purchaser their respective Units as determined pursuant to Section 2.2(a) and the other items set forth in Section 2.2 issuable at Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3, each Closing shall occur at the offices of Company Counsel, or such other location as the Company and the Placement Agent shall mutually agree. .2(b) The initial Closing shall occur after the Escrow Agent has received Subscription Amounts for Units of at least $10 million in the aggregate, but no later than February 31, 2006 (the “Initial Closing”). After the Initial Closing, the Company may sell additional Units yielding up to an aggregate of $30 million of gross proceeds (including the gross proceeds from the Initial Closing) (the “Maximum Proceeds”) in one or more additional Closings until no later than February 31, 2006. .3(c) Each Purchaser shall execute and deliver a counterpart signature page to, and thereby, without further action by such Purchaser, become a party to and be deemed a Purchaser under, this Agreement and the Registration Rights Agreement, and all schedules and exhibits hereto and thereto shall automatically be updated to reflect such Purchaser as a party hereto and thereto. 2.2 Deliveries 0(a) On or prior to each Closing Date, the Company shall deliver or cause to be delivered to each Purchaser participating in a Closing on such Closing Date the following: 1(i) this Agreement duly executed by the Company; 2(ii) a legal opinion of Company Counsel, in the form of Exhibit B attached hereto; 3(iii) a copy of the irrevocable instructions to the Company’s transfer agent instructing the transfer agent to deliver, on an expedited basis, a certificate evidencing a number of Shares equal to such Purchaser’s Subscription Amount divided by the Per Unit Purchase Price, registered in the name of such Purchaser; 4(iv) a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 100% of the Shares purchased by such Purchaser hereunder, with an exercise price equal to $10.00, subject to adjustment therein; and 5(v) the Registration Rights Agreement duly executed by the Company. .2(b) On or prior to each Closing Date, each Purchaser participating in a Closing on such Closing Date shall deliver or cause to be delivered to the Company (except as noted) the following:
  • 83. (i) this Agreement duly executed by such Purchaser; (ii) such Purchaser’s Subscription Amount by wire transfer or certified check to the Escrow Agent; and (iii) the Registration Rights Agreement duly executed by such Purchaser (including a fully completed Selling Securityholder Notice and Questionnaire). 2.3 Closing Conditions. .1(a) The obligations of the Company hereunder in connection with each Closing are subject to the following conditions being met: .2(i) the accuracy in all material respects when made and on each Closing Date of the representations and warranties of the Purchasers contained herein; .3(ii) all obligations, covenants and agreements of the Purchasers required to be performed at or prior to each Closing Date shall have been performed; and .4(iii) the delivery by the Purchasers of the items set forth in Section 2.2(b) of this Agreement. .5(b) The respective obligations of the Purchasers hereunder in connection with each Closing are subject to the following conditions being met: .6(i) the accuracy in all material respects on each Closing Date of the representations and warranties of the Company contained herein; .7(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to each Closing Date shall have been performed; (iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement; .1(iv) there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and .2(v) from the date hereof to the applicable Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s principal Trading Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the Closing) and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg Financial Markets shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Shares at the Closing. ARTICLE III. REPRESENTATIONS AND WARRANTIES
  • 84. 3.1 Representations and Warranties of the Company. Except as set forth under the corresponding section of the Disclosure Schedules which Disclosure Schedules shall be deemed a part hereof and to qualify any representation or warranty otherwise made herein to the extent of such disclosure, the Company hereby makes the representations and warranties set forth below to each Purchaser: .1(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. .2(b) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification. .3(c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, its Board of Directors or its stockholders in connection therewith other than in connection with the Required Approvals. Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, .4(ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution
  • 85. provisions may be limited by applicable law. .1(d) No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company, the issuance and sale of the Shares and the consummation by the Company of the other transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without .2notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect. .5(e) Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) filings required pursuant to Section 4.4 of this Agreement, (ii) the filing with the Commission of the Registration Statement, (iii) application(s) to each applicable Trading Market for the listing of the Shares and Warrant Shares for trading thereon in the time and manner required thereby, and (iv) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively, the “Required Approvals”). .6(f) Issuance of the Securities. The Shares are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Warrant Shares, when issued in accordance with the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company has reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable pursuant to this Agreement and the Warrants. .1(g) Capitalization. The capitalization of the Company is as set forth on Schedule 3.1(g). The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plan and pursuant to the conversion or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act. No Person has any right of first refusal,
