-----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, NocgV3oV91/walsDRRlpS/qbkM/eJZp2eoky2V5497iMkYRZh0J863O6DD5OOyM2 QtizfI/gqudDEbxOdrrgXg== 0001176721-03-000118.txt : 20030905 0001176721-03-000118.hdr.sgml : 20030905 20030905144742 ACCESSION NUMBER: 0001176721-03-000118 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20030905 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BHC INC CENTRAL INDEX KEY: 0001218148 STANDARD INDUSTRIAL CLASSIFICATION: TRANSPORTATION SERVICES [4700] FILING VALUES: FORM TYPE: SB-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-104213 FILM NUMBER: 03883562 BUSINESS ADDRESS: STREET 1: 14001 63RD WAY N. CITY: CLEARWATER STATE: FL ZIP: 33760 BUSINESS PHONE: 7275338730 MAIL ADDRESS: STREET 1: 14001 63RD WAY N. CITY: CLEARWATER STATE: FL ZIP: 33760 SB-2/A 1 mainbody.txt BHC, INC. FORM SB-2/A-2 As filed with the Securities and Exchange Commission on September 5, 2003 Registration No. 333-104213 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- AMENDMENT NO. 2 TO FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------------------- BHC, INC. (Exact name of registrant as specified in its charter) Delaware 4700 42-1557347 (State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer of Incorporation Classification Code Number) Identification or Organization) Number) ----------------------- 14001 63rd Way North Clearwater, Florida 33760 (727) 533-8730 (Address and Telephone Number of Principal Executive Offices and Principal Place of Business ----------------------- Scott Roix, President and CEO BHC, Inc. 14001 63rd Way North Clearwater, Florida 33760 (727) 533-8730 (Name, Address and Telephone Number of Agent for Service) ----------------------- Copies of all communications, including all communications sent to the agent for service, should be sent to: Adam S. Gottbetter, Esq. Gottbetter & Partners, LLP 488 Madison Avenue New York, New York 10022 (212) 400-6900 --------------------- Approximate date of commencement of proposed sale to 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, check the following box. |X| 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| ____________________ If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. |_| CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------- PROPOSED PROPOSED TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE (1) OFFERING PRICE (1) REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------------- Common Stock, $.001 par value 1,253,750 $.10 $125,375 $81 TOTAL 1,253,750 $.10 $125,375 $81 - --------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for purposes of computing the registration fee. The registrant hereby amends the 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 the 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 Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION. DATED ___________, 2003 PROSPECTUS BHC, INC. 1,253,750 SHARES OF COMMON STOCK --------------------- This prospectus relates to the sale of 1,253,750 shares of our common stock by the selling stockholders named on page 33. The selling stockholders will sell the shares from time to time at $.10 per share until our shares are quoted on the Over-the-Counter Bulletin Board ("OTCBB") and thereafter at prevailing market prices or privately negotiated prices. There is no set minimum or maximum number of shares that can be purchased by an investor. There is no assurance that our common stock will be included on the OTCBB. We will not receive any proceeds from any sales made by the selling stockholders but will pay the expenses of this offering. This is the initial registration of any of our shares. No public market currently exists for our shares of common stock. --------------------- INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 2. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------------- THE DATE OF THIS PROSPECTUS IS __________, 2003 --------------------- TABLE OF CONTENTS
Page ---- Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . 2 Risks Concerning Our Business. . . . . . . . . . . . . 3 Risks Concerning This Offering. . . . . . . . . . . . 11 Cautionary Note Regarding Forward-Looking Statements . . . . . 12 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . 12 Determination of Offering Price. . . . . . . . . . . . . . . . 12 Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 13 Description of Business. . . . . . . . . . . . . . . . . . . . 13 Plan of Operation. . . . . . . . . . . . . . . . . . . . . . . 23 Directors, Executive Officers, Promoters and Control Persons . 25 Executive Compensation . . . . . . . . . . . . . . . . . . . . 27 Security Ownership of Certain Beneficial Owners and Management 28 Certain Relationships and Related Transactions . . . . . . . . 29 Market for Common Equity and Related Stockholder Matters . . . 30 Description of Securities. . . . . . . . . . . . . . . . . . . 30 Selling Stockholders . . . . . . . . . . . . . . . . . . . . . 33 Plan of Distribution . . . . . . . . . . . . . . . . . . . . . 36 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 38 Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . 38 Where You Can Find Additional Information. . . . . . . . . . . 38 Index to Consolidated Financial Statements . . . . . . . . . . 40
DEALER PROSPECTUS DELIVERY OBLIGATION Until __________, 2003 (90 days from the date of this prospectus), all dealers that effect transactions in these securities, whether or not participants in this offering, may be required to deliver a prospectus. SUMMARY This summary highlights the key information contained in this prospectus. Because it is a summary, it does not contain all of the information you should consider before making an investment decision. You should read the entire prospectus carefully, including the section titled "Risk Factors". BUSINESS We are a development stage company that, through our wholly owned subsidiary, BookFloridaHotels.com, Inc., plan to provide branded online marketing and distribution of travel products and services to leisure and small business travelers. We expect to commence operations during the third quarter of 2003. Our principal executive offices are located at 14001 63rd Way North, Clearwater, Florida 33760 and our phone number there is (727) 533-8730. THE OFFERING Shares offered by the selling stockholders 1,253,750 Common stock outstanding 3,253,750 Use of proceeds The selling stockholders will receive the net proceeds from the sale of shares. We will not receive any of the proceeds from the sale of shares offered by this prospectus. 2 RISK FACTORS Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below before you purchase any of our common stock. These risks and uncertainties are not the only ones we face. Unknown additional risks and uncertainties, or ones that we currently consider immaterial, may also impair our business operations. If any of these risks or uncertainties actually occur, our business, financial condition or results of operations could be materially adversely affected. In this event you could lose all or part of your investment. RISKS CONCERNING OUR BUSINESS WE ARE A DEVELOPMENT STAGE COMPANY. WE HAVE NO OPERATING HISTORY FOR YOU TO USE TO EVALUATE OUR BUSINESS. WE MAY NEVER ATTAIN PROFITABILITY. We are a development stage company and have no operating history upon which may make an evaluation of our business prospects by you difficult. Our operations are therefore subject to all of the risks inherent in light of the expenses, difficulties, complications and delays frequently encountered in connection with the formation of any new business. Investors should evaluate us in light of the delays, expenses, problems and uncertainties frequently encountered by companies developing markets for new products and technologies. We may never overcome these obstacles. Because we have not begun operations, it is difficult to evaluate our proposed business and prospects. Our revenue and income potential is unproven. We cannot assure investors that we will attract travel suppliers and consumers, establish a sizable market share or achieve significant revenues or operating margins in future periods. We cannot guarantee that we will ever achieve commercial success and therefore may never generate a profit. Our business is speculative and dependent upon the implementation of our business plan, the acceptance of our website and the effectiveness of our marketing programs and relationships with our suppliers. There can be no assurance that our efforts will be successful or result in revenue or profit. There is no assurance that we will earn significant revenues or that investors will not lose their entire investment. WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS, UPON WHICH WE ARE LIKELY TO BE HIGHLY DEPENDENT. WE MAY RUN OUT OF CASH TO OPERATE AND GROW OUR REVENUES. Our business requires and our current business plan contemplates the need for significant levels of capital resources. No assurance can be given that our current capital resources will be sufficient for our operations or that any unforeseen circumstances or change in our planned operations would not consume available resources more rapidly than anticipated. We may run out of cash to meet our operational needs. Should such additional finances be necessary, we plan to raise funds through equity or debt financings and/or traditional bank financing, or a combination of both, which may have the effect of diluting the holdings of existing stockholders. Financing may not be available when needed or such financing may not be available on commercially reasonable terms. If adequate funds are not available, we may be required to delay or terminate expenditures to develop and commercialize our objectives, which would not allow us to maintain and grow our revenues. WE HAVE RECEIVED A GOING CONCERN OPINION FROM OUR AUDITORS INDICATING THERE IS SUBSTANTIAL DOUBT AS TO WHETHER WE CAN REMAIN IN BUSINESS. Our auditors indicated, in their report dated February 6, 2003, that there was substantial doubt as to our ability to continue as a going concern due to our lack of revenue and insufficient funds to execute our business plan, such that our ability to continue as a going concern is dependent upon our obtaining additional financing for our operations or reaching profitability. We cannot 3 assure you that we will be able to do either and if we are unable to do so we will not be able to remain in business. WITHOUT THE CONTINUED SERVICE OF OUR EXECUTIVE OFFICER AND KEY EMPLOYEE, AND OUR ABILITY TO ATTRACT AND RETAIN SKILLED PERSONNEL, OUR BUSINESS MAY FAIL. Our future success depends, in significant part, on the continued service and performance of Scott Roix, our Chief Executive Officer and President, who possesses extensive expertise in various aspects of our business. We cannot assure you that Mr. Roix will be able to fulfill his responsibilities adequately or, if he chooses to leave us, that we would be able to find an appropriate replacement for him. Any loss or interruption of Mr. Roix's services could cause our business to fail. It could also result in our failure to create and maintain relationships with strategic partners that are critical to our success. We do not presently maintain key-man life insurance policies on Mr. Roix. Our success also depends on our ability to hire, train, retain and manage highly skilled employees. We cannot assure you that we will be able to attract and retain a sufficient number of qualified employees or that we will successfully train and manage the employees we hire. WITHOUT THE ATTRACTION OF NEW CUSTOMERS IF WE CANNOT DEVELOP RELATIONSHIPS WITH TRAVEL SUPPLIERS AND OUR BUSINESS MAY FAIL. Our business depends on travel suppliers to enable us to offer travel services and products on our website. We will not attract customers without travel services and products on our website. Our inability to establish or maintain such relationships or increase the number or variety of travel suppliers could adversely affect the inventory of travel products we plan to make available on our website. A lack of inventory of travel products may limit our ability to find customers and impede our ability to generate revenue. Our business will fail without revenue. A DECLINE IN COMMISSION RATES AND FEES OR THE ELIMINATION OF COMMISSIONS BY TRAVEL SUPPLIERS COULD REDUCE POTENTIAL REVENUES AND MARGINS. A substantial majority of our online revenues will depend on the commissions and fees paid by travel suppliers for bookings made through our online travel services. We have few written commission agreements with suppliers and accordingly most travel suppliers are not obligated to pay any specified commission rates for bookings made through our website or to pay revenues at all. As is standard practice in the travel industry, we will rely on informal arrangements for the payment of commissions. If airlines, hotel chains or other travel suppliers with whom we will not have guaranteed compensation agreements reduce current industry commission rates or eliminate commissions entirely and we were not able to enter into agreements with these travel suppliers, or successfully charge a compensating service fee to consumers, our revenues would be significantly reduced. We cannot provide assurances that such airlines, hotel chains or other travel suppliers will not reduce current industry commission rates, refuse to enter into agreements with us or eliminate commissions entirely, any of which could reduce potential revenues and margins, and adversely affect our business, financial condition and results of operations. 