-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JnWLZOHclifUZtLzqlrbspn+iDGGPgYbnS74iYc1GdKzmWAl/5JrNsmkOVmGro0K 61GjP14hYh4gubipLXfhmw== 0000912057-99-003202.txt : 19991104 0000912057-99-003202.hdr.sgml : 19991104 ACCESSION NUMBER: 0000912057-99-003202 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19991103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETJEWELS COM INC CENTRAL INDEX KEY: 0001098114 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-90201 FILM NUMBER: 99739899 BUSINESS ADDRESS: STREET 1: 1001 PETROLIA RD STREET 2: NORTH YORK ONTARIO CITY: CANADA M3J 2X7 BUSINESS PHONE: 4166658844 MAIL ADDRESS: STREET 1: 1001 PETROLIA RD STREET 2: NORTH YORK ONTARIO CITY: CANADA M3J 2X7 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1999 REGISTRATION STATEMENT NO. 333-[ ] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- NETJEWELS.COM, INC. (Name of issuer as specified in its charter) ------------------------------ DELAWARE 3911 98-0211492 (State of Incorporation) (Primary Standard Industrial (IRS Employer I.D. No.) Classification Code No.)
-------------------------- 1001 PETROLIA ROAD NORTH YORK, ONTARIO, CANADA M3J 2X7 (416) 665-8844 (Address and Telephone Number of Principal Executive Offices) ------------------------------ GERSTEN SAVAGE & KAPLOWITZ, LLP 101 EAST 52ND STREET NEW YORK, NEW YORK 10022 (212) 752-9700 (Name, address and telephone number of agent for service) ------------------------------ COPIES TO: JAY M. KAPLOWITZ, ESQ. LAWRENCE B. FISHER, ESQ. GERSTEN SAVAGE & KAPLOWITZ, LLP ORRICK, HERRINGTON & SUTCLIFFE LLP 101 EAST 52ND STREET 666 FIFTH AVENUE NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10103 (212) 752-9700 (212) 506-5000 (212) 980-5192 FACSIMILE (212) 506-5151 FACSIMILE
-------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this registration statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / -------------------------- CALCULATION OF REGISTRATION FEE
NUMBER OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF SHARES TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION REGISTERED PER SHARE PRICE(1) FEE Common Stock............................... 2,200,000 $12.00 26,400,000 7,339.20 Representative's Warrants.................. 220,000 $.0001 22.00 0(2) Common Stock Underlying Representative's Warrants (3)............................. 220,000 $14.40 3,168,000 880.71 Common Stock Issuable on Representative's Over-Allotment Option (4)................ 330,000 $12.00 3,960,000 1,100.88 Total Registration Fee..................... 9,320.79
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended. (2) None pursuant to Rule 457(g). (3) Represents shares issuable upon exercise of warrants to be issued to the Representative. Includes any shares that may be issued pursuant to the anti-dilution provisions of the representative's warrants. (4) Represents shares issuable upon the exercise of the Representative's option to cover over-allotments. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A) MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE. SUBJECT TO COMPLETION DATED NOVEMBER 3, 1999 PROSPECTUS NETJEWELS.COM, INC. 2,200,000 SHARES OF COMMON STOCK This is an initial public offering of 2,200,000 shares of common stock of NetJewels.com, Inc. We anticipate that the initial public offering price will be between $10.00 and $12.00 per share. Prior to this offering, there has been no public market for our common stock. We intend to file an application to have our common stock listed on the Nasdaq National Market, under the symbol "NTJL." PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PER SHARE TOTAL --------- -------- Initial public offering price............................... $ $ Underwriter's discount...................................... $ $ Proceeds before our expenses................................ $ $
------------------------ We have granted the underwriters an option for 45 days to purchase up to an additional 330,000 shares at the initial public offering price, less the underwriting discount, solely to cover over-allotments. The underwriters are offering the shares on a firm commitment basis. It is expected that the shares will be ready for delivery on or about , 1999. ------------------------ SECURITY CAPITAL TRADING, INC. The date of this prospectus is , 1999 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES ACCOMPANYING THE CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. THE COMPANY NetJewels.com, Inc. is a start-up Internet based retailer and wholesaler focused exclusively on jewelry and related products. By combining the expertise of our employees and strategic partner in the jewelry industry and our commitment to customer service with the benefits of Internet retailing, we intend to deliver our customers a first-rate shopping experience. Our online store offers an extensive selection of competitively priced jewelry including rings, earrings, pendants, bracelets, watches, chains, and accessories featuring over 5,000 different products. Most of the products offered at our online store range in price from $25 to $10,000, and we believe our products generally cater to the value conscious consumer. Our Web site features detailed product information and innovative merchandising through an intuitive and easy-to-use interface. Our total internet sales through August 31, 1999 have amounted to $265,245, in approximately 2,850 separate transactions, the majority of which have occurred on third-party Web sites. All of our products are currently supplied through an intercompany services agreement with DG Jewelry Inc., a manufacturer and distributor of stone-set jewelry in the middle market. DG is one of the major shareholders of our parent company, NetJewels.com Inc., an Ontario corporation, and DG's Chief Executive Officer is the Chairman of our Board of Directors and the father of both our CEO and our President and COO. OUR STRATEGY We seek to become the leading online retailer of jewelry and complementary products. In order to achieve this goal, we will implement the following strategies: - continually enhance our customers' experience at our online store; - offer a large product selection and continue to expand such selection; - ensure fast delivery; - continue to expand the product offering within our online store; - offer an on-line store which is available 24 hours a day 7 days a week and may be electronically visited from any PC with access to the Internet; - build brand awareness through advertising and promotion; - strengthen and expand our strategic alliances with third-party Web sites and content providers; - pursue acquisitions, joint ventures and other similar strategic investments and relationships with complementary businesses and companies; - continue to increase the number of Web sites in our affiliate network; and - continue to invest in technology to further develop state-of-the-art product, service and logistics platforms. OUR HISTORY We were incorporated in Delaware in June 1999 as Exite Jewelry.com, Inc. In October 1999, we changed our name to NetJewels.com, Inc. Our principal executive offices are located at 1001 Petrolia Road, North York, Ontario Canada M3J2X7 and our phone number is (416) 665-8844. From January 1999 until June 1999, our business was conducted through our parent company XiteJewelry.com Canada, incorporated in January 1999 which changed its name to NetJewels.com Inc. in August 1999. Prior to this offering, we were a wholy-owned subsidiary of NetJewels Canada. In 2 January 1999, we through NetJewels Canada, purchased all of the third party internet contracts of DG and began to develop our on-line store. DG has not obtained the consents of the third parties to this assignment. Our online store is located at www.NetJewels.com. Information contained on our Web pages does not constitute part of this prospectus. INDUSTRY OVERVIEW The retail jewelry industry, which according to the U.S. Department of Commerce, generated $22.3 billion dollars in retail sales in 1998, grew at a 8.5% rate from the prior year. Internet and online commerce provides retailers with the opportunity to serve a rapidly growing market as consumers increasingly accept the Internet as an alternative shopping channel. Our management believes that jewelry and accessories will be one of the fastest online retail categories. Forrester Research predicts that online sales of jewelry and accessories will reach $140 million by 2001. We believe that traditional store-based retailers face a number of challenges in providing a satisfying shopping experience for purchasers of jewelry. These challenges include limited product selection, location and levels of customer service. As a result, we believe that many consumers will find the jewelry shopping experience more convenient over the Internet because of the larger selection, ability to customize selections and lower prices that can be offered online. THE OFFERING - - Common stock offered by us:............ 2,200,000 shares - - Common stock to be outstanding after offering:............................ 5,500,000 shares - - Use of proceeds:....................... - Repayment of indebtedness; - Marketing and sales; - Acquisitions; - Technological and system upgrades; - Expansion of facilities; and - Working capital and general corporate purposes. - - Proposed Nasdaq National Market Symbol:.............................. NTJL
Except as noted, all of the information in this prospectus assumes that none of the following have been exercised: - the over-allotment option granted to the representative by us to purchase 330,000 additional shares; - warrants to purchase 220,000 shares of our common stock to be granted to the representative upon completion of this offering; - options available for grant to purchase 750,000 shares of our common stock pursuant to our 1999 stock option plan; and - currently outstanding warrants to purchase 100,000 shares of our common stock, at an exercise price of $.10 per share, held by our chairman. 3 SUMMARY CONSOLIDATED FINANCIAL DATA The financial information included in this prospectus may not necessarily be indicative of the financial position, result of operations and cash flow had we been operating as a separate stand-alone company during the periods presented. The following table summarizes the financial data for our business. The financial information in this prospectus includes figures, between January 1999 and June 1999, for our parent XiteJewelry.com Canada, which changed its name to NetJewels Canada.
YEAR ENDED JUNE 30, 1999 ------------- STATEMENT OF OPERATIONS DATA: Revenues.................................................... 75,439 Cost and expenses........................................... 425,670 Operating income (loss)..................................... (350,231) Net interest income (expense)............................... 0 Income (loss) from continuing operations.................... (350,231) Net loss.................................................... (350,231) Net loss applicable to common shares........................ (350,231) Net loss per basic and diluted common share................. (0.11) Shares used in computing basic and diluted net loss per share..................................................... 3,300,000
AS OF JUNE 30, 1999 ------------------------ ACTUAL AS ADJUSTED ---------- ----------- BALANCE SHEET DATA (AT PERIOD END): Cash and cash equivalents................................... 68 19,045,921 Working capital (deficiency)................................ (2,204,885) 16,840,968 Total assets................................................ 1,862,984 20,908,837 Total liabilities........................................... 2,213,147 0 Total shareholders' equity (deficiency)..................... (350,163) 18,695,690
4 RISK FACTORS AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND OTHER INFORMATION IN THIS PROSPECTUS BEFORE INVESTING IN OUR COMMON STOCK. WE HAVE A SHORT OPERATING HISTORY WHICH MAKES IT DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS AND PROSPECTS. DG commenced sales of jewelry on the internet in July 1998 as a separate business line of DG. Our parent company, NetJewels Canada was formed in January 1999. We operated our business through such parent company until our formation in June 1999 at which time we purchased all of the third party internet contracts of DG. We began selling products on our own Web site in July 1999. Accordingly, we have a limited operating history upon which you can evaluate our business and prospects. Our historical data is of limited value in projecting future operating results. An investor in our common stock must consider the risks and difficulties frequently encountered by early stage companies in new and rapidly evolving markets. These risks include our: - evolving business model; - competition; - need for increased customer acceptance of the online purchase of jewelry; - ability to maintain and expand our customer base; - need to continue to develop and upgrade our Web site, transaction-processing systems and network infrastructure; - ability to scale our systems and fulfillment capabilities to accommodate the growth of our business; - ability to access additional capital when required; - ability to develop and renew strategic relationships; and - dependence on the reliability and growing use of the Internet for commerce and communication and on general economic conditions. We cannot be certain that our business strategy will be successful or that we will successfully address these risks. WE HAVE INCURRED A NET LOSS SINCE INCEPTION AND EXPECT TO INCUR SUBSTANTIAL NET LOSSES FOR THE FORESEEABLE FUTURE. Since inception, we have been operating at a loss. Our net loss of $350,231 for the year ended June 30, 1999, primarily relates to start-up costs. We expect that operating losses and negative cash flow will continue for the foreseeable future as we must invest in marketing and promotional activities, technology and operating systems. We do not know when and if we will achieve sufficient revenues in relation to expenses to become profitable. Our future profitability depends on generating and sustaining high revenue growth while maintaining reasonable expense levels. Slower revenue growth than we anticipate or operating expenses that exceed our expectations would harm our business. If we achieve profitability, we cannot be certain that we would be able to sustain or increase profitability in the future. 5 OUR CHAIRMAN, CEO AND PRESIDENT HAVE POTENTIAL CONFLICTS OF INTEREST. All of our common stock is owned by NetJewels Canada, which is owned 50% by DG and 25% by each of Daniel and Ben Berkovits. DG's continuing beneficial ownership of NetJewels Canada's common stock, the beneficial ownership of NetJewels Canada's common stock by Daniel and Ben Berkovits, and the role of Jack Berkovits as our chairman and the chairman and CEO of DG, and the beneficial ownership of DG common stock by Berkovits family members, could create conflicts of interest. Jack Berkovits is also a paid consultant to us. We have relied on DG to provide corporate, fulfillment, inventory supply, space-sharing and other administrative services. We are not DG's sole client. We will continue to receive those services pursuant to the intercompany services agreement with DG for the foreseeable future. If DG fails to adequately provide services to us or if we fail to develop management and financial systems, our business could suffer until we develop our own sufficient operational, administrative and other systems and infrastructure. In addition, in the event that we seek to renegotiate or renew the intercompany services agreement we may be prejudiced by the familial relationship between our executive officers and DG. We have not instituted any formal plan or arrangement to address potential conflicts of interest that may arise among us, DG, members of the Berkovits family and their respective affiliates. OUR OPERATIONS ARE HEAVILY DEPENDENT UPON OUR INTERCOMPANY SERVICES AGREEMENT WITH DG. We currently obtain all of our products and a significant portion of our services from DG. If we are unable to obtain these products or services from DG for any reason, including the termination of the intercompany service agreement or DG's failure to perform its obligations under the intercompany service agreement, our business may suffer material damage. Pursuant the intercompany service agreement: - DG supplies merchandise to us at a price which is no greater than the price at which products are supplied to DG's best customers; - DG provides us with distribution and fulfillment of our orders through DG's distribution centers in Toronto, Canada and Cedar Knolls, New Jersey; - DG is required to maintain inventory levels sufficient to meet orders for products displayed on our Web site; - DG provides us with administrative and customer support services; and - DG takes responsibility for all product returns and warranties. Pursuant to the intercompany services agreement, we also contract for various additional services from DG and its subsidiaries including, among others, services for payroll processing, benefits administration, insurance including property and casualty, medical, dental and life, tax, merchandising, and telecommunications. In accordance with the terms of the intercompany service agreement, we have paid, and expect to continue to pay, fees to DG in an amount equal to $5,000 per month. Should our relationship with DG terminate or should DG encounter financial or other business difficulties that affect DG's ability to perform its obligations under the foregoing agreements, it would have a material adverse effect on our business. In this scenario, we would be forced to make alternative arrangements and rely on outside parties to fill these functions. We do not know if we would be able to secure these services from third parties on acceptable terms, if at all. 6 DG IS OUR SOLE SUPPLIER OF JEWELRY AND THUS WE ARE DEPENDENT UPON DG PRODUCING ATTRACTIVE MERCHANDISE IN SUFFICIENT QUANTITIES AND IN A TIMELY MANNER. DG is our sole supplier of jewelry. We are therefore dependent on consumer acceptance of the jewelry designs and products offered by DG. If DG fails to design jewelry that is attractive to consumers, it could have a negative effect on the demand for our products and services. We do not know if the intercompany service agreement were to be terminated, that we would be able to find an alternative, comparable supplier capable of providing product on terms satisfactory to us. In addition, to the extent that DG does not have sufficient capacity, is unable to satisfy our requirements on a timely basis, suffers a financial setback or a change in its strategic objectives, such an event could have a negative effect on the demand for our products and services and hurt our brand. DG supplies its products to numerous customers. We have the right to purchase products from sources other than DG, although we have no agreements or intentions of doing so at the present time. WE ARE CONTROLLED BY OUR PARENT COMPANY'S PRINCIPAL STOCKHOLDER, DG, WHICH HAS FAMILIAL RELATIONSHIPS WITH OUR EXECUTIVE OFFICERS, AND AS SUCH YOU MAY HAVE NO EFFECTIVE VOICE IN OUR MANAGEMENT. Upon the completion of this offering, DG, through its ownership of fifty percent (50%) of NetJewels Canada, will beneficially own thirty percent (30%) of the issued and outstanding shares of our common stock. Daniel P. Berkovits, our CEO, and Ben Berkovits, our President and COO, will each beneficially own fifteen percent (15%) of us, through their ownership of NetJewels Canada. Daniel and Ben Berkovits are the children of Jack Berkovits, our chairman and CEO and chairman of DG. Accordingly, DG and the Berkovits family will collectively control us and will be able to exercise control over all matters requiring stockholder approval, including the election of all directors and approval of significant corporate transactions. If you purchase shares of our common stock, you may have no effective voice in our management. IN ORDER TO EFFECTUATE OUR BUSINESS PLAN, WE WILL REQUIRE SUBSTANTIAL FUNDS AND WE MAY NEED AND BE UNABLE TO OBTAIN ADDITIONAL CAPITAL IN THE FUTURE, AND IF WE RAISE ADDITIONAL CAPITAL THROUGH THE SALE OF EQUITY SECURITIES YOU MAY EXPERIENCE DILUTION. We cannot assure you that we will be able to achieve our goals without additional capital or that we will be able to raise additional capital. Even if additional capital is obtained, we cannot assure you that we will be able to achieve our goals with additional capital, or that any new capital, if available, will be on favorable terms. We expect that the proceeds of this offering will be sufficient to implement our business plan for at least the 12 months following completion of this offering. However, we may need to raise additional capital in this period if our estimates of revenues, expenses and/or capital expenditures change or prove inaccurate in order for us to respond to unforeseen technological, operational or marketing hurdles or to take advantage of unanticipated opportunities. In the event that we raise additional capital through the sale of our equity securities you may experience dilution. OUR FUTURE OPERATING RESULTS ARE UNPREDICTABLE AND MAY FLUCTUATE DUE TO A VARIETY OF FACTORS, MANY OF WHICH ARE BEYOND OUR CONTROL. As a result of our limited operating history, it is difficult to accurately forecast our sales and we have limited meaningful historical financial data upon which to base planned operating expenses. We base our current and future expense levels on our operating plans and estimates of future net sales. Sales and operating results are difficult to forecast because they generally depend on the volume and timing of the orders we receive. As a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfall. We may also be unable to increase our spending and expand our operations in a timely manner to adequately meet customer demand to the extent it exceeds our expectations. 7 Our annual and quarterly operating results may be affected and may fluctuate significantly in the future due to a variety of factors, many of which are outside of our control. Factors that may harm our business or cause our operating results to fluctuate include the following: - our inability to obtain new customers at a reasonable cost, retain existing customers, or encourage repeat purchases; - decreases in the number of visitors to our Web site or our inability to convert visitors to our Web site into customers; - our inability to manage fulfillment operations; - our inability to adequately maintain, upgrade and develop our Web site, transaction-processing systems or network infrastructure; - the ability of our competitors to offer new or enhanced Web sites, services or products; - price competition; - the termination of existing, or failure to develop new, strategic marketing relationships pursuant to which we receive exposure to traffic on third-party Web sites; - increases in the cost of online or offline advertising; - our inability to attract new personnel in a timely and effective manner or retain existing personnel; - the amount and timing of operating costs and capital expenditures relating to expansion of our operations; - technical difficulties, system downtime or Internet brownouts; - a breach in our on-line security systems; - government regulations related to use of the Internet for commerce or for sales; and - general economic conditions and economic conditions specific to the Internet, online commerce and the jewelry industry. WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE COMPETITORS. The online commerce market is new, rapidly evolving and intensely competitive. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any of which could seriously harm our net sales and results of operations. We expect competition to intensify in the future because current and new competitors can enter our market with little difficulty and can launch new Web sites at a relatively low cost. In addition, the retail jewelry industry is intensely competitive. We currently or potentially compete with a variety of other companies including: - traditional store-based jewelry retailers such as Zales, Gordons, Sterling and Friedmans; - department store retailers such as Sears, J.C Penney, Macy's and Ward's; - major discount retailers such as Wal-Mart, Kmart, Target and Service Merchandise; - cable shopping networks such as QVC, to whom DG is a supplier, and HSN; - online efforts of these traditional and cable network retailers, including the online stores operated by QVC, ValueAmerica and Zales; - catalog retailers of jewelry; 8 - other online retailers that may include jewelry as part of their product offerings, such as Amazon.com; - online wedding portal sites that feature shopping services, such as theKnot.com and Modern Bride; - Internet portals, online auction services and online service providers that feature shopping services, such as eBay, Yahoo! and Amazon.com; and - various online retailers of jewelry, such as Alle Fine Jewelry, eJewelry and Just Jewelry. Many of our competitors and potential competitors have substantially greater financial, technical and marketing resources, longer operating histories, greater name recognition and more established relationships with advertisers and Internet portal sites than us. Such competitors may be able to undertake more extensive marketing campaigns and adopt more aggressive pricing polices then we can. WE WILL NEED TO SPEND SIGNIFICANT RESOURCES ON MARKETING IN ORDER TO DIRECT TRAFFIC TO OUR WEB SITE AND WE CURRENTLY HAVE NO MARKETING STAFF. We are reliant on the marketing efforts which we expect to fund, in part, from the proceeds of this offering to drive traffic to our online store. To date, our marketing efforts have been limited to advertising on portals, and listing our products and site name on several auction sites and search engines. We do not currently employ any marketing staff. In order to generate traffic to our Web site we expect to spend heavily on advertising and marketing efforts online and in traditional mediums. WE ARE DEPENDENT UPON OUR STRATEGIC ALLIANCES WITH THIRD-PARTY WEB-SITES AND CONTENT PROVIDERS INCLUDING UBID.COM, BID.COM AND AOL WHICH CONTRACTS ARE IN DG'S NAME AND THE THIRD PARTIES HAVE NOT YET CONSENTED TO THEIR TRANSFER TO US. We rely on certain strategic alliances with third-party web sites and content providers to attract users to our online store and have entered into various agreements with companies to attract users from other Web sites or online services. The majority of our sales to date have been through these third-party sites. We can not be sure that these agreements will be maintained beyond their initial terms, or that they will not be terminated or that we will be able to enter into additional third-party agreements on acceptable commercial terms or even at all. If we are unable to enter into new strategic agreements or to maintain any one or more of our existing, significant strategic alliances, it would probably result in a material adverse effect on our business. All of these agreements are with DG. The agreements require DG to obtain the consent of such parties to an assignment, to date, DG has not received the consent of any of the third parties. WE MAY NOT HAVE THE TECHNOLOGY TO SUPPORT INCREASED VOLUME ON OUR WEB SITE. A key element of our strategy is to generate a high volume of traffic on our Web site. However, growth in the number of users of our online store may strain or exceed the capacity of our computer systems and lead to declines in performance or systems failure. We must also introduce additional or enhanced features and services to retain current users and attract new users to our online store. If a new service is not favorably received, our current customers may visit our online store less frequently. These new services or features may not function well and we may need to significantly modify the design of these services to correct errors. If users encounter difficulty with or do not accept our services or features, our business would be damaged. 9 THE DEMAND FOR OUR PRODUCTS AND SERVICES IS DEPENDENT UPON THE INTERNET BECOMING A USABLE MEDIUM FOR COMMERCE. Consumer use of the Internet as a medium for commerce is a recent phenomenon and is subject to a high level of uncertainty. The Internet may not prove to be a viable commercial marketplace because of inadequate development of the necessary infrastructure, such as reliable network backbones, or complementary services. The viability of the Internet or its viability for commerce may prove uncertain due to delays in the development and adoption of new standards and protocols to handle increased levels of Internet activity or due to increased government regulation or taxation. While the number of Internet users has been rising, the Internet infrastructure may not expand fast enough to meet the increased levels of demand. The increased use of the Internet as a medium for commerce raises concerns regarding Internet security, reliability, pricing, accessibility and quality of service. If use of the Internet does not continue to grow, or if the necessary Internet infrastructure or complementary services are not developed to effectively support growth that may occur, the demand for our services and products could be negatively affected. In addition, the nature of the Internet as an electronic marketplace which may, among other things, facilitate competitive entry, comparison shopping and advertising revenue supported business models, may render it inherently more competitive than conventional retailing formats. ANY IMPOSITION OF A SALES OR OTHER TAX ON E-COMMERCE COULD NEGATIVELY EFFECT THE DEMAND FOR OUR PRODUCTS AND SERVICES. We do not currently collect sales or other similar taxes for physical shipments of goods into any states or provinces, other than Ontario, Canada where we are based. There have recently been several proposals put forth in the United States Congress which would impose sales tax on goods sold over the Internet. In the event that such proposals are adopted there could be an adverse affect on the demand for our products. In addition, one or more local, state or foreign jurisdictions may seek to impose sales tax collection obligations on us. In addition, any new operation in states or provinces outside of Ontario could subject our shipments in such states or provinces to sales taxes under current or future laws. If one or more states or any foreign country successfully asserts that we should collect sales or other taxes on the sale of our products, it could adversely affect the demand for our services and products. THE DEMAND FOR OUR PRODUCTS AND SERVICES MAY FLUCTUATE WITH THE PRICE OF JEWELRY AND THE HOLIDAY SEASON. The availability and cost of precious metals and precious and semi-precious stones will affect the demand for our products and services. The availability and prices of gold, diamonds and other precious metals and precious and semi-precious stones may be influenced by cartels, political instability in exporting countries and inflation. Shortages of these materials or sharp changes in their prices could have a material adverse effect on our results of operations or financial condition. We expect to experience increased demand for our products during the holiday season, which is during the fourth quarter of our fiscal year. If for any reason our sales during the fourth quarter were substantially below expectations, our annual and quarterly operations could be materially and adversely affected. THE SALE OF JEWELRY AND THE DEMAND FOR OUR PRODUCTS AND SERVICES IS DEPENDENT UPON A STRONG ECONOMY. Retail jewelry sales are sensitive to fluctuations in the economic cycle. Unfavorable general economic conditions generally have an adverse effect on consumer spending, and therefore on our business. It is probable that unfavorable general economic conditions or a downturn in consumer 10 confidence in the future would have an adverse effect on consumer spending preferences and, therefore, on our business. IF WE DO NOT CONTINUALLY UPDATE OUR TECHNOLOGY AND THE EASE AND FUNCTIONABILITY OF OUR WEB SITE, WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY. To remain competitive, we must continually enhance and improve the responsiveness, functionality and features of our online store. The Internet and the e-commerce industry are characterized by rapid technological change, changes in user and customer requirements and preferences, frequent new product and service introductions embodying new technologies and the emergence of new industry standards and practices. These changes could render our existing online store and proprietary technology and systems obsolete. Our success will depend, in part, on our ability to license appropriate technologies, enhance our existing services, and develop new services and technology that address the increasingly sophisticated and varied needs of our existing and prospective customers. We must also be able to respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. INTERNET SECURITY CONCERNS COULD HINDER E-COMMERCE AND THE DEMAND FOR OUR PRODUCTS AND SERVICES. Public concern over Internet security has been, and may continue to be, a hindrance to commercial use of the Internet. Despite our implementation of third-party vendor network security measures, our infrastructure is vulnerable to computer break-ins and disruptive problems. We may incur significant costs to protect against the threat of security breaches or alleviate problems created by breaches. Internet usage and the demand for our services and products could decline if a well publicized compromise of security occurs. Computer viruses, break-ins or other security problems could lead to misappropriation of proprietary information and interruptions, delays or cessation in service to our customers. Any computer break-in could affect consumer confidence in the security of our services and could seriously damage our brand and business. WE MAY NOT BE ABLE TO OBTAIN THE MOST DESIRABLE WEB SITE ADDRESSES FOR OUR BUSINESS. We have registered various Internet Web site addresses related to our business. We may not be able to prevent third parties from acquiring Web site addresses that are similar to our addresses, which could cause confusion and may damage our brand. We are aware of several names which are similar to our name and may cause confusion and hurt our brand. The regulation of Web site addresses in the United States and foreign countries is subject to change. As a result, we may not be able to acquire or maintain relevant Web site addresses in all countries where our services and products are made available through the Internet. Furthermore, the relationship between regulations governing such addresses and laws protecting trademarks is unclear. YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION AND OUR CURRENT SHAREHOLDERS WILL BENEFIT DISPROPORTIONATELY FROM THIS OFFERING. The initial public offering price per share will exceed the net tangible book value per share. Investors purchasing shares in this offering will suffer immediate and substantial dilution of their investment of $7.91 per share. OUR MANAGEMENT HAS BROAD DISCRETION AS TO HOW TO USE THE PROCEEDS OF THIS OFFERING AND YOU MAY HAVE NO OPPORTUNITY TO APPROVE THE USE OF PROCEEDS OF THIS OFFERING. Approximately $9,747,400 or 45.8% of the net proceeds of this offering will be applied to working capital and general corporate purposes. Accordingly, our management will have broad discretion over 11 the use of the proceeds. Our stockholders may have no opportunity to approve the use of the proceeds of this offering. WE FACE YEAR 2000 RISKS. Many existing computer programs use only two digits to identify a year. These programs were designed and developed without addressing the impact of the upcoming change in the century. If not corrected, many computer software applications could fail or create erroneous results by, at or beyond the year 2000. We use software, computer technology and other services internally developed and provided by third-party vendors that may fail due to the year 2000 phenomenon. In addition, we are dependent on the financial institutions involved in processing our customers' credit card payments for Internet services and a third party that hosts our servers, all of which may fail due to the year 2000 problem. We are also dependent on telecommunications vendors to maintain our network and the United States and Canadian postal services and other third-party carriers to deliver orders to customers. The failure of our software and computer systems and of our third-party suppliers to be year 2000 complaint would have a material adverse effect on us. The year 2000 readiness of the general infrastructure necessary to support our operations is difficult to assess. For instance, we depend on the integrity and stability of the Internet to provide our services. We also depend on the year 2000 compliance of the computer systems and financial services used by consumers. A significant disruption in the ability of consumers to reliably access the Internet or portions of it or to use their credit cards would have an adverse effect on demand for our services and would have a material adverse effect on us. WE MAY NOT BE ABLE TO MANAGE OUR GROWTH EFFECTIVELY. Our ability to implement our business strategy in a new and rapidly evolving market requires effective planning and management oversight. Our anticipated future operations will place a significant strain on our management, personnel, information systems and resources. To manage the expected growth of our operations and personnel, we will be required to improve existing and implement new transaction-processing, operational and financial systems, procedures and controls, and to expand, train and manage our limited employee base on a timely basis. We will need to hire and retain highly skilled personnel to manage our expected growth. Our inability to manage our growth effectively would have a material adverse effect on our business, results of operations and financial condition. THE LOSS OF THE SERVICES OF OUR KEY PERSONNEL, OR OUR FAILURE TO ATTRACT, ASSIMILATE AND RETAIN HIGHLY QUALIFIED PERSONNEL IN THE FUTURE, COULD SERIOUSLY HARM OUR BUSINESS. Our future success depends, in part, on the continued services of our senior management and our ability to retain and motivate our other key employees. The loss of the services of Daniel or Ben Berkovits or any other key employee would have a material adverse effect on our business, results of operations and financial condition. Our relationships with Daniel and Ben Berkovits can be terminated at any time. We do not currently have key-man life insurance on Daniel or Ben Berkovits. Our future success also depends on our ability to identify, attract, hire, train, retain and motivate highly skilled technical, managerial, merchandising, marketing and customer service personnel. Competition for such personnel is intense, and we cannot be certain that we will be able to successfully attract, assimilate or retain sufficiently qualified personnel. Our inability to do so could have a material adverse effect on our business, results of operations and financial condition. THE REPRESENTATIVE OF THE UNDERWRITERS MAY HAVE CONTINUED INFLUENCE ON US FOLLOWING THE COMPLETION OF THIS OFFERING. The representative of the underwriters may be able to exert continuing influence on us in light of the fact that we have granted the representative: (a) the right to appoint a board member for a three-year period following the completion of this offering; and (b) warrants to purchase 220,000 shares of our common stock. In light of the foregoing, the representative may have, for the foreseeable future, a dominating influence over us. 12 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Information in this prospectus may contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans strategies and expectations, are generally identifiable by use of the words "may," "should," "expect," "anticipate," "estimates," "believe," "intend" or "project" or the negative of these words variations on these words or comparable terminology. The following are some of the important factors that could our cause actual results to differ materially from those discussed in forward-looking statements: - timely and successful marketing of our Web site and products; - ability to enter into strategic alliances with large portal Web sites and auction sites; - continuing relationships with existing strategic partners and development of additional strategic relationships; and - other matters discussed in the "Risk Factors" section of this prospectus. 13 USE OF PROCEEDS We estimate that we will receive net proceeds of approximately $21,259,000 from our sale of the 2.2 million shares of common stock being offered hereby, assuming an initial public offering price of $11.00, representing the mid-point of the filing range. If the representative exercises its over-allotment option in full, we will receive net proceeds of approximately $24,507,850. Both of these figures are after deduction of estimated underwriting discounts and commissions and after fees and expenses of $1,005,000, $1,095,750 if the over--allotment option is exercised in full payable by us. We expect to use the net proceeds of this offering as follows:
USE APPROXIMATE AMOUNT PERCENTAGE OF NET PROCEEDS - --- ------------------ -------------------------- Repayment of indebtedness to DG...................... $ 2,711,600 12.7% Advertising and marketing............................ 5,000,000 23.5 Equipment and software purchase and upgrades......... 500,000 2.4 Expansion of fulfillment operations and executive offices............................................ 500,000 2.4 Hiring executive personnel........................... 300,000 1.4 Acquisitions......................................... 2,500,000 11.8 General corporate and working capital purposes....... 9,747,400 45.8 ----------- ----- Total................................................ $21,259,000 100.0% =========== =====
We intend to repay approximately $2,711,600 to DG which consists of $1,800,000 which we owe DG in consideration for the transfer of DG's internet contracts to us, and $911,600 which represents advances made to us to finance our start-up costs. Upon completion of this offering, we intend to utilize approximately $5,000,000 to market our Web site through traditional advertising methods including print, radio, television and online advertising. We also intend to hire a celebrity as a spokesperson to increase consumer awareness of our company and products. We expect that we will experience an on-going need to add additional hardware and software upgrades to our existing systems in order to handle expected increased traffic at our Web site, accordingly we have budgeted $500,000 for such use. We expect that our future growth will require us to secure new office space to adequately house our operations and we have budgeted $500,000 for such use. In addition to hiring other employees to meet our anticipate growth, we intend to hire a full time director of marketing, as well as a chief financial officer and chief information officer following the offering. It is part of our strategy to acquire complementary technologies or businesses; however, we currently have no commitments or agreements and are not involved in any negotiations with respect to any such transactions. We have budgeted $2,500,000 of the net proceeds for any potential acquisitions. We have dedicated approximately $9,747,000 to general corporate needs and working capital purposes which we expect to require as a result of our anticipated growth. These needs include added salaries, health care costs, professional fees and other costs which will require us to use the proceeds of this offering until the time that we become a profitable business, of which there can be no assurance. Pending application, the net proceeds will be invested principally in short-term certificates of deposit, money market funds or short-term treasury bonds. 14 We reserve the right to reallocate proceeds to different uses if, in management's view, the needs of the business so require. In addition, a large portion of the proceeds is allocated to discretionary purposes. Investors may not agree with any such allocation or reallocation. In the event the representative exercises the over-allotment option we intend to utilize such additional proceeds for working capital. Based on our operating plan, we believe that the net proceeds of this offering, together with available funds on hand and cash flow from future operations, will be sufficient to satisfy our working capital requirements for at least twelve months following this offering. Such belief is based upon certain assumptions, including assumptions as to our contemplated operations and business plan and economic and industry conditions. We cannot be certain that such resources will be sufficient for such purpose and if not we may need to raise additional capital through the sale of equity securities. In addition, contingencies may arise that may require us to obtain additional capital. We cannot be certain that we will be able to obtain such capital on favorable terms or at all. 15 DIVIDEND POLICY We have never paid or declared cash or stock dividends on our common stock. The payment of cash dividends, if any, is at the discretion of our board of directors and will depend upon our earnings, our capital requirements, financial condition and other relevant factors. We intend, for the foreseeable future, to retain any future earnings for use in our business. DILUTION Our pro forma net tangible book value as of June 30, 1999 was approximately $(2,200,000) or $(0.67) per share. Net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of shares of common stock outstanding. Dilution in net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the net tangible book value per share of common stock immediately after the completion of this offering. After giving effect to the sale of the 2,200,000 shares of common stock offered by us at an assumed initial public offering price of $11.00 per share, representing the mid-point of the filing range, and after deducting the underwriting discount and estimated offering expenses payable by us, our pro forma net tangible book value at June 30, 1999 would have been approximately $17,000,000 or $3.09 per share of common stock. This represents an immediate increase in net tangible book value of $3.76 per share to existing stockholders and an immediate dilution of $7.91 per share to new investors of common stock. The following table illustrates this dilution on a per share basis: Assumed initial public offering price....................... $11.00 Net tangible book value at June 30, 1999................ $(0.67) Increase in net tangible book value attributable to new investors............................................. 3.76 Net tangible book value after this offering................. 3.09 ------ Dilution of net tangible book value to new investors........ $ 7.91 ======
In the event that the over-allotment option is exercised in full, the dilution to new investors would be $7.57 per share. The following table sets forth, as of the date of this prospectus, the number of shares of common stock purchased, the percentage of the total number of common stock purchased, the total consideration paid, the percentage of total consideration paid, and the average price per share paid by the investors in this offering and our current shareholders:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ---------------------- ------------------------ PRICE PR NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE --------- ---------- ----------- ---------- -------- Existing stockholders................... 3,300,000 60% $ 3,300 0.1% $0.001 New investors........................... 2,200,000 40% $24,200,000 99.9% $11.00 --------- ----- ----------- ----- Total................................. 5,500,000 100.0% $24,203,300 100.0% ========= ===== =========== =====
The preceding table excludes deduction of underwriting commissions, discounts and other expenses of this offering. 16 CAPITALIZATION The following table sets forth our capitalization as of June 30, 1999: - on an actual basis; and - on a pro forma basis to reflect the receipt of the estimated net proceeds from the sale by us of 2,200,000 shares of common stock at an assumed initial public offering price of $11.00 per share, representing the mid-point of the filing range. This table should be read in conjunction with our consolidated financial statements and the accompanying notes appearing elsewhere in this prospectus.