  • 86. preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale of the Securities and as set forth on Schedule 3.1(g), there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may .2become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors of the Company or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders. .7(h) SEC Reports; Financial Statements. Except as set forth on Schedule 3.1(h), the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then
  • 87. ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. .1(i) Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report, (i) there has been no event, occurrence or development that has had or that would reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or .2otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, .8(iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement or as set forth on Schedule 3.1(i), no event, liability or development has occurred or exists with respect to the Company or its Subsidiaries or their respective business, properties, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made that has not been publicly disclosed at least one (1) Trading Day prior to the date that this representation is made. .9(j) Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) would, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act. .1(k) Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which would reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company, and neither the Company or any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. No executive
  • 88. officer, to the knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with .2all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. .10(l) Compliance. Neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except in each case as would not have or reasonably be expected to result in a Material Adverse Effect. .11(m) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits would not have or reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit. .12(n) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to the business of the Company and the Subsidiaries and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance. .1(o) Patents and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or material for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have would have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither the
  • 89. Company nor any Subsidiary has received a notice (written or otherwise) that the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such .2Intellectual Property Rights are enforceable. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. .13(p) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost. .14(q) Transactions With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (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 entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $60,000 other than (i) for payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) for other employee benefits, including stock option agreements under any stock option plan of the Company. .1(r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the applicable Closing Date. The Company and the 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 GAAP 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. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the
  • 90. period covered by the Company’s most recently filed periodic report under the Exchange .2Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. .15(s) Certain Fees. Other than the fees and expenses payable to Investment Bank, LLC as set forth on Schedule 3.1(s), no brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents. .16(t) Private Placement. Assuming the accuracy of the Purchasers representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market. .17(u) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act. .18(v) Registration Rights. Other than each of the Purchasers and as set forth on Schedule 3.1(v), no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company. .19(w) Listing and Maintenance Requirements. The Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not, in the twelve (12) months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. .1(x) Application of Takeover Protections. The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any .2control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Certificate of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the
  • 91. Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities. .20(y) Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms that, neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes constitutes or might constitute material, non-public information. The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company. All disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, with respect to the representations and warranties made herein are true and correct with respect to such representations and warranties and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof. .21(z) No Integrated Offering. Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the Securities Act or any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated. (aa) Solvency. Based on the financial condition of the Company as of the applicable Closing Date after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature; (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof; and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the applicable Closing Date. The SEC Reports set forth
  • 92. as of the dates thereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” shall mean (a) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (b) all guaranties, endorsements and other contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (c) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness. (bb) Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary. 0(cc) No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act. 1(dd) Foreign Corrupt Practices Act. Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, .2(ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended. (ee) Accountants. The Company’s accountants are set forth on Schedule 3.1(ee) of the Disclosure Schedule. To the knowledge of the Company, such accountants, who the Company expects will express their opinion with respect to the financial statements to be included in the Company’s Annual Report on Form 10-K for the year ending October 30, 2006, are an independent registered public accounting firm as required by the Securities Act. (ff) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no