4 CONSUMERS, TRAVEL SUPPLIERS AND ADVERTISERS MAY NOT ACCEPT OUR WEBSITE AS A VALUABLE COMMERCIAL TOOL, WHICH WOULD NOT ALLOW US TO GENERATE SALES AND REVENUES. We currently generate no sales and revenue. We will not have sales and revenues if consumers do not accept and use our website. Consumers who have historically purchased travel products using traditional commercial channels, such as local travel agents and calling airlines directly, must instead purchase these products online through a link on our website to an affiliate travel supplier's website or by calling a toll free number to be listed on our website. Consumers frequently use websites to compare pricing and other travel information and then choose to purchase airline tickets or make other reservations directly from travel suppliers or other travel agencies. If this practice increases, our sales and revenues will not develop. Similarly, we will not generate sales and revenues if travel suppliers and advertisers do not accept our website as a valuable commercial tool and use our website. Travel suppliers will need to view our website as an efficient and profitable channel of distribution of their travel products. Advertisers will need to view our website as an effective way to reach their potential customers. INTENSE COMPETITION IN OUR INDUSTRY COULD LIMIT OUR MARKET SHARE AND NOT ALLOW US TO GENERATE REVENUES AND PROFITS. We have not sold any of our products or services. The markets for the products and services offered by us are intensely competitive. As a result, we may never obtain any significant market share in the industry. We face competition from a variety of companies with respect to each product or service we plan to offer. These competitors include: - Internet travel agents such as Travelocity.com and Expedia.com - local, regional, national and international traditional travel agencies - consolidators and wholesalers of airline tickets, hotels and other travel products, including online consolidators such as Cheaptickets.com, Priceline.com and online wholesalers such as Hotel Reservations Network, Inc. - airlines, hotels, rental car companies, cruise operators and other travel service providers, whether working individually or collectively, some of which could be suppliers to our website - operators of travel industry reservation databases In addition to the traditional travel agency channel, many travel suppliers also offer their travel services as well as third-party travel services directly through their own websites. As the market for online travel services grows, we believe that travel suppliers, traditional travel agencies, travel industry information providers and other companies will increase their efforts to develop services that will compete with our planned services by selling inventory from a wide variety of suppliers. If our online operations cannot compete successfully with any current or future competitors, we will not start to generate revenues and profits. We currently have no revenue and profits. 5 Many of our competitors are larger, more established and better-financed companies that are able to devote greater resources to marketing and promotional campaigns and commit more resources to website and systems development than we will be able to devote, which may make it difficult for us to succeed. Some of our competitors may be able to secure services and products from travel suppliers on more favorable terms than us. In addition, the introduction of new technologies and the expansion of existing technologies may increase competitive pressures. Increased competition may result in reduced operating margins, as well as loss of any market share and brand recognition we may obtain. We may not be able to compete successfully against current and future competitors. Competitive pressures faced by us could inhibit our ability to generate our revenues and profits. IF WE FAIL TO ESTABLISH AND INCREASE OUR BRAND RECOGNITION AMONG CONSUMERS, WE MAY NOT BE ABLE TO ATTRACT AND EXPAND OUR ONLINE TRAFFIC. We believe that establishing, maintaining and enhancing our brand is a critical aspect of our efforts to attract online traffic. The number of Internet sites that offer competing services increases the importance of establishing and maintaining brand recognition. Many of these Internet sites already have well-established brands in online services or the travel industry generally. Promotion of our brand will depend largely on our success in providing a high-quality online experience. In addition, we intend to invest in marketing and advertising with the intention of establishing and expanding our brand recognition to attract and retain online users and to respond to competitive pressures. However, we cannot provide any assurance that these expenditures will be effective to promote our brand or that our marketing efforts generally will achieve our goals. Our inability to effectively promote our brand could have a material adverse effect on our business, financial condition and results of operations. Even if we are successful in promoting our brand, the increased brand recognition may not economically justify the cost of brand promotion needed to achieve that recognition. WE MAY BE FOUND TO HAVE INFRINGED ON INTELLECTUAL PROPERTY RIGHTS OF OTHERS THAT COULD EXPOSE US TO SUBSTANTIAL DAMAGES AND RESTRICT OUR OPERATIONS. We could face claims that we have infringed the patents, copyrights or other intellectual property rights of others. In addition, we may be required to indemnify travel suppliers for claims that may be made against them by our customers. Any such claims could require us to spend significant time and money in litigation, delay the release of new products or services, pay damages, develop new intellectual property or acquire licenses to intellectual property that is the subject of the infringement claims. These licenses, if required, may not be available on acceptable terms or at all. As a result, intellectual property claims against us or against travel suppliers that we are required to indemnify could have a material adverse effect on our business, operating results and financial condition. WITHOUT THE CONTINUED USE AND GROWTH OF THE INTERNET AND THE EXTENT OF ACCEPTANCE AND PROFITABILITY OF ONLINE COMMERCE, WE WILL NOT BEGIN TO GENERATE REVENUES AND PROFIT. We currently have no revenues or profit. We will not begin to accrue revenues and profits if there is not continued widespread acceptance and use of the Internet and online services as a medium for commerce. Rapid growth in the use of the Internet and online services is a recent phenomenon. This growth may not continue. A sufficiently broad base of consumers may not accept or continue to use the Internet as a medium of commerce. Demand for and market acceptance of recently introduced products and services over the Internet involve a high level of uncertainty. If the growth of the Internet does not continue or if consumers cease to accept the Internet as a medium of commerce, we will not begin to have revenues and profit. 6 The Internet has experienced, and is expected to continue to experience, significant growth in the number of users and amount of traffic. Our success will depend upon the development and maintenance of the Internet's infrastructure to cope with this increased traffic. This will require a reliable network backbone with the necessary speed, data capacity and security and the timely development of complementary products for providing reliable Internet access and services. Major online service providers and the Internet itself have experienced outages and other delays as a result of software and hardware failures and could face such outages and delays in the future. Outages and delays are likely to adversely affect the level of Internet usage and the processing of online transactions. In addition, the Internet could lose its viability because of delays in the development or adoption of new standards to handle increased levels of activity or increased government regulation. The adoption of new standards or government regulation may require us to incur substantial compliance costs. Such costs may adversely affect our ability to generate revenues and profits. RAPID TECHNOLOGICAL CHANGES MAY RENDER OUR TECHNOLOGY OBSOLETE OR DECREASE THE ATTRACTIVENESS OF OUR INTENDED SERVICES TO CUSTOMERS. We currently have no market share in the online travel industry. In order to become competitive in the online travel industry, we will have to continually enhance and improve the functionality and features of our website. If we fail to continually improve our website's speed, personalization and customer service, we could lag behind competitors or our website could become obsolete. As a result, we could lose market share and our revenues would decline, which could have a material adverse effect on our business, financial condition and results of operations. In order to become competitive, we may have to incur substantial costs and expenses to respond to the increasingly sophisticated requirements of online consumers and suppliers. Such costs and expenses may have a material adverse effect on our business, financial condition and results of operations. SECURITY BREACHES IN OUR SYSTEMS OR CREDIT CARD FRAUD COULD DAMAGE OUR REPUTATION AND CAUSE US TO LOSE CUSTOMERS. Consumer concerns over the security of transactions conducted on the Internet and over privacy issues may inhibit the growth of the Internet and online commerce. The security of customers' confidential transaction data could be jeopardized as a result of the accidental or intentional acts of Internet users, our employees or others, or computer viruses. If we experience significant credit card fraud or if there is a breach in the security of our systems, we could lose consumers' confidence and consequently, their business. In addition, we may be liable for damages caused by security breaches. Such liability could increase our expenses and exhaust our resources, which could have a material adverse effect on our business, financial condition and results of operations. 7 Security breaches experienced by other electronic commerce companies could reduce consumers' confidence in our website. Although we plan to use encryption and authentication technology, these measures can be circumvented. The costs required to continually upgrade our security measures could be prohibitively expensive and could result in delays or interruption of service that could result in a loss of consumers. OUR COMPUTER SYSTEMS MAY SUFFER SYSTEM FAILURES, CAPACITY CONSTRAINTS AND BUSINESS INTERRUPTIONS WHICH COULD INCREASE OUR OPERATING COSTS AND PREVENT US FROM ATTRACTING CUSTOMERS AND IMPEDE OUR ABILITY TO INITIALLY ACCRUE SALES AND REVENUES. We currently have no sales or revenues. The interruption, impaired performance or insufficient capacity of our systems could lead to interruptions or delays in our service, loss of data or our inability to process reservations, which could cause us to lose customers and impede our ability to initially accrue sales and revenue. We will also rely on third-party computer systems and third-party service providers, including the computerized central reservation systems of the airline, hotel and car rental industries to make airline ticket, hotel room and car rental reservations and credit card verifications and confirmations. Any discontinuance in the services provided to us by third parties or our system and operations or any deterioration or interruption of these services, systems or operation would prevent consumers from accessing or purchasing particular travel services through our website, which would cause us to lose customers and impede our ability to initially accrue sales and revenue. If our arrangement with any of these third parties is terminated, we may not find an alternate source of systems support on a timely basis or on commercially reasonable terms. If our systems and operations are damaged, our redundant systems or disaster recovery plans may not be adequate. We have a hosting contract with 51st State Systems Inc., a provider of Internet services, pursuant to which 51st State Systems operates and maintains a significant portion of our web servers in their Vancouver data center. Our operations depend on 51st State Systems' ability to protect its and our systems in its data center against any such unexpected adverse events. Although 51st State Systems provides comprehensive facilities management services, including human and technical monitoring of all production servers 24 hours-per-day, seven days-per-week, 51st State Systems does not guarantee that our Internet access will be uninterrupted, error-free or secure. Any such interruption, error or security breach would cause us to lose customers and impede our ability to initially accrue sales and revenue. Our hosting contract with 51st State Systems expires in December 2003. If 51st State Systems were unable or unwilling to provide these services, we would have to find a suitable replacement. Our operations could be disrupted while we were in the process of finding a replacement for 51st State Systems and the failure to find a suitable replacement or to reach an agreement with an alternate provider on terms acceptable to us could materially