ACTUAL PRO-FORMA ----------- ----------- Short term liabilities...................................... $ 2,213,147 2,213,147 Long term debt.............................................. $ 0 $ 0 Stockholders' equity: Preferred stock, 1,000,000 authorized, none issued and outstanding............................................. 0 0 Common stock, $.01 par value per share, 19,000,000 authorized, 3,300,000 issued and outstanding, actual; and 5,500,000 issued and outstanding, pro-forma............... 68 19,360,068 Accumulated deficit......................................... (350,231) (350,231) ----------- ----------- Total stockholders equity (deficit)......................... (350,163) 19,009,837 Total capitalization.................................. $(1,862,984) $21,222,984 =========== ===========
- ------------------------ The preceding table excludes: - - 750,000 shares reserved for grant under our stock option plan; - - 220,000 shares issuable upon exercise of the representative's warrants; - - 100,000 shares issuable upon exercise of outstanding warrants held by our chairman; and - - 330,000 shares issuable upon exercise of the over-allotment option. 17 SELECTED FINANCIAL DATA The following selected historical financial and other data are qualified by reference to, and should be read in conjunction with, our consolidated financial statements and their related notes appearing elsewhere in this prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The selected statement of operations data shown below for the year ended June 30, 1999 and the balance sheet data as of June 30, 1999 are derived from our audited consolidated financial statements included elsewhere in this prospectus. They include the financial performance of NetJewels Canada for the period between January 1999 and June 1999.
YEAR ENDED ENDED JUNE 30, 1999 ------------------- STATEMENT OF OPERATIONS DATA: Revenues.................................................... 75,439 Cost of revenues............................................ 425,670 --------- Operating income (loss)..................................... (350,231) Net interest income (expense)............................... 0 Income (loss) from continuing operations.................... (350,231) Net loss.................................................... (350,231) ========= Net loss applicable to common shares........................ (350,231) Net loss per basic and diluted common share................. (0.11) ========= Shares used in computing basic and diluted not loss per share..................................................... 3,300,000 =========
AS OF JUNE 30, 1999 ------------------- BALANCE SHEET DATA: Cash and cash equivalents................................... 68 Working capital (deficiency)................................ (2,204,885) Total assets................................................ 1,862,984 Total liabilities........................................... 2,213,147 Total shareholders' (deficit) equity........................ (350,163)
18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. OVERVIEW Our strategy is to become the leading Web-based retailer of jewelry. We currently offer an extensive selection of competitively priced jewelry products and intend to continue to expand our product offerings. We were incorporated in June 1999 as Exite Jewelry.Com,Inc., which name was changed to NetJewels.Com, Inc. in October 1999, but began offering products for sale on third-party Web sites including Internet auction sites in April 1999 through our parent company, NetJewels Canada. We have realized revenues of approximately $265,000 from these activities as of August 31, 1999. In January 1999, NetJewels Canada purchased all of DG's third-party site sale business and all strategic agreements relating to Internet sales for $1.8 million. This amount is to be repaid out of the net proceeds of this offering. In addition, NetJewels Canada issued 1,650,000 shares of its common stock, 50% of its shares, to DG in exchange for advancing us funds to use in our operations until such time that we are able to fund ourselves. In addition, we have agreed to reimburse DG for all monies advanced in connection with our start-up. As of June 30, 1999 such amount is approximately $911,600. Since launching our online store we have continued to sell goods on third party sites and have also focused on building sales momentum on our Web site store, expanding our product offerings, promoting our brand name and establishing fulfillment and customer service operations. We expect our cost of sales and operating expenses will increase significantly. This reflects the costs associated with our formation as well as increased efforts to promote our brand, build market awareness, attract new customers, recruit personnel, build operating infrastructure and develop our Web site and associated transaction-processing systems. We expect to significantly increase our on-line traffic once our intended intensive advertising campaign begins upon completion of this offering. Since launching our Web-site in July 1999, we have dedicated our efforts to making shopping on our site user-friendly and secure. Since inception, we have incurred losses and, as of June 30, 1999, had an accumulated deficit of $350,231. We expect operating losses and negative cash flow to continue for the foreseeable future. We anticipate our losses will increase significantly from current levels because we expect to incur additional costs and expenses related to: (a) brand development, (b) marketing and other promotional activities, (c) the expansion of our management and order fulfillment infrastructure, (d) the continued development of our Web site, (e) transaction-processing systems and network infrastructure, (f) the expansion of our product offerings and Web site content, and (g) strategic relationship development. We have a very limited operating history on which to base an evaluation of our business and prospects. You must consider our prospects in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets such as online commerce. These risks include, but are not limited to, an evolving and unpredictable business model and management of growth. RESULTS OF OPERATIONS In view of the rapidly changing nature of our business and our limited operating history, we believe that our gross profit margin and operating expenses as a percentage of sales, are not necessarily meaningful and should not be relied upon as an indication of future performance. 19 The financial information included in this prospectus may not necessarily be indicative of the financial position, results of operations and cash flows had we been operating as a separate stand-alone company during the periods presented. The following table sets forth statement of operations data as a percentage of net sales for the periods indicated:
JUNE 30, 1999 --------------- STATEMENT OF OPERATIONS DATA: Net sales................................................... $ 75,439 100% Cost of sales............................................... $ 64,009 85% ======== ==== Gross Profit................................................ 11,430 15% Operating expenses: Marketing and sales......................................... 220,613 (61)% Product development......................................... 104,882 (29)% General administrative...................................... 36,166 (10)% Total operating expenses.................................... 361,661 (479)% -------- ---- Operating loss.............................................. 350,231 (479)% Interest income (expense), net.............................. 0 (0)% Provision for income taxes.................................. 0 0% -------- ---- Net loss.................................................... 350,231 (479)% ======== ====
NET SALES. Net sales include the sale of our jewelry products, net of returns, up front fees and commissions paid to third party sites. Net sales totaled $75,439 for the year ended June 30, 1999. Sales include those made on our website and those made on third party websites COSTS OF SALES. Costs of sales include the costs actually paid for the goods. Cost of sales totaled $64,009 for the year ended June 30, 1999. GROSS PROFIT. For the year ended June 30, 1999, we had a gross profit of $11,430 or 15.15%. We expect our gross profit to increase as the percentage of our on-line store sales increase and the percentage of our sales on third-party web sites decreases as a percentage of total sales. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist of payroll and related expenses for executive, accounting and administrative personnel, recruiting, professional fees, and other corporate expenses. General and administrative expenses totaled $36,167 for the year ended June 30, 1999. General and administrative expenses will continue to increase as our staff expands and incurs additional costs to support the growth of our business. Currently, the majority of such services are provided by DG pursuant to the intercompany services agreement. DG charges us $5,000 per month for such services. NET INCOME (LOSS). We incurred a net loss of $350,231 for the year ended June 30, 1999, and expect to continue to incur net losses for the foreseeable future. LIQUIDITY AND CAPITAL RESOURCES Our principal capital requirements are to acquire merchandise, maintain and improve our online store and engage in advertising and promotional activities. Since inception, we have primarily financed this requirement through approximately $900,000 of advances from DG and cash flows from operations. The loan bears no interest and all amounts are due on demand. This loan will be repaid with a portion of the net proceeds of this offering. 20 At June 30, 1999, we had a working capital deficit of approximately $2,204,885 and incurred losses since inception of approximately $350,231. We are significantly dependent on DG for the conduct of our operations. Pursuant to the intercompany service agreement, DG provides us various additional services including, among others, services for payroll processing, benefits administration, insurance including property and casualty, medical, dental and life, merchandising and telecommunications. DG charges us $5,000 per month for such services. We incurred an obligation of $2,204,953 in our operating activities for the year ended June 30, 1999, which is due to certain start-up costs aggregating $404,953 and the purchase of certain internet contracts from DG for $1,8000,000. We believe that funds generated from operations and the net proceeds of this offering will be sufficient to finance our current and anticipated operations for at least 12 months after this offering. Our long-term capital requirements beyond this period will depend on numerous factors, including, but not limited to, the following: - the rate of market acceptance of our online store; - the ability to expand our customer base; - the cost of upgrades to our online store; and - the level of expenditures for sales and marketing and other factors. If the funds from this offering and our revenues are insufficient to fund the activities in the short or long term, we would need to raise additional funds by incurring debt or through public or private offerings of our stock. We may not be able to do either on terms favorable to us, if at all. THE YEAR 2000 Impact of the year 2000. The year 2000 issue is the potential for system and processing failures of date-related data and the result of computer-controlled systems using two digits rather than four to define the applicable year. For example, computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. State of readiness. We may be affected by year 2000 issues related to non-compliant information technology systems or non-information technology systems operated by us or by third parties. We have substantially completed an assessment of our internal and external third-party information technology systems and non-information technology systems and a test of the information technology systems that support our web site. At this point in our assessment and testing, we are not aware of any year 2000 problems relating to systems we or third parties operate that would have a material effect on our business or financial condition, without taking into account our efforts to avoid these problems. However, we cannot assure you that there will be no year 2000 problems. Our information technology systems consist of software developed either in-house or purchased from third parties, and hardware purchased from vendors. We have contacted our principal vendors of hardware and software. All of those contacted vendors have notified us that the hardware and software that they supplied to us is year 2000 compliant. We have also substantially completed an assessment of our non-information technology systems which we have identified as possibly having year 2000 issues. At this point in our assessment, we are not aware of any year 2000 problems relating to these systems which would have a material effect on our business or financial condition, without taking into account our efforts to avoid these problems. 21 Our information technology systems and other business resources rely on information technology systems and non-information technology systems provided by service providers and therefore may be vulnerable to those service providers' failure to remediate their own year 2000 issues. These service providers include those for our network and e-mail services and landlords for our leased office spaces. We have contacted these principal service providers and we have been notified that the information technology and non-information technology systems which they provide to us are year 2000 compliant. DG has notified us that their systems are year 2000 compliant. Cost. Based on our assessment to date, we do not anticipate that costs associated with remediating our non-compliant systems will be material. Risks. To the extent that our assessment is finalized without identifying any material non-compliant information technology or non-information technology systems operated by us or by third parties, the most reasonably likely worst case year 2000 scenario is the failure of one or more of our vendors of hardware or software or one or more providers of non-information technology systems to properly identify any year 2000 compliance issues and remediate any issues before the end of the second quarter of 1999. A failure could prevent us from operating our business, prevent users from accessing our web site or change the behavior of advertising customers or persons accessing our web site. We believe that the primary business risks, in the event of a failure, would include but not be limited to: - lost advertising revenues; - increased operating costs; - loss of customers or persons accessing our web site; - other business interruptions of a material nature; and - claims of mismanagement, misrepresentation, or breach of contract. Contingency Plan. As discussed above, we are engaged in an ongoing year 2000 assessment and testing. Following the completion of the assessment, we plan to conduct a full-scale year 2000 simulation of our information technology systems. The results of this simulation and our assessment will be taken into account in determining the nature and extent of any contingency plans. RECENT ACCOUNTING PRONOUNCEMENTS We do not believe any recently issued accounting standards have had or will have a material affect on our business. 22 BUSINESS GENERAL Our goal is to be the leading online retailer of jewelry and complementary products. Since commencing our on-line sales through our Web-site, in July 1999, and through third party web sites including Ubid.com, we have sold products to over 3,000 customers. We believe we have created a model for jewelry distribution based upon an attractive value proposition. Our online store is integrated with DG's production and distribution infrastructure and offers customers an extensive product offering at what we believe to be attractive prices. Our online store, located at "www.NetJewels.com" at any given time contains over 5,000 products including rings, bracelets, necklaces and other jewelry items. Most items offered on our Web site range in price from $25 to $10,000. In addition to our extensive product selection of jewelry, we believe we offer our customers fast delivery, discounts, easy and secure ordering, rich editorial content and community experience. We believe our advertising and promotion agreements with Web portal sites including AOL and theglobe.com, will extend our brand and consumer exposure to our online store. Because these sites feature us as a jewelry supplier, our brand recognition increases and lends us credibility. Our online store includes what we believe to be a user friendly search engine and product reviews. During the first half of the year 2000, we expect to establish a custom jewelry design feature on the site that will allow customers to design jewelry to their individual tastes, a gift center, an online shopping assistant and gift certificates. CORPORATE HISTORY NetJewels.com, Inc. was incorporated on June 21, 1999 in the State of Delaware as Exite Jewelry.com, Inc. Between January 1999 and July 1999, the business was conducted by NetJewels Canada, which is 50% owned by DG, 25% by Daniel Berkovits, our CEO, and 25% by Ben Berkovits, our President/COO. Prior to January 1999, our business was conducted as a separate line of business by DG Jewelry Inc. In January 1999, Daniel Berkovits and Ben Berkovits formed NetJewels Canada, formerly Xite Canada, an entity in which they collectively owned 100% of the outstanding equity. In May 1999, NetJewels Canada issued 50% of its capital stock to DG in exchange for DG agreeing to advance the necessary funds for NetJewels Canada's operations until such time as NetJewels Canada is able to fund its own operations. In addition, in January 1999 we, through our parent company, purchased all of DG's third party contracts for an aggregate of $1.8 million, which will be paid out of the proceeds of this offering. DG has not obtained the contractually required consents of the third parties to the assignment of these contracts. Jack Berkovits is the Chairman of NetJewels Canada and DG Jewelry Inc. We are offering 2,200,000 shares of common stock to the public in this offering. Immediately after the offering, we will be beneficially owned 30% by DG, 15% by Daniel Berkovits, 15% by Ben Berkovits and 40% by the public stockholders purchasing shares of common stock in this offering. DG JEWELRY We believe that our relationships with DG, a jewelry manufacturer and wholesaler, provides us with competitive advantages relative to other online retailers in our category, including: The use of DG's distribution center as our principal product supplier, which enables us to: - offer over 5,000 in-stock items, ensure fast delivery, offer a large product selection without the need to make a significant investment in inventory and the ongoing expense related to the management of such inventory; 23 - purchase goods at a lower price than would otherwise be available through other wholesalers; - turn over the responsibility for all product returns and warranties to DG; and - ongoing access to the jewelry manufacturing and distribution knowledge and experience of the management of DG. DG is primarily engaged in the design, manufacture and distribution of stone-set jewelry for department stores, mass merchants, catalog showrooms, television shopping networks and other high volume retailers and major discounters. INDUSTRY BACKGROUND E-COMMERCE. We believe e-commerce provides retailers with the opportunity to serve a rapidly growing market because consumers are increasingly accepting the Internet as an alternative shopping channel. Forrester Research estimates that 17 million U.S. households will be online purchasers and that the number will grow to 49 million by 2004. The Internet also provides e-commerce companies with an opportunity to serve a global market. IDC estimates that the number of Web users worldwide will exceed 95 million by the end of 1998 and will grow to over 315 million users by the end of 2002. THE JEWELRY INDUSTRY. The size of the U.S. jewelry market, according to the U.S. Department of Commerce was $22.3 billion in 1998. ONLINE SHOPPING FORECAST. Industry analysts, including Forrester Research and Jupiter Communications, forecast continued and accelerating acceptance of the Internet as a channel that consumers will turn to for a wide range of products. Within the jewelry category industry, certain analysts, including Davenport and Company, forecast a large and rapidly growing market for online sales. BUSINESS STRATEGY Our goal is to become the leading Web-based retailer of jewelry and complementary products. To achieve this objective, we have focused our efforts on providing a high level of value and service, which we believe is reflected in the variety of our product selection, the ease-of-use of our Web site, the prices of our products and the speed of delivery we offer to our customers. While our principal focus is online jewelry, we will continue to seek opportunities that expand our product offering to complementary information and products. It is our goal to be recognized as the most innovative and customer-focused e-commerce jeweler, making online purchasing a simple, personal and gratifying experience that results in customer loyalty and long-standing relationships with our customers. In order to achieve our objectives, we intend to implement the following strategies: CONTINUALLY ENHANCE THE CONSUMER EXPERIENCE. We are committed to making every aspect of browsing and shopping in our online store an easy and pleasurable experience. We shall make continual efforts to improve the design, layout and navigation of all elements of our Web site. OFFER A LARGE PRODUCT SELECTION AND FAST DELIVERY. We intend to offer our customers one of the largest selections of jewelry available online. We intend to capitalize on our relationship with DG by offering DG's extensive inventory to our customers. EXPANDING OUR PRODUCT OFFERING. We intend to continue to expand our jewelry product offering and expand our business lines to information and products that are complimentary to jewelry purchases and can be easily cross marketed. We believe that offering complementary information and products is a natural extension of our business. 24 OFFER OUR PRODUCTS 24 HOURS A DAY 7 DAYS A WEEK. Our on-line store is open 24 hours a day 7 days a week and may be electronically visited from any PC with access to the Internet. BUILDING BRAND AWARENESS AND DRIVING CUSTOMER ACQUISITION THROUGH ADVERTISING AND PROMOTION. We will continue to invest in building our brand and in communicating the benefits and convenience of shopping at our online store. We intend to advertise in a variety of media, including online, radio, television and print, to further our goal of rapidly growing our customer base. We also intend to hire a celebrity as a spokesperson to increase consumer awareness of our company and products. In all of our advertising and promotion initiatives, we will seek to drive new customers to our site, as well as seek to have customers return to our site more frequently and to increase the size of their average purchase per visit. STRENGTHENING AND EXPANDING STRATEGIC ALLIANCES. We will continue to provide our major strategic partners with merchandising support, strengthening their ability to generate sales and to promote our brand. PURSUE ACQUISITIONS, PARTNERSHIPS AND STRATEGIC VENTURES. We will pursue acquisitions, joint ventures and other similar strategic investments and relationships with complementary businesses and companies, where appropriate, in order to augment or expand our current offerings. While we continually examine those possibilities, we have not entered into any agreements with respect to any such acquisitions, joint ventures or strategic investments, nor do we have any plans or arrangements at the present time. ESTABLISHING AN AFFILIATE NETWORK. We intend to establish an affiliate network whereby third party web-sites can earn commissions by linking users from their sites to our online store. Commissions would be earned if such users made purchases at our online store. CONTINUE TO INVEST IN TECHNOLOGY TO FURTHER DEVELOP STATE-OF-THE-ART PRODUCT, SERVICE AND LOGISTICS PLATFORMS. We plan to continue to invest in technologies that improve our Web site and our ability to support its growth while offering our customers the most convenient, user-friendly and secure online shopping experience as possible. In addition to the foregoing strategies, we believe that the following factors will help provide us with a competitive advantage: COMPETITIVE PRICING. Our affiliation with DG gives us the benefit of their high capacity and quality, low-cost manufacturing process. We believe this gives us a price advantage over other web-based jewelry retailers. PERSONALIZED SERVICE. During the second quarter of the year 2000, we intend to launch our "Jeweler Jack" personalized shopping system. The Jeweler Jack personalized shopping system will lead customers through the shopping process by asking questions and making recommendations. We intend that the Jeweler Jack system will be interactive and will be integrated with our Web site's other editorial content. RICH EDITORIAL AND EDUCATIONAL CONTENT. We intend to provide users of our site with accurate and authoritative information with regard to jewelry purchases. We intend that this information will include educational and editorial content such as articles on the proper method for selection of diamond rings or the role of skin tone in jewelry selection. Our group of editorial experts includes Jack Berkovits, our chairman and author of several industry journal articles on jewelry. We strive to integrate our editorial content with our "Jeweler Jack" electronic shopping assistant. HIGH LEVEL OF CUSTOMER SERVICE. We believe that high levels of customer service and support are critical to retain and expand our customer base. Our system monitors orders from the time they are placed through delivery by providing points of electronic, telephonic and personal 25 communication with our customers. Our customer service staff are well trained and are able to provide information on jewelry and walk customers through purchase decisions. SALES AND MARKETING ONLINE STRATEGIC ALLIANCES. Since our inception, we have pursued strategic alliances with premier online companies and high-traffic Web sites with the goal of driving traffic to our online store. Our largest strategic alliance is with AOL. On July 9, 1999, we entered into a one-year agreement with AOL to become a gold tenant in the jewelry and watch category on AOL, Netscape and Compuserve. On March 10, 1999, DG entered into an agreement with AOL Canada, which was subsequently transferred to us in connection with the transfer of DG's online business, to be featured as an anchor tenant in the jewelry shopping section of AOL Canada's network. The jewelry shopping section of AOL Canada's network is not expected to be functional until the first quarter of the year 2000. DG has not obtained AOL Canada's consent to the transfer. DG has entered into non-exclusive arrangements, each of which were subsequently transferred to us, for distribution of jewelry products with DealDeal.com, Factory2home.com, iconomy.com, 2themart.com and Espanol.com. These agreements are generally cancellable at will and DG has not obtained the consent to transfer any of these agreements. The agreements require us to pay the online companies a royalty on all sales made on the respective sites and in some cases an up front fee. We have also occasionally listed our products on several online auction sites such as Amazon.com and Yahoo.com and we have an exclusive arrangement with uBid.com. In September 1999, we entered into a two-year agreement with theglobe.com, whereby we will be the exclusive jewelry tenant. AFFILIATE NETWORK. In addition to securing alliances with high-traffic Web sites, we intend to establish an affiliate network consisting of third parties, whereby third-party web-sites can earn commissions from us by linking users from their site to our online store. ADVERTISING. Upon receipt of the proceeds from this offering we intend to begin a comprehensive national print, radio, television and online banner campaign in Canada and the U.S., as well as hire a celebrity spokesperson, to increase awareness of our Web site. SHOPPING AT OUR ONLINE STORE We believe our online store provides our customers with superior features, pricing and convenience. Our online store offers visitors several special features arranged in what we believe to be are simple, easy-to-use formats intended to enhance product search, selection and discovery. By clicking on the permanently displayed products and product categories, our users can move directly to the Web page that contains details about the particular products. Users can browse promotions, such as our offer of the month and other feature products. Customers can also link to pages based on product category, such as women's jewelery or men's jewelery, necklaces, bracelets, as well as other product categories. The most prominent feature of our online store is the interactive, searchable catalog of our line of products. Our search capabilities allow users to search for a product by category, such as rings, earings, pendants, necklaces, bracelets, diamonds and watches. To purchase products, customers simply click on a button to add products to their virtual shopping cart. Customers can add and subtract products from their shopping cart as they browse around our store prior to making a final purchase decision, just as in a physical store. To execute orders, customers click on the checkout button and, depending upon whether the customer has previously shopped with us, are prompted to supply shipping details online. We also offer customers a variety of gift wrapping and shipping options during the checkout process. Prior to finalizing an order by clicking the submit 26 order button, customers are shown their total charges along with the various options chosen, such as shipping method, at which point customers still have the ability to change their order or cancel it entirely. To pay for orders, a customer must use a credit card, which is authorized during the checkout process, but which is charged when we ship the customer's items. Our online store uses a security technology that works with the most common Internet browsers and makes it highly unlikely that an unauthorized party can read information sent by our customers. Once an order is placed, we notify the customer of our receipt of the order and at the time the order is shipped we notify the customer by e-mail that the order has been shipped. Additionally, our customers can speak to a customer service representative by telephone from Monday through Friday between the hours of 7:30 a.m. and 7:00 p.m. eastern standard time. Our average daily page views, which represent the number of times per day our server delivers a page to a user, has grown consistently. In September 1999, we had an average of 14,253 hits per day and 948 user sessions per day. On average, users spend approximately eighteen minutes per visit at our online store. WARRANTIES We offer a 30-day money back guarantee on all of our products and agree to service such products for a period of one-year from the date of purchase. DG provides us with a 30 day manufacturer's warranty, although the customer deals directly with us. ORDER FULFILLMENT Internet customer orders are processed at DG's distribution center in Toronto, for Canadian and international orders and DG's distribution center in New Jersey, for United States orders. Orders are forwarded to the respective DG distribution center where the order items are selected and shipped. TECHNOLOGY Our online store is maintained on servers located at 151 Front Street in Toronto, Canada. The servers are connected to the Internet over 10 megabit link to a high density point of presence provided by IT Canada. We have in place a redundant mirror of the live site in the event of equipment failure. INTELLECTUAL PROPERTY DG has applied for a trademark for the name "NETJEWELS" with the United States Patent and Trademark Office. We have reserved site names in the names "NetJewels" and "NetJewls". DG is the owner of these domain names. We rely on various intellectual property laws and contractual restrictions to protect our proprietary rights in products and services. These include confidentiality, invention assignment and nondisclosure agreements with our employees, contractors, vendors and strategic partners. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our intellectual property without our authorization. In addition, we pursue the registration of our trademarks and service marks in the U.S. and internationally. However, effective intellectual property protection may not be available in every country in which our services are made available on line. We are aware of several trademarks which are somewhat similar to ours and may create a likelihood of confusion. Depending on the activities of other companies using similar names our brand name could be damaged. We rely on technologies that we license from third parties. These licenses may not continue to be available to us on commercially reasonable terms in the future. As a result, we may be required to 27 obtain substitute technology of lower quality or at greater cost, which could materially adversely affect our business, results of operations and financial condition. As of the date of this prospectus, we have not been notified that our technologies infringe the proprietary rights of third parties. However, there can be no assurance that third parties will not claim infringement by us with respect to our current or future technologies. We expect that participants in our markets will be increasingly subject to infringement claims as the number of services and competitors in our industry segment grow. Any infringement claim, with or without merit, could be time-consuming, result in costly litigation, cause service upgrade delays or require us to enter into royalty or licensing agreements. These royalty or licensing agreements might not be available on terms acceptable to us or at all. As a result, any claim of infringement against us could have a material adverse effect upon our business. COMPETITION The online commerce market is new, rapidly evolving and intensely competitive. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any of which could seriously harm our net sales and results of operations. We expect competition to intensify in the future because current and new competitors can enter our market with little difficulty and can launch new Web sites at a relatively low cost. In addition, the retail jewelry industry is intensely competitive. We currently or potentially compete with a variety of other companies including: - traditional store-based jewelry retailers such as Zales, Gordons, Sterling and Friedmans. - department store retailers such as Sears, J.C Penney, Macy's and Ward's. - major discount retailers such as Wal-Mart, Kmart, Target and Service Merchandise; - cable shopping networks such as QVC (to whom DG is a major supplier) and HSN; - online efforts of these traditional and cable network retailers, including the online stores operated by QVC, ValueAmerica and Zales; - catalog retailers of jewelry; - other online retailers that may include jewelry as part of their product offerings, such as Amazon.com; - online wedding portal sites that feature shopping services, such as theKnot.com and Modern Bride; - Internet portals, online auction services and online service providers that feature shopping services, such as eBay, Yahoo! and Amazon.com; and - various online retailers of jewelry, such as All Fine Jewelry, eJewelry and Just Jewelry. We believe that the following are the principal competitive factors in our market: - brand recognition; - selection; - order delivery performance; - customer service; - site features and content; and - price. 