  • 93. Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives. (gg) Acknowledgement Regarding Purchasers’ Trading Activity. Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(h) and 4.15 hereof), it is understood and acknowledged by the Company (i) that none of the Purchasers have been asked to agree, nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) that past or future open market or other transactions by any Purchaser, including Short Sales, and specifically including, without limitation, Short Sales or “derivative” transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities; (iii) that any Purchaser, and counter-parties in “derivative” transactions to which any such Purchaser is a party, directly or indirectly, presently may have a “short” position in the Common Stock, and (iv) that each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that (a) one or more Purchasers may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Warrant Shares deliverable with respect to Securities are being determined and (b) such hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after the time that the hedging activities are being conducted. The Company acknowledges that such aforementioned hedging activities do not constitute a breach of any of the Transaction Documents. (hh) Manipulation of Price. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or, paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement of the Securities. 3.2 Representations and Warranties of the Purchasers. Each Purchaser hereby, for itself and for no other Purchaser, represents and warrants as of the date hereof and as of the applicable Closing Date to the Company as follows:
  • 94. .1(a) Organization; Authority. Such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate or similar action on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, .2(ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law. .3(b) Non-Contravention. The execution, delivery and performance of this Agreement by such Purchaser, and the consummation by such Purchaser of the transactions contemplated hereby, do not (i) contravene or conflict with the organizational documents of such Purchaser; (ii) constitute a violation of any provision of any federal, state, local or foreign law, rule, regulation, order or decree applicable to such Purchaser; or (iii) constitute a default or require any consent under, give rise to any right of termination, cancellation or acceleration of, or to a loss of any material benefit to which such Purchaser is entitled under, or result in the creation or imposition of any lien, claim or encumbrance on any asset of the such Purchaser under, any material contract to which such Purchaser is a party or any material permit, license or similar right relating to such Purchaser or by which such Purchaser may be bound or affected. .4(c) Litigation. Such Purchaser is not a party to or subject to the provisions of, any order, writ, injunction, judgment or decree of any court or government agency or instrumentality that is reasonably likely to prevent, enjoin, alter, challenge or delay the consummation of the transactions contemplated by this Agreement. 0(d) Own Account. Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act 1or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business. .5(e) Purchaser Status. At the time such Purchaser was offered the Securities, it was, and at the date hereof it is, and on each date on which it exercises any Warrants, it will be
  • 95. either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a) (8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act. .6(f) Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such 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. .7(g) General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. .8(h) Short Sales and Confidentiality Prior To The Date Hereof. Other than the transaction contemplated hereunder, such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, executed any disposition, including Short Sales, in the securities of the Company during the period commencing from the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person setting forth the material terms of the transactions contemplated hereunder until the date hereof (“Discussion Time”). Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser's assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser's assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). .9(i) Restricted Securities. Such Purchaser understands that the Securities have not been, and will not upon issuance be, registered under the Securities Act and such Purchaser will not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any of the Securities unless (i) pursuant to an effective registration statement under the Securities Act, (ii) such Purchaser provides the Company with an opinion of counsel, in a form reasonably acceptable to the Company, to the effect that a sale, assignment or transfer of the Securities may be made without registration under the Securities Act and the transferee agrees to be bound by the terms and conditions of this Agreement, or (iii) such Purchaser provides the Company with reasonable assurances (in the form of seller and broker representation letters) that the Shares or the Warrant Shares, as the case may be, can be sold pursuant to (A) Rule 144 promulgated under the Securities Act, as such rule may be amended from time to time, or (B) Rule 144(k) promulgated under the Securities Act, in each case, following the applicable holding period set forth therein.
  • 96. ARTICLE IV. OTHER AGREEMENTS OF THE PARTIES 4.1 Transfer Restrictions. .1(a) The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement and the Registration Rights Agreement. .2(b) The Purchasers agree to the imprinting, so long as is required by this Section 4.1(b), of a legend on any of the Securities in the following form: THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES. The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and the Registration Rights Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s expense, the