adversely affect our ability to adequately service our customers. Our insurance policies may not adequately compensate us for any losses that we may incur because of any failures in our system or interruptions in the delivery of our services. Our ability to service our existing customers and attract new customers could be materially adversely affected by any event, damage or failure that interrupts or delays our operations. We will be required to continually devote substantial financial, technical and operational resources 8 to expand and upgrade our systems and infrastructure. See below risk factor "Conflicts of interest with 51st State Systems could impede our business strategy and hurt our business" and also see "Certain Relationships and Related Transactions" below. EVOLVING GOVERNMENT REGULATION COULD IMPOSE TAXES OR OTHER BURDENS ON OUR BUSINESS WHICH COULD INCREASE OUR COSTS OR DECREASE DEMAND FOR OUR PRODUCTS. Increased regulation of the Internet or different applications of existing laws might slow the growth of the use of the Internet and commercial online services, which could decrease any then existing demand for our services, increase the cost of doing business or otherwise reduce our sales and revenues. Federal legislation imposing limitations on the ability of states to tax Internet-based sales was enacted in 1998. The Internet Tax Freedom Act exempts specific types of sales transactions conducted over the Internet from multiple or discriminatory state and local taxation through November 1, 2003. If this legislation is not renewed when it terminates, state and local governments could impose taxes on Internet-based sales. These taxes could decrease any demand for our products and services or increase our costs of operations, which would have a material adverse effect on our business, financial condition and results of operations. Data collection, protection and privacy issues are a growing concern in the U.S., and many countries around the world in which we may do business in the future. Evolving government regulation in these areas could limit or restrict our ability to market our products and services to consumers, increase our costs of operation and lead to a decrease in any demand for our products and services, which would have a material adverse effect on our business, financial condition and results of operation. OUR REVENUES WILL BE HIGHLY DEPENDENT ON THE TRAVEL AND TRANSPORTATION INDUSTRIES AND A PROLONGED SUBSTANTIAL DECREASE IN TRAVEL BOOKINGS VOLUMES COULD CAUSE OUR BUSINESS TO FAIL. Most of our revenues will be derived from airlines, hotel operators, car rental companies and other suppliers in the travel and transportation industries. We have generated no sales but if we do attract customers, our revenues will increase and decrease with the level of travel and transportation activity and therefore will be highly subject to declines in or disruptions to travel and transportation. The travel industry is seasonal, and our revenue will vary significantly from quarter to quarter. Factors that may adversely affect travel and transportation activity include price escalation in travel-related industries, airline or other travel-related labor action, political instability, hostilities and war, inclement weather, fuel price escalation, increased occurrence of travel-related accidents, acts of terrorism, the financial condition of travel suppliers and economic downturns and recessions. A prolonged substantial decrease in travel bookings volumes could have an adverse impact on our ability to attract customers and generate sales and revenue causing our business to fail. The September 11, 2001 terrorist attacks on New York and Washington, and the economic downturn that preceded and was worsened by the attacks, may continue to adversely affect the travel industry and therefore our business prospects. Additionally, the possibility of terrorist attacks, hostilities and war, the financial instability of many of the air carriers, and delays resulting from added security measures at airports may continue to adversely affect the 9 travel industry. Airlines may reduce the number of their flights, making less inventory available to us. Several major airlines are experiencing liquidity problems and some have sought bankruptcy protection. Travelers' perceptions of passenger security or airlines' financial stability may have an adverse effect on demand from our customers. A prolonged substantial decrease in travel bookings volumes could cause our business to fail. CONFLICTS OF INTEREST WITH 51ST STATE SYSTEMS COULD IMPEDE OUR BUSINESS STRATEGY AND OUR ABILITY TO INITIALLY ACCRUE SALES AND REVENUE. Matthew Sebal, one of our directors, owns 50% of the outstanding capital stock of 51st State Systems and 51st State Systems owns 30,000 shares of our common stock (less than 1%). We have a hosting contract with 51st State Systems Inc., a provider of Internet services, pursuant to which 51st State Systems operates and maintains a significant portion of our web servers in their Vancouver data center. We believe that our agreement with 51st State Systems is on terms reasonable and made in our best interests. There is a risk that Mr. Sebal will not act in the best interests of our company causing our business strategy and our ability to initially generate sales and revenue to be impeded. See the above risk factor "Interruptions in service from third parties could impair the quality of our service" and "Certain Relationships and Related Transactions" below. CONFLICTS OF INTEREST WITH SCOTT ROIX AND VICI MARKETING COULD IMPEDE OUR BUSINESS STRATEGY AND OUR ABILITY TO INITIALLY GENERATE SALES AND REVENUE. Scott Roix, our executive officer and a director, is the Chief Executive Officer of Vici Marketing, a multi dimensional marketing and distribution company he founded that specializes in mass marketing appeal products, discounted travel packages and travel clubs and various aspects of direct response television, database mining, telemarketing and direct mail. Mr. Roix and his wife own 90% and 10%, respectively, of the outstanding capital stock of Vici Marketing. We have an agreement with Vici Marketing pursuant to which we will be able to provide Vici's travel inventory to our customers. We believe that our agreement with Vici Marketing is on terms reasonable and made in our best interests. There is a risk that Mr. Roix will not act in the best interest of our company causing our business strategy to be impeded and the reduction in our sales and revenue. See the above risk factors relating to travel suppliers under "Risks Affecting Our Business" and "Certain Relationships and Related Transactions" below. In addition, due to other business commitments, Mr. Roix will only devote 20 hours per week of his time towards our business. This may negatively affect our ability to develop operations and harm our ability to initially earn revenues. See Mr. Roix's biographical information below under "Directors, Executive Officers, Promoters and Control Persons." 10 RISKS CONCERNING THIS OFFERING SCOTT ROIX, OUR PRESIDENT, CHIEF EXECUTIVE OFFICER AND A DIRECTOR, BENEFICIALLY OWNS APPROXIMATELY 61% OF OUR OUTSTANDING COMMON STOCK; HIS INTERESTS COULD CONFLICT WITH YOURS; SIGNIFICANT SALES OF STOCK HELD BY HIM COULD HAVE A NEGATIVE EFFECT ON OUR STOCK PRICE; STOCKHOLDERS MAY BE UNABLE TO EXERCISE CONTROL. As of September 2, 2003, our president, chief executive officer and a director, Scott Roix, was the beneficial owner of approximately 61% of our common stock. As a result, he has significant ability to: - elect or defeat the election of our directors; - amend or prevent amendment of our certificate of incorporation or by-laws; - effect or prevent a merger, sale of assets or other corporate transaction; and - control the outcome of any other matter submitted to the stockholders for vote. As a result of his ownership and position, Mr. Roix is able to significantly influence all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. If you purchase shares of our common stock in this offering, you may have no effective voice in our management. In addition, sales of significant amounts of shares held by Mr. Roix, or the prospect of these sales, could adversely affect the market price of our common stock. Mr. Roix's stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our shareholders from realizing a premium over our stock price. See "Security Ownership of Certain Beneficial Owners and Management." OUR MAJORITY STOCKHOLDERS ARE ABLE TO TAKE STOCKHOLDER ACTIONS WITHOUT GIVING PRIOR NOTICE TO ANY OTHER STOCKHOLDERS. THEY COULD MAKE AND CONTROL CORPORATE DECISIONS THAT MAY BE DISADVANTAGEOUS TO MINORITY SHAREHOLDERS. Our majority stockholders are able to take stockholder actions in conformance with Section 228 of the Delaware General Corporation Law and our Certificate of Incorporation, which permits any stockholder action that may or is required to be taken at an annual or special meeting of the stockholders, to be taken without prior notice and without a vote of all of our stockholders. Instead of a vote, stockholder actions can be authorized by the written consents to such actions, signed by the holders of the number of shares which would have been required to be voted in favor of such action at a duly called stockholders meeting. We are not required to give prior notice to all stockholders of actions taken pursuant to the written consents of the majority stockholders. Our obligations are limited to giving such notice promptly after the action has been taken. The majority stockholders could make decisions disadvantageous to minority shareholders. 11 UNLESS A PUBLIC MARKET DEVELOPS FOR OUR COMMON STOCK, YOU MAY NOT BE ABLE TO SELL YOUR SHARES, THEREFORE YOUR INVESTMENT WOULD BE A COMPLETE LOSS. There is no public market for our common stock. An active trading market may never develop or, if developed, it may not be maintained. Failure to develop or maintain an active trading market could negatively affect the price of our common stock, and you may be unable to sell your shares, and therefore your investment would be a complete loss. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Memorandum contains certain financial information and statements regarding our operations and financial prospects of a forward-looking nature. Although these statements accurately reflect management's current understanding and beliefs, we caution you that certain important factors may affect our actual results and could cause such results to differ materially from any forward-looking statements which may be deemed to be made in this Memorandum. For this purpose, any statements contained in this Memorandum which are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as, "may", "intend", "expect", "believe", "anticipate", "could", "estimate", "plan" or "continue" or the negative variations of those words or comparable terminology are intended to identify forward-looking statements. There can be no assurance of any kind that such forward-looking information and statements will be reflective in any way of our actual future operations and/or financial results, and any of such information and statements should not be relied upon either in whole or in part in connection with any decision to invest in the shares. USE OF PROCEEDS We will not receive any proceeds from the sale of the stockholders' shares offered by this prospectus. All proceeds from the sale of the stockholders' shares will be for the account of the selling stockholders. DETERMINATION OF OFFERING PRICE As there is no public market for the shares, the offering price we used is the price that the selling stockholders paid for their shares and bears no relationship to our assets, book value or prospective earnings or any other recognized criteria of value. DILUTION The shares of our common stock issued and outstanding as of the date of this prospectus, on a fully diluted basis, were acquired by the holders thereof at an average cost of $0.038 per share. Accordingly, you will bear a disproportionate share of the risk of loss in the event of a material adverse change in our financial condition. 