28 Many of our current and potential traditional store-based and online competitors, particularly the traditional store-based retailers and the brand owners of products we sell, have longer operating histories, larger customer or user bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. Many of these current and potential competitors can devote substantially more resources to web site and systems development than we can. In addition, larger, well-established and well-financed entities may acquire, invest in or form joint ventures with online competitors. Our online competitors are particularly able to use the internet as a marketing medium to reach significant numbers of potential customers. Finally, new technologies and the expansion of existing technologies, such as price comparison programs that select specific titles from a variety of web sites and may direct customers to other online retailers, may increase competition. GOVERNMENT REGULATION We are not currently subject to direct federal, state or local regulation other than regulations applicable to businesses generally and directly applicable to online commerce. However, as internet use gains popularity, it is possible that a number of laws and regulations may be adopted with respect to the internet. These laws may cover issues such as user privacy, freedom of expression, pricing, content and quality of products and services, taxation, advertising, intellectual property rights and information security. Furthermore, the growth of online commerce may prompt calls for more stringent consumer protection laws. Several states have proposed legislation to limit the uses of personal user information gathered online or require online services to establish privacy policies. The Federal Trade Commission has also initiated action against at least one online service regarding the manner in which personal information is collected from users and provided to third parties. We do not currently provide personal information regarding our users to third parties. However, the adoption of additional consumer protection laws could create uncertainty in web usage and reduce the demand for our products and services. We are not certain how our business may be affected by the application of existing laws governing issues such as property ownership, copyrights, encryption and other intellectual property issues, taxation, libel and obscenity matters. The vast majority of these laws were adopted prior to the advent of the internet. As a result, they do not contemplate or address the unique issues of the internet and related technologies. Changes in laws that are intended to address these issues could create uncertainty in the internet market place. This uncertainty could reduce demand for our services or our cost of doing business may increase as a result of litigation costs or increased service delivery costs. In addition, because our services are available over the Internet in multiple states and foreign countries, other jurisdictions may claim that we are required to qualify to do business in that state or foreign country. We are qualified to do business only in Delaware. Our failure to qualify in a jurisdiction where we are required to do so could subject us to taxes and penalties. It could also hamper our ability to enforce contracts in these jurisdictions. The application of laws or regulations from jurisdictions whose laws do not currently apply to our business could have a material adverse effect on our business, results of operations and financial condition. EMPLOYEES As of October 31, 1999, we employed 15 full-time employees, five of which are involved in management, two in purchasing, three in shipping and fulfillment, two in graphic design and three in customer service. We also employ independent contractors to perform duties in various departments, including software development, editorial production and administration. Our employees are not represented by labor unions, and we consider our relationship with our employees to be good. We believe that our success is dependent on our ability to attract and retain qualified personnel in 29 numerous areas, including software development. We expect to hire a full time director of marketing, as well as a chief financial officer and chief information officer following the offering. FACILITIES Our principal administrative, marketing and technical facilities are located in approximately 3,000 square feet of office space in Toronto subleased from DG. This lease expires in December 2001. We have an option to renew our sublease for an additional five (5) years. The lease provides for annual payments of $6,000; which increase annually by the greater of 5% or the increase in the CIPI for Toronto as published by statistics Canada. We expect that our future growth will require us to secure new office space to adequately house our operations. LEGAL PROCEEDINGS We are not involved in any pending, or to our knowledge, any threatened legal proceedings. We may from time to time become a party to various legal proceedings in the ordinary course of business. WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed, with the Securities and Exchange Commission, a registration statement on Form S-1 under the Securities Act with respect to the common stock offered hereby. This prospectus does not contain all of the information in the registration statement, the exhibits and schedules. For more information, about our common stock and us, please refer to the registration statement, exhibits and schedules. Statements made in this prospectus as to the contents of any contract, agreement or other documents referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matter involved. The registration statement, exhibits and schedules may be inspected without charge and copied at the public reference facilities maintained by the SEC in Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549, and at the SEC's regional offices located at Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such material may be obtained at prescribed rates from such offices upon the payment of the fees proscribed by the SEC. The SEC phone number is 1-800-SEC-0330. The SEC maintains a Web site that contains registration statements, reports, proxy and other information regarding registrants that file electronically with the Securities and Exchange Commission. The address for the Web site is http://www.sec.gov. The Nasdaq Amex Market Group, Inc. maintains a Web site that contains information regarding registrants at http://www.Nasdaq.com. Once our common stock is listed on Nasdaq, you will be able to find information on us on the Web site. As a result of this offering, we will be subject to the informational requirements of the Exchange Act. So long as we are subject to the periodic reporting requirements of the Exchange Act, we will furnish reports and other information required thereby to the Commission. We intend to furnish our shareholders with annual reports containing, among other information, audited financial statements certified by an independent accounting firm and quarterly reports containing unaudited financial statements. We also intend to file such other reports as we may determine or as may be required by law. 30 MANAGEMENT DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL The following table sets forth information about our directors and executive officers and key personnel as of October 31, 1999.
NAME AGE POSITION - ---- -------- -------- Jack Berkovits.............................. 47 Chairman of the board Daniel Berkovits............................ 24 Chief executive officer and director Ben Berkovits............................... 25 President, chief operating officer and director Albert Reichmann............................ 71 Director Nominee Greg Lerman................................. 54 Director Nominee
JACK BERKOVITS, CHAIRMAN. Since July 1999, Mr. Berkovits has served as our chairman. From 1977 to the present, Mr. Berkovits has served as the chief executive officer and chairman of D.G. Jewelry Inc., a company whose securities are traded on The Nasdaq National Market. In 1979, Mr. Berkovits purchased a controlling interest in DG. Mr. Berkovits has extensive experience in the production, sales and marketing of jewelry through mass merchandise accounts and direct television retailers including HSN, QVC and ValueVision. Mr. Berkovits currently appears on his own show as "Trader Jack" on ValueVision which began approximately twelve years ago. The "Trader Jack" show airs for approximately fifteen hours per month. Mr. Berkovits earned a Bachelor of Commerce at Sir George Williams University (Montreal) in 1973. DANIEL P. BERKOVITS, CEO. Since January 1999, Mr. Berkovits has served as our chief executive officer. From July 1998 to December 1998, Mr. Berkovits was an analyst in investment banking at Scotia McLeod, a Canadian investment banking firm. Mr. Berkovits was responsible for negotiating DG's strategic alliances with Amazon.com, Ubid, Bid.com and Egghead. Mr. Berkovits earned his M.S. degree in finance at Johns Hopkins University in June 1998. Mr. Berkovits earned a Bachelor of Talmudic Law from Ner Israel College in December 1996. BEN BERKOVITS, PRESIDENT AND COO. Since January 1999, Mr. Berkovits has served as our president and chief operating officer. From July 1997 to January 1999, Mr. Berkovits served as national accounts manager at D.G. Jewelry. Mr. Berkovits earned a Bachelor of Science from Touro College in 1998. ALBERT REICHMANN, DIRECTOR NOMINEE. Upon completion of this offering, Mr. Reichmann has agreed to serve as a member of our board of directors. From 1960-1992, Mr. Reichmann served as president of O&Y Development, one of the largest worldwide real estate development companies. Since 1992, Mr. Reichman has been a private investor focusing on structuring real estate and entertainment transactions. GREG LERMAN, DIRECTOR NOMINEE. Upon completion of this offering, Mr. Lerman has agreed to serve as a member of our board of directors. In January 1999, Mr. Lerman was named president of the electronic commerce division of Paxson Communications. From January 1998 to January 1999, Mr. Lerman was Executive Vice President and General Manager of ValueVision Television, the nations third largest television home-shopping network. From February 1997 to September 1997, Mr. Lerman was president and chief executive officer of Kent and Spiegel Direct. From November 1989 to February 1997, Mr. Lerman served as an Executive Vice President of Fingerhut Companies. Mr. Lerman earned a B.A. in History from the University of Minnesota in 1978. We expect to increase the depth of our management team to help implement our growth strategy. Following the completion of this offering, we intend to expand our senior management team to include a new chief financial officer, director of marketing and chief information officer. 31 DIRECTORS AND EXECUTIVE OFFICERS Directors hold office until the next annual meeting of stockholders or until their successors have been duly elected and qualified. Our by-laws provide for a minimum of three directors to serve on our board. Our executive officers are appointed by our board of directors on an annual basis and serve until the next annual meeting of the board of directors or until their successors have been duly elected and qualified. The representative of this offering has been granted the right to designate a nominee to our board of directors for a period of five years from the effective date of this offering. In the event that the representative does not elect to exercise this right, then the representative may designate one person to attend our board of directors' meeting. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Jack Berkovits, our chairman, is the father of Daniel Berkovits, our chief executive officer and Ben Berkovits our president and chief operating officer, and Daniel Berkovits and Ben Berkovits are brothers. DIRECTOR COMPENSATION AND COMMITTEES Upon completion of the offering, our board of directors intends to establish two formal committees; an audit committee, and a compensation committee, each of which will consist of Jack Berkovits, our chairman, and two independent outside directors. The functions of the audit committee include: (a) recommending for approval by the board of directors a firm of certified public accountants whose duty it will be to audit our financial statements for the fiscal year in which they are appointed, and (b) to monitor the effectiveness of the audit effort, our internal financial and accounting organization and controls and financial reporting. The audit committee will also consider various capital and investment matters. We intend that our compensation committee will consist of Jack Berkovits, Greg Lerman and Albert Reichmann. Greg Lerman and Albert Reichman have not been officers or employees of ours since our inception. None of our executive officers serve as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee. The compensation committee is responsible for establishing compensation arrangements for our officers and directors, reviewing benefit plans and administering our stock option plan. Upon completion of the offering, directors who are not our employees will receive $5,000 per year for services rendered as a director and $1,000 for attending each meeting of the board of directors or one of its committees. In addition, directors will be reimbursed for expenses incurred in connection with attendance at any meeting of the board of directors or committees. Other than reimbursement for expenses, directors who are our employees receive no additional compensation for service as a director. To date, we have not paid any amounts to any of our directors for acting in such capacity. EXECUTIVE COMPENSATION Since January 1, 1999, we have paid compensation to Daniel Berkovits, Ben Berkovits and Jack Berkovits in the amounts of $50,000, $50,000 and $30,000, respectively. We issued Jack Berkovits 100,000 warrants to purchase 100,000 shares of our common stock at $.10 per share in connection with his consulting agreement. 32 EMPLOYMENT AGREEMENTS As of January 1, 1999, we entered into three-year employment agreements with each of Daniel Berkovits, Ben Berkovits and Jack Berkovits providing for annual salaries of $100,000 each, with minimum annual increases of $15,000 each. The annual salary of each of Daniel Berkovits and Ben Berkovits will be increased to $150,000, as provided in each of their respective agreements, upon completion of this offering. In addition, each is entitled to a $1,000 per month car allowance. The agreement with Daniel and Ben Berkovits contain standard confidentiality provisions and prohibit the employees from engaging in any other business or occupation without our prior written consent. STOCK OPTION PLAN We adopted the 1999 stock option plan in September 1999. The plan will be administered by the compensation committee or our board of directors, who will determine among other things, those individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of shares of common stock issuable upon the exercise of the options and the option exercise price. The options may be granted as either or both of the following: (a) incentive stock options, or (b) non-qualified stock options. 750,000 shares may be issued under this plan. To date, no options have been granted under the plan. In connection with the plan, the exercise price of each incentive stock option may not be less than 100% of the fair market value of our common stock on the date of grant or 110% of fair market value in the case of an employee holding 10% or more of our outstanding common stock. The aggregate fair market value of shares of common stock for which incentive stock options granted to any employee are exercisable for the first time by such employee during any calendar year, pursuant to all of our, or any related corporation's, stock option plan, may not exceed $100,000. Non-qualified stock options may be granted at a price determined by our compensation committee, but not at less than 85% of the fair market value of our common stock. Stock options granted pursuant to our stock option plan will expire not more than ten years from the date of grant. The plan is effective for a period of ten years, expiring in 2009. Options may be granted to officers, directors, consultants, key employees, advisors and similar parties who provide their skills and expertise to us. The plan is designed to enable our management to attract and retain qualified and competent directors, employees, consultants and independent contractors. Options granted under the plan may be exercised for up to ten years, require a minimum two year vesting period, and shall be at an exercise price all as determined by our board. Options are non-transferable except by the laws of descent and distribution or a change in control of us, as defined in the plan, and are exercisable only by the participant during his or her lifetime. Change in control includes (a) the sale of substantially all of the assets of us and merger or consolidation with another company, or (b) a majority of the board changes other than by election by the stockholders pursuant to board solicitation or by vacancies filled by the board caused by death or resignation of such person. If a participant ceases affiliation with us by reason of death, permanent disability or retirement at or after age 70, the option remains exercisable for one year from such occurrence but not beyond the option's expiration date. Other types of termination allow the participant three months to exercise, except for termination for cause which results in immediate termination of the option. Any unexercised options that expire or that terminate upon an employee's ceasing to be employed by us become available again for issuance under the plan. The plan may be terminated or amended at any time by our board of directors, except that the number of shares of common stock reserved for issuance upon the exercise of options granted under the plan may not be increased without the consent of our stockholders. 33 LIMITATION ON LIABILITY Our certificate of incorporation and by-laws provide that we shall indemnify to the fullest extent permitted by Delaware law any person whom we may indemnify thereunder, including our directors, officers, employees and agents. This indemnification, other than as ordered by a court, shall be made by us only upon a determination that indemnification is proper in the circumstances because the individual met the applicable standard of conduct. Advances for such indemnification may be made pending this determination. This determination shall be made by a majority vote of a quorum consisting of disinterested directors, or by independent legal counsel or by the stockholders. In addition, our certificate of incorporation provides for the elimination, to the extent permitted by Delaware law, of personal liability of our directors for monetary damages for breach of fiduciary duty as directors. We intend to obtain a directors and officers insurance and company reimbursement policy prior to or shortly after the completion of this offering. We intend that the policy will insure directors and officers against unindemnified losses arising from certain wrongful acts in their capacities and would reimburse us for such loss for which we have lawfully indemnified the directors and officers. We have also agreed to indemnify each of our directors and executive officers pursuant to an indemnification agreement with each director and executive officer from and against any and all expenses, losses, claims, damages and liability incurred by such director or executive officer for or as a result of action taken while a director or an executive officer was acting in his capacity as a director, officer, employee or agent of ours. We intend to enter into formal indemnification agreements with such individuals prior to the completion of this offering. Insofar as indemnification for liabilities arising under the Securities Act may be provided to directors, officers and controlling persons of ours, we have been advised that in the opinion of the Commission, this indemnification is against public policy as expressed in the Securities Act and is therefore, unenforceable. The underwriting agreement provides for reciprocal indemnification between us and the representative against certain liabilities in connection with this offering, including liabilities under the Securities Act. 34 PRINCIPAL STOCKHOLDERS The following table sets forth, as of the date of this prospectus, information with respect to the beneficial ownership of our common stock by: - each of our directors and director nominees; - each executive officer named in the Executive compensation section under "Management"; - all of our executive officers and directors as a group; and - each person known by us who beneficially owns 5% or more of the outstanding shares of our common stock. Unless otherwise indicated, each of the stockholders listed below has sole voting and investment power with respect to the shares beneficially owned. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date of this prospectus upon the exercise of warrants or options. Each beneficial owner's percentage ownership is determined by assuming that options or warrants that are held by such person, but not those held by any other person, and which are exercisable within 60 days from the date of this prospectus have been exercised. Unless otherwise indicated, we believe that all persons named in this table have sole voting and investment power with respect to all shares of common stock beneficially owned by them. Common stock beneficially owned is based on 3,400,000 shares outstanding prior to the offering and 5,600,000 shares outstanding after the offering. Unless otherwise indicated, the address of each person listed below is 1001 Petrolia, North York, Ontario, Canada M3J 2X7.
PERCENTAGE OF OWNERSHIP NUMBER OF SHARES ------------------------------------------ NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PRIOR TO THE OFFERING AFTER THE OFFERING - ------------------------ ------------------ --------------------- ------------------ D.G. Jewelry Inc (1)......................... 1,650,000 50.0% 30.0% Daniel P. Berkovits(1)....................... 825,000 25.0% 15.0% Ben Berkovits(1)............................. 825,000 25.0% 15.0% Jack Berkovits(1)(2)(3)...................... 1,750,000 51.5% 31.2% Albert Reichman.............................. 0 0.0% 0.0% Greg Lerman.................................. 0 0.0% 0.0% All directors and executive officers as a group (five persons)(1)(3)................. 3,400,000 100.0% 60.7%
- ------------------------ (1) Such beneficial ownership arises from their respective ownership interests in NetJewels Canada. (2) Includes 1,650,000 shares beneficially owned by D.G. Jewelry Inc. of which Mr. Berkovits is the Chief Executive Officer, President and Chairman. (3) Includes 100,000 shares of common stock issuable upon the exercise of currently exercisable warrants. The warrants are exercisable for a period of three years beginning on September 30, 1999, at $.10 per share. CERTAIN TRANSACTIONS Following completion of this offering, DG will beneficially own approximately 30% of our outstanding common stock and either directly or through subsidiaries will control us. Mr. Jack Berkovits, the chairman of the board of both us and DG, is currently the beneficial owner of approximately 49.3% of the common stock of DG. Daniel P. Berkovits and Ben Berkovits, our CEO and President/COO respectively, are the sons of Jack Berkovits. Daniel P. Berkovits and Ben Berkovits 35 each, through their respective ownership of NetJewels Canada, beneficially owns approximately 15% of us following completion of this offering. Since our inception, DG has advanced to us approximately $900,000 which has been utilized primarily to finance our start-up costs. Such advance bears no interest and is payable upon demand. DG intends to continue to fund our operations until we are able to fund our own operations. We will use a portion of this offering to repay this amount to DG. DG transferred us all of its online business operations in exchange for $1,800,000 which will be repaid out of the proceeds of this offering. DG has a security interest in all of our assets until such amounts are paid. Since our inception, we have purchased all of our merchandise from DG. Pursuant to our intercompany service agreement with DG, DG supplies us with products at a price guaranteed to be no less favorable than the lower of the price it offers to its best customers and DG's cost plus 15%. In addition, on all products sold by us through a third party auction site, DG will amend the purchase price to an amount equal to 85% of the final amount actually received by us, so that we are guaranteed a 15% profit on all items sold through an auction site. Through its distribution facilities, DG accounted for 100% of our purchases to date and is expected to account for substantially of our purchases for the year ended June 30, 2000. From inception through September 30, 1999, such purchases totalled $368,075. We expect to continue to source most of our merchandise through DG in the future. We may, however, secure products from other distributors and suppliers. This intercompany service agreement remains effective for a term of five years and may be renewed thereafter for a term of five years. Either party may terminate the agreement upon ninety (90) days written notice to the other party. In addition, the intercompany services agreement requires DG to provide us with certain general corporate services at a price of $5,000 per month plus actual expenses. These services include maintenance of insurance, property and casualty, medical, dental and life, payroll processing, including the withholding of taxes, employment insurance and Canada pension plan payments, preparation and filing of tax returns, benefits administration and telecommunications. We also lease 3,000 square feet of space from DG at an annual rent of $6,000. The lease has a term of two years and expires on December 31, 2001, with an option for an additional five years. DG is the owner of our domain name and the trademark applications have been filed in DG's name. Between August 1998 and October 1998, Daniel Berkovits, our CEO loaned us an aggregate of $12,000.00, at 8% interest payable on demand. As chairman of our company, Mr. Jack Berkovits, during the term of his employment agreement, will receive $100,000 per year, so long as he is chairman of our company. Mr. Berkovits is also entitled to a $1,000 per month car allowance. In connection with such service, we issued Mr. Berkovits 100,000 warrants which are exercisable to purchase 100,000 shares of common stock at $.10 per share from September 30, 1999 to September 29, 2002. In the future, we will present all proposed transactions between us and our officers, directors or 5% shareholders, and affiliates to our board of directors for its consideration and approval. Any such transaction will require approval by a majority of the directors and such transactions will be on terms no less favorable than those available to disinterested third parties. 36 DESCRIPTION OF SECURITIES The following description of matters relating to our securities does not purport to be complete and is qualified by Delaware law and to the provisions of our certificate of incorporation, as amended, and bylaws, and the underwriting agreement between us and the underwriter, copies of all which have been filed with the Commission as exhibits to the registration statement of which this prospectus is a part. GENERAL We are authorized by our certificate of incorporation to issue an aggregate of 19,000,000 shares of common stock, $.01 par value per share and 1,000,000 shares of blank check preferred stock. Immediately prior to this offering, an aggregate of 3,300,000 shares of our common stock were issued and outstanding. All outstanding shares of common stock are of the same class and have equal rights and attributes. No shares of preferred stock are outstanding. COMMON STOCK We are authorized to issue 19,000,000 shares of common stock, $.01 par value per share. Each share of common stock entitles the holder thereof to one vote on all matters submitted to a vote of the shareholders. Since the holders of common stock do not have cumulative voting rights, holders of more than 50% of the outstanding shares can elect all of our directors and approve significant corporate transactions and holders of the remaining shares by themselves cannot elect any directors. The holders of our common stock do not have preemptive, conversion, redemption, subscription or cumulative voting rights. Holders of common stock are entitled to receive ratably such dividends as may be declared by our board of directors out of funds legally available therefor. In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to participate equally in net assets subject to the preferences that may be applicable to any outstanding preferred stock. All outstanding shares of common stock and common stock to be outstanding upon completion of this offering are and will be validly authorized and duly issued, fully paid, and non-assessable. PREFERRED STOCK Our certificate of incorporation authorizes the issuance of up to 1,000,000 shares of blank check preferred stock, the rights, privileges and preferences of which may be designated by our board of directors from time to time. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, or other rights that could adversely affect the rights of our stockholders. These shares may have rights which are senior to our common stock. Preferred stock may be issued in the future in connection with acquisitions, finances or such other matters as our board of directors deems to be appropriate. In the event that any such shares of preferred stock shall be issued, a certificate of designation, setting forth the series of such preferred stock and the relative rights, privileges and designations with respect thereto, shall be filed with the Secretary of State of the State of Delaware. The effect of such preferred stock is that our board of directors alone may authorize the issuance of preferred stock which could have the effect of making more difficult or discouraging an attempt to obtain control of us by means of a merger, tender offer, proxy contest or other means. WARRANTS We have 100,000 warrants outstanding which are exercisable to purchase 100,000 shares of common stock at $.10 per share from September 30, 1999 to September 29, 2002. These warrants are owned by Jack Berkovits. These warrants contain standard anti-dilution protection. Mr. Jack Berkovits has no registration rights with respect to the shares issuable upon exercise. 37 REPRESENTATIVE'S WARRANTS We have granted the representative, for a total of $22.00, warrants to purchase up to 220,000 shares of our common stock. Each warrant is exercisable into one share of our common stock for a period of four (4) years commencing one (1) year after their issuance and sale, at 120% of the initial offering price of our common stock. The representative is prohibited from transferring such warrants for the first year except to partners of the underwriters or selling group. For a period of (5) years from the date of the closing of our initial public offering, we have granted the holders of the representative's warrants certain demand and "piggyback" registration rights with respect to the common stock issuable upon exercise of the representative's warrants. The representative's warrants contain anti-dilution provisions providing for automatic adjustment of the exercise price and number of shares upon the occurrence of specific events including stock dividends, splits, mergers, acquisitions and recapitalization. TRANSFER AGENT The Transfer Agent and Registrar for our common stock is American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005. 38 SHARES ELIGIBLE FOR FUTURE SALE Upon the completion of this offering, we will have 5,500,000 shares of our common stock issued and outstanding. The 2,200,000 shares of common stock offered by this prospectus will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased or held by our affiliates, in general, a person who has a control relationship with us, which will be subject to the limitations of Rule 144 adopted under the Securities Act. The remaining 3,300,000 shares of common stock are "restricted securities" as that term is defined under Rule 144, and may not be sold unless registered under the Securities Act or sold pursuant to an exemption. These restricted securities were issued and sold by us in private transactions in reliance upon exemptions from registration under the Securities Act. In general, under Rule 144, as currently in effect, subject to the satisfaction of certain other conditions, a person, including an "affiliate," as defined under Rule 144, of ours, or persons whose shares are aggregated, who for at least one year has beneficially owned restricted securities acquired directly or indirectly from us or an affiliate of ours in a private transaction is entitled to sell in brokerage transactions within any three-month period, a number of shares that does not exceed the greater of (a) 1% of the total number of outstanding shares of the same class, or (b) if the stock is quoted on a national securities exchange, the average weekly trading volume in the stock during the four calendar weeks preceding the day notice is given to the Commission with respect to the sale. Sales under Rule 144 are also subject to manner of sale and notice requirements and to the availability of current public information about us. A person, or persons whose shares are aggregated, who is not an affiliate and has not been an affiliate of ours for at least the three months immediately preceding the sale and who has beneficially owned restricted securities for at least two years is entitled to sell shares pursuant to Rule 144(k) without regard to any of the limitations described above. Rule 701 under the Securities Act provides that shares of common stock acquired on the exercise of options granted under a written compensatory plan of ours or contract with us prior to the date of this prospectus may be resold by persons, other than our affiliates, beginning 90 days after the date of this prospectus, subject only to the manner of sale provisions of Rule 144 and by affiliates under Rule 144 without compliance with its one-year minimum holding period, subject to limitations. There are 750,000 shares of our common stock issuable upon the exercise of options which may be granted under our stock option plan. Except as otherwise provided above, beginning 90 days after the date of this prospectus, the option shares, if any, would be eligible for sale in reliance on Rule 701, subject to vesting provisions. All of such shares are subject to the 24 month lock-up. Each of our officers and directors and all other holders of shares of our common stock have agreed that, they will not, without the prior written consent of the representative of the underwriters, directly or indirectly, sell or otherwise dispose of any shares of our common stock or securities convertible into or exercisable for our common stock during the twenty-four (24) month period commencing on the effective date of the registration statement. Upon expiration of the lock-up period, all of the shares of common stock subject to such lock-up agreements will be eligible for sale under Rule 144. The 3,300,000 shares will become eligible for sale in accordance with the exemptive provisions and the volume limitations of Rule 144 in January 2000, however, the owners of such shares have agreed not to offer, sell or otherwise dispose of their for a period of 24 months commencing on the effective date of our registration statement without the prior approval of the representative. 39 UNDERWRITING Subject to the terms and conditions of the underwriting agreement, the form of which is filed as an exhibit to the registration statement filed with the Commission of which this prospectus is a part, the underwriters named below have, severally and not jointly, agreed through Security Capital Trading, Inc., as the representative of the underwriters, to purchase from us, and we have agreed to sell to the underwriters, the aggregate number of shares of our common stock set forth opposite their respective names:
NUMBER OF SHARES UNDERWRITERS OF COMMON STOCK - ------------ ---------------- Security Capital Trading, Inc............................... --------- Total....................................................... 2,200,000 =========