  • 97. Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders thereunder. 0(c) Other than certificates representing Shares or Warrant Shares held by Affiliates of the Company, certificates evidencing the Shares and Warrant Shares shall not contain any legend (including the legend set forth in Section 4.1(b)), (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Shares or Warrant Shares pursuant to Rule 144, (iii) if such Shares or Warrant Shares are eligible for sale under Rule 144(k), or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Company’s transfer agent promptly after the Effective Date if required by the Company’s transfer agent to effect the removal of the legend hereunder. If all or any portion of a Warrant is exercised by a Purchaser that is not an Affiliate of the Company (a “Non- Affiliated Purchaser”) at a time when there is an effective registration statement to cover the resale of the Warrant Shares, such Warrant Shares shall be issued free of all legends. The Company agrees that following the Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than three (3) Trading Days following the delivery by a Non-Affiliated Purchaser to the Company or the Company’s transfer agent of a certificate representing Shares or Warrant Shares, as the case may be, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Non-Affiliated Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to 1any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section. Certificates for Securities subject to legend removal hereunder shall be transmitted by the transfer agent of the Company to such Purchasers by crediting the account of such Purchaser’s prime broker with the Depository Trust Company System. The Purchaser’s acknowledge that the Company’s agreement hereunder to remove all legends from Shares or Warrant Shares is not an affirmative statement or representation that such Shares or Warrant Shares are freely tradeable. .2(d) In addition to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of Shares or Warrant Shares (based on the Closing Price of the Common Stock on the date such Securities are submitted to the Company’s transfer agent) delivered for removal of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day five (5) Trading Days after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until such certificate is delivered without a legend. Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of
  • 98. specific performance and/or injunctive relief. .3(e) Each Purchaser, severally and not jointly with the other Purchasers, agrees that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance that the Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein. 1.4.2 Furnishing of Information. As long as any 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 the Exchange Act. As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the requirements of the exemption provided by Rule 144. 2.4.3 Integration. The Company will not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction. 4.4 Securities Laws Disclosure; Publicity. The Company shall, by 4:00 p.m. Eastern time on the Trading Day immediately following the date hereof, issue a Current Report on Form 8-K, disclosing the material terms of the transactions contemplated hereby, and shall attach the Transaction Documents thereto. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release or otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except
  • 99. (i) as required by federal securities law in connection with (A) any registration statement contemplated by the Registration Rights Agreement and (B) the filing of final Transaction Documents (including signature pages thereto) with the Commission and (ii) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under this subclause (ii). 1.4.5 Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchasers. 2.4.6 Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material nonpublic information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing representations in effecting transactions in securities of the Company. 04.7 Use of Proceeds. Except as set forth on Schedule 4.7 attached hereto, the Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and not for the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), to redeem any Common Stock or Common Stock Equivalents or to settle any outstanding litigation. 14.8 [RESERVED]. 3.4.9 Indemnification of Purchasers. Subject to the provisions of this Section 4.9, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the
  • 100. Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. 1.4.10 Reservation of Common Stock. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company to issue Shares pursuant to this Agreement and Warrant Shares pursuant to any exercise of the Warrants. 2.4.11 Listing of Common Stock. The Company hereby agrees to use best efforts to maintain the listing of the Common Stock on a Trading Market, and as soon as reasonably practicable following the Initial Closing (but not later than the earlier of the Effective Date and the first anniversary of the Closing Date) to list all of the Shares and Warrant Shares on such Trading Market. The Company further agrees, if the Company applies to have the Common Stock traded on any other Trading Market, it will include in such application all of the Shares and Warrant Shares, and will take such other action as is necessary to cause all of the Shares and Warrant Shares to be listed on such other Trading Market as promptly as possible. The Company will take all action reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Trading Market. 3.4.12 Equal Treatment of Purchasers. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. For clarification purposes, this provision constitutes a