12 CAPITALIZATION The following table sets forth our capitalization as of June 30, 2003. Stockholders' equity Common stock, $.001 par value; 100,000,000 shares authorized, 3,253,750 shares outstanding $ 3,254 Preferred Stock, $.0001 par value; 5,000,000 shares authorized, 0 shares outstanding $ 0 Additional paid-in capital $ 120,111 Accumulated Deficit $ (103,364) Total stockholders' equity $ 20,001 DESCRIPTION OF BUSINESS GENERAL We were incorporated in Delaware on September 12, 2002 and will conduct operations through our wholly-owned subsidiary, BookFloridaHotels.com, Inc., which was incorporated in Florida on September 13, 2002. Where the context requires, references to "we" or "us" throughout this document include reference to BookFloridaHotels.com, Inc. We are a development stage company whose principal business objective is to provide branded online marketing and distribution of travel products and services for leisure and small business travelers through the operation of our website in the United States -www.BookFloridaHotels.com. Our initial products and services center on offerings in Southeast Florida. We plan to concentrate our business efforts on our initial website for the next year. After that year, we may expand the destinations of our products and services, through development of additional websites to reflect those destination offerings. Our website is intended to enable consumers and travel suppliers to research, buy and sell travel-related products and services online and to browse through our website in a reliable, scalable environment. Our website offers consumers a convenient, comprehensive and personalized source of travel information, products and services. At the same time, our website enables travel suppliers to reach a large, global audience of consumers engaged in planning and purchasing travel products and services. Through our website, suppliers can pursue a range of innovative and targeted merchandising and advertising strategies designed to increase revenues, while reducing overall transaction and customer service costs. Our website offers discounted and charter airfares and discounted hotel rooms. Travel products and services expected to be marketed by us in the next six to twelve months include: 13 - "all-inclusive" vacation packages - discounted car rentals - discounted cruises We have not negotiated or discussed in detail the addition of these additional travel products and services with any third parties. We will commence this process in the beginning of 2004. OUR BUSINESS STRATEGY Our business strategy, as set for below, is to implement the following initiatives and become a material provider of online products and services. Our initial activities will be regional in nature concentrating on Southeast Florida. FURTHER DEVELOP CONCEPT AND BUSINESS MODEL; CHOOSE GEOGRAPHICAL TEST SITES Our initial business is to provide online marketing and distribution of travel products and services for Southeast Florida businesses and national businesses servicing the Southeast Florida region. We expect this business to serve as a model for our intended future activities involving other markets and other products and services. We will assess the success of our current website and therefore, we do not anticipate to enter any new markets in the next twelve months. ACQUIRE WEBSITE ADDRESSES, INCREASE BRAND AWARENESS We intend to acquire website addresses necessary for the operation of our business and to invest in expanding consumer awareness of our brand names through an advertising program. Our initial website which we intend to use for our Southeast Florida travel business is www.bookfloridahotels.com. Website ------------------------- addresses are available for $35 each from domain registration service bureaus such as Network Solutions and Register.com. These websites will be acquired to service other regions of the country and will bear appropriate region specific names similar to www.bookfloridahotels.com. ------------------------- IDENTITY AND DEVELOP RELATIONSHIPS WITH PRODUCT AND SERVICE SUPPLIERS We intend to develop strategic relationships with product and service suppliers similar to the agreements we have executed with Hospitality Group, Inc. and Vici Marketing. Our goal is to increase customer awareness of our product and service offerings and develop new ways to effectively market and distribute these products and services to our customers. We intend to seek out strategic relationships in the beginning of 2004. IDENTIFY AND ENGAGE THE SERVICES OF NEEDED STAFF We intend to hire employees on an as needed basis. All employees will have specific roles and responsibilities and will receive appropriate training. DESIGN, DEVELOP AND IMPLEMENT WEBSITE We will strive to continually increase the efficiency and effectiveness of our website, including content, through enhancement of the underlying infrastructure and investment in improved technology. We have entered into 14 agreements with 51st State Systems to build our initial website and to provide the server hardware, software and network connectivity necessary to run the website. We have purchased two servers; related equipment including Uninterrupted power supply, hubs, and cables, and 12 months of Class A co-location and have spent approximately $10,000 to develop our initial website. A Class A co-location is a physical place where servers are located next to each other and the area has redundant power systems, proper ventilation and air conditioning and is earthquake proof. In the next year, we expect to purchase another server, additional related equipment and spend approximately $20,000 more to further develop the initial website. DEVELOP AND IMPLEMENT MARKETING PLANS We intend to attract consumers and suppliers to our websites and create brand awareness through direct marketing; television, print, radio, and online advertising; and joint promotions. In this regard, in the next nine months we intend to engage in test marketing for the purpose of identifying and implementing the sales channels with the highest return on marketing investment. SALES AND MARKETING Our revenues are expected to come from commissions, fees, and direct merchant sales related to transactions made through a toll free number listed on our website and through links to other websites, as well as from sales of advertisements on our website. For each sale or referral we make to a travel supplier, we expect to receive a commission and charge a fee to our customers of between 1% and 2% of the net sale price received by the travel supplier or affiliate online travel provider. We expect to attract consumers and travel suppliers to our website and create awareness of our brand through a variety of direct market channels such as e-mail advertising campaigns, print advertising campaigns, and banner advertising campaigns. We plan to invest in an advertising program of off-line and online media, including television, print, radio, and the Internet and joint promotions with travel service suppliers in the next nine to twelve months. We anticipate the cost of implementing these initiatives to be $12,000. We also expect to rely on word-of-mouth to attract new customers and will therefore strive to ensure that our customers have a positive experience by providing a convenient, user friendly website, which features many time-saving tools. PRODUCTS AND SERVICES Initially, our travel offerings will consist of discounted hotel rooms, vacation packages and discounted and charter airfares in southeast Florida. To provide more travel options to our customers, we plan to expand our initial travel offerings in the beginning of 2004 by including, discounted car rentals, discounted cruises and "all-inclusive" vacation packages. We plan to add on another product to our website every month or two commencing in approximately six to nine months. We will expand first with discounted car rentals and then follow that with discounted cruises and "all-inclusive" vacation packages. The cost of adding these offerings is approximately $5,000. We may also expand the scope of our destination offerings, and in order to accomplish that we must purchase new websites. In contemplation of this possible expansion, we have purchased several domain names but have no plan to develop these websites in the next twelve months. The cost of purchasing a new web address for our expanded travel destinations is $35 per domain address. We also expect to enhance customers' experiences on our website by incorporating community aspects such as bulletin boards and chat rooms after we have all of our travel offerings available on our website. 15 DEVELOPMENT OF OUR WEBSITE Our website became operational in August, 2003. To achieve this, we entered into two contracts with 51st State Systems. One is a site development contract to build our web site and the other is a hosting contract to provide the server hardware, software and network connection needed to run our website. The site development contract was entered into on December 6, 2002. 51st State Systems agreed to build our website environment in return for a $30,000 fixed fee. Under this contract 51st State Systems performs numerous functions for our company until the website is operational, including - strategy development, - domain registration, - project management, - copywriting and integration of other electronic content - basic online site traffic statistics - intensive testing against multiple browsers/platforms, - registration within all leading search engines, - development of site structure and navigation, and - overall site design and creation of graphic elements. The $30,000 fee includes all charges for project management, art direction and graphic design, copywriting, page design and coding and database and programming. In addition, 51st State Systems will be reimbursed for all out-of-pocket expenses, which shall not exceed $4,500. A down payment of $10,000 was due to 51st State Systems from us upon execution of the site development contract. In lieu of such down payment, 51st State Systems accepted 30,000 of our shares. The site development contract expired on August 15, 2003 and we have negotiated an extension until May 15, 2004 with the same terms as the original content. The hosting contract was entered into on December 6, 2002. 51st State Systems agreed to provide a web hosting environment for us. For the first year of the hosting contract there is no charge for this service except for emergency calls to our maintenance department which are billed to us at $150 per hour. The fees for hosting contracts are typically waived when entered into in conjunction with site development contracts. After the first year, 51st State Systems will charge us $200 per month. Under the hosting contract, 51st State Systems will implement the server hardware, software and network connectivity. Once our web hosting service is operational and accessible from the internet, 51st State Systems will perform such functions as: - support our web servicer, - provide bandwidth to the open Internet, - maintain domain name services, if required, 16 - obtain and coordinate the installation of new versions, releases, and fixes to the operating system and system software, - provide around-the-clock monitoring of the servers, - provide server support to administer the server environment, - use commercially reasonable efforts to assure that the servers are operational and available on the network, and - implement the security policy on firewalls and undertake the firewall software upgrades as deemed necessary for data security and integrity. The hosting contract will expire on December 5, 2003. It has automatic one year extensions. Both contracts contain customary terms including 51st State Systems retained ownership of intellectual property related to its work product, payment terms and limitations on liability. TRAVEL SUPPLIERS AND ONLINE TRAVEL AGENTS We plan to continuously build relationships with travel suppliers in the air, car, hotel and other sectors. We intend to pursue long-term strategic relationships with travel suppliers and other online travel agents to gain access to online consumers, promote and expand our travel products and services, build brand recognition and expand our online presence. In some cases, our website will be required to be prominently display a supplier's brand or marketing message. We intend to continuously evaluate strategic opportunities as they arise. We have an agreement with Hospitality Group, Inc., a franchisee of several Hampton Inn properties in southeast Florida, to provide our customers with discounted rates and vacation packages at these hotels. We also have an agreement with Vici Marketing, a multi dimensional marketing and distribution company that specializes in mass marketing appeal products, discounted travel packages and travel clubs and various aspects of direct response television, database mining, telemarketing and direct mail, where we will be able to provide Vici's travel inventory to our customers. We may also consider other means of purchasing travel services, such as purchasing through consolidators, purchasing wholesale inventory at special prices, or by using an auction model. We participate in Expedia.ca's affiliate program which provides visitors to our website with a direct link to Expedia.ca's online travel and booking system and allows us to earn transaction fees when the visitor purchases travel services or products on Expedia.ca's website. There is no cost to us for joining Expedia.ca's affiliate program. RESEARCH AND DEVELOPMENT To ensure and increase the efficiency and effectiveness of our website, we will continuously improve the technology and enhance the underlying infrastructure for our website. We will continuously develop the functionality, features and content of our website and seek new distribution opportunities for our product and services as technology evolves. 