The underwriting agreement provides that the obligations of the several underwriters under that agreement depend upon certain conditions, including the absence of any material adverse change in our business and the receipt of certificates, opinion and letters from our counsel and our independent public accountants. The underwriters are committed to take and to pay for all of the shares offered hereby, if any are purchased. In the event of a default by any of the underwriters, purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated. The underwriters have advised us that they propose to offer all or part of the shares of common stock offered hereby directly to the public initially at the price set forth on the cover page of this prospectus. They have also advised us that they may offer shares of common stock to certain dealers at a price that represents a concession of not more than $ per share, and that the underwriter may allow, and these dealers may reallow, a concession of not more than $ per share to certain other dealers. After the completion of this offering, the price to the public and the concessions may be changed. We have granted the underwriters an option, exercisable within 45 days after the effective date of the registration statement of which this prospectus is a part, to purchase up to an additional 330,000 shares of our common stock at the same price per share as the initial 2,200,000 shares of common stock to be purchased by the underwriters. The underwriters may exercise this option only to cover over-allotments, if any. If the underwriters exercise this option, each of the underwriters will have a firm commitment, subject to some conditions, to purchase the same percentage of the additional shares of common stock as the percentage of the initial 2,200,000 shares of common stock to be purchased by that underwriter. We have agreed to indemnify the underwriters and their controlling persons against certain liabilities, including liabilities under the Securities Act, and to contribute to payment the underwriters and their controlling persons may be required to make. We have agreed to pay the representative of the underwriters a non-accountable expense allowance equal to 2.5% of the gross proceeds of this offering, of which $25,000 has been paid as of the date of this prospectus. We have also agreed to pay all expenses in connection with qualifying the securities under the laws of those states the representative may designate, including fees and expenses of counsel retained for such purposes by the representative and the costs and disbursements in connection with qualifying the offering with the National Association of Securities Dealers, Inc. We have agreed to issue to the representative of the underwriters, for a total of $22.00, warrants to purchase an aggregate of 220,000 shares of common stock exercisable for a period of four years commencing one year after the effective date of the registration statement of which this prospectus is a part, at a price equal to 120% of the initial public offering price of the shares of common stock. The representative's warrants contain anti-dilution provisions providing for automatic adjustments of the 40 exercise price and number of shares issuable on exercise price and number of shares issuable on exercise of the representative's warrants upon the occurrence of some events, including stock dividends, stock splits, mergers, acquisitions and recapitalizations. The representative's warrants contain certain demand and piggyback registration rights relating to the 220,000 shares of common stock issuable thereunder. For the life of the representative's warrants, the representative will have the opportunity to profit from a rise in the market price for voting, dividend or other stockholder rights with respect to those warrants. The holders of shares of common stock issued upon exercise of those warrants will have the voting, dividend, and other stockholder rights of holder of shares of common stock. The representative's warrants are restricted from sale, transfer, assignment or hypothecation for the one year period from the date of this prospectus, except to officers or partners of the underwriters and members of the selling group and/or their officers or partners. We have also granted to the representative of the underwriters the right, for a period of 3 years from the closing of this offering, to nominate a designee of the representative for election to our board of directors. The representative has not yet exercised their right to designate this person. If the representative elects not to exercise this right, then the representative may designate one person to attend meetings of our board of directors. We and our officers, directors and present shareholders have agreed that, for a period of two years after the completion of this offering, without the prior written consent of the representative of the underwriters, none of us will sell or otherwise dispose of any of our respective equity securities or securities convertible into our equity securities, except for the sale of shares to the underwriters under the terms of the underwriting agreement. The representative of the underwriters has informed us that the underwriters do not expect any sales of the shares of common stock offered by this prospectus to be made to discretionary accounts controlled by the underwriters. Prior to this offering, there has been no established market in the United States or elsewhere for our securities. The public offering price will be determined by us in consultation with the representative of the underwriters. It is expected that the price determination will take several factors into account, including our results of operations, our future prospects and the prevailing market and economic conditions at the time of this offering. The representative, on behalf of the underwriters, may engage in (a) over-allotment, (b) stabilizing transactions, (c) syndicate covering transactions and (d) penalty bids. Over-allotment involves syndicate sales in excess of this offering size, which creates a syndicate short position. Stabilizing transactions permit bids to purchase the shares of common stock being offered so long as the stabilizing bids don not exceed a specified maximum. Syndicate covering transactions involve purchases of the shares of common stock in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the shares of common stock originally sold by the syndicate member are purchased in a syndicate covering transaction to cover syndicate short positions. Stabilizing transactions, syndicate covering transaction sand penalty bids may cause the price of the shares of common stock to be higher than it would otherwise be in the absence of such transactions. These transactions may be effected on Nasdaq or otherwise and, if commenced, may be discontinued at any time. In addition, the underwriters may engage in passive market making transactions in our securities on the Nasdaq in accordance with Rule 103 of Regulation M. Neither we nor the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the securities offered by this prospectus. Certain persons participating in this offering may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock offered in this prospectus. These actions include purchasing common stock to cover some or all of a short position of common stock maintained by the representative and the imposition of penalty bids. 41 LEGAL MATTERS The legality of the common stock offered by this prospectus and certain legal matters in connection with the offering will be passed upon for us by Gersten, Savage & Kaplowitz, LLP, New York, New York. Certain legal matters will be passed upon for the underwriters by Orrick, Herrington & Sutcliffe LLP. EXPERTS Our consolidated financial statements for the year ended June 30, 1999, appearing in this prospectus and registration statement have been audited by Schwartz Levitsky Feldman Chartered Accountants, as set forth in their report thereon appearing elsewhere herein, and in the registration statement, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 42 NETJEWELS.COM, INC. FINANCIAL STATEMENTS AS OF JUNE 30, 1999 TOGETHER WITH AUDITORS' REPORT NETJEWELS.COM, INC. FINANCIAL STATEMENTS AS OF JUNE 30, 1999 TOGETHER WITH AUDITORS' REPORT TABLE OF CONTENTS Report of Independent Auditors.............................. F-1 Balance Sheet............................................... F-2 Statement of Operations and Stockholders' Deficit........... F-3 Statement of Cash Flows..................................... F-4 Notes to Financial Statements............................... F-5-8
REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of NetJewels.com, Inc. We have audited the accompanying balance sheet of NetJewels.com, Inc. as of June 30, 1999 and the related statement of operations and stockholders' deficit and cash flows for the year ended June 30, 1999. These financial statements are the responsibility of the management of NetJewels.com, Inc. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, these financial statements referred to above present fairly, in all material respects, the financial position of NetJewels.com, Inc. as of June 30, 1999 and the results of its operations and cash flows for the year ended June 30, 1999, in conformity with generally accepted accounting principles in the United States of America. /s/ Schwartz Levitsky Feldman Toronto, Ontario August 13, 1999 Chartered Accountants F-1 NETJEWELS.COM, INC. BALANCE SHEET AS AT JUNE 30, 1999 (AMOUNTS EXPRESSED IN US DOLLARS) ASSETS CURRENT ASSETS Cash...................................................... $ 68 INTERNET CONTRACTS (note 2)................................. 1,800,000 WEB SITE ASSET.............................................. 62,916 ---------- $1,862,984 ========== LIABILITIES CURRENT LIABILITIES Accounts payable.......................................... $2,204,953 ADVANCES FROM SHAREHOLDER (note 3).......................... 8,194 ---------- 2,213,147 STOCKHOLDERS' DEFICIENCY CAPITAL STOCK (note 4)...................................... 68 DEFICIT..................................................... (350,231) ---------- (350,163) ---------- $1,862,984 ==========
The accompanying notes are an integral part of these financial statements. F-2 NETJEWELS.COM, INC. STATEMENT OF OPERATIONS AND STOCKHOLDERS' DEFICIT FOR THE YEAR ENDED JUNE 30, 1999 (AMOUNTS EXPRESSED IN US DOLLARS) SALES....................................................... $ 75,439 Cost of sales............................................. 64,009 --------- GROSS PROFIT................................................ 11,430 --------- EXPENSES Start-up costs............................................ 361,661 --------- NET LOSS AND DEFICIT........................................ $(350,231) ========= NET LOSS PER SHARE (note 5)................................. $ (0.11) ========= Shares used in Computing Basic and Diluted Net Loss Per Share..................................................... 3,300,000 =========
The accompanying notes are an integral part of these financial statements. F-3 NETJEWELS.COM, INC. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 1999 (AMOUNTS EXPRESSED IN US DOLLARS) CASH FLOWS FROM OPERATING ACTIVITIES Net loss.................................................. $ (350,231) Adjustments to reconcile net loss to net cash provided by operating activities Increase in accounts payable.............................. 2,204,953 ----------- 1,854,722 ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of internet contracts............................ (1,800,000) Web site costs incurred................................... (62,916) ----------- (1,862,916) CASH FLOWS FROM FINANCING ACTIVITIES Increase in advances from shareholder..................... 8,194 Issuance of common stock.................................. 68 ----------- 8,262 ----------- CASH, END OF YEAR........................................... $ 68 ===========
The accompanying notes are an integral part of these financial statements. F-4 NET JEWELS.COM, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 (AMOUNTS EXPRESSED IN US DOLLARS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES i) Principal Activities The company was incorporated in the United States of America in June, 1999 but began operations in July, 1998. The company is a start-up internet based retailer and wholesaler focused exclusively on jewellery and related products. ii) Inventory Inventory is valued at lower of cost or net realizable value. Cost is determined on the first-in, first-out basis. iii) Web Site Asset Web site asset relates to the start-up costs incurred. It is to be amortized over a period of 3 years. iv) Other Financial Instruments The carrying amount of the Company's acc0unts payable approximates fair value because of the short maturity of this instrument. v) Sales Sales represent the invoiced value of goods supplied to customers. Sales are recognized upon delivery of goods and passage of title to customers. vi) Foreign Currency Translation The company maintains its books and records in Canadian dollars. Foreign currency transactions are translated using the temporal method. Under this method, all monetary items are translated into Canadian funds at the rate of exchange prevailing at balance sheet date. Non-monetary items are translated at hist0rical rates. Income and expenses are translated at the rate in effect of the transaction dates. Transaction gains and losses are included in the determination of earnings for the year. 2. INTERNET CONTRACTS Internet contracts represent the price paid to DG Jewellery for contracts entered into with on-line internet auction web sites. 3. ADVANCES FROM SHAREHOLDER The advances from shareholder is secured by a general assignment of the company's assets, bearing interest at 8% per annum and without specific terms of repayment. 4. CAPITAL STOCK Authorized 19,000,000 shares of common stock......................... 1,000,000 shares of preferred stock....................... Issued 3,300,000 Common stock.................................... $68 ===
F-5 NET JEWELS.COM, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999 (AMOUNTS EXPRESSED IN US DOLLARS) 5. NET LOSS PER COMMON SHARE Fully diluted net loss per common share was the same as basic net loss per common share for fiscal 1999. 6. RELATED PARTY TRANSACTION Since inception, NetJewels.com, Inc. ("NJ") has purchased all of its merchandise from DG Jewellery of Canada Ltd. ("DG"). Pursuant to the intercompany services agreement, DG sells its products to NJ at a cost which is guaranteed to deliver a gross profit of 15%, but in no event at a price which is more than it charges any of its other wholesale clients. All amounts owed to DG are secured by all of the assets of NJ. Since inception, DG has provided NJ with corporate, fulfillment, space sharing and other administrative services at a cost of $5,000 per month plus actual expenses. Amounts included in accounts payable........................ $2,204,953 ==========
7. COMMITMENTS a) Minimum annual payments under the company's operating lease for premises is $6,000. The lease expires May 2002. b) The company has entered into advertising agreements with three on line vendors to pay $1,250,000 in advertising for the next year with renewal options. c) Effective January 1, 1999, the Company entered into an employment agreement with its Chairman for a three year term. The employment agreement provides for a salary of $100,000 plus 100,000 warrants to purchase 100,000 shares of common stock at $0.10 per share; plus a $1,000/month automobile allowance. The amount payable is subject to minimum annual increases of at least $15,000. d) Effective January 1, 1999, the Company entered into employment agreements with its CEO and COO for a three year term. The employment agreements provides for an annual salary of $100,000/each plus $1,000/month each of automobile allowance. If the Company's proposed IPO is completed to the reasonable satisfaction, then the compensation payable to the executives from the date of completion of the IPO to and including the expiry of the term shall be based on an annual salary of $150,000 each. The amount payable is subject to minimum annual increases of at least $15,000. 8. ECONOMIC DEPENDENCE Pursuant to an intercompany service agreement with DG Jewellery of Canada Ltd. ("DG"), DG has accounted for 100% of the purchases to date and is expected to account for substantially all of their purchases for the year ended June 30, 2000. F-6 NET JEWELS.COM, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999 (AMOUNTS EXPRESSED IN US DOLLARS) 9. SUBSEQUENT EVENTS a) The company has entered into a letter of engagement with an underwriting firm and is proceeding to complete an initial public offering of 2,200,000 shares of common stock at a price of $11.00 per share. 9. SUBSEQUENT EVENTS (CONT'D) b) In September 1999, the board of directors and stockholders adopted the 1999 NetJewels.com, Inc. Stock Option Plan (the "1999 Plan"), pursuant to which 750,000 shares of Common Stock are provided for issuance. The 1999 Plan is administered by the board of directors or compensation committee. The 1999 Plan is for a period of ten years, expiring September 2009. Options may be granted to officers, directors, consultants, key employees, advisors and similar parties who provide their skills and expertise to the Company. Options granted under the 1999 Plan may be exercisable for up to ten years, require a minimum two year vesting period, and shall be at an exercise price all as determined by the board or compensation committee. The exercise price of an option may not be less than the fair market value per share of Common Stock on the date the option is granted in order to receive certain tax benefits under the Income Tax Act of Canada (the "ITA"). The exercise price of all future options will be at least 85% of the fair market value of the Common Stock on the date of granting of the options. Any unexercised options that expire or that terminate upon an employee's ceasing to be employed by the Company become available again for issuance under the 1999 Plan. The 1999 Plan may be terminated or amended at any time by the board of directors, except that the number of shares of Common Stock reserved for issuance upon the exercise of options granted under the 1999 Plan may not be increased without the consent of the stockholders of the Company. To date no options have been granted under the plan. 10. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using year 2000 dates is processed. In addition, similar problems may arise in some systems which use certain dates in 1999 to represent something other than a date. The effects of the Year 2000 Issue may be experienced before, on, or after January 1, 2000, and, if not addressed, the impact on operations and financial reporting may range from minor errors to significant systems failure which could affect a company's ability to conduct normal business operations. It is not possible to be certain that all aspects of the Year 2000 Issue affecting the company, including those related to the efforts of customers, suppliers, or other third parties, will be fully resolved. F-7 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE -------- Prospectus Summary................... 2 Risk Factors......................... 5 Special Note Regarding Forward-Looking Statements......... 13 Use of Proceeds...................... 14 Dividend Policy...................... 16 Dilution............................. 16 Capitalization....................... 17 Selected Financial Data.............. 18 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 19 Business............................. 23 Management........................... 31 Principal Stockholders............... 35 Certain Transactions................. 35 Description of Securities............ 37 Shares Eligible for Future Sale...... 39 Underwriting......................... 40 Legal Matters........................ 42 Experts.............................. 42 Financial Statements................. F-1
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. NETJEWELS.COM, INC. 2,200,000 SHARES OF COMMON STOCK --------------------- PROSPECTUS --------------------- SECURITY CAPITAL TRADING INC. , 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following is a statement of the estimated expenses to be paid by us in connection with the issuance and distribution of the securities being registered: SEC Registration Fee........................................ $ 9,320.79 NASD Filing Fee............................................. 3,140.00 Nasdaq Listing Fees......................................... 63,725.00 Printing and Engraving Expenses *........................... 75,000.00 Legal Fees and Expenses *................................... 150,000.00 Accounting Fees and Expenses *.............................. 70,000.00 Blue Sky Fees and Expenses *................................ 15,000.00 Transfer Agent and Registrar Fees and Expenses.............. 2,500.00 Nonaccountable expense allowance............................ 605,000.00 Miscellaneous............................................... $ 11,314.21 ------------- Total....................................................... $1,005,000.00 =============
- ------------------------ * estimate ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law, among other things, and subject to certain conditions, authorizes us to indemnify our officers and directors against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being such an officer or director. Our restated certificate of incorporation and by-laws of the Company provide for indemnification of our officers and directors to the full extent authorized by law. Following the offering, we intend to procure officer's and director's liability insurance. Reference is made to the Underwriting Agreement, the proposed form of which is filed as Exhibit 1.1, pursuant to which the underwriter agrees to indemnify our directors and certain officers and certain other persons against certain civil liabilities. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES During the past three years, we have sold unregistered securities as described below. Unless otherwise indicated, there was no underwriters involved in the transactions and there was no underwriting discounts or commissions paid in connection therewith, except as disclosed below. Unless otherwise indicated, the issuances of these securities were considered to be exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder. The purchasers of the securities in such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the certificates for the securities issued in such transaction. The purchasers of the securities in the transactions had adequate access to information about us. In February 1999, we issued 3,300,000 shares of its common stock to NetJewels Canada as the founder of the corporation pursuant to Section 4(2) of the Securities Act of 1933, as amended. II-1 ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the issuer pursuant to any charter provision, by-law contract arrangements statute, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. THE UNDERSIGNED ISSUER HEREBY UNDERTAKES: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to suit information in the registration statement. (2) That, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the Offering of such securities at that time shall be deemed to be the initial bona fide Offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the Offering. (4) For determining any liability under the Act, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the issuer under Rule 424(b)(1), or (4) or 497(h), under the Act as part of this registration statement as of the time the Commission declared it effective. (5) For determining any liability under the Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement at that time as the initial bona fide Offering of those securities. ITEM 27. EXHIBITS ** 1.1 Form of Underwriting Agreement ** 1.2 Form of Representative's Warrant Agreement ** 1.3 Form of Representative's Warrants (included in the form of Representative's Warrant Agreement * 3.1 Bylaws of Registrant * 3.2 Certificate of Incorporation dated June 21, 1999 * 3.3 Amended Certificate of Incorporation dated September 29, 1999
II-2 ** 4.2 Form of Representative's Warrant (Included in Form of Representative's Warrant Agreement) ** 4.3 Specimen Common Stock Certificate ** 5.1 Opinion of Gersten, Savage & Kaplowitz, LLP *10.1 1999 Stock Option Plan *10.2 Employment Agreement between the Company and Daniel Berkovits. *10.3 Employment Agreement between the Company and Ben Berkovits. *10.4 Employment Agreement between the Company and Jack Berkovits *10.5 Merchandising Agreement between DG Jewellery of Canada Ltd. and theglobe.com, Inc. **10.6 Shopping Channel Promotional Agreement between the Company and America Online, Inc. *10.7 Partnership Vendor Agreement between DG Jewellery of Canada Ltd. and uBid.com, Inc. **10.8 Merchant Partner Agreement between DG Jewellery and 2theMart.com, Inc. **10.9 Sales and Distribution Agreement between DG Jewellery and Iconomy.com, Inc. **10.10 Agreement between DG Jewellery and Factorytohome.com **10.11 Auction Agreement between iDeal International, Inc. and DG Jewellery *10.12 Intercompany Services Agreement between DG Jewelry and the Company. **10.13 Sales and Distribution Agreement between DG Jewelry and Espanol.com. **10.14 Sales and Distribution Agreement between DG Jewelry and DealDeal.com *23.1 Consent of Schwartz Levitsky Feldman, Chartered Accountants. **23.2 Consent of Gersten, Savage & Kaplowitz, LLP (incorporated into Exhibit 5.1) **23.3 Consent of Albert Reichman **23.4 Consent of Greg Lerman *24.1 Power of Attorney (included on the signature page to this Registration Statement) *27 Financial Data Schedule
- ------------------------ * Filed herewith. ** To be filed by amendment. II-3 SIGNATURES Pursuant to the requirements of the Act, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirement for filing on Form S-1 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York on November 3, 1999. NETJEWELS.COM, INC. By: /s/ DANIEL BERKOVITS ----------------------------------------- Daniel Berkovits CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. We, the undersigned officers and directors of NetJewels.com, Inc. hereby severally constitute and appoint Daniel Berkovits, our true and lawful attorney-in-fact and agent with full power of substitution for us and in our stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and all documents relating thereto, and to file the same, with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing necessary or advisable to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JACK BERKOVITS Chairman of the Board ------------------------------------------- November 3, 1999 Jack Berkovits Chief Executive Officer, /s/ DANIEL BERKOVITS Principal Accounting ------------------------------------------- Officer and Director November 3, 1999 Daniel Berkovits Chairman of the Board /s/ BEN BERKOVITS President, Chief Operating ------------------------------------------- Officer and Director November 3, 1999 Ben Berkovits
II-4 EXHIBIT INDEX ** 1.1 Form of Underwriting Agreement ** 1.2 Form of Representative's Warrant Agreement ** 1.3 Form of Representative's Warrants (included in the form of Representative's Warrant Agreement * 3.1 Bylaws of Registrant * 3.2 Certificate of Incorporation dated June 21, 1999 * 3.3 Amended Certificate of Incorporation dated September 29, 1999 ** 4.2 Form of Representative's Warrant (Included in Form of Representative's Warrant Agreement) ** 4.3 Specimen Common Stock Certificate ** 5.1 Opinion of Gersten, Savage & Kaplowitz, LLP *10.1 1999 Stock Option Plan *10.2 Employment Agreement between the Company and Daniel Berkovits. *10.3 Employment Agreement between the Company and Ben Berkovits. *10.4 Employment Agreement between the Company and Jack Berkovits *10.5 Merchandising Agreement between DG Jewellery of Canada Ltd. and theglobe.com, Inc. **10.6 Shopping Channel Promotional Agreement between the Company and America Online, Inc. *10.7 Partnership Vendor Agreement between DG Jewellery of Canada Ltd. and uBid.com, Inc. **10.8 Merchant Partner Agreement between DG Jewellery and 2theMart.com, Inc. **10.9 Sales and Distribution Agreement between DG Jewellery and Iconomy.com, Inc. **10.10 Agreement between DG Jewellery and Factorytohome.com **10.11 Auction Agreement between iDeal International, Inc. and DG Jewellery *10.12 Intercompany Services Agreement between DG Jewelry and the Company. **10.13 Sales and Distribution Agreement between DG Jewelry and Espanol.com. **10.14 Sales and Distribution Agreement between DG Jewelry and DealDeal.com. *23.1 Consent of Schwartz Levitsky Feldman, Chartered Accountants. **23.2 Consent of Gersten, Savage & Kaplowitz, LLP (incorporated into Exhibit 5.1) **23.3 Consent of Albert Reichman **23.4 Consent of Greg Lerman *24.1 Power of Attorney (included on the signature page to this Registration Statement) *27 Financial Data Schedule
- ------------------------ * Filed herewith. ** To be filed by amendment. EX-3.1 2 EXHIBIT 3.1 Exhibit 3.1 BYLAWS OF NETJEWELS.COM, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE ARTICLE I OFFICES AND RECORDS Section 1.1. DELAWARE OFFICE. The principal office of the Corporation in the State of Delaware shall be located in the City of Wilmington, County of New Castle, and the name and address of its registered agent is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware. Section 1.2. OTHER OFFICES. The Corporation may have such other offices, either within or without the State of Delaware, as the Board of Directors may designate or as the business of the Corporation may from time to time require. Section 1.3. BOOKS AND RECORDS. The books and records of the Corporation may be kept at the Corporation's headquarters or at such other locations outside the State of Delaware as may from time to time be designated by the Board of Directors. ARTICLE II STOCKHOLDERS Section 2.1. ANNUAL MEETINGS. An annual meeting of stockholders shall be held for the election of directors at such date, time and place, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors from time to time. Any other proper business may be transacted at the annual meeting. Section 2.2. SPECIAL MEETINGS. Special meetings of stockholders for any purpose or purposes may be called at any time by the Chairman of the Board or a majority of the members of the Board of Directors. Section 2.3. NOTICE OF MEETINGS. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given that shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the Certificate of Incorporation or these Bylaws, the written notice of any meeting shall be given not less than ten or more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the records of the Corporation. Section 2.4. ADJOURNMENTS. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 2.5. QUORUM. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, at each meeting of stockholders the presence in person or by proxy of the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. In the absence of a quorum, the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided in Section 2.4 of these Bylaws until a quorum shall attend. Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. Section 2.6. ORGANIZATION. Meetings of stockholders shall be presided over by the Chairman of the Board, or in his or her absence by the Chief Executive Officer, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.7. VOTING. (a) Except as otherwise provided by law, the Certificate of Incorporation, or these Bylaws, any corporate action, other than the election of Directors, the affirmative vote of the majority of shares entitled to vote on that matter and represented either in person or by proxy at a meeting of stockholders at which a quorum is present shall be the act of the stockholders of the Corporation. (b) Unless otherwise provided for in the Certificate of Incorporation of the Corporation, Directors will be elected by a plurality of the votes cast by the shares, present in person or by proxy, entitled to vote in the election at a meeting at which a quorum is present and each stockholder entitled to vote has the right to vote the number of shares owned by him for as many persons as there are Directors to be elected. (c) Except as otherwise provided by statute, the Certificate of Incorporation, or 2 these Bylaws, at each meeting of stockholders, each stockholder of the Corporation entitled to vote thereat, shall be entitled to one vote for each share registered in his name on the books of the Corporation. Section 2.8 PROXIES. Each stockholder entitled to vote or to express consent or dissent without a meeting, may do so either in person or by proxy, so long as such proxy is executed in writing by the stockholder himself, or by his attorney-in-fact thereunto duly authorized in writing. Every proxy shall be revocable at will unless the proxy conspicuously states that it is irrevocable and the proxy is coupled with an interest. A telegram, telex, cablegram, or similar transmission by the stockholder, or as a photographic, photostatic, facsimile, shall be treated as a valid proxy, and treated as a substitution of the original proxy, so long as such transmission is a complete reproduction executed by the stockholder. No proxy shall be valid after the expiration of three years from the date of its execution, unless otherwise provided in the proxy. Such instrument shall be exhibited to the Secretary at the meeting and shall be filed with the records of the Corporation. Section 2.9 ACTION WITHOUT A MEETING. Unless otherwise provided for in the Certificate of Incorporation of the Corporation, any action to be taken at any annual or special stockholders' meeting, may be taken without a meeting, without prior notice and without a vote if a written consent or consents is/are signed by the stockholders of the Corporation having not less than the minimum number of votes necessary to authorize or take such action at a meeting at which all shares entitled to vote thereat were present and voted is delivered by hand or by certified or registered mail, return receipt requested, to the Corporation to its principal place of business or an officer or agent of the Corporation having custody of the books in which proceedings of stockholders' meetings are recorded. Section 2.10. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and which record date: (i) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty nor less than ten days before the date of such meeting and (ii) in the case of any other action, shall not be more than sixty days prior to such other action. If no record date is fixed: (i) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held and (ii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record 3 date for the adjourned meeting. Section 2.11. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to which stockholders are entitled to examine the stock ledger, the list of stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. Section 2.12. CONDUCT OF MEETINGS. The Board of Directors of the Corporation may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. Section 2.13. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. The Board of Directors by resolution may appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives of the Corporation, to act at the meeting and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act, or if all inspectors or alternates who have been appointed are unable to act, at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by the General Corporation Law of the State of Delaware. 4 The chairman of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting. ARTICLE III BOARD OF DIRECTORS Section 3.1. GENERAL POWERS. The business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors. In addition to the powers and authorities by these Bylaws expressly conferred upon them, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law, by the Certificate of Incorporation or by these Bylaws required to be exercised or done by the stockholders. Section 3.2. NUMBER; QUALIFICATIONS. The Board of Directors shall consist of not less than three or more than ten members, the exact number to be determined from time to time by resolution of the Board of Directors. Directors need not be stockholders or residents of the State of Delaware. Section 3.3. ELECTION, RESIGNATION. The first Board of Directors shall hold office until the first annual meeting of stockholders and until their successors have been duly elected and qualified or until there is a decrease in the number of Directors. Thereinafter, each Director will be elected at the annual meeting of stockholders and shall hold office until the annual meeting of the stockholders next succeeding his election, or until his prior death, resignation or removal. Any Director may resign at any time upon written notice to the Board of Directors, the Chief Executive Officer or the Secretary of the Corporation. Such resignation shall be effective upon receipt unless the notice specifies a later time for that resignation to become effective. Section 3.4. VACANCIES. Any newly created directorship resulting from an increase in the authorized number of Directors or any vacancy occurring in the Board of Directors by reason of death, resignation, retirement, disqualification, removal from office or any other cause may be filled by the affirmative vote of the remaining members of the Board of Directors, though less than a quorum of the Board of Directors, and each Director so elected shall hold office until the expiration of the term of office of the Director whom he or she has replaced or until his or her successor is elected and qualified. If there are no Directors in office, then an election of Directors may be held in the manner provided by statute. No decrease in the number of Directors constituting the whole Board shall shorten the term of any incumbent Director. Section 3.5. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board of Directors may from time to time determine, and if so determined notices thereof need not be given. Section 3.6. SPECIAL MEETINGS. Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the Chairman of the Board, the Chief Executive Officer, the Secretary, or by any two members of the Board of Directors. 