  • 101. separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended to treat for the Company the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise. 4.13 Subsequent Equity Sales. .1(a) From the date hereof until 90 days after the Effective Date, neither the Company nor any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents; provided, however, that the 90 day period set forth in this Section 4.13 shall be extended for the number of Trading Days during such period in which (i) trading in the Common Stock is suspended by any Trading Market, or (ii) following the Effective Date, the Registration Statement is not effective or the prospectus included in the Registration Statement may not be used by the Purchasers for the resale of the Shares and Warrant Shares. .2(b) From the date hereof until such time as no Purchaser holds any of the Securities, the Company shall be prohibited from effecting or entering into an agreement to effect any Subsequent Financing involving a “Variable Rate Transaction.” The term “Variable Rate Transaction” shall mean a transaction in which the Company issues or sells (i) any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either 0(A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price. Any Purchaser shall be entitled to obtain injunctive relief against the 1Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages. .3(c) Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance. 1.4.14 Short Sales and Confidentiality After The Date Hereof. Each Purchaser severally and not jointly with the other Purchasers covenants that neither it nor any Affiliate acting on its behalf or pursuant to any understanding with it will execute any Short Sales during the period commencing at the Discussion Time and ending at the time that the transactions contemplated by this Agreement are first publicly announced as described in Section 4.4. Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company as described in Section 4.4, such Purchaser will maintain the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Each Purchaser understands and acknowledges, severally and not jointly with any other Purchaser, that the Commission currently takes the position that coverage of short sales of shares of the
  • 102. Common Stock “against the box” prior to the Effective Date of the Registration Statement with the Securities is a violation of Section 5 of the Securities Act, as set forth in Item 65, Section A, of the Manual of Publicly Available Telephone Interpretations, dated February 1997, compiled by the Office of Chief Counsel, Division of Corporation Finance. Notwithstanding the foregoing, no Purchaser makes any representation, warranty or covenant hereby that it will not engage in Short Sales in the securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced as described in Section 4.4. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser's assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Purchaser's assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement. 2.4.15 Delivery of Securities After Closing. The Company shall deliver, or cause to be delivered, the respective Securities purchased by each Purchaser to such Purchaser within three (3) Trading Days of the applicable Closing Date. 1.4.16 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers at the applicable Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of any Purchaser. 2.4.17 Capital Changes. Until the one year anniversary of the Effective Date, the Company shall not undertake a reverse or forward stock split or reclassification of the Common Stock without the prior written consent of the Purchasers holding a majority in interest of the Shares then held by all Purchasers. ARTICLE V. MISCELLANEOUS 1.5.1 Termination. This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the other parties, if the Initial Closing has not been consummated on or before February 31, 2006; provided, however, that no such termination will affect the right of any party to sue for any breach by the other party (or parties). 2.5.2 Fees and Expenses. The Company shall deliver, prior to each Closing, a completed and executed copy of the Closing Statement with respect to such Closing, attached hereto as Annex A. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its own advisers, counsel, accountants and
  • 103. other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers. 3.5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. 4.5.4 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2 Trading Day nd following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto. 5.5 Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and each Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right. 1.5.6 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 2.5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers”. 3.5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as
  • 104. otherwise set forth in Section 4.9. 4.5.9 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. The parties hereby waive all rights to a trial by jury. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding. 1.5.10 Survival. The representations and warranties contained herein shall survive the Closings and the delivery of the Shares and Warrant Shares. 2.5.11 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together 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, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof. 3.5.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and
  • 105. declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. 4.5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights. 5.5.14 Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities. 6.5.15 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agrees to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate. 7.5.16 Payment Set Aside. To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 1.5.17 Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group
  • 106. with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. For reasons of administrative convenience only, Purchasers and their respective counsel have chosen to communicate with the Company through FW. FW does not represent all of the Purchasers but only Investment Bank, LLC, who has acted as placement agent to the transaction. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers. 2.5.18 Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled. 3.5.19 Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto. (Signature Pages Follow) IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. BB ENTERPRISES USA, INC. Address for Notice: BB Enterprises USA, Inc. 100 Rock Ave., Suite 100 Newtown, CA 10000 By:__________________________________________ Name: Title: With a copy to (which shall not constitute notice): Lawyer & Lawyer LLP 666 West Sixth St. Suite 600 Los Angeles, CA 90010 Attention: Ed Lawton, Esq. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGE
  • 107. FOR PURCHASER FOLLOWS] [PURCHASER SIGNATURE PAGES TO BB ENTERPRISES USA SECURITIES PURCHASE AGREEMENT] IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. If the Purchaser is an INDIVIDUAL, and if purchased as JOINT TENANTS, as TENANTS IN COMMON, or as COMMUNITY PROPERTY: Print Name(s) Social Security Number(s) Signature(s) of Purchaser(s) Signature If the Purchaser is a PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY or TRUST: Name of Purchaser: ________________________________________________________ Signature of Authorized Signatory of Purchaser: __________________________________ Name of Authorized Signatory: ____________________________________________________ Title of Authorized Signatory: _____________________________________________________ FOR ALL PURCHASERS: Email Address of Purchaser:________________________________________________ Fax Number of Purchaser: ________________________________________________ Address for Notice of Purchaser:
  • 108. Address for Delivery of Securities for Purchaser (if not same as above): Subscription Amount ($):______________________________ Number of Units being purchased:______________________________ Annex A CLOSING STATEMENT Pursuant to the attached Securities Purchase Agreement, dated as of the date hereto, the Purchasers shall purchase up to $______________ of Common Stock and Warrants from BB Enterprises USA, Inc. (the “Company”). All funds will be wired into a trust account maintained by Bank of New York, the Escrow Agent as set forth in the Escrow Agreement. All funds will be disbursed in accordance with this Closing Statement. Disbursement Date: __________ ___, 2006 I. PURCHASE PRICE Gross Proceeds to be Received in Escrow $ II. DISBURSEMENTS $$$$$ Total Amount Disbursed: $ ESCROW WIRE INSTRUCTIONS: Bank of New York [ADDRESS] [ADDRESS] ABA No. [____________] Account Name: Bank of New York, as Escrow Agent for BB Enterprises USA, Inc. Account No. _________________ BB ENTERPRISES USA, INC. ACCREDITED INVESTOR CERTIFICATION For Individual Investors Only (all Individual Investors must INITIAL where appropriate):
  • 109. Initial _______ I certify that I have a net worth (including home, furnishings and automobiles) in excess of $1 million either individually or through aggregating my individual holdings and those in which I have a joint, community property or other similar shared ownership interest with my spouse. Initial _______ I certify that I have had an annual gross income for the past two years of at least $200,000 (or $300,000 jointly with my spouse) and expect my income (or joint income, as appropriate) to reach the same level in the current year. Initial _______ I certify that I am a director or executive officer of BB Enterprises USA, Inc. (the “Company”). For Non-Individual Investors (all Non-Individual Investors must INITIAL where appropriate): Initial _______ The undersigned certifies that it is a partnership, corporation, limited liability company or business trust that is 100% owned by persons who meet either of the criteria for Individual Investors, above. Initial _______ The undersigned certifies that it is a partnership, corporation, limited liability company or business trust that has total assets of at least $5 million and was not formed for the purpose of investing in the Company. Initial _______ The undersigned certifies that it is an employee benefit plan whose investment decision is made by a plan fiduciary (as defined in ERISA §3(21)) that is a bank, savings and loan association, insurance company or registered investment adviser. Initial _______ The undersigned certifies that it is an employee benefit plan whose total assets exceed $5,000,000 as of the date of the Subscription Agreement. Initial _______ The undersigned certifies that it is a self-directed employee benefit plan whose investment decisions are made solely by persons who meet either of the criteria for Individual Investors, above. Initial _______ The undersigned certifies that it is a U.S. bank, U.S. savings and loan association or other similar U.S. institution acting in its individual or fiduciary capacity. Initial _______ The undersigned certifies that it is a broker-dealer registered pursuant to §15 of the Securities Exchange Act of 1934. Initial _______ The undersigned certifies that it is an organization described in §501(c)(3) of the Internal Revenue Code with total assets exceeding $5,000,000 and not formed for the specific purpose of investing in the Company. Initial _______ The undersigned certifies that it is a trust with total assets of at least $5,000,000, not formed for the specific purpose of investing in the Company, and whose purchase is directed by a person with such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment. Initial _______ The undersigned certifies that it is a plan established and maintained by a state or its political subdivisions, or any agency or instrumentality thereof, for the benefit of its employees, and which has total assets in excess of $5,000,000. Initial _______ The undersigned certifies that it is an insurance company as defined in §2(13) of the Securities Act of 1933, as amended, or a registered investment company.
  • 110. Memorandum Wire Transfer Authorization TO: Operations Manager RE: Client Wire Transfer Authorization BB Enterprises USA, INC. DATE: _____________, 2006 This memorandum authorizes the transfer of the following listed funds from my ________________ Account as follows: ________________ Account # ______________________ Wire Amount $______________________ BANK OF CALIFORNIA Acct. Name: Escrow Agent for BB Enterprises USA, Inc. ABA Number: __________________ A/C Number: __________________ REFERENCE: SUBSCRIBER LEGAL NAME TAX ID NUMBER SUBSCRIBER ADDRESS FBO: ________________________________________________ Investment Title: ________________________________________________ Signature: ________________________________________________ Signature: ________________________________________________ (Joint Signature)

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