17 Drawing on our management's experience in technology development, we plan to create new tools to integrate suppliers' products and services into our website to market and distribute their products to our customers, including: - - S.O.A.P. (simple object access protocol) which involves designing the "back end" of our web platform to enable vendors and suppliers to access data we collect easily and securely eliminating the need for clients to re-type several of the same forms; - - the ability of customers to save their profile and search for discounts by activity or "lifestyle" (i.e. over 50, hunter, single); and - - the ability of customers to put in a "call-back" request through to vendors offering certain services allowing waiting time to be drastically reduced thus improving customer satisfaction. As we expand the scope of our destination offerings, we expect to develop new websites for the destination products and services we add. INDUSTRY BACKGROUND Growth of the Internet and Online Commerce - ------------------------------------------------ The Internet and commercial online services have emerged as significant global communications media enabling millions of people to share information and conduct business electronically. A number of factors have contributed to the growth of the Internet and commercial online services usage, including: - the large and growing number of advanced personal computers in the home and workplace; - improvements in network infrastructure, making access to the Internet and commercial online services, easier, faster and cheaper; - increased acceptance of the Internet and commercial online services by consumer and business users; and - consumers' growing confidence in credit card transactions conducted online. Jupiter Communications estimates that the number of persons in the United States who use the Internet or other online services will grow to approximately 157 million in 2003. In addition, Forrester Research estimates that the total value of online purchases by U.S. consumers will be approximately $184 billion by 2004. The Travel Industry - --------------------- Travel and tourism is the nation's largest services export industry, and the third largest retail sales industry, according to Travel Industry Association of America ("TIA"). According to TIA, travelers in the United States spent approximately $464.1 billion on travel in 2001. The travel market outside of the United States represented another $73.1 billion in 2001. 18 Travel agencies are compensated primarily through commissions paid by travel suppliers, such as airlines, hotels and car rental companies, on services booked. Some travel agencies also charge service fees to their customers. In a move to lower distribution costs, in September 1997 the major U.S. airlines reduced the commission rate payable to traditional travel agencies from approximately 10% to approximately 8%. These reductions were followed by similar reductions made by other airlines. In the fourth quarter of 1999, several major airlines further reduced their commission rates paid to traditional travel agencies from 8% to 5%. Paralleling these trends, in 1997, the major U.S. airlines have capped their fixed rate commission for online round-trip ticket sales at $10. Currently, travel suppliers pay no or a de-minimis, commissions to traditional travel agents for airline tickets. Commission rates from travel suppliers vary for hotel reservation, car rentals and cruise and vacation packages. Travel agents typically charge service fees to their customers. However, travel agencies can earn performance based incentive compensation (known as override commissions) from travel suppliers, which can substantially impact financial performance. These override commissions are determined by travel suppliers. Travel suppliers also pay booking fees to providers of global distribution systems to compensate them for their services. The global distribution systems may pay travel agents booking incentives based on negotiated terms. The Online Travel Market - --------------------------- The Internet is dramatically changing the way that consumers and businesses communicate, share information and buy and sell goods and services. This has had a dramatic effect on the travel market. According to Credit Suisse First Boston Corporation Equity Research ("CSFB"), despite the recent drop in the overall sale of travel services and products in the United States after the September 11, 2001 terrorist attacks, online travel sales grew by more that 40% in 2001. Nonetheless, online travel sales account for only 11% of the total U.S. travel market. It is estimated that online transactions will reach $16.6 billion in 2003, according to Jupiter Communications, and $56 billion by 2005, according to CSFB. COMPETITION The online travel services market is rapidly evolving and intensely competitive. We will compete with a variety of companies with respect to the products and services we plan to offer, technological innovation and customer service, including: - online travel agents such as Expedia, a subsidiary of USA Networks, Inc. and Travelocity, a subsidiary of Sabre Holdings Corporation; - consolidators and wholesalers of airline tickets and other travel products and services, including shopping clubs and online consolidators such as Cheaptickets.com, and Priceline.com; - individual airlines, hotels, rental car companies, cruise operators and other travel service providers, some of which will be suppliers to our website and many of whom offer travel products and services directly through their own website, or, increasingly, in combination with other suppliers; - alliances and joint sales agencies formed by travel suppliers, such as Orbitz, Hotwire and Hotel Distribution Systems, which may obtain favorable or exclusive access to certain inventory of those suppliers; and - local, regional, national and international traditional travel agencies. Various major airlines have recently launched or announced their intention to launch Internet websites in the United States, Europe and Asia to provide booking services for airline travel, hotel accommodations and other travel services offered by multiple vendors. Several hotels have announced plans for similar multi-vendor websites. Certain owners of these sites do (or appear to have the intention to) make certain discounted fares and prices available exclusively on their proprietary or multi-vendor websites. To that end, Orbitz has included "most favored distributor" and exclusivity provisions in its airline participation contracts. As the market for online travel services grows, we believe that the range of companies involved in the online travel services industry, including travel suppliers, traditional travel agencies, travel industry information providers, online portals and e-commerce providers, will increase their efforts to develop products and services that will compete with our products and services. 19 We believe that our online marketing and distribution of travel products and services is unique and can compete successfully against other online travel services. Our focus will be on one local region, southeast Florida. Customers looking for information on this region will prefer a website that deals entirely with that region. The customer will be able to book a flight and hotel in southeast Florida, learn about the history of the region and find a local restaurant, all on the same site. We will also target direct marketing companies, such as Vici Marketing, as partners. Direct marketing companies have very little exposure to the internet. We plan to offer certain travel deals and packages on our website that can only utilized if you belong to a travel club. Once our website generates interest in the product, the user will be instructed to call a phone number at Vici Marketing in order to join the travel club. We will receive a portion of the commission that Vici Marketing receives from the travel club. We will also perform mass e-mail address distributions utilizing lists provided by Vici Marketing in order to promote our travel offerings and web site. CUSTOMERS We do not expect any single customer to account for a significant portion of our revenues. Accordingly we will not be dependent upon any single customer to achieve our business goals. EMPLOYEES Our only employees at the present time are our two executive officers who are employed on a part-time basis. We plan to add employees as needed to maintain and expand our business. SEASONAL ASPECTS The travel industry is seasonal in nature. The planning and purchase of travel products and services decrease significantly each year in the fourth quarter, primarily in December, due to early bookings by customers for travel during the holiday season and a decline in business travel during the holiday season. INTELLECTUAL PROPERTY We do not expect to be dependent upon patents, trademarks, licenses, or proprietary technology or software with regard to the operation of our business. PRIVACY We will post our privacy policy and practices concerning the use and disclosure of user data. Our privacy policy will not allow the sale of our customers information to third parties. GOVERNMENT REGULATION AND APPROVAL The laws and regulations applicable to the travel industry affect us and our travel suppliers. We must comply with laws and regulations relating to the sale of travel services, including those prohibiting unfair and deceptive practices and those requiring us to register as a seller of travel products and services, and with disclosure requirements and participate in state restitution funds. In addition, many travel suppliers and computer reservation systems providers are heavily regulated by the United States and other governments and we will be indirectly affected by such regulation. We plan to initially offer to sell travel related services in Florida and, as required by Florida law, we are licensed as a Seller of Travel with the Florida Department of Agriculture and Consumer Services ("Florida DACS"). Florida law requires that we annually register with the Florida Department of Agriculture and Consumer Services as a seller of travel related services. As part of the application for the license as a Seller of Travel we were required to provide proof of insurance in the form of a certificate of deposit, surety bond or irrevocable bank letter of credit in the amount of $10,000. This amount could increase to a maximum limit of $25,000 as our gross annual sales increase. The amount required is determined every year. In addition, we must pay a yearly registration fee of $300 to the Florida DACS in order to renew our license. Under Florida law we are required to include the following phrase in all of our contracts: "BookFloridaHotels.com is registered with the State of Florida as a Seller of Travel, Registration No" In addition, all of our advertisements must contain the following phrase: "A Florida Seller of Travel Registration No" 20 The sale and distribution of online travel services are currently subject to regulations in Canada (Canadian Computer Reservations Systems Regulations) and the European Commission (EC CRS Code of Conduct). The U.S. Department of Transportation ("DOT") is currently considering whether to extend existing regulations to online travel services. The U.S. regulations currently apply to global distribution systems that are owned by, marketed by or affiliated with airlines and that are marketed to travel agencies. We expect the DOT to issue guidance on these regulations. If the U.S. regulations are extended to online travel services, and the current Canadian and EC regulations are modified, such regulations could affect how we obtain, market, display and distribute our airline inventory, and, depending on the particular regulations adopted, increase our costs of doing business, decrease our opportunity to obtain airline inventory from airline carriers, and reduce our sales and revenues. Data collection, protection, security and privacy issues are a growing concern in the U.S. and in many other countries around the world. Government regulation is evolving in these areas and could limit or restrict our ability to market our products and services to consumers, increase our costs of operation and lead to a decrease in demand for our products and services. Federal, state and local governmental organizations, as well as foreign governments and regulatory agencies, are also considering legislative and regulatory proposals that directly govern Internet commerce, and will likely consider additional proposals in the future. We do not know how courts will interpret laws governing Internet commerce or the extent to which they will apply existing laws regulating issues such as property ownership, sales and other taxes, libel and personal privacy to the Internet. The growth and development of the market for online commerce has prompted calls for more stringent consumer protection laws that may impose additional burdens on companies that conduct business online. Federal legislation imposing limits on the ability of states to tax Internet-based sales was enacted in 1998 and will exempt some sales transactions conducted over the internet from multiple or discriminatory state and local taxation through November 1, 2003. It is possible that this legislation will not be renewed when it terminates. Failure to renew this legislation could allow state and local governments to impose taxes on Internet-based sales, and these taxes could adversely affect our business, financial condition and results of operations. FACILITIES Our executive offices are currently located at 14001 63rd Way North, Clearwater, Florida 33760. We occupy approximately 500 square feet of space provided to us by Scott Roix, our CEO and president, on a rent-free basis. The facilities constitute a business office, in good condition and adequate for our business purposes. We expect to utilize these office facilities rent-free for the next six months to two years, depending on the growth of our sales and revenue. PLAN OF OPERATION Since we are a new business and have not generated revenues to date, our independent auditors have included an explanatory paragraph in their auditors' report about our ability to continue as a going concern in connection with our audited financial statements for the period beginning from our incorporation on September 12, 2002 and ending on December 31, 2002. Our deficit is $56,455 as 21 at the end of that period. The discussion below provides an overview of our operations and discusses our plan of operation. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this prospectus. The following discussion contains forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this prospectus, particularly in the section entitled "Risk Factors" beginning on page 3 of this prospectus. GENERAL From the date of our incorporation on September 12, 2002, we have been a start-up company with no revenues. Our operation activities during this period consist primarily of developing our business plan, marketing our proposed business to and establishing our presence with our Internet website. Our website became operational in August 2003 and we anticipate to generate revenue in the next few months. OUR PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS In our management's opinion, to effectuate our business plan in the next twelve months, the following events need to occur or we should strive to reach the following milestones in order for us to become profitable: - - We must continue to implement our sales and marketing initiatives within the next three to twelve months. We anticipate the cost of this implementation to be approximately $12,000. - - We must continue to establish relationships with additional travel suppliers within the next three to twelve months. - - We must expand our products and services within the next six to twelve months. During the next six to nine months, we will concentrate our efforts on providing hotel rooms that are located in or relate to Southeast Florida and offer discounted or charter air fares with national airlines and regional airlines who service Southeast Florida, local airlines in the Southeast Florida region and/or charter carriers. Within the next six to twelve months, we must offer discounted car rentals with national and local automobile rental companies with operations in Southeast Florida. Within the next six to twelve months, we must offer discounted cruises with local and national cruise lines and cruise package wholesalers. We believe that despite our lack of operating history, national and local companies will be attracted to our business model. For these companies, we will be an additional outlet to reach their customers with no additional marketing costs. - - We must continue to develop our technology. In the next six to nine months, we will gauge what technological developments are needed and decide who will develop them. 22 - - We have cash in the amount of $22,457 as of June 30, 2003. In the opinion of our management, available funds will probably not satisfy our working capital requirements for the next 12 months. We anticipate that we will need to raise additional capital to continue our operations. Such additional capital may be raised through public or private financing as well as borrowing and other sources. We cannot guarantee that additional funding will be available on favorable terms, if at all. If adequate funds are not available, then our ability to expand our operations may be adversely affected. (See "Risk Factors - We may be unable to meet our future capital requirements, upon which we are likely to be highly dependent. We may run out of cash to operate and grow our revenues"). PURCHASE OR SALE OF EQUIPMENT We do not anticipate that we will expend any significant amount on equipment for our present or future operations. We may purchase computer hardware and software for our ongoing operations as well as a minimal amount of office furniture and office equipment from our cash reserves. RESEARCH AND DEVELOPMENT We are not currently conducting any research and development activities, other than the development of our website. (See "Description of Business - Research and Development"). We will not know what technological developments will be required until after we have become operational for at least three to six months and have adequate time to assess the functionality of our website. PERSONNEL We currently employ two people, our president and CEO, Scott Roix and our secretary, Cathy Davenport, and expect employee levels to increase as we expand our operations (See "Description of Business - Employees"). DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS DIRECTORS AND OFFICERS The following table sets forth certain information with respect to our directors and executive officers as of September 2, 2003. Directors serve until the next annual meeting of the stockholders; until their successors are elected or appointed and qualified, or until their prior resignation or removal. Officers serve for such terms as determined by our board of directors. Each officer holds office until such officer's successor is elected or appointed and qualified or until such officer's earlier resignation or removal. 23 Name Age Position Date of Election or Appointment - --------------- --- ------------------------------- ------------------ Scott Roix 36 President, Chief Executive September 12, 2002 Officer and Director Matthew Sebal 32 Director September 12, 2002 Cathy Davenport 51 Secretary September 12, 2002 SCOTT ROIX has served as our President, Chief Executive Officer and a director since September 2002. Since September 2001 he has been the Chief Executive Officer of Vici Marketing, a multi dimensional marketing and distribution company he founded that specializes in mass marketing appeal products, discounted travel packages and travel clubs and various aspects of direct response television, database mining, telemarketing and direct mail. Direct response television involves selling products with an extended commercial spot. Mr. Roix and his wife own 90% and 10%, respectively, of the outstanding capital stock of Vici Marketing. From January 2000 to September 2001, Mr. Roix was Chief Executive Officer of The Affinity Group, a company he founded that created and developed continuity programs sold through several direct response mediums. Affinity's sales exceeded 35 million in 2000 and employed over 300 people. From July 1997 to August 1999, he was Chief Executive Officer and President of SGR Marketing, Inc., a database marketing company he founded that also specialized in international travel packages. From 1997 to January 2000, he was Executive Vice President and Chief Operating Officer of Florida Travel Network ("FTN"), a company engaged in the business of discount travel certificates and from 1995 to 1997 he was Chief Executive Officer and President of a subsidiary of FTN, FTN Promotions, Inc., an inbound call marketing center. Mr. Roix received his B.S. degree in Economics/Political Science from Florida State University in 1989. Mr. Roix is employed by us on a part-time basis and devote twenty hours per week to our company. MATTHEW SEBAL has served as a Director since September 2002. Since June 2000, Mr. Sebal has been an officer and director of Return Assured Incorporated, a company previously engaged in providing a variety of Internet related services as well as providing private and corporate aviation services. There is no affiliation between Return Assured Incorporated and our company. He has also been a director of Mindfuleye Systems, Inc., a U.S. public company, that is in the business of sentiment analysis, since 2001. From 1999 to 2000, Mr. Sebal was a principal in IBM's e-business Services Group for British Columbia, Canada. From 1997 to 1998, he was Director of Business Development for Communicate.com, a company engaged in the business of e-commerce consulting and web site design, and from 1995 to 1997, he was Senior Strategist for Emerge Online, Inc., a company also engaged in the business of e-commerce consulting and web site design. Mr. Sebal was also President of Sebal Enterprises, an import-export business from 1990 to 1995. He holds a baccalaureate degree in Political Science from the University of Western Ontario.Mr. Sebal devotes about twenty hours per week to our company. CATHY DAVENPORT has served as our Secretary since September 2002 and has over 25 years of management/administrative and fundraising experience. Since September 2001 she has been Executive Assistant to the Chief Executive Officer 24 of Vici Marketing, a multi dimensional marketing and distribution company that specializes in mass marketing appeal products, discounted travel packages and travel clubs and various aspects of direct response television, database mining, telemarketing and direct mail. From January 2000 to September 2001, Ms. Davenport was Executive Assistant to the Chief Executive Officer of The Affinity Group, a company that created and developed continuity programs sold through several direct response mediums. From March 1999 to January 2000 she was Executive Assistant to the Chief Operating Officer of Florida Travel Network ("FTN"), a company engaged in the business of discount travel certificates and from 1995 to March 1999 she was the office manger and business development manager for various dental establishments. Ms. Davenport is employed by us on a part-time basis and devotes about fifteen hours per week to our company. EXECUTIVE COMPENSATION COMPENSATION OF OFFICERS We have not paid our officers any compensation since our inception in September 2002 and have not entered into any employment agreement with our officers. STOCK OPTION GRANTS We have not made any individual grants of stock options since we adopted our stock option plan in October 2002. 2002 STOCK OPTION PLAN We adopted our 2002 Stock Option Plan on October 12, 2002. The plan provides for the grant of options intended to qualify as "incentive stock options", options that are not intended to so qualify or "nonstatutory stock options" and stock appreciation rights. The total number of shares of common stock reserved for issuance under the plan is 500,000, subject to adjustment in the event of a stock split, stock dividend, recapitalization or similar capital change, plus an indeterminate number of shares of common stock issuable upon the exercise of "reload options" described below. We have not yet granted any options or stock appreciation rights under the plan. The plan is presently administered by our board of directors, which selects the eligible persons to whom options shall be granted, determines the number of common shares subject to each option, the exercise price therefore and the periods during which options are exercisable, interprets the provisions of the plan and, subject to certain limitations, may amend the plan. Each option granted under the plan shall be evidenced by a written agreement between us and the optionee. Options may be granted to our employees (including officers) and directors and certain of our consultants and advisors. The exercise price for incentive stock options granted under the plan may not be less than the fair market value of the common stock on the date the option is granted, except for options granted to 10% stockholders which must 25 have an exercise price of not less than 110% of the fair market value of the common stock on the date the option is granted. The exercise price for nonstatutory stock options is determined by our board of directors. Incentive stock options granted under the plan have a maximum term of ten years, except for 10% stockholders who are subject to a maximum term of five years. The term of nonstatutory stock options is determined by our board of directors. Options granted under the plan are not transferable, except by will and the laws of descent and distribution. The board of directors may grant options with a reload feature. Optionees granted a reload feature shall receive, contemporaneously with the payment of the option price in common stock, a right to purchase that number of common shares equal to the sum of (i) the number of shares of common stock used to exercise the option, and (ii) with respect to nonstatutory stock options, the number of shares of common stock used to satisfy any tax withholding requirement incident to the exercise of such nonstatutory stock option. Also, the plan allows the board of directors to award to an optionee for each share of common stock covered by an option, a related alternate stock appreciation right, permitting the optionee to be paid the appreciation on the option in lieu of exercising the option. The amount of payment to which an optionee shall be entitled upon the exercise of each stock appreciation right shall be the amount, if any, by which the fair market value of a share of common stock on the exercise date exceeds the exercise price per share of the option. COMPENSATION OF DIRECTORS We have not paid and do not presently plan to pay compensation to any of our directors for serving as such. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information regarding the beneficial ownership of our common stock as of September 2, 2003. The information in this table provides the ownership information for: - each person known by us to be the beneficial owner of more than 5% of our common stock; - each of our directors; - each of our executive officers; and - our executive officers and directors as a group. Beneficial ownership has been determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to the shares. Unless otherwise indicated, the persons named in the table below have sole voting and investment power with respect to the number of shares indicated as beneficially owned by them. Common stock beneficially owned and percentage ownership are based on 3,253,750 shares outstanding. There are currently no outstanding options or warrants to purchase any common stock. 26