5 Notice of the date, time and place of a special meeting of the Board of Directors shall be delivered by the person or persons calling the meeting personally, by facsimile or by telephone to each Director or sent by first-class mail or telegram, charges prepaid, addressed to each Director at that Directors' address as it is shown on the records of the Corporation. If the notice is mailed, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or telegraph, it shall be delivered at least forty-eight hours before the time of the holding of the special meeting. If by facsimile transmission, such notice shall be transmitted at least twenty-four hours before the time of holding of the special meeting. Any oral notice given personally or by telephone may be communicated either to the Director or to a person at the office of the Director who the person giving the notice has reason to believe will promptly communicate it to the Director. The notice need not specify the purpose or purposes of the special meeting or the place of the special meeting, if the meeting is to be held at the principal office of the Corporation. Section 3.7. TELEPHONIC MEETINGS PERMITTED. Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting thereof by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Bylaw shall constitute presence in person at such meeting. Section 3.8. QUORUM; VOTE REQUIRED FOR ACTION; ADJOURNMENT. At all meetings of the Board of Directors a majority of the whole Board of Directors shall constitute a quorum for the transaction of business. Except in cases in which the Certificate of Incorporation or these Bylaws otherwise provide, the vote of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. A majority of the Directors present, whether or not a quorum, may adjourn any meeting to another time and place. Notice of the time and place of holding an adjourned meeting need not be given unless the meeting is adjourned for more than twenty-four hours. If the meeting is adjourned for more than twenty-four hours, then notice of the time and place of the adjourned meeting shall be given to the Directors who were not present at the time of the adjournment in the manner specified in Section 3.6. Section 3.9. ORGANIZATION. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, or in his or her absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 3.10. INFORMAL ACTION BY DIRECTORS. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or such committee. 6 Section 3.11. FEES AND COMPENSATION OF DIRECTORS. Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the Board of Directors. This Section 3.11 shall not be construed to preclude any Director from serving the Corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services. Section 3.12 REMOVAL. One or more or all the Directors of the Corporation may be removed with or without cause at any time by the stockholders, at a special meeting of the stockholders called for that purpose, unless the Certificate of Incorporation provides that Directors may only be removed for cause, provided however, such Director shall not be removed if the Certificate of Incorporation or Bylaws provides that its Directors shall be elected by cumulative voting and there are a sufficient number of shares cast against his or her removal, which if cumulatively voted at an election of Directors would be sufficient to elect him or her. ARTICLE IV COMMITTEES Section 4.1. COMMITTEES. The Board of Directors may designate from among its members one or more standing or special committees, each committee to consist of one or more of the Directors of the Corporation. The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Section 4.2. COMMITTEE RULES. Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article III of these Bylaws. Section 4.3. MINUTES OF MEETINGS. All committees appointed in accordance with Section 4.1 shall keep regular minutes of their meetings and shall cause them to be recorded in books kept for that purpose in the office of the Corporation. 7 ARTICLE V OFFICERS Section 5.1. DESIGNATIONS. The officers of the Corporation shall be a Chairman of the Board, a Chief Executive Officer, a Secretary and, at the discretion of the Board of Directors, one or more Vice-Presidents (one or more of whom may be Executive Vice-Presidents), a Treasurer, Assistant Secretaries and Assistant Treasurers. The Board of Directors shall appoint all officers. Any two or more offices may be held by the same individual. Section 5.2. APPOINTMENT AND TERM OF OFFICE. The officers of the Corporation shall be appointed annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the stockholders. Each officer shall hold office until a successor shall have been appointed and qualified, or until such officer's earlier death, resignation or removal. Section 5.3. POWERS AND DUTIES. If the Board appoints persons to fill the following positions, such officers shall have the power and duties set forth below: (a) THE CHAIRMAN: The Chairman shall have general control and management of the Board of Directors and may also be the chief executive officer of the Corporation. He or she shall preside at all meetings of the Board of Directors at which he or she is present. He or she shall have such other powers and perform such other duties as from time to time may be conferred or imposed upon him or her by the Board of Directors. (b) THE CHIEF EXECUTIVE OFFICER: The Chief Executive Officer of the Corporation shall be generally responsible for the proper conduct of the business of the Corporation. He or she shall possess power to sign all certificates, contracts and other instruments of the Corporation. In the absence of the Chairman, he or she shall preside at all meetings of the stockholders. He or she shall perform all such other duties as are incident to his or her office or are properly required of him or her by the Board of Directors. (c) THE PRESIDENT: The President of the Corporation shall be generally responsible for the day to day operations of the business of the Corporation. He or she shall possess power to sign all certificates, contracts and other instruments of the Corporation. In the absence of the Chairman and the Chief Executive Officer, he or she shall preside at all meetings of the stockholders. He or she shall perform all such other duties as are incident to his or her office or are properly required of him or her by the Chief Executive Officer or the Board of Directors. (d) VICE PRESIDENT: Each Vice-President shall have such powers and discharge such duties as may be assigned to him or her from time to time by the President or the Board of Directors. (e) SECRETARY AND ASSISTANT SECRETARIES: The secretary shall issue notices for all meetings, shall keep minutes of all meetings, shall have charge of the seal and the 8 corporate books, and shall make such reports and perform such other duties as are incident to his or her office, or are properly required of him or her by the Board of Directors. The Assistant Secretary, or Assistant Secretaries in order designated by the Board of Directors, shall perform all of the duties of the Secretary during the absence or disability of the Secretary, and at other times may perform such duties as are directed by the President or the Board of Directors. (f) CHIEF FINANCIAL OFFICER. The chief financial officer shall keep or cause to be kept adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any Director. The chief financial officer shall (1) deposit corporate funds and other valuables in the Corporation's name and to its credit with depositories designated by the Board of Directors; (2) make disbursements of corporate funds as authorized by the Board of Directors; (3) render a statement of the corporation's financial condition and an account of all transactions conducted as chief financial officer whenever requested by the President or the Board of Directors; and (4) have other powers and perform other duties as prescribed by the President or the Board of Directors or the Bylaws. Unless the Board of Directors has elected a separate treasurer, the chief financial officer shall be deemed to be the treasurer for purposes of giving any reports or executing any certificates or other documents. Section 5.4. DELEGATION. In the case of the absence or inability to act of any officer of the Corporation and of any person herein authorized to act in such officer's place, the Board of Directors may from time to time delegate the powers or duties of such officer to any other officer or any Director or other person whom it may in its sole discretion select. Section 5.5. VACANCIES. Vacancies in any office arising from any cause may be filled by the Board of Directors at any regular or special meeting of the Board. The appointee shall hold office for the unexpired term and until his or her successor is duly elected and qualified. Section 5.6. OTHER OFFICERS. The Board of Directors, or a duly appointed officer to whom such authority has been delegated by Board resolution, may appoint such other officers and agents as it shall deem necessary or expedient, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Section 5.7. RESIGNATION. An officer may resign at any time by delivering notice to the Corporation. Such notice shall be effective when delivered unless the notice specifies a later effective date. Any such resignation shall not affect the Corporation's contract rights, if any, with the officer. Section 5.8. REMOVAL. Any officer elected or appointed by the Board of Directors may be removed at any time, with or without cause, by the affirmative vote of a majority of the whole Board of Directors, but such removal shall be without prejudice to the contract rights, if any, of the 9 person so removed. Section 5.9. BONDS. The Board of Directors may, by resolution, require any and all of the officers to give bonds to the Corporation, with sufficient surety or sureties, conditioned for the faithful performance of the duties of their respective offices, and to comply with such other conditions as may from time to time be required by the Board of Directors. ARTICLE VI STOCK Section 6.1. ISSUANCE OF SHARES. No shares of the Corporation shall be issued unless authorized by the Board of Directors or a duly constituted committee thereof. Such authorization shall include the number of shares to be issued, the consideration to be received and a statement regarding the adequacy of the consideration. Section 6.2. CERTIFICATES. Every holder of stock shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, if any, or the Chief Executive Officer or a Vice President, and by the Chief Financial Officer, or the Secretary or an Assistant Secretary, of the Corporation certifying the number of shares owned by him or her in the Corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 6.3. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW CERTIFICATES. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his or her legal representative, to give the Corporation indemnification or a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 6.4. TRANSFERS OF STOCK. (a) Transfers of stock shall be made only upon the stock transfer records of the Corporation, which records shall be kept at the registered office of the Corporation or at its principal place of business, or at the office of its transfer agent or registrar. The Board of Directors may, by resolution, open a share register in any state of the United States, and may employ an agent or agents to keep such register and to record transfers of shares therein. (b) Shares of certificated stock shall be transferred by delivery of the certificates therefor, accompanied either by an assignment in writing on the back of the certificates or an 10 assignment separate from the certificate, or by a written power of attorney to sell, assign and transfer the same, signed by the holder of said certificate. No shares of certificated stock shall be transferred on the records of the Corporation until the outstanding certificates therefor have been surrendered to the Corporation or to its transfer agent or registrar. Section 6.5. SHARES OF ANOTHER CORPORATION. Shares owned by the Corporation in another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the Board of Directors may determine or, in the absence of such determination, by the Chief Executive Officer of the Corporation. ARTICLE VII INDEMNIFICATION Section 7.1. RIGHT TO INDEMNIFICATION. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such person. Notwithstanding the preceding sentence, the Corporation shall be required to indemnify a person in connection with a proceeding (or part thereof) initiated by such person only if the proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. Section 7.2. PREPAYMENT OF EXPENSES. The Corporation shall pay the expenses (including attorneys' fees) incurred in defending any proceeding in advance of its final disposition; provided, however, that the payment of expenses incurred by a Director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Director or officer to repay all amounts advanced if it should be ultimately determined that the Director or officer is not entitled to be indemnified under this Article VII or otherwise. Section 7.3. CLAIMS. If a claim for indemnification or payment of expenses under this Article VII is not paid in full within sixty days after a written claim therefor has been received by the Corporation, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. Section 7.4. NONEXCLUSIVITY OF RIGHTS. The rights conferred on any person by this Article VII shall not be exclusive of any other rights which such person may have or hereafter 11 acquire under any statute, provision of the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or Directors or otherwise. Section 7.5. OTHER INDEMNIFICATION. The Corporation's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or nonprofit enterprise. Section 7.6. AMENDMENT OR REPEAL. Any repeal or modification of the foregoing provisions of this Article VII shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. ARTICLE VIII MISCELLANEOUS Section 8.1. FISCAL YEAR. The fiscal year of the Corporation shall be June 30. Section 8.2. SEAL. The corporate seal shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. Section 8.3. WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND COMMITTEES. Any written waiver of notice, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. Neither the business to be transacted at nor the purpose of any regular or special meeting of the stockholders, Directors or members of a committee of Directors need be specified in any written waiver of notice. Section 8.4. INTERESTED DIRECTORS; QUORUM. No contract or transaction between the Corporation and one or more of its Directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its Directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the Director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or her or their votes are counted for such purpose, if: (i) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved 12 in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof, or the stockholders. Common or interested Directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. Section 8.5. BOOKS AND RECORDS. The Corporation shall maintain appropriate accounting records and shall keep as permanent records minutes of all meetings of its stockholders and Board of Directors, a record of all actions taken by the Board of Directors without a meeting and a record of all actions taken by a committee of the Board of Directors. In addition, the Corporation shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its stockholders, giving the names and addresses of all stockholders in alphabetical order by class of shares showing the number and class of the shares held by each. Any books, records and minutes may be in written form or any other form capable of being converted into written form within a reasonable time. Section 8.6. AMENDMENT OF BYLAWS. In furtherance and not in limitation of the powers conferred upon it by law, the Board of Directors is expressly authorized to adopt, repeal or amend the Bylaws of the Corporation by the vote of a majority of the entire Board of Directors. The Bylaws of the Corporation shall be subject to alteration or repeal, and new by-laws may be made, by a majority vote of the stockholders at the time entitled to vote in the election of Directors even though these Bylaws may also be altered, amended or repealed by the Board of Directors. 13 EX-3.2 3 EXHIBIT 3.2 Exhibit 3.2 CERTIFICATE OF INCORPORATION OF EXITE JEWELRY.COM, INC. ARTICLE 1. NAME The name of this corporation is Exite Jewelry.com, Inc. ARTICLE 2. REGISTERED OFFICE AND AGENT The address of the registered office of this corporation is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, in the State of Delaware and the name of its initial registered agent at such address is the Corporation trust Company. ARTICLE 3. PURPOSES The purpose of this corporation (the "Corporation") is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE 4. SHARES The total authorized stock of this corporation shall consist of 19,000,000 shares of common stock having a par value of $.01 per share (the "Common Stock") and 1,000,000 shares of preferred stock having a par value of $.01 per share the (the "Preferred Stock"). Each share of Common Stock shall entitle the holder to (i) one vote on all matters submitted to a vote of the shareholders, (ii) to receive dividends when and if declared by the Board of Directors from funds legally available therefore according to the number of shares held, and (iii) upon liquidation, dissolution or winding up of the Corporation, to share ratably in any assets available for distribution to shareholders after payment of all obligations of the Corporation and after provision has been made with respect to each class of stock, if any, having preference over the Common Stock. The shares of Preferred Stock may be issued in one or more series, and each series shall be so designated to distinguish the shares thereof from the shares of all other series. Authority is hereby expressly granted to the Board of Directors to fix by resolution or resolutions, before the issuance of any shares of a particular series, the number and any of the designations and the powers, preferences and rights, and the qualifications, limitations or restrictions which are permitted by Delaware General Corporation Law in respect of any series of Preferred Stock of the corporation. ARTICLE 5. DIRECTORS The number of Directors of this corporation shall be determined in the manner provided by the Bylaws and may be increased or decreased from time to time in the manner provided therein. Written ballots are not required in the election of Directors. ARTICLE 6. BYLAWS The Board of Directors shall have the power to adopt, amend or repeal the Bylaws of this corporation; provided, however, the Board of Directors may not repeal or amend any bylaw that the stockholders have expressly provided may not be amended or repealed by the Board of Directors. The stockholders shall also have the power to adopt, amend or repeal the Bylaws of this corporation. ARTICLE 7. PREEMPTIVE RIGHTS Preemptive rights shall not exist with respect to shares of stock or securities convertible into shares of stock of this corporation. ARTICLE 8. CUMULATIVE VOTING The right to cumulate votes in the election of Directors shall not exist with respect to shares of stock of this corporation. ARTICLE 9. AMENDMENTS TO CERTIFICATE OF INCORPORATION This corporation reserves the right to amend or repeal, by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote, any of the provisions contained in this Certificate of Incorporation. The rights of the stockholders of this corporation are granted subject to this reservation. ARTICLE 10. LIMITATION OF DIRECTOR LIABILITY To the full extent that the Delaware General Corporation Law, as it exists on the date hereof or may hereafter be amended, permits the limitation or elimination of the liability of directors, a director of this corporation shall not be liable to this corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Any amendment to or repeal of this Article 10 shall not adversely affect any right or protection of a director of this corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. ARTICLE 11. ACTION BY STOCKHOLDERS WITHOUT A MEETING Only action properly brought before the stockholders by or at the direction of the Board of Directors may be taken without a meeting, without prior notice and without a vote, if a written consent setting forth the action so taken is signed by the holders of outstanding shares of capital stock entitled to be voted with respect to the subject matter thereof having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. ARTICLE 12. SPECIAL MEETINGS OF STOCKHOLDERS The Chairman of the Board of Directors, the Chief Executive Officer, the President or the Board of Directors may call special meetings of the stockholders for any purpose. A special meeting of the stockholders shall be held if the holders of not less than thirty percent (30%) of all the votes entitled to be cast on any issue proposed to be considered at such special meeting have dated, signed and delivered to the Secretary one or more written demands for such meeting, describing the purpose or purposes for which it is to be held. ARTICLE 13. BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS This corporation expressly elects not to be governed by section 203(a) of Title 8 of the Delaware General Corporation Law. I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hands this 21st day of June, 1999. /s/ Ike O. Echeruo --------------------------------- Ike O. Echeruo, Incorporator Gersten, Savage & Kaplowitz, LLP 101 East 52nd Street New York, New York 10022 EX-3.3 4 EXHIBIT 3.3 Exhibit 3.3 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF EXITE JEWELRY.COM, INC. It is hereby certified that: 1. The name of the corporation (hereinafter called the "Corporation") is Exite Jewelry.com, Inc. 2. The certificate of incorporation of the Corporation is hereby amended by deleting Article 1 thereof and substituting in lieu of said Article the following: "ARTICLE 1. NAME The name of the Corporation is NetJewels.com, Inc." 3. The amendment of the certificate of incorporation herein certified has been duly adopted and written consent has been given in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. Dated: September 29, 1999 By: /s/ Daniel Berkovits --------------------- Daniel Berkovits, Chief Executive Officer EX-10.1 5 EXHIBIT 10.1 Exhibit 10.1 NETJEWELS.COM, INC. 1999 STOCK OPTION PLAN As adopted ________, 1999 1. PURPOSE OF PLAN; ADMINISTRATION 1.1 PURPOSE. The NetJewels.com, Inc. 1999 Stock Option Plan (hereinafter, the "Plan") is hereby established to grant to officers and other employees of NetJewels.com, Inc. (the "Company") or of its parents or subsidiaries (as defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended (the "Code")), if any (individually and collectively, the Company"), and to non-employee directors, consultants and advisors and other persons who may perform significant services for or on behalf of the Company, a favorable opportunity to acquire common stock, $.0001 par value ("Common Stock"), of the Company and, thereby, to create an incentive for such persons to remain in the employ of or provide services to the Company and to contribute to its success. The Company may grant under the Plan both incentive stock options within the meaning of Section 422 of the Code ("Incentive Stock Options") and stock options that do not qualify for treatment as Incentive Stock Options ("Nonstatutory Options"). Unless expressly provided to the contrary herein, all references herein to "options," shall include both Incentive Stock Options and Nonstatutory Options. 1.2 ADMINISTRATION. The Plan shall be administered by the Board of Directors of the Company (the "Board"), if each member is a "Non-Employee Director" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"), or a committee (the "Committee") of two or more directors, each of whom is a Non-Employee Director. Appointment of Committee members shall be effective upon acceptance of appointment. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the Committee may be filled by the Board. Until such time that the Committee is properly appointed, the Board shall administer the Plan in accordance with the terms of this Section 1.2. A majority of the members of the Committee shall constitute a quorum for the purposes of the Plan. Provided a quorum is present, the Committee may take action by affirmative vote or consent of a majority of its members present at a meeting. Meetings may be held telephonically as long as all members are able to hear one another, and a member of the Committee shall be deemed to be present for this purpose if he or she is in simultaneous communication by telephone with the other members who are able to hear one another. In lieu of action at a meeting, the Committee may act by written consent of a majority of its members. Subject to the express provisions of the Plan, the Committee shall have the authority to construe and interpret the Plan and all Stock Option Agreements (as defined in Section 3.4) entered into pursuant hereto and to define the terms used therein, to prescribe, adopt, amend and rescind rules and regulations relating to the administration of the Plan and to make all other 2 determinations necessary or advisable for the administration of the Plan; provided, however, that the Committee may delegate nondiscretionary administrative duties to such employees of the Company as it deems proper; and, provided, further, in its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan. Subject to the express limitations of the Plan, the Committee shall designate the individuals from among the class of persons eligible to participate as provided in Section 1.3 who shall receive options, whether an optionee will receive Incentive Stock Options or Nonstatutory Options, or both, and the amount, price, restrictions and all other terms and provisions of such options (which need not be identical). Members of the Committee shall receive such compensation for their services as members as may be determined by the Board. All expenses and liabilities which members of the Committee incur in connection with the administration of this Plan shall be borne by the Company. The Committee may, with the approval of the Board, employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee, the Company and the Company's officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. No members of the Committee or Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, and all members of the Committee shall be fully protected by the Company in respect of any such action, determination or interpretation. 1.3 PARTICIPATION. Officers and other employees of the Company, non-employee directors, consultants and advisors and other persons who may perform significant services on behalf of the Company shall be eligible for selection to participate in the Plan upon approval by the Committee; provided, however, that only "employees" (within the meaning of Section 3401(c) of the Code) of the Company shall be eligible for the grant of Incentive Stock Options. An individual who has been granted an option may, if otherwise eligible, be granted additional options if the Committee shall so determine. No person is eligible to participate in the Plan by matter of right; only those eligible persons who are selected by the Committee in its discretion shall participate in the Plan. 1.4 STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in Section 3.5, the stock to be offered under the Plan shall be shares of authorized but unissued Common Stock, including any shares repurchased under the terms of the Plan or any Stock Option Agreement entered into pursuant hereto. The cumulative aggregate number of shares of Common Stock to be issued under the Plan shall not exceed 750,000, subject to adjustment as set forth in Section 3.5. If any option granted hereunder shall expire or terminate for any reason without having been fully exercised, the unpurchased shares subject thereto shall again be available for the purposes of the Plan. For purposes of this Section 1.4, where the exercise price of options is paid 3 by means of the grantee's surrender of previously owned shares of Common Stock, only the net number of additional shares issued and which remain outstanding in connection with such exercise shall be deemed "issued" for purposes of the Plan. 2. STOCK OPTIONS 2.1 EXERCISE PRICE; PAYMENT. (a) The exercise price of each Incentive Stock Option granted under the Plan shall be determined by the Committee, but shall not be less than 100% of the "Fair Market Value" (as defined below) of Common Stock on the date of grant. If an Incentive Stock Option is granted to an employee who at the time such option is granted owns (within the meaning of section 424(d) of the Code) more than 10% of the total combined voting power of all classes of capital stock of the Company, the option exercise price shall be at least 110% of the Fair Market Value of Common Stock on the date of grant. The exercise price of each Nonstatutory Option also shall be determined by the Committee, but shall not be less than 85% of the Fair Market Value of Common Stock on the date of grant. The status of each option granted under the Plan as either an Incentive Stock Option or a Nonstatutory Option shall be determined by the Committee at the time the Committee acts to grant the option, and shall be clearly identified as such in the Stock Option Agreement relating thereto. "Fair Market Value" for purposes of the Plan shall mean: (i) the closing price of a share of Common Stock on the principal exchange on which shares of Common Stock are then trading, if any, on the day immediately preceding the date of grant, or, if shares were not traded on the day preceding such date of grant, then on the next preceding trading day during which a sale occurred; or (ii) if Common Stock is not traded on an exchange but is quoted on Nasdaq or a successor quotation system, (1) the last sales price (if Common Stock is then listed on the Nasdaq Stock Market) or (2) the mean between the closing representative bid and asked price (in all other cases) for Common Stock on the day prior to the date of grant as reported by Nasdaq or such successor quotation system; or (iii) if there is no listing or trading of Common Stock either on a national exchange or over-the-counter, that price determined in good faith by the Committee to be the fair value per share of Common Stock, based upon such evidence as it deems necessary or advisable. (b) In the discretion of the Committee at the time the option is exercised, the exercise price of any option granted under the Plan shall be paid in full in cash, by check or by the optionee's interest-bearing promissory note (subject to any limitations of applicable state corporations law) delivered at the time of exercise; provided, however, that subject to the timing requirements of Section 2.7, in the discretion of the Committee and upon receipt of all regulatory approvals, the person exercising the option may deliver as payment in whole or in part of such exercise price certificates for Common Stock of the Company (duly endorsed or with duly executed stock powers attached), which shall be valued at its Fair Market Value on the day of exercise of the option, or other property deemed appropriate by the Committee; and, provided further, that, subject to Section 422 of the Code, so-called cashless exercises as permitted under 4 applicable rules and regulations of the Securities and Exchange Commission and the Federal Reserve Board shall be permitted in the discretion of the Committee. Without limiting the Committee's discretion in this regard, consecutive book entry stock-for-stock exercises of options (or "pyramiding") also are permitted in the Committee's discretion. Irrespective of the form of payment, the delivery of shares issuable upon the exercise of an option shall be conditioned upon payment by the optionee to the Company of amounts sufficient to enable the Company to pay all federal, state, and local withholding taxes resulting, in the Company's judgment, from the exercise. In the discretion of the Committee, such payment to the Company may be effected through (i) the Company's withholding from the number of shares of Common Stock that would otherwise be delivered to the optionee by the Company on exercise of the option a number of shares of Common Stock equal in value (as determined by the Fair Market Value of Common Stock on the date of exercise) to the aggregate withholding taxes, (ii) payment by the optionee to the Company of the aggregate withholding taxes in cash, (iii) withholding by the Company from other amounts contemporaneously owed by the Company to the optionee, or (iv) any combination of these three methods, as determined by the Committee in its discretion. 2.2 OPTION PERIOD. (a) The Committee shall provide, in the terms of each Stock Option Agreement, when the option subject to such agreement expires and becomes unexercisable, but in no event will an Incentive Stock Option granted under the Plan be exercisable after the expiration of ten years from the date it is granted. Without limiting the generality of the foregoing, the Committee may provide in the Stock Option Agreement that the option subject thereto expires 30 days following a Termination of Employment (as defined in Section 3.2 hereof) for any reason other than death or disability, or six months following a Termination of Employment for disability or following an optionee's death. (b) OUTSIDE DATE FOR EXERCISE. Notwithstanding any provision of this Section 2.2, in no event shall any option granted under the Plan be exercised after the expiration date of such option set forth in the applicable Stock Option Agreement. 2.3 EXERCISE OF OPTIONS. Each option granted under the Plan shall become exercisable and the total number of shares subject thereto shall be purchasable, in a lump sum or in such installments, which need not be equal, as the Committee shall determine; provided, however, that each option shall become exercisable in full no later than ten years after such option is granted, and each option shall become exercisable as to at least 10% of the shares of Common Stock covered thereby on each anniversary of the date such option is granted; and provided, further, that if the holder of an option shall not in any given installment period purchase all of the shares which such holder is entitled to purchase in such installment period, such holder's right to purchase any shares not purchased in such installment period shall continue until the expiration or sooner termination of such holder's 5 option. The Committee may, at any time after grant of the option and from time to time, increase the number of shares purchasable in any installment, subject to the total number of shares subject to the option and the limitations set forth in Section 2.5. At any time and from time to time prior to the time when any exercisable option or exercisable portion thereof becomes unexercisable under the Plan or the applicable Stock Option Agreement, such option or portion thereof may be exercised in whole or in part; provided, however, that the Committee may, by the terms of the option, require any partial exercise to be with respect to a specified minimum number of shares. No option or installment thereof shall be exercisable except with respect to whole shares. Fractional share interests shall be disregarded, except that they may be accumulated as provided above and except that if such a fractional share interest constitutes the total shares of Common Stock remaining available for purchase under an option at the time of exercise, the optionee shall be entitled to receive on exercise a certified or bank cashier's check in an amount equal to the Fair Market Value of such fractional share of stock. 2.4 TRANSFERABILITY OF OPTIONS. Except as the Committee may determine as aforesaid, an option granted under the Plan shall, by its terms, be nontransferable by the optionee other than by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order (as defined by the Code), and shall be exercisable during the optionee's lifetime only by the optionee or by his or her guardian or legal representative. More particularly, but without limiting the generality of the immediately preceding sentence, an option may not be assigned, transferred (except as provided in the preceding sentence), pledged or hypothecated (whether by operation of law or otherwise), and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of any option contrary to the provisions of the Plan and the applicable Stock Option Agreement, and any levy of any attachment or similar process upon an option, shall be null and void, and otherwise without effect, and the Committee may, in its sole discretion, upon the happening of any such event, terminate such option forthwith. 2.5 LIMITATION ON EXERCISE OF INCENTIVE STOCK OPTIONS. To the extent that the aggregate Fair Market Value (determined on the date of grant as provided in Section 2.1 above) of the Common Stock with respect to which Incentive Stock Options granted hereunder (together with all other Incentive Stock Option plans of the Company) are exercisable for the first time by an optionee in any calendar year under the Plan exceeds $100,000, such options granted hereunder shall be treated as Nonstatutory Options to the extent required by Section 422 of the Code. The rule set forth in the preceding sentence shall be applied by taking options into account in the order in which they were granted. 