Name and Address Amount of Common Stock Percent of of Beneficial Owner Position Held Beneficially Owned Class - ----------------------- --------------------------------- -------------------------- ------------ Scott Roix BHC, Inc. 14001 63rd Way North Clearwater, Florida 33760 President, CEO and Director 2,000,000 61.47% Matthew Sebal (1) 51st State Systems Inc. 938 Howe Street, Suite 402 Vancouver BC V6Z 1N9 Canada Director 0 0% Cathy Davenport BHC, Inc. 14001 63rd Way North Clearwater, Florida 33760 Secretary 1,000 .04% All Executive Officers and Directors as a Group (three persons) 2,001,000 61.50% - ----------------------- (1) Matthew Sebal owns 50% of the outstanding capital stock of 51st State Systems, Inc. and 51st State Systems owns 30,000 shares of our common stock. See "Certain Relationships and Related Transactions" below.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Scott Roix, our Chief Executive Officer, President and a Director, is the Chief Executive Officer of Vici Marketing, a multi dimensional marketing and distribution company he founded that specializes in mass marketing appeal products and discounted travel packages and travel clubs and various aspects of direct response television, database mining, telemarketing and direct mail. Mr. Roix and his wife own 90% and 10%, respectively, of the outstanding capital stock of Vici Marketing. We have an agreement with Vici Marketing pursuant to which we will be able to provide Vici's travel inventory to our customers. See risk factors relating to travel suppliers under "Risk Factors - Risks Affecting Our Business" above. On September 12, 2002 we issued 2,000,000 shares of our common stock to Scott Roix, our Chief Executive Officer, President and a Director, in exchange for $2,000 worth of services rendered by Scott Roix to us in connection with our corporate organization. On October 12, 2002 we issued 30,000 shares of our common stock to 51st State Systems, Inc., 50% of which is owned by Matthew Sebal, one of our directors, in exchange for $30,000 worth of services provided to us by 51st State Systems, Inc. in connection with our corporate organization. The interests 27 of 51st State Systems, Inc. and our company may conflict. If a conflict of interest develops, Mr. Sebal may have divergent interests from that of our company. At this time, we have taken no steps to alleviate this potential conflict of interest. See "Conflicts of Interest with 51st State Systems could impede our business strategy and reduce our sales and revenue" under "Risk Factors - Risks Concerning Our Business" above. See "Conflicts of Interest with 51st State Systems could impede our business strategy and hurt our business" under "Risk Factors - Risks Concerning Our Business" above. We believe that the terms of the above transactions are commercially reasonable and no less favorable to us than we could have obtained from an unaffiliated third party on an arm's length basis. To the extent we may enter into any agreements with related parties in the future, the board of directors has determined that such agreements be on similar terms. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION There is no public trading market on which our common stock is traded. We have engaged a broker/dealer to file a Form 211 with the National Association of Securities Dealers in order to allow the quotation of our common stock on the Over-the-Counter Bulletin Board ("OTCBB"). Our broker/dealer is V Finance Investments located at 349 Wall Street, Princeton, New Jersey. At this time, V Finance will perform no other services for us. There is no assurance that our common stock will be included on the OTCBB. There are no outstanding options or warrants to purchase, or securities convertible into, our common stock. There are no outstanding shares of our common stock that can be sold pursuant to Rule 144. We can offer no assurance that an active public market in our shares will develop. Future sales of substantial amounts of our shares in the public market could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through the sale of our equity securities. HOLDERS As of September 2, 2003 there were 41 record holders of our common stock. DIVIDENDS We have never declared or paid any cash dividends on our common stock. We anticipate that any earnings will be retained for development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. Our board of directors has sole discretion to pay cash dividends based on our financial condition, results of operations, capital requirements, contractual obligations and other relevant factors. DESCRIPTION OF SECURITIES Our authorized capital stock currently consists of 100,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.0001 per share, the rights and preferences of which may be established from time to time by our board of directors. 28 The description of our securities contained herein is a summary only and may be exclusive of certain information that may be important to you. For more complete information, you should read our Certificate of Incorporation, together with our corporate bylaws. COMMON STOCK Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of our common stock entitled to vote in any election of directors may elect all of the directors standing for election. Subject to preferences that may be applicable to any shares of preferred stock outstanding at the time, holders of our common stock are entitled to receive dividends ratably, if any, as may be declared from time to time by our board of directors out of funds legally available therefor. Upon our liquidation, dissolution or winding up, the holders of our common stock are entitled to receive ratably, our net assets available after the payment of: - all secured liabilities, including any then outstanding secured debt securities which we may have issued as of such time; - all unsecured liabilities, including any then unsecured outstanding secured debt securities which we may have issued as of such time; and - all liquidation preferences on any then outstanding preferred stock. Holders of our common stock have no preemptive, subscription, redemption or conversion rights, and there are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which we may designate and issue in the future. PREFERRED STOCK Our board of directors is authorized, without further stockholder approval, to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions of these shares, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, and to fix the number of shares constituting any series and the designations of these series. These shares may have rights senior to our common stock. The issuance of preferred stock may have the effect of delaying or preventing a change in control of us. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of our common stock. At present, we have no plans to issue any shares of our preferred stock. 29 DELAWARE ANTI-TAKEOVER LAW If we close an initial public offering of our securities, and become listed on a national stock exchange or have a class of voting stock held by more than 2,000 record holders, we will be governed by the provisions of Section 203 of the General Corporation Law of Delaware. In general, such law prohibits a Delaware public corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless it is approved in a prescribed manner. As a result of Section 203 of the General Corporation Law of Delaware, potential acquirers may be discouraged from attempting to effect acquisition transactions with us, thereby possibly depriving holders of our securities of certain opportunities to sell or otherwise dispose of such securities at above-market prices pursuant to such transactions. LIMITATION ON LIABILITY OF DIRECTORS; INDEMNIFICATION OF DIRECTORS AND OFFICERS Our certificate of incorporation and by-laws allow us to eliminate the personal liability of our directors and to indemnify directors and officers to the fullest extent permitted by the Delaware General Corporation Law, or DGCL. Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, except (1) for any breach of the director's duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) pursuant to Section 174 of the DGCL, which provides for liability of directors for unlawful payments of dividends or unlawful stock purchases or redemptions, or (4) for any transaction from which a director derived an improper personal benefit. Under Section 145 of the DGCL, a corporation may indemnify its directors, officers, employees and agents and its former directors, officers, employees and agents and those who serve, at the corporation's request, in such capacity with another enterprise, against expenses (including attorney's fees), as well as judgments, fines and settlements in nonderivative lawsuits, actually and reasonably incurred in connection with the defense of any action, suit or proceeding in which they or any of them were or are made parties or are threatened to be made parties by reason of their serving or having served in such capacity. The DGCL provides, however, that such person must have acted in good faith and in a manner such person reasonably believed to be in (or not opposed to) the best interests of the corporation and, in the right of the corporation, where such person has been adjudged liable to the corporation, unless, and only to the extent that a court determines that such person fairly and reasonably is entitled to indemnity for costs the court deems proper in light of liability adjudication. Indemnity is mandatory to the extent a claim, issue or matter has been successfully defended. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public 30 policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of ours 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, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. TRANSFER AGENT AND REGISTRAR Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New York 10004 is our transfer agent and the registrar for our common stock. Its telephone number is (212) 509-4000. SELLING STOCKHOLDERS All of the shares of our common stock offered under this prospectus may be sold by the selling stockholders. We will not receive any of the proceeds from such sales of shares offered under this prospectus. All costs, expenses and fees in connection with the registration of the selling stockholders' shares will be borne by us. All brokerage commissions, if any, attributable to the sale of shares by selling stockholders will be borne by such holders. Except as noted below, there is no affiliation between the selling stockholders and the officers, directors and principal shareholders of the Company. The selling stockholders are offering a total of 1,253,750 shares of our common stock. The following table sets forth: - the name of each person who is a selling stockholder; - the number of securities owned by each such person at the time of this offering; and - the number of shares of common stock such person will own after the completion of this offering. The column "Shares Owned After the Offering" gives effect to the sale of all the shares of common stock being offered by this prospectus.
SHARES OWNED PRIOR TO SHARES OWNED AFTER THE OFFERING THE OFFERING --------------------- ------------------- SELLING STOCKHOLDER NUMBER OF SHARES OFFERED NUMBER PERCENT* NUMBER PERCENT - ------------------------------------- ------------------------ ---------- --------- -------- --------- Bamby Investments S.A. (1). . . . . . 90,000 90,000 2.77% 0 0% Thomas Christen . . . . . . . . . . . 90,000 90,000 2.77% 0 0% Crystal Overseas Trading Inc. (2) . . 90,000 90,000 2.77% 0 0%
31
SHARES OWNED PRIOR TO SHARES OWNED AFTER THE OFFERING THE OFFERING --------------------- ------------------- SELLING STOCKHOLDER NUMBER OF SHARES OFFERED NUMBER PERCENT* NUMBER PERCENT - ------------------------------------- ------------------------ ---------- --------- -------- --------- Roger Curchod . . . . . . . . . . . . 10,000 10,000 ** 0 0% Kurt Handschin. . . . . . . . . . . . 10,000 10,000 ** 0 0% Winfried Kaussen. . . . . . . . . . . 50,000 50,000 1.54% 0 0% Jackson Steinem, Inc. (3) . . . . . . 50,000 50,000 1.54% 0 0% Ming Capital Enterprises Inc. (4) . . 90,000 90,000 2.77% 0 0% Partner Marketing AG (5). . . . . . . 90,000 90,000 2.77% 0 0% Private Investment Company Ltd. (6) . 90,000 90,000 2.77% 0 0% Christian Russenberger. . . . . . . . 10,000 10,000 ** 0 0% Hans Schopper . . . . . . . . . . . . 90,000 90,000 2.77% 0 0% Seloz Gestion & Finance SA (7). . . . 90,000 90,000 2.77% 0 0% Syrah Investment Corporation (8). . . 90,000 90,000 2.77% 0 0% Terraco Holding SA (9). . . . . . . . 90,000 90,000 2.77% 0 0% Turf Holding Inc. (10). . . . . . . . 90,000 90,000 2.77% 0 0% 51st State Systems, Inc. (11) . . . . 30,000 30,000 ** 0 0% Paul B. Gottbetter. . . . . . . . . . 10,000 10,000 ** 0 0% Joanne Fichera. . . . . . . . . . . . 20,000 20,000 ** 0 0% Robert Fichera. . . . . . . . . . . . 20,000 20,000 ** 0 0% Scott Rapfogel. . . . . . . . . . . . 10,000 10,000 ** 0 0% Adam S. Gottbetter. . . . . . . . . . 10,000 10,000 ** 0 0% Soydan Nihat(12). . . . . . . . . . . 1,000 1,000 ** 0 0% Joseph Porrellor(13). . . . . . . . . 1,000 1,000 ** 0 0% Neil Williams(14) . . . . . . . . . . 1,000 1,000 ** 0 0% Lawrence H. Levner. . . . . . . . . . 2,000 2,000 ** 0 0% Data Marketing Inc. (15). . . . . . . 1,000 1,000 ** 0 0% Juan Perez, Jr. . . . . . . . . . . . 1,000 1,000 ** 0 0% Vincent N. Del Corso(16). . . . . . . 1,000 1,000 ** 0 0% Cathy L. Davenport. . . . . . . . . . 1,000 1,000 ** 0 0% Robert Poitras(17). . . . . . . . . . 1,000 1,000 ** 0 0% Matt L. Florell(18) . . . . . . . . . 1,000 1,000 ** 0 0%