2.6 DISQUALIFYING DISPOSITIONS OF INCENTIVE STOCK OPTIONS. If Common Stock acquired upon exercise of any Incentive Stock Option is disposed of in a disposition that, under Section 422 of the Code, disqualifies the option holder from the 6 application of Section 421(a) of the Code, the holder of the Common Stock immediately before the disposition shall comply with any requirements imposed by the Company in order to enable the Company to secure the related income tax deduction to which it is entitled in such event. 2.7 CERTAIN TIMING REQUIREMENTS. At the discretion of the Committee, shares of Common Stock issuable to the optionee upon exercise of an option may be used to satisfy the option exercise price or the tax withholding consequences of such exercise, in the case of persons subject to Section 16 of the Securities Exchange Act of 1934, as amended, only (i) during the period beginning on the third business day following the date of release of the quarterly or annual summary statement of sales and earnings of the Company and ending on the twelfth business day following such date or (ii) pursuant to an irrevocable written election by the optionee to use shares of Common Stock issuable to the optionee upon exercise of the option to pay all or part of the option price or the withholding taxes made at least six months prior to the payment of such option price or withholding taxes. 2.8 NO EFFECT ON EMPLOYMENT. Nothing in the Plan or in any Stock Option Agreement hereunder shall confer upon any optionee any right to continue in the employ of the Company, any Parent Corporation or any Subsidiary or shall interfere with or restrict in any way the rights of the Company, its Parent Corporation and its Subsidiaries, which are hereby expressly reserved, to discharge any optionee at any time for any reason whatsoever, with or without cause. For purposes of the Plan, "Parent Corporation" shall mean any corporation in an unbroken chain of corporations ending with the Company if each of the corporations other than the Company then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. For purposes of the Plan, "Subsidiary" shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 3. OTHER PROVISIONS 3.1 SICK LEAVE AND LEAVES OF ABSENCE. Unless otherwise provided in the Stock Option Agreement, and to the extent permitted by Section 422 of the Code, an optionee's employment shall not be deemed to terminate by reason of sick leave, military leave or other leave of absence approved by the Company if the period of any such leave does not exceed a period approved by the Company, or, if longer, if the optionee's right to reemployment by the Company is guaranteed either contractually or by statute. A Stock Option Agreement may contain such additional or different provisions with respect to leave of 7 absence as the Committee may approve, either at the time of grant of an option or at a later time. 3.2 TERMINATION OF EMPLOYMENT. For purposes of the Plan "Termination of Employment," shall mean the time when the employee-employer relationship between the optionee and the Company, any Subsidiary or any Parent Corporation is terminated for any reason, including, but not by way of limitation, a termination by resignation, discharge, death, disability or retirement; but excluding (i) terminations where there is a simultaneous reemployment or continuing employment of an optionee by the Company, any Subsidiary or any Parent Corporation, (ii) at the discretion of the Committee, terminations which result in a temporary severance of the employee-employer relationship, and (iii) at the discretion of the Committee, terminations which are followed by the simultaneous establishment of a consulting relationship by the Company, a Subsidiary or any Parent Corporation with the former employee. Subject to Section 3.1, the Committee, in its absolute discretion, shall determine the affect of all matters and questions relating to Termination of Employment; provided, however, that, with respect to Incentive Stock Options, a leave of absence or other change in the employee-employer relationship shall constitute a Termination of Employment if, and to the extent that such leave of absence or other change interrupts employment for the purposes of Section 422(a)(2) of the Code and the then-applicable regulations and revenue rulings under said Section. 3.3 ISSUANCE OF STOCK CERTIFICATES. Upon exercise of an option, the Company shall deliver to the person exercising such option a stock certificate evidencing the shares of Common Stock acquired upon exercise. Notwithstanding the foregoing, the Committee in its discretion may require the Company to retain possession of any certificate evidencing stock acquired upon exercise of an option which remains subject to repurchase under the provisions of the Stock Option Agreement or any other agreement signed by the optionee in order to facilitate such repurchase provisions. 3.4 TERMS AND CONDITIONS OF OPTIONS. Each option granted under the Plan shall be evidenced by a written Stock Option Agreement ("Stock Option Agreement") between the option holder and the Company providing that the option is subject to the terms and conditions of the Plan and to such other terms and conditions not inconsistent therewith as the Committee may deem appropriate in each case. 3.5 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; MERGER AND CONSOLIDATION. If the outstanding shares of Common Stock are changed into, or exchanged for cash or a different number or kind of shares or securities of the Company or of another corporation through reorganization, merger, recapitalization, reclassification, stock split-up, reverse stock split, stock dividend, stock consolidation, stock combination, stock reclassification or similar transaction, an 8 appropriate adjustment shall be made by the Committee in the number and kind of shares as to which options may be granted. In the event of such a change or exchange, other than for shares or securities of another corporation or by reason of reorganization, the Committee shall also make a corresponding adjustment changing the number or kind of shares and the exercise price per share allocated to unexercised options or portions thereof, which shall have been granted prior to any such change, shall likewise be made. Any such adjustment, however, shall be made without change in the total price applicable to the unexercised portion of the option (except for any change in the aggregate price resulting from rounding-off of share quantities or prices). In the event of a "spin-off" or other substantial distribution of assets of the Company which has a material diminutive effect upon the Fair Market Value of the Common Stock, the Committee in its discretion shall make an appropriate and equitable adjustment to the exercise prices of options then outstanding under the Plan. Where an adjustment under this Section 3.5 of the type described above is made to an Incentive Stock Option, the adjustment will be made in a manner which will not be considered a "modification" under the provisions of subsection 424(b)(3) of the Code. In connection with the dissolution or liquidation of the Company or a partial liquidation involving 50% or more of the assets of the Company, a reorganization of the Company in which another entity is the survivor, a merger or reorganization of the Company under which more than 50% of the Common Stock outstanding prior to the merger or reorganization is converted into cash or into a security of another entity, a sale of more than 50% of the Company's assets, or a similar event that the Committee determines, in its discretion, would materially alter the structure of the Company or its ownership, the Committee, upon 30 days prior written notice to the option holders, may, in its discretion, do one or more of the following: (i) shorten the period during which options are exercisable (provided they remain exercisable for at least 30 days after the date the notice is given); (ii) accelerate any vesting schedule to which an option is subject; (iii) arrange to have the surviving or successor entity grant replacement options with appropriate adjustments in the number and kind of securities and option prices, or (iv) cancel options upon payment to the option holders in cash, with respect to each option to the extent then exercisable (including any options as to which the exercise has been accelerated as contemplated in clause (ii) above), of any amount that is the equivalent of the Fair Market Value of the Common Stock (at the effective time of the dissolution, liquidation, merger, reorganization, sale or other event) or the fair market value of the option. In the case of a change in corporate control, the Committee may, in considering the advisability or the terms and conditions of any acceleration of the exercisability of any option pursuant to this Section 3.5, take into account the penalties that may result directly or indirectly from such acceleration to either the Company or the option holder, or both, under Section 280G of the Code, and may decide to limit such acceleration to the extent necessary to avoid or mitigate such penalties or their effects. No fractional share of Common Stock shall be issued under the Plan on account of any adjustment under this Section 3.5. 9 3.6 RIGHTS OF PARTICIPANTS AND BENEFICIARIES. The Company shall pay all amounts payable hereunder only to the option holder or beneficiaries entitled thereto pursuant to the Plan. The Company shall not be liable for the debts, contracts or engagements of any optionee or his or her beneficiaries, and rights to cash payments under the Plan may not be taken in execution by attachment or garnishment, or by any other legal or equitable proceeding while in the hands of the Company. 3.7 GOVERNMENT REGULATIONS. The Plan, and the grant and exercise of options and the issuance and delivery of shares of Common Stock under options granted hereunder, shall be subject to compliance with all applicable federal and state laws, rules and regulations (including but not limited to state and federal securities law) and federal margin requirements and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Any securities delivered under the Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Company, provide such assurances and representations to the Company as the Company may deem necessary or desirable to assure compliance with all applicable legal requirements. To the extent permitted by applicable law, the Plan and options granted hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. 3.8 AMENDMENT AND TERMINATION. The Board or the Committee may at any time suspend, amend or terminate the Plan and may, with the consent of the option holder, make such modifications of the terms and conditions of such option holder's option as it shall deem advisable, provided, however, that, without approval of the Company's stockholders given within twelve months before or after the action by the Board or the Committee, no action of the Board or the Committee may, (A) materially increase the benefits accruing to participants under the Plan; (B) materially increase the number of securities which may be issued under the Plan; or (C) materially modify the requirements as to eligibility for participation in the Plan. No option may be granted during any suspension of the Plan or after such termination. The amendment, suspension or termination of the Plan shall not, without the consent of the option holder affected thereby, alter or impair any rights or obligations under any option theretofore granted under the Plan. No option way be granted during any period of suspension nor after termination of the Plan, and in no event may any option be granted under the Plan after the expiration of ten years from the date the Plan is adopted by the Board. 3.9 TIME OF GRANT AND EXERCISE OF OPTION. An option shall be deemed to be exercised when the Secretary of the Company receives written notice from an option holder of such exercise, payment of the exercise price determined pursuant to Section 2.1 of the Plan and set forth in the Stock Option Agreement, and all representations, indemnifications and documents reasonably requested by the Committee. 10 3.10 PRIVILEGES OF STOCK OWNERSHIP; NON-DISTRIBUTIVE INTENT; REPORTS TO OPTION HOLDERS. A participant in the Plan shall not be entitled to the privilege of stock ownership as to any shares of Common Stock not actually issued to the optionee. Upon exercise of an option at a time when there is not in effect under the Securities Act of 1933, as amended, a Registration Statement relating to the Common Stock issuable upon exercise or payment therefor and available for delivery a Prospectus meeting the requirements of Section 10(a)(3) of said Act, the optionee shall represent and warrant in writing to the Company that the shares purchased are being acquired for investment and not with a view to the distribution thereof. The Company shall furnish to each optionee under the Plan the Company's annual report and such other periodic reports, if any, as are disseminated by the Company in the ordinary course to its stockholders. 3.11 LEGENDING SHARE CERTIFICATES. In order to enforce any restrictions imposed upon Common Stock issued upon exercise of an option granted under the Plan or to which such Common Stock may be subject, the Committee may cause a legend or legends to be placed on any share certificates representing such Common Stock, which legend or legends shall make appropriate reference to such restrictions, including, but not limited to, a restriction against sale of such Common Stock for any period of time as may be required by applicable laws or regulations. If any restriction with respect to which a legend was placed on any certificate ceases to apply to Common Stock represented by such certificate, the owner of the Common Stock represented by such certificate may require the Company to cause the issuance of a new certificate not bearing the legend. Additionally, and not by way of limitation, the Committee may impose such restrictions on any Common Stock issued pursuant to the Plan as it may deem advisable, including, without limitation, restrictions under the requirements of any stock exchange upon which Common Stock is then traded. 3.12 USE OF PROCEEDS. Proceeds realized pursuant to the exercise of options under the Plan shall constitute general funds of the Company. 3.13 CHANGES IN CAPITAL STRUCTURE; NO IMPEDIMENT TO CORPORATE TRANSACTIONS. The existence of outstanding options under the Plan shall not affect the Company's right to effect adjustments, recapitalizations, reorganizations or other changes in its or any other corporation's capital structure or business, any merger or consolidation, any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting Common Stock, the dissolution or liquidation of the Company's or any other corporation's assets or business, or any 11 other corporate act, whether similar to the events described above or otherwise. 3.14 EFFECTIVE DATE OF THE PLAN. The Plan shall be effective as of the date of its approval by the stockholders of the Company within twelve months after the date of the Board's initial adoption of the Plan. Options may be granted but not exercised prior to stockholder approval of the Plan. If any options are so granted and stockholder approval shall not have been obtained within twelve months of the date of adoption of this Plan by the Board of Directors, such options shall terminate retroactively as of the date they were granted. 3.15 TERMINATION. The Plan shall terminate automatically as of the close of business on the day preceding the tenth anniversary date of its adoption by the Board or earlier as provided in Section 3.8. Unless otherwise provided herein, the termination of the Plan shall not affect the validity of any option agreement outstanding at the date of such termination. 3.16 NO EFFECT ON OTHER PLANS. The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company, any Subsidiary or any Parent Corporation. Nothing in the Plan shall be construed to limit the right of the Company (i) to establish any other forms of incentives or compensation for employees of the Company, any Subsidiary or any Parent Corporation or (ii) to grant or assume options or other rights otherwise than under the Plan in connection with any proper corporate purpose including but not by way of limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, partnership, firm or association. * * * 12 EX-10.2 6 EXHIBIT 10.2 Exhibit 10.2 THIS AGREEMENT made as of the 1st day of January, 1999. BETWEEN: NETJEWELS.COM INC., a corporation incorporated under the laws of the State of Delaware (hereinafter called the "CORPORATION") OF THE FIRST PART - and - DANIEL BERKOVITS, of the City of Toronto, in the Province of Ontario (hereinafter called the "EXECUTIVE") OF THE SECOND PART WITNESSETH that in consideration of the sum of Two Dollars ($2.00) now paid by each of the parties hereto to the other (the receipt of which is hereby acknowledged by each of them) and the mutual covenants and agreement herein set forth, the parties hereto hereby agree as follows: TERM 1. The Corporation hereby agrees to engage the services of the Executive and the Executive hereby agrees to serve the Corporation in a management capacity and to fulfill such functions as the Corporation may from time to time direct, upon and subject to the terms and conditions herein set forth for a period of employment which shall commence on the date hereof (the "COMMENCEMENT DATE") and which shall run for three (3) years from such date (the "TERM") or until terminated as herein provided. EXECUTIVE'S OBLIGATIONS 2. Subject to the Executive's obligations to D.G. Jewelry Inc., during the term of his employment hereunder, the Executive shall devote his time and personal attention to the business of the Corporation and shall not engage in any other business or occupation without first having obtained the written consent of the Corporation. 3. The Executive shall well, faithfully and diligently perform the duties of his employment with the Corporation and any office or offices held by him in the Corporation, and shall give his best efforts and skill to the business and interests of the Corporation, will perform such services, in and about such business of the Corporation as may from time to time be assigned to him and shall do all in his power to promote, develop and extend the business of the Corporation and to enhance and develop the best interests and welfare of the Corporation in all respects. COMPENSATION 4. As compensation for his services hereunder: (a) from the Commencement Date to and including _June 30, 1999, the Corporation shall pay to the Executive the amount of Fifty Thousand ($50,000.00) Dollars U.S., which amount shall be payable to the Executive in equal weekly instalments of $_1923.08. (b) From July 1, 1999 to and including the expiration of the first year of the Term, the Corporation shall pay to the Executive the amount of $50,000 U.S., which amount shall be payable to the Executive in equal weekly instalments of $1923.08 U.S.. (c) Notwithstanding the foregoing paragraphs (a) and (b) of this Section 4, if the Corporation's proposed initial public offering of its common stock (the "IPO") is completed to the reasonable satisfaction of the Corporation, then the compensation payable to the Executive from the date of completion of the IPO to and including the expiry of the Term shall be based on an annual salary of One Hundred and Fifty Thousand Dollars ($150,000.00) U.S. (d) The parties further agree that the amount payable to the Executive during each year of the Term pursuant to section 4, shall be reviewed by the parties on the anniversary date of the Commencement Date and shall be subject to minimum increases of at least Fifteen Thousand Dollars ($15,000.00) U.S. per annum. It is understood and agreed that all payments made pursuant to this paragraph (c) and (d) above are payable by the Corporation in equal weekly instalments during each year of the Term on the last business day of each and every week of the Term. 5. The Executive may receive an annual bonus if, as and when determined by the Corporation. 6. The Corporation at its expense shall pay to the Executive an automobile allowance of One Thousand ($1,000.00) Dollars U.S. monthly. The Corporation shall further reimburse the Executive for all reasonable promotion and entertainment expenses actually and properly incurred by him after having received the approval of the Corporation. For all such expenses, the Executive shall furnish to the Corporation, statements and vouchers as and when reasonably required by it. TERMINATION OF EMPLOYMENT 7. Notwithstanding anything herein contained to the contrary, the Executive's employment hereunder shall, unless otherwise directed by the board of directors of the Corporation, cease forthwith upon the happening of the following events: (a) if the Executive dies or shall be adjudicated bankrupt or suspends payment or compounds with his creditors or makes unauthorized assignment or is declared insolvent; (b) if the Executive shall be guilty of any gross default or gross misconduct or any breach or non-observance of any of the provisions contained in this Agreement, if any of the foregoing are not remedied within fifteen (15) days after receipt of notice in writing from the Corporation of any such conduct; (c) if the Executive shall become an alcoholic or drug addict; (d) if the Executive shall absent himself from the business and affairs of the Corporation without leave; (e) if the Executive shall disobey or refuse to respond to any of the reasonable orders or directions of the directors of the Corporation, if the Executive shall not explain to the reasonable satisfaction of the Corporation the reasons for any disobedience or refusal to follow any of the orders or directions, within five (5) days after receipt of notice in writing from the Corporation of its intention to terminate pursuant to this subparagraph; (f) if the Executive shall do or cause to be done any action detrimental to the welfare of the Corporation or injurious to its reputation, which is not remedied within fifteen (15) days after receipt of notice in writing from the Corporation of any such conduct. All of the foregoing are acknowledged to be without prejudice to any of the Corporation's rights to terminate the employment of the Executive for any cause that would in law permit an employer to terminate such employment without notice of termination. 8. The Corporation shall have the right to terminate the Executive's employment forthwith at any time following the expiry of ninety (90) consecutive days of illness on the part of the Executive rendering the Executive unable to perform his duties and obligations pursuant to this Agreement. For the purposes of this Agreement, once any period of consecutive days of illness on the part of the Executive has occurred, no new consecutive period of illness on the Executive's part shall be deemed to have commenced unless the Executive shall have returned to the performance of his duties and obligations pursuant to this Agreement for thirty (30) consecutive days following any previous consecutive period of illness. CONFIDENTIALITY 9. The Executive shall not, either during the period of employment hereunder, or at any time thereafter, disclose to any person, firm or corporation, any information concerning the business or affairs of the Corporation or which the Executive may have acquired in the course of or incidental to his employment by the Corporation or otherwise, (whether prior to the date of commencement of this Agreement or otherwise). whether for his own benefit or to the detriment or intended- or probable detriment of the Corporation. Without limiting the generality of the foregoing, the Executive hereby specifically acknowledges and agrees that the following remains confidential information of the Corporation: (a) names and requirements of present and prospective customers of the Corporation; (b) names of persons who have traded and dealt with the Corporation and data pertaining to such dealings; and (c) processes and methods by which and the manner in which the Corporation promotes its business and obtains customers therefor. Upon the termination of this Agreement, the Executive will surrender to the Corporation any and all documents, list and records relating in any way to the business of the Corporation, whether or not original or copies, and notwithstanding that any of these may have been made at the Executive's own expense. GENERAL TERMS 10. The parties specifically acknowledge and agree that any change or changes in any terms of this Agreement shall not operate as the cancellation of this Agreement, but rather will operate as an amendment hereto, and all other unamended terms, provisions and conditions of this Agreement shall remain as herein provided. 11. If during the term of this Agreement, the Executive shall violate any of the provisions contained herein, the Corporation shall be entitled to apply for a restraining order and for an injunction to be issued by any competent court having jurisdiction, restraining the Executive and each and every other person, firm, partnership, corporation or association concerned therein from continuance of any such violation, in addition to any other remedies available to the Corporation. 12. This Agreement is personal to the Executive and shall not be assignable by him, but shall accrue to the Corporation's successors and assigns. 13. The failure of the Corporation to insist upon the punctual performance of any of the covenants or obligations of the Executive hereunder, or the failure of the Corporation to exercise any right or H remedy available to the Corporation under this Agreement, or any forbearance on the part of the Corporation, shall not constitute a waiver by the Corporation of any subsequent default-or breach by the Executive hereunder. All demands for performance and all notice of default hereunder are hereby waived by the Executive. 14. Any notice, direction or other instrument required or permitted to be given by one party to the other hereunder shall be in writing and may be given by mailing to the same postage prepaid or delivering the same addressed: to the Corporation at: 1001 Petrolia Road Toronto, Ontario M3J 2X7 to the Executive at: 3000 Bathurst St. #612 Apt. 612 Toronto, Ontario M6B 3B4 Any notice, direction or other instrument aforesaid if delivered shall be deemed to have been given or made on the date on which it was delivered or if mailed, except in the event of an intervening postal disruption, shall be deemed to have been given or made on the 3rd business day following the day on which it was mailed. The Corporation or the Executive may change its or his address for service from time to time by notice given in accordance with the foregoing. 15. This Agreement and the terms hereof shall constitute the entire Agreement between the parties hereto with respect to all the matters herein, and its execution has not been induced by, nor do any of the parties hereto rely upon or regard as material any representations or writings whatsoever not incorporated herein and made a part hereof, and this Agreement shall not be amended, altered or qualified except by a memorandum in writing signed by all of the parties hereto, and any amendment, alteration or in qualification hereof shall be null and void and shall not be binding upon any party who has not given its or his written confirmation thereof. IN WITNESS WHEREOF the parties have hereto executed this Agreement. NETJEWELS.COM INC. Per: /s/ Ben Berkovits ---------------------- Name: Ben Berkovitgs Title: President I have the authority to bind the Corporation. /s/ Daniel Berkovits ------------------------- DANIEL BERKOVITS EX-10.3 7 EXHIBIT 10.3 Exhibit 10.3 THIS AGREEMENT made as of the 1st day of January, 1999. BETWEEN: NETJEWELS.COM INC., a corporation incorporated under the laws of the State of Delaware (hereinafter called the "CORPORATION") OF THE FIRST PART - and - BENTZION BERKOVITS, of the City of Toronto, in the Province of Ontario (hereinafter called the "EXECUTIVE") OF THE SECOND PART WITNESSETH that in consideration of the sum of Two Dollars ($2.00) now paid by each of the parties hereto to the other (the receipt of which is hereby acknowledged by each of them) and the mutual covenants and agreement herein set forth, the parties hereto hereby agree as follows: TERM 1. The Corporation hereby agrees to engage the services of the Executive and the Executive hereby agrees to serve the Corporation in a management capacity and to fulfill such functions as the Corporation may from time to time direct, upon and subject to the terms and conditions herein set forth for a period of employment which shall commence on the date hereof (the "COMMENCEMENT DATE") and which shall run for three (3) years from such date (the "TERM") or until terminated as herein provided. EXECUTIVE'S OBLIGATIONS 2. Subject to the Executive's obligations to D.G. Jewelry Inc., during the term of his employment hereunder, the Executive shall devote his time and personal attention to the business of the Corporation and shall not engage in any other business or occupation without first having obtained the written consent of the Corporation. 3. The Executive shall well, faithfully and diligently perform the duties of his employment with the Corporation and any office or offices held by him in the Corporation, and shall give his best efforts and skill to the business and interests of the Corporation, will perform such services, in and about such business of the Corporation as may from time to time be assigned to him and shall do all in his power to promote, develop and extend the business of the Corporation and to enhance and develop the best interests and welfare of the Corporation in all respects. COMPENSATION 4. As compensation for his services hereunder: (a) from the Commencement Date to and including _June 30, 1999, the Corporation shall pay to the Executive the amount of Fifty Thousand ($50,000.00) Dollars U.S., which amount shall be payable to the Executive in equal weekly instalments of $_1923.08. (b) From July 1, 1999 to and including the expiration of the first year of the Term, the Corporation shall pay to the Executive the amount of $50,000 U.S., which amount shall be payable to the Executive in equal weekly instalments of $1923.08 U.S.. (c) Notwithstanding the foregoing paragraphs (a) and (b) of this Section 4, if the Corporation's proposed initial public offering of its common stock (the "IPO") is completed to the reasonable satisfaction of the Corporation, then the compensation payable to the Executive from the date of completion of the IPO to and including the expiry of the Term shall be based on an annual salary of One Hundred and Fifty Thousand Dollars ($150,000.00) U.S. (d) The parties further agree that the amount payable to the Executive during each year of the Term pursuant to section 4, shall be reviewed by the parties on the anniversary date of the Commencement Date and shall be subject to minimum increases of at least Fifteen Thousand Dollars ($15,000.00) U.S. per annum. It is understood and agreed that all payments made pursuant to this paragraph (c) and (d) above are payable by the Corporation in equal weekly instalments during each year of the Term on the last business day of each and every week of the Term. 5. The Executive may receive an annual bonus if, as and when determined by the Corporation. 6. The Corporation at its expense shall pay to the Executive an automobile allowance of One Thousand ($1,000.00) Dollars U.S. monthly. The Corporation shall further reimburse the Executive for all reasonable promotion and entertainment expenses actually and properly incurred by him after having received the approval of the Corporation. For all such expenses, the Executive shall furnish to the Corporation, statements and vouchers as and when reasonably required by it. TERMINATION OF EMPLOYMENT 7. Notwithstanding anything herein contained to the contrary, the Executive's employment hereunder shall, unless otherwise directed by the board of directors of the Corporation, cease forthwith upon the happening of the following events: (a) if the Executive dies or shall be adjudicated bankrupt or suspends payment or compounds with his creditors or makes unauthorized assignment or is declared insolvent; (b) if the Executive shall be guilty of any gross default or gross misconduct or any breach or non-observance of any of the provisions contained in this Agreement, if any of the foregoing are not remedied within fifteen (15) days after receipt of notice in writing from the Corporation of any such conduct; (c) if the Executive shall become an alcoholic or drug addict; (d) if the Executive shall absent himself from the business and affairs of the Corporation without leave; (e) if the Executive shall disobey or refuse to respond to any of the reasonable orders or directions of the directors of the Corporation, if the Executive shall not explain to the reasonable satisfaction of the Corporation the reasons for any disobedience or refusal to follow any of the orders or directions, within five (5) days after receipt of notice in writing from the Corporation of its intention to terminate pursuant to this subparagraph; (f) if the Executive shall do or cause to be done any action detrimental to the welfare of the Corporation or injurious to its reputation, which is not remedied within fifteen (15) days after receipt of notice in writing from the Corporation of any such conduct. All of the foregoing are acknowledged to be without prejudice to any of the Corporation's rights to terminate the employment of the Executive for any cause that would in law permit an employer to terminate such employment without notice of termination. 8. The Corporation shall have the right to terminate the Executive's employment forthwith at any time following the expiry of ninety (90) consecutive days of illness on the part of the Executive rendering the Executive unable to perform his duties and obligations pursuant to this Agreement. For the purposes of this Agreement, once any period of consecutive days of illness on the part of the Executive has occurred, no new consecutive period of illness on the Executive's part shall be deemed to have commenced unless the Executive shall have returned to the performance of his duties and obligations pursuant to this Agreement for thirty (30) consecutive days following any previous consecutive period of illness. CONFIDENTIALITY 9. The Executive shall not, either during the period of employment hereunder, or at any time thereafter, disclose to any person, firm or corporation, any information concerning the business or affairs of the Corporation or which the Executive may have acquired in the course of or incidental to his employment by the Corporation or otherwise, (whether prior to the date of commencement of this Agreement or otherwise). whether for his own benefit or to the detriment or intended- or probable detriment of the Corporation. Without limiting the generality of the foregoing, the Executive hereby specifically acknowledges and agrees that the following remains confidential information of the Corporation: (a) names and requirements of present and prospective customers of the Corporation; (b) names of persons who have traded and dealt with the Corporation and data pertaining to such dealings; and (c) processes and methods by which and the manner in which the Corporation promotes its business and obtains customers therefor. Upon the termination of this Agreement, the Executive will surrender to the Corporation any and all documents, list and records relating in any way to the business of the Corporation, whether or not original or copies, and notwithstanding that any of these may have been made at the Executive's own expense. GENERAL TERMS 10. The parties specifically acknowledge and agree that any change or changes in any terms of this Agreement shall not operate as the cancellation of this Agreement, but rather will operate as an amendment hereto, and all other unamended terms, provisions and conditions of this Agreement shall remain as herein provided. 11. If during the term of this Agreement, the Executive shall violate any of the provisions contained herein, the Corporation shall be entitled to apply for a restraining order and for an injunction to be issued by any competent court having jurisdiction, restraining the Executive and each and every other person, firm, partnership, corporation or association concerned therein from continuance of any such violation, in addition to any other remedies available to the Corporation. 12. This Agreement is personal to the Executive and shall not be assignable by him, but shall accrue to the Corporation's successors and assigns. 13. The failure of the Corporation to insist upon the punctual performance of any of the covenants or obligations of the Executive hereunder, or the failure of the Corporation to exercise any right or H remedy available to the Corporation under this Agreement, or any forbearance on the part of the Corporation, shall not constitute a waiver by the Corporation of any subsequent default-or breach by the Executive hereunder. All demands for performance and all notice of default hereunder are hereby waived by the Executive. 14. Any notice, direction or other instrument required or permitted to be given by one party to the other hereunder shall be in writing and may be given by mailing to the same postage prepaid or delivering the same addressed: to the Corporation at: 1001 Petrolia Road Toronto, Ontario M3J 2X7 to the Executive at: 120 Shelborne Avenue Apt. 811 Toronto, Ontario M6B 2M7 Any notice, direction or other instrument aforesaid if delivered shall be deemed to have been given or made on the date on which it was delivered or if mailed, except in the event of an intervening postal disruption, shall be deemed to have been given or made on the 3rd business day following the day on which it was mailed. The Corporation or the Executive may change its or his address for service from time to time by notice given in accordance with the foregoing. 15. This Agreement and the terms hereof shall constitute the entire Agreement between the parties hereto with respect to all the matters herein, and its execution has not been induced by, nor do any of the parties hereto rely upon or regard as material any representations or writings whatsoever not incorporated herein and made a part hereof, and this Agreement shall not be amended, altered or qualified except by a memorandum in writing signed by all of the parties hereto, and any amendment, alteration or in qualification hereof shall be null and void and shall not be binding upon any party who has not given its or his written confirmation thereof. IN WITNESS WHEREOF the parties have hereto executed this Agreement. NETJEWELS.COM INC. Per: /s/ Daniel Berkovits ---------------------- Name: Daniel Berkovits Title: CEO I have the authority to bind the Corporation. /s/ Bentzion Berkovits ------------------------- BENTZION BERKOVITS EX-10.4 8 EXHIBIT 10.4 Exhibit 10.4 THIS AGREEMENT made as of the 1st day of January, 1999. BETWEEN: NETJEWELS.COM INC., a corporation incorporated under the laws of the State of Delaware (hereinafter called the "CORPORATION") OF THE FIRST PART - and - JACK BERKOVITS, of the City of Toronto, in the Province of Ontario (hereinafter called the "EXECUTIVE") OF THE SECOND PART WITNESSETH that in consideration of the sum of Two Dollars ($2.00) now paid by each of the parties hereto to the other (the receipt of which is hereby acknowledged by each of them) and the mutual covenants and agreement herein set forth, the parties hereto hereby agree as follows: 1. DUTIES The Corporation appoints the Executive to undertake the duties and exercise the powers as chairman of the Corporation as may be requested of the Executive by the Board of Directors of the Corporation, and in the other offices to which he may be appointed by the subsidiary companies of the Corporation, and the Executive accepts the office, on the terms and conditions set forth in this agreement. 2. TERM The appointment shall commence with effect the 1st day of January, 1999, and shall continue until terminated in accordance with the provisions of this agreement. 3. COMPENSATION (1) The fixed remuneration of the Executive for his or her services shall be at the rate of One Hundred Thousand Dollars ($100,000.00) for the first year of employment pursuant to this contract commencing the 1st day of January, 1999. The fixed remuneration shall be reviewed on each anniversary of employment pursuant to this contract. The review will be undertaken by assessing the Executive's achievement of the over-all objectives established by the Corporation and by having regard to the market rates of remuneration paid in Canada for similar duties and responsibilities. (2) In addition to the fixed remuneration, the Executive may, in the absolute discretion of the Corporation, receive from the Corporation, from time to time a bonus payment for his/her services for each year during the period of his/her employment under this contract. 4. BENEFITS It is understood and agreed that the Executive will incur expenses in connection with his or her duties under this agreement. The Corporation will reimburse the Executive for any expenses provided that the Executive provides to the Corporation an itemized written account and receipts acceptable to the Corporation within [thirty] days after they have been incurred. The Executive will not be reimbursed for any item in excess of $ unless approved in advance by the Board of Directors. 5. AUTHORITY (1) The Executive shall have, subject always to the general or specific instructions and directions of the Board of Directors of the Corporation, full power and authority to assist in the management and business and affairs of the Corporation (except only the matters and duties as by law must be transacted or performed by the Board of Directors or by the shareholders of the Corporation in general meeting), including power and authority to enter into contracts, engagements or commitments of every nature or kind in the name of and on behalf of the Corporation and to engage and employ and to dismiss all managers and other employees and agents of the Corporation other than officers of the Corporation. (2) The Executive shall conform to all lawful instructions and directions given to him or her by the Board of Directors of the Corporation, and obey and carry out the by-laws of the Corporation. 6. SERVICE The Executive shall well and faithfully serve the Corporation and its subsidiaries and use his or her best efforts to promote the interests thereof and shall not disclose the private affairs or trade secrets of the Corporation and its subsidiaries to any person other than the Directors of the Corporation or for any purposes other than those of the Corporation any information the Executive may acquire in relation to the Corporation's business. 7. CONFIDENTIAL INFORMATION (1) The Executive acknowledges that as the chairman and in any other position as the Executive may hold, the Executive will acquire information about certain matters and things which are confidential to the Corporation, and which information is the exclusive property of the Corporation, including: (a) product design and manufacturing information; (b) names and addresses, buying habits and preferences of present customers of the Corporation, as well as prospective customers; (c) pricing and sales policies, techniques and concepts; (d) trade secrets, and (e) other confidential information concerning the business operations or financing of the Corporation. (2) The Executive acknowledges the information as referred to in paragraph 7(1) could be used to the detriment of the Corporation. Accordingly, the Executive undertakes not to disclose same to any third party either during the term of the Executive's employment except as may be necessary in the proper discharge of his or her employment under this agreement, or after the term of his or her employment, however caused, except with the written permission of an officer of the Corporation. The Executive also agrees that the unauthorized disclosure of any such information during the life of this agreement shall justify the immediate termination of this agreement by the Corporation. (3) The Executive acknowledges that in addition to any and all rights of the Corporation, the Corporation shall be entitled to injunctive relief in order to protect the Corporation's rights and property as set out in paragraphs 1 and 2 of this section. (4) The Executive understands and agrees that the Corporation has a material interest in preserving the relationship it has developed with its customers against impairment by competitive activities of a former employee. Accordingly, the Executive agrees that the restrictions and covenants contained in paragraph 7 of this agreement and the Executive's agreement to them by his execution of this agreement, are of the essence to this agreement and constitute a material inducement to the Executive to enter into this agreement and to employ the Executive, and that the Corporation would not enter into this agreement absent such an inducement. Furthermore, the existence of any claim or cause of action by the Executive against the Corporation whether predicated on this agreement or otherwise, shall not constitute a defence to the enforcement by the Corporation of the covenants or restrictions provided in paragraph 7, provided, however, that if any provision shall be held to be illegal, invalid or unenforceable in any jurisdiction, the decision shall not affect any other covenant or provision of this agreement or the application of any other covenant or provision. 8. TERMINATION OF APPOINTMENT (1) Notwithstanding anything herein contained to the contrary, the Executive's employment hereunder shall, unless otherwise directed by the board of directors of the Corporation, cease forthwith upon the happening of the following events: (a) if the Executive dies or shall be adjudicated bankrupt or suspends payment or compounds with his creditors or makes unauthorized assignment or is declared insolvent; (b) if the Executive shall be guilty of any gross default or gross misconduct or any breach or non-observance of any of the provisions contained in this Agreement, if any of the foregoing are not remedied within fifteen (15) days after receipt of notice in writing from the Corporation of any such conduct; (c) if the Executive shall become an alcoholic or drug addict; (d) if the Executive shall absent himself from the business and affairs of the Corporation without leave; (e) if the Executive shall disobey or refuse to respond to any of the reasonable orders or directions of the directors of the Corporation, if the Executive shall not explain to the reasonable satisfaction of the Corporation the reasons for any disobedience or refusal to follow any of the orders or directions, within five (5) days after receipt of notice in writing from the Corporation of its intention to terminate pursuant to this subparagraph; (f) by a written resolution of the board of directors of the Corporation terminating the appointment of the executive or the position of chairman; (g) if the Executive shall do or cause to be done any action detrimental to the welfare of the Corporation or injurious to its reputation, which is not remedied within fifteen (15) days after receipt of notice in writing from the Corporation of any such conduct. All of the foregoing are acknowledged to be without prejudice to any of the Corporation's rights to terminate the appointment of the Executive for any cause that would in law permit an employer to terminate such appointment/employment without notice of termination. (2) The Corporation shall have the right to terminate the Executive's appointment forthwith at any time following the expiry of ninety (90) consecutive days of illness on the part of the Executive rendering the Executive unable to perform his duties and obligations pursuant to this Agreement. For the purposes of this Agreement, once any period of consecutive days of illness on the part of the Executive has occurred, no new consecutive period of illness on the Executive's part shall be deemed to have commenced unless the Executive shall have returned to the performance of his duties and obligations pursuant to this Agreement for thirty (30) consecutive days following any previous consecutive period of illness. (3) On termination of appointment the Executive shall immediately resign all offices held (including directorships) in the company and save as provided in this agreement, the Executive shall not be entitled to receive any severance payment or compensation for loss of office or otherwise by reason of the resignation. If the Executive fails to resign as mentioned the Corporation is irrevocably authorized to appoint some person in his or her name and on the Executive's behalf to sign any documents or do any things necessary or requisite to give effect to it. 9. CORPORATION'S PROPERTY The Executive acknowledges that all items of any and every nature or kind created or used by the Executive pursuant to the Executive's appointment under this agreement, or furnished by the Corporation to the Executive, and all equipment, automobiles, credit cards, books, records, reports, files, diskettes, manuals, literature, confidential information or other materials shall remain and be considered the exclusive property of the Corporation at all times and shall be surrendered to the Corporation, in good condition, promptly at the request of the Corporation, or in the absence of a request, on the termination of the Executive's employment with the Corporation. 10. GENERAL TERMS (1) The parties specifically acknowledge and agree that any change or changes in any terms of this Agreement shall not operate as the cancellation of this Agreement, but rather will operate as an amendment hereto, and all other unarnended terms, provisions and conditions of this Agreement shall remain as herein provided. (2) If during the term of this Agreement, the Executive shall violate any of the provisions contained herein, the Corporation shall be entitled to apply for a restraining order and for an injunction to be issued by any competent court having jurisdiction, restraining the Executive and each and every other person, firm, partnership, corporation or association concerned therein from continuance of any such violation, in addition to any other remedies available to the Corporation. (3) This Agreement is personal to the Executive and shall not be assignable by him, but shall accrue to the Corporation's successors and assigns. (4) The failure of the Corporation to insist upon the punctual performance of any of the covenants or obligations of the Executive hereunder, or the failure of the Corporation to exercise any right or H remedy available to the Corporation under this Agreement, or any forbearance on the part of the Corporation, shall not constitute a waiver by the Corporation of any subsequent default-or breach by the Executive hereunder. All demands for performance and all notice of default hereunder are hereby waived by the Executive. (5) Any notice, direction or other instrument required or permitted to be given by one party to the other hereunder shall be in writing and may be given by mailing to the same postage prepaid or delivering the same addressed: to the Corporation at: 1001 Petrolia Road Toronto, Ontario M3J 2X7 to the Executive at: 1001 Petrolia Road Toronto, Ontario M3J 2X7 Any notice, direction or other instrument aforesaid if delivered shall be deemed to have been given or made on the date on which it was delivered or if mailed, except in the event of an intervening postal disruption, shall be deemed to have been given or made on the 3rd business day following the day on which it was mailed. The Corporation or the Executive may change its or his address for service from time to time by notice given in accordance with the foregoing. (6) This Agreement and the terms hereof shall constitute the entire Agreement between the parties hereto with respect to all the matters herein, and its execution has not been induced by, nor do any of the parties hereto rely upon or regard as material any representations or writings whatsoever not incorporated herein and made a part hereof, and this Agreement shall not be amended, altered or qualified except by a memorandum in writing signed by all of the parties hereto, and any amendment, alteration or in qualification hereof shall be null and void and shall not be binding upon any party who has not given its or his written confirmation thereof. IN WITNESS WHEREOF the parties have hereto executed this Agreement. NETJEWELS.COM INC. Per: /s/ Daniel Berkovits ---------------------------- Name: Daniel Berkovits Title: CEO I have the authority to bind the Corporation /s/ Jack Berkovits ------------------------- JACK BERKOVITS EX-10.5 9 EXHIBIT 10.5 EXHIBIT 10.5 THEGLOBE.COM MERCHANDISING AGREEMENT PREMIER PARTNER THIS PREMIER PARTNER MERCHANDISING AGREEMENT (the "Agreement") is made as of September 30, 1999 (the "Effective Date") by and between THEGLOBE.COM, INC., with its principal place of business at 120 Broadway, New York, NY 10271 ("theglobe"), and D.G. JEWELLERY OF CANADA, LTD., with its principal place of business at 1001 Petrolia Road, Toronto, ON M3J 2X7 ("Merchant"). 1. DEFINITIONS. (A) "AFFILIATE PROGRAM" means theglobe's standard affiliate program for merchants in shop.theglobe.com (when available and to the extent that Merchant is technically and legally eligible to participate). (B) "CLICKS" shall mean click through of any promotion described in Exhibit A. (C) "LAUNCH DATE" means the first day on which theglobe performs any of the promotions described on Exhibit A. (D) "MARKS" means the Merchant Marks or theglobe Marks, as applicable. (E) "MERCHANT BANNERS" means any banner, button, text or similar ads Merchant provides to theglobe or that theglobe develops for Merchant in connection with this Agreement. (F) "MERCHANT CONTENT" means any content or information (including without limitation any text, music, sound, photographs, video, graphics, data or software), in any medium, provided by Merchant to theglobe for use on theglobe Site (other than Merchant Banners). (G) "MERCHANT MARKS" means all Merchant domain names, trademarks and logos reasonably necessary or desirable for theglobe to perform under this Agreement. (H) "MERCHANT PAGES" means the subset of the Merchant Website co-branded in accordance with this Agreement. (I) "MERCHANT PRODUCTS" means the goods and services offered on Merchant Pages and those goods or services being sold by or through Merchant from the Storefront. (J) "MERCHANT WEBSITE" means the pages under the NetJewels.com domain. (K) "REFERRAL" means a person who accesses the Merchant Website. (L) "STOREFRONT" means the Jewelry category pages of shop.theglobe.com. (M) "THEGLOBE MARKS" means all theglobe domain names, trademarks and logos reasonably necessary or desirable for Merchant to perform under this Agreement. (N) "THEGLOBE MATERIALS" means theglobe's navigation bars, logos and other co-branding elements provided to Merchant for incorporation on the Merchant Pages. (O) "THEGLOBE SITE" means all pages under theglobe.com domain or otherwise operated by theglobe or any company it controls, is controlled by or that is under common control. 2. IMPLEMENTATION. 2.1 PRE-LAUNCH DELIVERABLES. Promptly following the Effective Date, theglobe shall deliver to Merchant the following: theglobe Materials, a media and promotional prototype, and a plan for doing the production/design services related to integrating Merchant's promotions into theglobe Site. 2.2 CO-BRANDING. Merchant shall co-brand the Merchant Pages with theglobe Materials. The parties shall mutually agree upon the look and feel of any co-branded Merchant Pages, specifying the location of all theglobe Materials and other branding. Merchant may not publicly display the Merchant Pages until such agreement has been reached and theglobe has approved Merchant's implementation. Thereafter, without theglobe's consent, Merchant shall not change any Merchant Pages (a) in a way that would degrade, detract from or interfere with theglobe's branding, or (b) to introduce any new third party branding on such Merchant Pages. Merchant shall not provide any hypertext links from the Merchant Pages to a page outside of the Merchant Pages (other than to theglobe Site). If requested by theglobe, Merchant shall create additional branded versions of the Merchant Pages branded with the branding of theglobe's distribution partners, which branded versions shall be implemented within 30 days of theglobe's request and subject to approval in accordance with this Section 2. 2.3 CONTENT DELIVERY. All deliveries of theglobe Materials or Merchant Content, as applicable, shall comply with technical standards of the recipient, as reasonably specified by the recipient. 2.4 REFERRAL RELATIONS. Merchant shall be responsible for providing all customer support regarding the Merchant Pages and the Merchant Products, and the globe may redirect to Merchant any associated customer support inquiries. To the extent that Merchant is delivering back to theglobe any information about Referrals, Merchant's privacy policy shall make any disclosures, or obtain any Referral consent, necessary to make the disclosures about Referrals back to theglobe required by this Agreement. 2.5 STOREFRONT. theglobe shall develop, serve and manage the Storefront. theglobe shall use commercially reasonable efforts to make the Storefront publicly available a minimum of 90% of the time during any 24 hour period, 95% of the time during any 7 day period, and 98% of the time during any 30 day period. theglobe shall develop, serve and manage the Storefront. theglobe shall have complete editorial discretion over the contents, layout and look and feel of the Storefront, provided that the "Jewelry" category will always contain at least one full page on shop.theglobe.com. Merchant shall provide to theglobe product shots and product-related content (on a regular rotating basis) for incorporation into the Storefront. In addition, Merchant shall provide to theglobe the code necessary to allow Storefront users to search the Merchant Pages. 3. MARKETING. 3.1 PROMOTIONS. On and following the Launch Date, theglobe shall provide the promotions described in Exhibit A. In the event that theglobe redesigns the globe Site in a way that impacts such promotions, theglobe shall provide substantially similar promotions on the redesigned site. 3.2 FRAMING. theglobe may frame the Merchant Pages in a mutually acceptable manner, and any consideration theglobe derives from such frames shall be solely theglobe's. 3.3 MERCHANT BANNERS. Merchant shall deliver to theglobe Merchant Banners that are to be run in accordance with this Agreement. Such banners shall comply with theglobe's then-current technical standards. The terms of any insertion order or similar document regarding the Merchant Banners are expressly rejected, except to the extent that they specify the location, timing or duration of the display of the Merchant Banners and such terms are accepted by theglobe. theglobe may request that Merchant Banners be co-branded with theglobe Marks, in which case the parties shall work together to develop a mutually acceptable implementation. theglobe may approve or reject any Merchant Banner in its sole discretion. 3.4 MERCHANT DELIVERABLES. Merchant will produce product shots which rotate regularly, content and search functionality so that theglobe can fulfill its promotional obligations described in Exhibit A. 4. PAYMENT. Merchant shall make the payments described in Exhibit A. Merchant shall pay theglobe's costs of collection (including reasonable attorneys' fees) for any overdue payments. All fees and payments stated herein exclude, and Merchant shall pay, any sales, use or other tax related to the parties' performance of their obligations or exercise of their rights under this Agreement, exclusive of taxes based on theglobe's net income. 5. LICENSES AND STANDARDS. 5.1 CONTENT. Merchant hereby grants to theglobe a non-exclusive, worldwide license to use, reproduce, create derivative works of (only as necessary to build pages in a manner consistent with this Agreement), publicly display, publicly perform and digitally perform Merchant Banners and Merchant Content on theglobe Site or otherwise as reasonably appropriate to advertise and promote the Merchant Products, the Storefront or the Merchant Pages. theglobe hereby grants to Merchant a non-exclusive, worldwide license to use, reproduce, create derivative works of (only as necessary to build Merchant Pages), publicly display, publicly perform and digitally perform theglobe Materials on Merchant Pages. 5.2 TRADEMARKS. Merchant hereby grants to theglobe a non-exclusive license to use the Merchant Marks to advertise and promote the Storefront, the Merchant Pages and the Merchant Products. theglobe hereby grants to Merchant a non-exclusive license to use theglobe Marks on the Merchant Pages and, if requested by theglobe, in the Merchant Banners. 5.3 TRADEMARK RESTRICTIONS. The Mark owner may terminate the foregoing trademark license if, in its reasonable discretion, the licensee's use of the Marks tarnishes, blurs or dilutes the quality associated with the Marks or the associated goodwill and such problem is not cured within 10 days of notice of breach; alternatively, instead of terminating the license in total, the owner may specify that certain licensee uses may not contain the Marks. Title to and ownership of the owner's Marks shall remain with the owner. The licensee shall use the Marks exactly in the form provided and in conformance with any trademark usage policies. The licensee shall not take any action inconsistent with the owner's ownership of the Marks, and any benefits accruing from use of such Marks shall automatically vest in the owner. The licensee shall not form any combination marks with the other party's Marks. 5.4 OWNERSHIP. As between theglobe and Merchant: (a) theglobe and its suppliers retain all rights, title and interest in and to all intellectual property rights embodied in or associated with theglobe Materials, and (b) Merchant and its suppliers retain all rights, title and interest in and to all intellectual property rights embodied in or associated with the Merchant Content. Merchant Banners (other than any theglobe Marks incorporated therein), and the Merchant Pages (other than any theglobe Materials incorporated therein). There are no implied licenses under this Agreement, and any rights not expressly granted to a licensee hereunder are reserved by the licensor or its suppliers. Neither party shall exceed the scope of the licenses granted hereunder. 5.5 STANDARDS. Merchant shall not intentionally or in a negligent manner provide Merchant Banners (excluding any theglobe Marks incorporated therein at theglobe's request) or Merchant Content, and theglobe shall not provide to Merchant any theglobe Materials, that: (a) infringe any third party's intellectual property or publicity/privacy right; (b) violate any law or regulation; (c) are defamatory, obscene, harmful to minors or child pornographic; (d) contain any viruses, Trojan horses, worms, time bombs, cancelbots or other computer programming routines that are intended to damage, detrimentally interfere with, surreptitiously intercept or expropriate any system, data or personal information; or (e) are materially false, inaccurate or misleading. 5.6 QUALITY STANDARDS. Merchant shall provide the Merchant Products, and any related customer and technical support, on a quality level substantially equivalent to the quality offered by Merchant's online competitors. The category of Merchant Products as of the Effective Date shall be the same or substantially similar throughout the term of the Agreement. Merchant shall clearly state, and shall follow the stated, warranty and refund policies. All Referrals shall be treated at least as favorably in all respects (including without limitation with respect to pricing, quality of service, and customer support responsiveness) as Merchant treats users of the Merchant Website. 6. INFORMATION ABOUT REFERRALS. Merchant shall not disclose to any third parties any information or data collected from or about Referrals (including information provided by theglobe, voluntarily-disclosed information, and any information Merchant gleans from Referrals' access or use of the Merchant Pages), nor may Merchant use such information for any purpose other than as necessary to deliver purchased Merchant Products to Referrals. Merchant shall use at least industry-standard methods to protect the security of such Referral-related information. 7. NO WARRANTIES. EACH PARTY PROVIDES ALL MATERIALS AND SERVICES TO THE OTHER PARTY "AS IS." EACH PARTY DISCLAIMS ALL WARRANTIES AND CONDITIONS, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF TITLE, NON-INFRINGEMENT, MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE. Each party acknowledges that it has not entered into this Agreement in reliance upon any warranty or representation except those specifically set forth herein. Unless an approval process is specified herein, all deliverables provided by one party to the other shall be deemed accepted (for purposes of the UCC) when delivered. 8. TERM AND TERMINATION. 8.1 TERM. This Agreement will become effective on the Effective Date and will continue in effect for two (2) years following the Launch Date. The parties shall, during the 60 days immediately prior to expiration, negotiate in good faith to extend the term of this Agreement. However, no extension shall apply unless mutually agreed upon in writing by both parties. 8.2 TERMINATION FOR FAILURE TO PERFORM. By providing written notice, a party may immediately terminate this Agreement if the other party materially breaches this Agreement and fails to cure that breach within 15 days after receiving written notice of the breach. theglobe will deliver: a) 36,000 Clicks within six months following the Launch Date, b) 72,000 Clicks within twelve months following the Launch Date, c) 115,200 Clicks within eighteen months following the Launch Date, or d) 158,400 Clicks within twenty-four months following the Launch Date. Merchant's sole and exclusive remedy and theglobe's sole and exclusive liability for theglobe's failure to deliver such Clicks shall be, at Merchant's option, either (i) to terminate this Agreement or (ii) to suspend subsequent payments until theglobe has provided the applicable number of Clicks. The number of Clicks for the purpose of this section shall include only Clicks made via banners, buttons, text links, email, or html email promotions. 8.3 TERMINATION FOR CONVENIENCE. Either party may terminate this Agreement for any or no reason (a) effective as of the six-month anniversary of the Effective Date by providing written notice to the other party at least fifteen (15) days prior to the six-month anniversary of the Effective Date; or (b) by providing sixty (60) days written notice to the other party at any time between the ten-month and twelve-month anniversary of the Effective Date. For one (1) month after termination for convenience by theglobe, in the event that theglobe receives an offer to establish an exclusive third-party retailer under the "Jewelry" department of shop.theglobe.com, then theglobe shall notify Merchant of the terms and conditions contained in the offer, and theglobe shall offer Merchant the right to engage in the same transaction on the exact terms of such offer. Merchant shall have five (5) days from notification to accept the exact terms of theglobe's offer. If Merchant accepts such offer, then this Agreement shall be re-instituted as amended by the terms in theglobe's notice. If the parties do not re-institute such agreement within ten (10) days from Merchant's acceptance, or if Merchant declines theglobe's offer, then theglobe shall have no further obligation to Merchant. 8.4 TERMINATION BECAUSE OF ACQUISITION. By providing at least 15 days prior written notice, theglobe may terminate this Agreement in its sole discretion if theglobe acquires a controlling interest in a company or becomes controlled by a company that offers or sells jewelry, with theglobe paying a refund on a pro-rata basis to Merchant of (i) the then current month's Placement Fee and (ii) the Development Fee (as calculated on a 24-month basis). 8.5 EFFECTS OF TERMINATION. Upon expiration or termination of the Agreement, all licenses granted hereunder shall terminate unless such licenses are expressly stated as surviving. Merchant shall promptly remove all theglobe Marks and theglobe Materials from its servers, and theglobe shall promptly remove all Merchant Marks, Merchant Banners and Merchant Content or other materials provided by Merchant from its servers. Sections 5.4, 6, 7, 8.3, 8.5, 9, 10 and 11, and any obligation to pay any accrued but unpaid amounts and audit rights, shall survive any expiration or termination. 9. LIABILITY LIMITS. NEITHER PARTY SHALL BE LIABLE FOR LOST PROFITS OR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT (HOWEVER ARISING, INCLUDING NEGLIGENCE), EVEN IF THE PARTIES ARE AWARE OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT IN THE EVENT OF A CLAIM UNDER SECTION 10, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY IN AN AMOUNT GREATER THAN THE AMOUNT MERCHANT ACTUALLY PAYS TO THEGLOBE HEREUNDER. 10. INDEMNITY. Each party (the "Indemnifying Party") shall indemnify the other party (the "Indemnified Party") against any and all claims, losses, costs and expenses, including reasonable attorneys' fees, which the Indemnified Party may incur as a result of claims in any form by third parties arising from: (a) the Indemnifying Party's acts, omissions or misrepresentations to the extent that the Indemnifying Party is deemed an agent of the Indemnified Party, (b) the Indemnifying Party's breach of its privacy policy, or (c) the Indemnifying Party's noncompliance with all applicable laws and regulations regarding its performance in connection with this Agreement. In addition, theglobe shall indemnify Merchant against any and all claims, losses, costs and expenses, including reasonable attorneys' fees, which Merchant may incur as a result of claims in any form by third parties arising from theglobe Materials or theglobe Marks. In addition, Merchant shall indemnify theglobe against any and all claims, losses, costs and expenses, including reasonable attorneys' fees, which theglobe may incur as a result of claims in any form by third parties arising from Merchant Banners (excluding theglobe Marks if applicable), Merchant Content, Merchant Marks, or Merchant Products. The foregoing obligations are conditioned on the Indemnified Party: (i) giving the Indemnifying Party notice of the relevant claim, (ii) cooperating with the Indemnifying Party, at the Indemnifying Party's expense, in the defense of such claim, and (iii) giving the Indemnifying Party the right to control the defense and settlement of any such claim, except that the Indemnifying Party shall not enter into any settlement that affects the Indemnified Party's rights or interest without the Indemnified Party's prior written approval. The Indemnified Party shall have the right to participate in the defense at its expense. 11. GENERAL. 11.1 GOVERNING LAW. This Agreement will be governed and construed in accordance with the laws of the State of New York without giving effect to conflict of laws principles. Both parties submit to personal jurisdiction in New York and further agree that any cause of action arising under this Agreement shall be brought in a court in New York City, NY. 11.2 PUBLICITY. Neither party shall issue any press release or similar publicity statement regarding this Agreement without the prior approval of both parties (not to be unreasonably withheld) or as required by law. 11.3 INDEPENDENT CONTRACTORS. The parties are independent contractors, and no agency, partnership, franchise, joint venture or employment relationship is intended or created by this Agreement. Neither party shall make any warranties or representations on behalf of the other party. 11.4 ASSIGNMENT. Neither party may assign its rights or delegate its duties hereunder (except to an affiliated company, or to a successor in interest in the event of a merger, amalgamation, reorganization sale of assets of the business to which this Agreement is related, or consolidation) without the other party's prior written consent, and any purported attempt to do so is null and void. 11.5 SEVERABILITY; HEADINGS. If any provision herein is held to be invalid or unenforceable for any reason, the remaining provisions will continue in full force without being impaired or invalidated in any way. The parties agree to replace any invalid provision with a valid provision that most closely approximates the intent and economic effect of the invalid provision. Headings are for reference purposes only and in no way define, limit, construe or describe the scope or extent of such section. 11.6 FORCE MAJEURE. Except as otherwise provided, if performance hereunder (other than payment) is interfered with by any condition beyond a party's reasonable control, the affected party shall be excused from such performance to the extent of such condition. Each party acknowledges that website operations may be affected by numerous factors outside of a party's control. 11.7 NOTICE. Any notice under this Agreement will be in writing and delivered by personal delivery, overnight courier, confirmed facsimile, confirmed email, or certified or registered mail, return receipt requested, and will be deemed given upon personal delivery, 1 day after deposit with an overnight courier, 5 days after deposit in the mail, or upon confirmation of receipt of facsimile or email. Notices will be sent to a party at its address set forth in the preamble above or such other address as that party may specify in writing pursuant to this subsection. 11.8 ENTIRE AGREEMENT; WAIVER. This Agreement sets forth the entire understanding and agreement of the parties, and supersedes any and all oral or written agreements or understandings between the parties, as to the subject matter of the Agreement. This Agreement may be changed only by a writing signed by both parties. The waiver of a breach of any provision of this Agreement will not operate or be interpreted as a waiver of any other or subsequent breach.
THEGLOBE.COM, INC.: MERCHANT: DG Jewellery By: /s/ Bryan Wiener By: /s/ Jack Berkovits ------------------------------ ----------------------------------- Name: Bryan Wiener Name: Jack Berkovits ---------------------------- ----------------------------------- Title: General Manager Title: CEO ---------------------------- -----------------------------------
EXHIBIT A BUSINESS TERMS THEGLOBE'S PROMOTIONS: Merchant and theglobe shall mutually agree upon a list of ten (10) keywords that will display advertisements for Merchant on theglobe Site. theglobe may remove one or more of such keywords if it has a legitimate reason, in which case the parties will mutually agree an equal number of replacement keywords. theglobe shall produce creative (including banners, buttons, text links, emails and html emails) for Merchant for use in promotions described herein. theglobe will manage the performance of this promotional campaign to maximize conversion rates. YEAR ONE theglobe will: - - host a Jewelry Storefront within shop.theglobe.com - - facilitate Affiliate Program integration, if applicable - - serve 6,900,000 banners promoting the Storefront, Merchant Pages, or item sold on the Merchant Pages - - serve 1,200,000 buttons promoting the Storefront, Merchant Pages, or item sold on the Merchant Pages - - serve 1,200,000 text links promoting the Storefront, Merchant Pages, or item sold on the Merchant Pages - - serve 3,100,000 emails promoting the Storefront, Merchant Pages, or item sold on the Merchant Pages - - serve 2,000,000 html emails promoting the Storefront, Merchant Pages, or item sold on the Merchant Pages - - provide sponsorship within shop.theglobe.com promotions for Halloween, Thanksgiving, Holiday 99, New Years 2000, Valentine's Day, Graduation, Mothers' Day, Fathers' Day. - - provide 4 Celebrity Event Sponsorships YEAR TWO theglobe will: - - host a Jewelry Storefront within shop.theglobe.com - - facilitate Affiliate Program integration, if applicable - - serve 8,280,000 banners promoting the Storefront, Merchant Pages, or item sold on the Merchant Pages - - serve 1,440,000 buttons promoting the Storefront, Merchant Pages, or item sold on the Merchant Pages - - serve 1,440,000 text links promoting the Storefront, Merchant Pages, or item sold on the Merchant Pages - - serve 3,720,000 emails promoting the Storefront, Merchant Pages, or item sold on the Merchant Pages - - serve 2,400,000 html emails promoting the Storefront, Merchant Pages, or item sold on the Merchant Pages - - provide sponsorship within shop.theglobe.com promotions for Halloween, Thanksgiving, Holiday 99, New Years 2001, Valentine's Day, Graduation, Mothers' Day, Fathers' Day. - - provide 4 Celebrity Event Sponsorships Except as specified in Section 8.2, if theglobe promises to deliver a minimum number of impressions during a specified time period and fails to do so, theglobe's sole and exclusive obligation in such circumstance shall be to continue performing the promotion until it delivers the total number of required impressions. If, at the end of the Agreement, theglobe fails to deliver all impressions and Clicks promised hereunder, theglobe shall have an additional 90 days to deliver the total number of required impressions or Clicks, or continue running until the required number of impressions and Clicks have been delivered. If theglobe does not do so, theglobe shall thereafter promptly refund a prorated amount of the placement fees set forth below (prorated based on the number of impressions or Clicks actually delivered, as applicable). theglobe may redesign or modify the organization, structure or "look and feel" of theglobe Site at any time without notice, provided that the "Jewelry" category will always contain at least one full page on shop.theglobe.com. In the event such modifications affect the placement of such promotions, theglobe shall notify Provider and shall work with Provider to display such promotions in comparable places on theglobe Site. EXCLUSIVITY. 1. Within the "Jewelry" department of shop.theglobe.com, Merchant will be the only third party jewelry-retailer whose products are promoted on the Storefront. 2. The "Jewelry" department of shop.theglobe.com will remain titled "Jewelry", or another mutually agreeable title. 3. In other departments of shop.theglobe.com, theglobe will not create a sub-department labeled "Jewelry". 4. Merchant acknowledges that theglobe is not prevented from accepting advertising or otherwise promoting jewelry on theglobe Site. 5. During the term of this Agreement, theglobe will not allow third party retailers in shop.theglobe.com to promote fine jewelry on their storefronts, provided that theglobe may permit retailers to promote watches under $500 retail throughout shop.theglobe.com. In the event that theglobe breaches this Section 5, theglobe's sole and exclusive liability and Merchant's sole and exclusive remedy will be for theglobe to remove the fine jewelry or watches over $500 retail from the storefront within 15 days notice from Merchant. 6. Notwithstanding anything to the contrary herein, theglobe may promote in the "partner links" area of the left hand navigation bar on the Storefront third parties whose goods or services include the sales of jewelry, so long as any such party's sale of jewelry is not expressly promoted in that "partner links" area or anywhere else in the Storefront. TOTAL PAYMENTS. DEVELOPMENT FEE. Merchant shall pay to theglobe a nonrefundable one-time development fee of $27,000 for theglobe's preparation and delivery of the pre-launch deliverables. EXCLUSIVITY FEE. For year 1 of the Agreement, Merchant shall pay to theglobe a nonrefundable exclusivity fee of $147,000. For year 2 of the Agreement, Merchant shall pay to theglobe a nonrefundable exclusivity fee of $180,000. PLACEMENT FEE. For year 1 of the Agreement, Merchant shall pay to theglobe a nonrefundable placement fee of $96,000. For year 2 of the Agreement, Merchant shall pay to theglobe a nonrefundable placement fee of $144,000. PAYMENT SCHEDULE. YEAR 1
Effective Date: $27,000 Launch Date, and each of the following 11 monthly anniversary dates of the Launch Date: $20,250 Total Year 1 (excluding Affiliate Program Royalties) $270,000 YEAR 2 Each monthly anniversary of the Launch Date: $27,000 Total Year 2 (excluding Affiliate Program Royalties) $324,000
Merchant will pay theglobe a percentage of revenue for sales referred via Affiliate Program on a monthly basis throughout the term. This percentage will be calculated by adding the same commission percentage made available via the Merchant's affiliate program to the general public on the Merchant Website and adding three (3) percent. RECORD KEEPING. Merchant shall keep for 3 years proper records and books of account relating to the foregoing computation of royalties. Once every 12 months, theglobe or its designee may inspect such records to verify Merchant's reports. Any such inspection shall be conducted in a manner that does not unreasonably interfere with Merchant's business activities. Merchant shall immediately make any overdue payments disclosed by the audit plus applicable interest. If such audit discloses an overpayment by Merchant, theglobe will promptly refund such overpayment to Merchant. Such inspection shall be at theglobe's expense; however, if the audit reveals overdue payments in excess of 5% of the payments owed to date, Merchant shall immediately pay the cost of such audit, and theglobe may conduct another audit during the same 12 month period. EX-10.7 10 EXHIBIT 10.7 UBid Online Auction 2525 Busse Road Elk Grove Village, IL 60007 847-860-5000 Exhibit 10.7 November 2, 1999 DG Jewellery To: Daniel Berkovits TERMS OF AGREEMENT THE PARTNERSHIP - UBid will market and sell DG Jewellery products, selected according to the terms and conditions of this Agreement through its on-line auction system (the "Accepted Products"). Subject to the terms and conditions herein, UBid will use reasonable efforts to market the Accepted Products appropriately and strategically, in its sole discretion, so as to insure the highest possible return on all Accepted Products. - - Subject to the terms and conditions herein, DG Jewellery agrees that, for the duration of this Agreement, it will (a) provide jewellery products exclusively to UBid, and to no other internet site or business that is engaged in online auctioning, according to the terms of Exhibit A; and (b) offer UBid the RIGHT OF FIRST REFUSAL to any new products that DG Jewellery designs or develops. Notwithstanding the foregoing, (a) DG Jewellery shall be released from the exclusivity obligation set forth herein in the event that UBid does not meet the sales volumes set out in Exhibit A for a period of three (3) consecutive months; and (b) UBid acknowledges that it has been made aware of DG Jewellery's arrangement with Bid.com and with two undisclosed auction sites, one already existing and one soon to commence; however, DG Jewellery has agreed to make uBid its prime auction distributor and undertakes and agrees not to seek additional arrangements or similar business (this includes Ebay, First Auction, Onsale, Web Auction, and Egghead). - - [DG Jewellery will be the exclusive supplier of FINE JEWELRY to UBid] - - [DG Jewellery agrees to offer UBid the LOWEST PRICES for all DG Jewellery products offered to UBid.] - The parties agree to revenue sharing for all Accepted Products sold through the UBid online auction system according to the following formula: (a) for the first US$3 million in sales, the division, in percentage terms, of sales revenue shall be 85% to DG Jewellery and 15% to UBid; and (b) for all subsequent sales, the division, in percentage terms, shall be 80% to DG Jewellery and 20% to UBid. - The initial term for this Agreement shall be five (5) years from the Effective Date (the "Term"). UBid Online Auction 2525 Busse Road Elk Grove Village, IL 60007 847-860-5000 - Products to be Accepted and placed for online auction will be decided upon jointly by DG Jewellery and UBid, in order to determine the optimum assortment of products offered; provided however, that UBid shall have the right to final determination as to the timing of the offer, placing or positioning on the UBid site, marketing and other related decisions with respect to the online auctioning of the Accepted Products . - - DG Jewellery will pay a non-refundable setup fee of US$150,000 (the "Setup Fee") to UBid for the design, setup and creation of content relating to the marketing and selling of Accepted Products on the UBid site (the "Content"). Subject to the terms and conditions of the Vendor Agreement, such Setup Fee shall be payable in five equal monthly installments of US$30K/month, commencing May 1st, 1999. All right, title and interest to the Content (including without limitation all intellectual property rights) shall be owned by UBid. - - DG Jewellery will provide UBid with any information, images and other materials which UBid may reasonably require in order to design, setup and create the Content and to market and sell the Accepted Products (the "Promotional Materials"). - - Both companies shall mutually review and approve any press releases in connection with this Agreement and the terms thereunder prior to such release. UBID EXPECTATIONS - DG Jewellery agrees to ship all products within 7-10 days of receiving a packing slip (faxed daily from UBid). - DG Jewellery agrees to ship all products using a UBid designated carrier (currently either Federal Express orUPS) using our supplied account number as follows: 1. FedEx - 182129709 2. UPS - X4203W - DG Jewellery agrees that all shipments without exceptions will originate from the United States using the above Fed Ex or UPS#'s - DG Jewellery agrees to be responsible for and handle all end user warranties. - DG Jewellery will email tracking numbers and shipping confirmations daily to a designated UBID representative - currently Lakeisha at ubidcs@tn.cc-inc.com and CC also Crystall at CRYSTALP@UBID.COM. (Eventually all correspondences will be handle electronically). - DG Jewellery will be responsible for and handle all customary customer service matters, including without limitation all returns of product. If UBid accepts a return on any DG Jewellery product, DG Jewellery will be notified promptly within 7 days to enable it to carry out its obligations with respect to such returned product. UBid Online Auction 2525 Busse Road Elk Grove Village, IL 60007 847-860-5000 - - DG Jewellery will not include any materials other than those previously approved by uBid in writing (including without limitation any third party marketing materials) with shipments to UBid customers. - - UBid will provide custom box tape for all shipments. UBid Online Auction 2525 Busse Road Elk Grove Village, IL 60007 847-860-5000 VENDOR AGREEMENT This agreement (this "Agreement") dated March 11, 1999 (the "Effective Date") is between UBID, Inc., a Delaware Corporation ("Reseller") and ___________________ ("Vendor"). It sets forth the terms and conditions for a business relationship between the two parties. 1. PAYMENT TERMS: Items that Vendor and UBid agree to revenue share, according to this Agreement and any attachments and exhibits annexed hereto, will be paid every Tuesday for sales concluded in the previous week. 2. RETURNS OPTIONS: Vendor understands and agrees that from time to time, UBid may accept merchandise returns which do not meet customer satisfaction or requirements. Such returns will be considered defective returns. In addition to any other terms and conditions in this Agreement governing product returns, Vendor agrees to accept all such returned merchandise for full credit. Vendor will pay the cost of freight on all defective returns. 3. CUSTOMER SERVICE: Vendor will provide a phone number for all end user warranty, technical support, and missing parts issues for UBid customers, as follows. UBid Customer Service Contact: Name: ------------------------ Phone Number ------------------------ End User Contact: Phone Number ------------------------ Warehouse Contact: Name: ------------------------ Phone Number: ------------------------ Fax Number: ------------------------ 4. VENDOR'S WARRANTIES: Vendor represents and warrants that (a) it has the right to supply, use and deal with the products as contemplated by this Agreement, and that it has the right to grant the same to UBid; and (b) it has obtained, or will obtain prior to the marketing of any product, all relevant consents, permissions, licenses and rights (including without limitation any copyright permissions) to market, use or otherwise deal with the products and Promotional Materials as contemplated by this Agreement. 5. LICENSE OF MARKS: Except as set forth herein, each party is granted no rights in or to the other party's Marks. "Marks" means the trademarks, service marks, tradenames or other marks, registered or otherwise, used by either party, as applicable. Vendor hereby grants UBid a UBid Online Auction 2525 Busse Road Elk Grove Village, IL 60007 847-860-5000 limited, worldwide, royalty-free, non-exclusive, non-transferable right to use its Marks solely for the purpose of this Agreement. 6. GENERAL: Vendor will not place bids or cause bids to be placed on Accepted Products (as such term is used in the attached Terms of Agreement) for the purpose of influencing customer behaviour, including without limitation raising or otherwise manipulating the bidding, regarding any Accepted Product. Vendor shall not issue any press release relating to this Agreement without the prior written consent of UBid. 7. CONFIDENTIALITY: From time to time, each party may provide the other with Confidential Information. Both parties hereby agree to protect such Confidential Information of the other party with at least the same degree of care (but no less than a reasonable degree of care) as it protects its own Confidential Information, and shall not disclose any Confidential Information to any third party without the prior written consent of the other party, except to its employees who have a strict and justified business "need to know" and who are subject to confidentiality obligations with respect to such information that are no less strict than those imposed by this Agreement. The confidentiality obligations set forth herein shall not apply to Confidential Information that was or becomes generally known to the public through no fault of the receiving party, or that is obtained by the receiving party from a third party without restriction, or that is independently developed by the receiving party, or that is required to be disclosed by a court or other competent legal authority. "Confidential Information" as used herein shall mean any and all information that is disclosed by one party that is either identified or should be reasonably understood to be confidential and proprietary, including without limitation any trade secrets, computer programs, software, marketing plans, customer lists, financial or other business information. 8. INDEMNITY: Vendor shall defend, indemnify, and hold harmless UBid from any and all lawsuits, claims, actions, and liabilities, of any nature, arising in any manner from, relative to or in conjunction with UBid's acts or failure to act, any of the Accepted Products and/or Promotional Materials (as such term is used in the Terms of Agreement), or Vendor's breach of any of its representations, warranties and obligations (including without limitation any claims that any materials or products provided by Vendor infringes the intellectual property rights of any third party) under this Agreement. 9. TERMINATION: UBid shall have the right to terminate this Agreement in the event that Vendor materially breaches any term of this Agreement, and such breach remains uncured for thirty UBid Online Auction 2525 Busse Road Elk Grove Village, IL 60007 847-860-5000 (30) days following Vendor's receipt of notice of such breach from UBid. UBid's exercise of such right to terminate shall not affect (a) the rights and liabilities of either party with respect to Products sold prior to termination; (b) any indebtedness then owing by either party to the other (including, without limitation, any and all instalments of the Setup Fee unpaid as of the date of termination, which shall, notwithstanding any provision to the contrary in this Agreement , the Terms of Agreement or any Exhibit thereto, immediately become due as of such date of termination); (c) obligations imposed by the provisions of this Agreement which by their nature survive termination; or (d) any liability for damages resulting from an actionable breach. 10. MISCELLANEOUS: This Agreement, the Terms of Agreement and Exhibit A (both of which are annexed hereto) constitutes the entire understanding and agreement between the parties and supersedes any prior verbal or written representations, communicatoins and understandings between the parties concerning the subject matter herein. Any and all modifications, changes and/or additions to the above shall be ineffective unless agreed to in writing by both parties. This Agreement is entered into in the State of Illinois and shall be governed by and construed in accordance with the laws of the State of Illinois, exclusive of its choice of law rules or the United Nations Convention on Contracts for the International Sale of Goods. Each party to this Agreement hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts of the State of Illinois, and waives any jurisdictional, venue or inconvenient forum objections to such courts. The relationship between both parties created by this Agreement is that of independent contractors, and nothing in this Agreement is intended to construed the existence of a partnership, joint venture or agency relationship between the parties. Vendor may not assign or transfer this Agreement without UBid's prior written consent. Daniel Berkovits CEO Tim Takesu V.P. - ------------------------------------- ------------------------------------- Vendor Representative Name Title UBid Representative Name Title /s/ Daniel Berkovits 3/11/99 /s/ Tim Takesu 3/11/99 - ------------------------------------------ -------------------------------------- Vendor Representative Signature Date UBid Representative Signature Date
uBid Online Auction 2525 Busse Road Elk Grove Village, IL 60007 847-860-5000 EX-10.12 11 EXHIBIT 10.12 Exhibit 10.12 INTERCOMPANY SERVICES AGREEMENT THIS INTERCOMPANY SERVICES AGREEMENT (this "Agreement") is effective as of the 1st day of June, 1999 and is entered into by and between D.G. Jewelry Inc., an Ontario corporation ("D.G. Jewelry") and NetJewels.com Inc. a Delaware corporation ("NetJewels.com"). WHEREAS Xite Jewelry.com Inc. was incorporated by articles of incorporation filed on or about the 1st day of January, 1999 which articles were amendment by articles of amendment filed on or about the 20th day of August, 1999 changing the name of the corporation from Xite Jewelry.com Inc. to Netjewels.com Inc. ("NetJewels Canada"); AND WHEREAS Fifty percent (50%) of the issued and outstanding common stock of NetJewels Canada is owned by D.G. Jewelry; AND WHEREAS NetJewels.com, a wholly owned subsidiary of NetJewels Canada, is considering an initial public offering of its common stock "IPO"; AND WHEREAS after the IPO, NetJewels.com desires to continue to obtain various corporate, administrative and other services ("Services") from D.G. Jewelry and D.G. Jewelry desires to continue to provide such Services following the closing date of the IPO. NOW THEREFORE in consideration of the sum of Five Dollars ($5.00) the receipt of which and sufficiency thereof is hereby acknowledged and in consideration of the mutual terms and covenants contained herein, the parties hereto hereby agree as follows: SECTION 1. SERVICES D.G. Jewelry shall render to NetJewels.com the following Services in accordance with the terms of this Agreement: (1) CORPORATE SERVICES. D.G. Jewelry shall provide, directly or through its subsidiaries, the services described on Exhibit A hereto, at the cost specified and on the other terms and conditions set forth on Exhibit A. (2) MANUFACTURING AND FULFILLMENT SERVICES. D.G. Jewelry shall provide, directly or through its subsidiaries, the services described on Exhibit B hereto, at the cost specified and on the other terms and conditions set forth on Exhibit B. (3) SPACE SHARING. D.G. Jewelry will make certain warehouse and office space available to NetJewels.com at the cost specified and the other terms and conditions set forth on Exhibit C. (4) In the event that NetJewels.com requires services that exceed the scope or extent of the Services provided for herein, D.G. Jewelry and NetJewels.com shall negotiate in good faith the terms and conditions, including price, under which D.G. Jewelry shall provide such Services; provided, however, that the fee payable by NetJewels.com for such Services shall be no less favorable to NetJewels.com than the charges for comparable services from unaffiliated third parties. SECTION 2. COMPENSATION. NetJewels.com shall pay to D.G. Jewelry when due a fee for each of the Services equal to the amount described in the appropriate Exhibit hereto relating to such Service, provided that in the event NetJewels.com terminates any Service in accordance with Section 3 hereof, the fee for such Service shall no longer be payable following the effective date of such termination. Late payments shall accrue interest at a rate equal to the prime rate plus 2 points published in the Wall Street Journal from time to time. SECTION 3. TERM. (a) The term of this Agreement shall begin on the date first written above (the "Effective Date") and shall continue in full force and effect until it is terminated in accordance with this Section 3. (b) D.G. Jewelry shall have the right (but not the obligation) to immediately terminate this Agreement: (i) if NetJewels.com is in material breach of any of its obligations or representations hereunder, which breach is not cured within twenty (20) days of receipt of written notice from D.G. Jewelry of such breach; (ii) if NetJewels.com files a voluntary petition in bankruptcy or is the subject of any voluntary proceeding relating to insolvency, receivership, liquidation, or composition for the benefit of creditors, if such petition or proceeding is not dismissed within sixty (60) days of filing, or becomes the subject of any involuntary petition in bankruptcy or any involuntary proceeding is not dismissed within sixty (60) days of filing; (iii) if the business of NetJewels.com is liquidated or otherwise terminated for insolvency or any other basis, or (iv) if NetJewels.com becomes insolvent or unable to pay its debts as they mature or makes an assignment for the benefit of its creditors. (c) NetJewels.com hall have the right (but not the obligation) to immediately terminate this Agreement: (i) if D.G. Jewelry is in material breach of its obligations, specifically, but not limited to, its obligation to manufacture quality merchandise which conforms to the order and specifications of NetJewels.com, or representations hereunder, which breach is not cured within twenty (20) days of receipt of written notice from NetJewels.com of such breach; (ii) if D.G. Jewelry is the subject of a voluntary petition in bankruptcy or any voluntary proceeding relating to insolvency, receivership, liquidation, or composition for the benefit of creditors, if such petition or proceeding is not dismissed within sixty (60) days of filing; (iii) if the business of D.G. Jewelry is liquidated or otherwise terminated for insolvency or any other basis, or (iv) if D.G. Jewelry becomes insolvent or unable to pay its debts as they mature or makes an assignment for the benefit of its creditors. (d) D.G. Jewelry shall have the right (but not the obligation to terminate this Agreement and the rights granted to NetJewels.com hereunder, upon twenty (20) days prior written notice to NetJewels.com, following the acquisition of the direct or beneficial ownership of 20% or more of the voting power represented by the voting securities of NetJewels.com by persons other than D.G. Jewelry, Daniel Berkovits, or Bentzion Berkovits, or its affiliates, for purposes of this Agreement, (i) the term "beneficial ownership" shall have the meaning set forth in Section 13 (d) of the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder, and (ii) the term "voting securities" shall mean the common stock of NetJewels.com and any other securities issued by NetJewels.com having the power to vote in the election of directors of NetJewels.com, including without limitation any securities having such power only upon the occurrence of a default or any other extraordinary contingency. This subsection shall not be applicable to an initial public offering of NetJewels.com's common stock. (e) A party may exercise its right to terminate pursuant to this Section 3 by giving twenty (20) days prior written notice to the other party. No exercise by a party of its rights under this Section 3 will limit is remedies by reason of the other party's other rights. SECTION 4. RECORDS AND ACCOUNTS. D.G. Jewelry shall maintain accurate books, records and accounts of all transactions relating to the Services performed by it pursuant to this Agreement. NetJewels.com may, at its own expense, examine and copy those books and records as provided in this Section 4. Such books, records and accounts shall be maintained separately from D.G. Jewelry's own records and accounts. NetJewels.com may make those examinations only during D.G. Jewelry's business hours, and at the place where it keeps the books and records. NetJewels.com will be required to notify D.G. Jewelry's at least ten (10) days before the date of planned examination. SECTION 5. DIRECTORS AND OFFICERS OF D.G. JEWELRY Nothing in this Agreement shall limit or restrict the right of any of D.G. Jewelry's directors, officers or employees to engage in any other business or devote their time and attention in part to the management or other aspects of any other business or to render services of any kind to any corporation, firm, individual, trust or association. SECTION 6. INDEPENDENT CONTRACTOR. D.G. Jewelry is an independent contractor and when its employees act under the terms of this Agreement, they shall be deemed at all times to be under the supervision and responsibility of D.G. Jewelry; and no person employed by D.G. Jewelry and acting under the terms of this Agreement shall be deemed to be acting as agent or employee of NetJewels.com or any customer of NetJewels.com or any purposes whatsoever. SECTION 7. OTHER AGREEMENTS. From time to time, NetJewels.com may find it necessary or desirable either to enter into agreements covering services of the type contemplated by this Agreement to be provided by parties other than D.G. Jewelry or to enter into other agreements covering functions to be performed by D.G. Jewelry hereunder. Nothing in this Agreement shall be deemed to limit in any way the right of NetJewels.com to acquire such services from others to enter into such other agreements. SECTION 8. CONFIDENTIALITY D.G. Jewelry agrees to hold in strict confidence, and to use reasonable efforts to cause its employees and representatives to hold in strict confidence (a) all confidential information concerning NetJewels.com furnished to or obtained by D.G. Jewelry in the course of providing the Services except to the extent that such information has been in the public domain through no fault of D.G. Jewelry (b) disclosure or release is compelled by judicial or administrative process, or (c) in the opinion of counsel to D.G. Jewelry, disclosure or release is necessary pursuant to requirements of the law or the requirements of any governmental entity including, without limitation, disclosure requirements under the Securities Exchange Act of 1934, as amended. SECTION 9. MISCELLANEOUS. (a) Neither party may assign this Agreement, or their respective rights and obligations hereunder, in whole or in part, without the other party's prior written consent. Any attempt to assign this Agreement without such consent shall be void and no effect ab initio. Notwithstanding the foregoing, either party may assign this Agreement or any of its rights and obligations hereunder to any entity controlled by it or to any entity that acquires it by purchase of stock or by merger or otherwise, or by obtaining substantially all of its assets (a "Permitted Assignee"), provided that any such Permitted Assignee, or any division thereof, thereafter, succeeds to all of the rights and is subject to all of the obligations of their respective assignor under this Agreement. (b) This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed entirely within such State, without regard to the conflicts of law principles of such State. (c) All legal proceedings brought in connection with this Agreement shall be brought only in the state or federal court located within the State of New York. (d) If any provision of this Agreement (or any portion thereof) or the application of any such provision (or any portion thereof) to any person or circumstances shall be held invalid, illegal, or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof (or the remaining portion thereof) or the application of such provision to any other persons or circumstances. (e) All notices or other communications required or permitted to be given hereunder shall be in writing and shall be delivered by hand or sent, postage prepaid, by registered, certified or express mail or reputable overnight courier service and shall be deemed given when so delivered by hand, or if mailed, three days after mailing (one business day in the case of express mail or overnight courier service), as follows: (i) if to Net Jewels.com 1001 Petrolia Road North York, Ontario Canada M3J 2X7 Attn: Daniel Berkovits (ii) if to D.G. Jewelry 1001 Petrolia Road North York, Ontario Canada M3J 2X7 Attn: Jack Berkovits (f) The provisions of Section 9 hereof shall survive any termination of this Agreement. (g) There is no relationship of partnership, joint venture, employment, franchise, or agency between the parties. Neither party shall have the power to bind the other or incur obligations on the other's behalf without the other's prior written consent. (h) No failure of either party to exercise or enforce any of its rights under this Agreement shall act as a waiver of such right. (i) This Agreement, along with the Exhibits hereto, contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. Neither party shall be liable or bound to any other party in any manner by any representations, warranties or covenants relating to such subject matter except as specifically set forth herein. (j) This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to each of the other parties. (k) This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. (l) This Agreements for the sole benefit of the parties hereto and nothing herein expressed or implied shall give or be construed to give to any person, other than the parties hereto any legal or equitable rights hereunder. (m) The headings contained in this Agreement or in any Exhibit hereto are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All Exhibits annexed hereto or referred to herein are hereby incorporated in and made apart of this Agreement as if set forth in full herein. Any capitalized terms used in any Exhibit but not otherwise defined therein, shall have the meaning as defined in this Agreement. When a reference is made in this Agreement to a Section or an Exhibit, such reference shall be to a Section of, or an Exhibit to, this Agreement unless otherwise indicated. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. NETJEWELS.COM, INC. By: /s/ Daniel Berkovits ------------------------------ Name: Daniel Berkovits Title: Chief Executive Officer D.G. JEWELRY INC. By: /s/ Jack Berkovits ------------------------------ Name: Jack Berkovits Title: Chief Executive Officer EXHIBIT A CORPORATE SERVICES D.G. Jewelry shall provide general corporate services to NetJewels.com, including, but not limited to the following: accounting services, management information services, telecommunications, human resources administration and services, including but not limited to, benefits administration, maintenance of insurance (property and casualty, medical, dental and life) and payroll processing, including the withholding of taxes, employment insurance and Canada pension plan payments, preparation and filing of tax returns and all necessary and desirable services which may be necessary or desirable in the operation of a business such as NetJewels.com. For such services D.G. Jewelry will be paid a monthly fee of $5,000, plus actual costs incurred. EXHIBIT B MANUFACTURING AND FULFILLMENT SERVICES (1) D.G. Jewelry shall act as a manufacturer of jewelry products (the "Jewelry Products") for NetJewels.com. In such capacity D.G. Jewelry and NetJewels.com shall decide on products to be manufactured including but not limited to, design, number of units to be manufactured and the price per unit. D.G. Jewelry shall, at its sole cost and expense, provide all information and assistance necessary to ensure that all Jewelry Products purchased from D.G. Jewelry are merchandised in a first class and top quality manner. (2) D.G. Jewelry shall be responsible for maintaining an inventory of Jewelry Products which is customary in the industry and which allows NetJewels.com to conduct its business without undue delay or restrictions. (3) D.G. Jewelry shall be solely responsible for all matters relating to the distribution and fulfillment of orders received by NetJewels.com, including but not limited to, shipping, packaging and insuring of the Jewelry Product and the payment of any and all freight costs, custom fees, duties, taxes or tariffs. D.G. Jewelry shall distribute and fulfill all orders through the D.G. Jewelry distribution centres located in Toronto, Canada and in Cedar Knolls, New Jersey. D.G. Jewelry shall provide NetJewels.com access to the distribution centres and shall assist NetJewels.com in the tracking of all orders submitted to D.G. Jewelry. (4) Subject to paragraph 5 of this Schedule "B", all Jewelry Products will be sold to NetJewels.com by D.G. Jewelry at a price equal to the lower of: (i) D.G. Jewelry's cost plus 15%; and (ii) the lowest price paid, or which may be paid to D.G. Jewelry by any other party in respect of the same or reasonable similar Jewelry Products within a period of six (6) months of the date NetJewels.com purchases the Jewelry Products from D.G. Jewelry (the "Purchase Price"). (5) In the event that NetJewels.com offers any of the Jewelry Products for sale through a third party auction site, such as (and by way of example only) ebay, ubid or bid.com (the "Auction Site"), D.G. Jewelry will amend the Purchase Price by reducing the Purchase Price to an amount equal to eighty-five percent (85%) of the final amount actually received by NetJewels.com in connection with the purchase of a Jewelry Product through the Auction Site, such that the profit of NetJewels.com for Jewelry Products sold on an Auction Site shall be at least fifteen percent (15%) of the amount actually received by NetJewels.com from the consumer/purchaser for the Jewelry Product(s) net of all costs, charges, commissions and expenses paid or payable by NetJewels.com to the Auction Site in respect of such purchase and sale. (6) D.G. Jewelry shall be solely responsible for all product returns, complaints and breaches of any express or implied warranties with respect to the Jewelry Products. EXHIBIT C SPACE SHARING (a) License to Use Space. During the term of this Agreement, D.G. Jewelry shall permit NetJewels.com to use a portion of D.G. Jewelry's warehouse office for the purposes permitted under the lease agreements pursuant to which D.G. Jewelry leases such space (to the extent such offices are leased), subject to the terms and conditions set forth in this Agreement. The space to be used by NetJewels.com shall be as mutually agreed by the parties from time to time. NetJewels.com's right to use a portion of D. G. Jewelry's Premises shall terminate on the earlier of: (i) 90 days after NetJewels.com notifies D.G. Jewelry's that NetJewels.com no longer desires to use any portion of D.G. Jewelry's Premises, or (ii) 90 days after D.G Jewelry notifies NetJewels.com that NetJewels.com may no longer use any portion of D.G. Jewelry's Premises. (b) Consideration. So long as NetJewels.com uses any portion of D.G. Jewelry's Premises, NetJewels.com shall pay to D.G. Jewelry on the first day of each calendar month an amount equal to all expenses related to D.G. Jewelry Premises (e.g. Rent, CAM, Tax, Utilities). Payments for any partial calendar month shall be prorated on a per diem basis. (c) Compliance with Leases. NetJewels.com hereby agrees not to take any action or fail to take any action in connection with its use of any portion of D.G. Jewelry Premises, a result of which would be D.G. Jewelry's violation of any of the terms and conditions of any lease or other restriction on D.G. Jewelry's use of D.G Jewelry Premises. NetJewels.com agrees to comply with the terms and provisions of any such leases for D.G. Jewelry Premises in which it uses. EX-23.1 12 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated August 13, 1999, in the Registration Statement on Form S-1 and related prospectus of NetJewels.com, Inc. for the registration of 2,200,000 shares of its common stock. /s/ SCHWARTZ LEVITSKY FELDMAN Schwartz Levitsky Feldman, Chartered Accountants Toronto, Canada November 2, 1999 EX-27 13 EXHIBIT 27
5 0001098114 NETJEWELS.COM, INC. YEAR JUN-30-1999 JUL-01-1998 JUN-30-1999 68 0 0 0 0 1,862,916 0 0 1,862,984 2,213,147 0 0 0 68 (350,231) 1,862,984 75,439 75,439 64,009 64,009 361,661 0 0 (350,231) 0 (350,231) 0 0 0 (350,231) (0.11) (0.11)
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