32
SHARES OWNED PRIOR TO SHARES OWNED AFTER THE OFFERING THE OFFERING --------------------- ------------------- SELLING STOCKHOLDER NUMBER OF SHARES OFFERED NUMBER PERCENT* NUMBER PERCENT - ------------------------------------- ------------------------ ---------- --------- -------- --------- Barton C. Lime. . . . . . . . . . . . 1,000 1,000 ** 0 0% Theresa Russo . . . . . . . . . . . . 5,000 5,000 ** 0 0% Peter L. Coker, Jr. . . . . . . . . . 10,000 10,000 ** 0 0% Fran Sebal(19). . . . . . . . . . . . 250 250 ** 0 0% Dana Sebal(20). . . . . . . . . . . . 250 250 ** 0 0% Mal Sebal(21) . . . . . . . . . . . . 250 250 ** 0 0% Christopher Brown . . . . . . . . . . 1,000 1,000 ** 0 0% Samson Consulting Corp. (22). . . . . 5,000 5,000 ** 0 0% Total . . . . . . . . . . . . . . . . 1,253,750 1,253,750 38.54% 0 0%
- ---------------------- * The percentages computed in this column of the table are based upon 3,253,750 shares of common stock outstanding on September 2, 2003. ** Indicates less than one percent of the total outstanding common stock. - ---------------------- (1) The beneficial owner of Bamby Investments S.A. is Camille Escher. Bamby Investments S.A. is a private investment company. (2) The beneficial owner of Crystal Overseas Trading Inc. is Daniele Cimmino. Crystal Overseas Trading Inc. is a private investment company. (3) The beneficial owner of Jackson Steinem, Inc. is Adam S. Gottbetter (Adam S. Gottbetter is a partner of Gottbetter & Partners, LLP, our legal counsel). (4) The beneficial owner of Ming Capital Enterprises Inc. is U.K. Menon. (5) The beneficial owner of Partner Marketing AG is Karl Vogler. (6) The beneficial owner of Private Investment Company Ltd. is Martin Christen. (7) The beneficial owner of Seloz Gestion & Finance SA is Rene Belser. (8) The beneficial owner of Syrah Investment Corporation is Engelbert Schreiber jun. (9) The beneficial owner of Terraco Holding SA is Dagmar Papenberg. (10) The beneficial owner of Turf Holding Inc. is Vijendran Poniah. (11) The beneficial owners of 51st State Systems, Inc. are Matthew Sebal, one of our directors, and Todd Cusolle. (12) Mr. Nihat is a business associate of Mr. Roix. (13) Mr. Porrellor is a business associate of Mr. Roix. (14) Mr. Williams is a business associate of Mr. Roix. (15) The beneficial owner of Data Marketing Inc. is George Lutich. Mr. Lutich is a business associate of Mr. Roix. (16) Mr. Del Corso is a business associate of Mr. Roix. (17) Mr. Poitras is a relative of Mr. Roix's mother. (18) Mr. Florell is a business associate of Mr. Roix. (19) Ms. Sebal is the sister of Matt Sebal. (20) Ms. Sebal is the mother of Matt Sebal. (21) Mr. Sebal is Matt Sebal's father. (22) The beneficial owner of Samson Consulting Corp. is Avi Mirman. 33 PLAN OF DISTRIBUTION The selling stockholders may, from time to time, sell any or all of their shares of common stock covered by this prospectus on any stock exchange, market or trading facility on which the shares are then traded or in private transactions at a fixed price of $.10 per share until our shares are quoted on the OTCBB and thereafter at prevailing market prices or privately negotiated prices. We will pay the expense incurred toregister the shares being offered by the selling stockholders for sale, but the selling stockholders will pay any underwriting discounts and brokerage commissions associated with these sales. The commission or discount which may be received by any member of the National Association of Securities Dealers, Inc. in connection with these sales will not be greater than 8%. The selling stockholders may use any one or more of the following methods when selling shares: a. ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; b. block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; c. purchases by a broker-dealer as principal and resale by the broker-dealer for its account; d. privately negotiated transactions; and e. a combination of any such methods of sale. In addition, any shares that qualify for sale under Rule 144 may be sold under Rule 144 rather that through this prospectus. In general, under Rule 144 as currently in effect, a person who has beneficially owned shares of a company's common stock for at least one year is entitled to sell within any three month period a number of shares that does not exceed the greater of: 1. 1% of the number of shares of the company's common stock then outstanding; or 2. the average weekly trading volume of the company's common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about the company. Under Rule 144(k), a person who is not one of the company's affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. The selling shareholders will sell our shares at $0.10 per share until our shares are quoted on the OTCBB, and thereafter at prevailing market prices or privately negotiated prices. 34 In offering the shares covered by this prospectus, the selling stockholders and any broker-dealers who execute sales for the selling stockholders may be deemed to be an "underwriter" within the meaning of the Securities Act in connection with such sales. Any profits realized by the selling stockholders and the compensation of any broker-dealer may be deemed to be underwriting discounts and commissions. None of the selling stockholders are broker-dealers or affiliates of broker dealers. There are no standby arrangements or agreements with any broker-dealers or underwriting firms to resell on behalf of the selling stockholders. Selling stockholders may sell their shares in all 50 states in the U.S. Further, we will be profiled in the Standard & Poor's publications or "manuals". The Standard & Poor's manuals are widely subscribed to by broker/dealers, market makers, institutional investors, university libraries and public libraries. A company that is profiled in the Standard & Poor's manuals obtains a "manual" exemption from state securities regulations for secondary trading purposes in the thirty-five states where there is a provision for manual exemption. We have advised the selling stockholders that while they are engaged in a distribution of the shares included in this prospectus they are required to comply with Regulation M promulgated under the Securities Exchange Act of 1934, as amended. With certain exceptions, Regulation M precludes the selling stockholders, any affiliated purchasers, and any broker-dealer or other person who participates in the distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the shares offered in this prospectus. This offering will terminate on the earlier of (i) the date that all shares offered by this prospectus have been sold by the selling stockholders, (ii) two years from the effective date of the registration statement of which this prospectus is a part or (iii) the date all of the selling stockholders may sell all of the shares described herein without restriction pursuant to Rule 144 of the Securities Act. THE SELLING STOCKHOLDERS' GRANT OF REGISTRATION RIGHTS We granted to the selling stockholders registration rights to enable them to sell the 1,253,750 shares of common stock. We agreed to register such shares until the earlier of (i) the date that all shares offered by this prospectus have been sold by the selling stockholders, (ii) two years from the effective date of the registration statement of which this prospectus is a part or (iii) the date the selling stockholders may sell all of the shares described herein without restriction pursuant to Rule 144 of the Securities Act. In connection with such registration, we will have no obligation to (i) assist or cooperate with the selling stockholders in the offering or disposition of such shares; (ii) indemnify or hold harmless the holders of any such shares, other than the selling stockholders or any underwriter designated by such holders; (iii) obtain a commitment from an underwriter relative to the sale of any such shares; or (iv) include such shares within any underwritten offering we may engage in. 35 We will assume no obligation or responsibility whatsoever to determine a method of disposition for such shares or to otherwise include such shares within the confines of any registered offering other than the registration statement of which this prospectus is a part. We will file, during any period during which we are required to do so under our registration rights agreement with the selling stockholders one or more post-effective amendments to the registration statement of which this prospectus is a part to describe any material information with respect to the plan of distribution not previously disclosed in this prospectus or any material change to such information in this prospectus. This obligation may include, to the extent required under the Securities Act, that a supplemental prospectus be filed, disclosing: the name of any broker-dealers; the number of common shares involved; the price at which the common shares are to be sold; the commissions paid or discounts or concessions allowed to broker-dealers, where applicable; that broker-dealers did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, as supplemented; and any other facts material to the transaction. LEGAL PROCEEDINGS No legal proceedings are pending to which we or any of our property are subject, nor to our knowledge are any such legal proceedings threatened. EXPERTS Singer Lewak Greenbaum & Goldstein LLP, independent accountants, audited our financial statements as of December 31, 2002, and for the period from September 12, 2002 (inception) to December 31, 2002, as set forth in their report which includes an explanatory paragraph relating to our ability to continue as a going concern. In including those financial statements in this prospectus, we have relied on the authority of Singer Lewak Greenbaum & Goldstein LLP, as experts in accounting and auditing. LEGAL MATTERS Our counsel, Gottbetter & Partners, LLP, New York, New York, will pass on the validity of the issuance of the shares to be sold by the selling stockholders. The partners of Gottbetter & Partners, LLP, own 50,000 shares of our common stock, all of which are included for sale in this prospectus. WHERE YOU CAN FIND ADDITIONAL INFORMATION We have not previously been required to comply with the reporting requirements of the Securities Exchange Act. However, once this registration statement becomes effective we will be required to file quarterly and annual reports and other information with the Securities and Exchange Commission. We have filed with the SEC a registration statement on Form SB-2 to register the securities offered by this prospectus. The prospectus is part of the registration statement, and, as permitted by the SEC's rules, does not 36 contain all of the information in the registration statement. For future information about us and the securities offered under this prospectus, you may refer to the registration statement and to the exhibits and schedules filed as a part of the registration statement. You can review the registration statement and its exhibits at the public reference facility maintained by the SEC at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The registration statement is also available electronically on the World Wide Web at http://www.sec.gov. 37 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS BHC, INC. AND SUBSIDIARY (DEVELOPMENT STAGE COMPANIES) DECEMBER 31, 2002
Page ---- Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . F-1 Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . F-2 Consolidated Statement of Operations . . . . . . . . . . . . . . . . . . . F-3 Consolidated Statement of Shareholders' Equity . . . . . . . . . . . . . . F-4 Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . F-5 Notes to Consolidated Financial Statements . . . . . . . . . . . . . F-6 - F-12
40 INDEPENDENT AUDITOR'S REPORT Board of Directors and Shareholders BHC, Inc. and subsidiary We have audited the accompanying consolidated balance sheet of BHC, Inc. and subsidiary development stage companies) as of December 31, 2002, and the related statements of operations, shareholders' equity, and cash flows for the period from September 12, 2002 (inception) to December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BHC, Inc. and subsidiary as of December 31, 2002, and the results of its operations and its cash flows for the period from September 12, 2002 (inception) to December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, during the period from September 12, 2002 (inception) to December 31, 2002, the Company incurred a net loss of $56,455, and it had negative cash flows from operations of $48,969. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP Los Angeles, California February 6, 2003 F-1 BHC, INC. AND SUBSIDIARY (DEVELOPMENT STAGE COMPANIES) CONSOLIDATED BALANCE SHEET DECEMBER 31, 2002 AND JUNE 30, 2003 (UNAUDITED)
ASSETS June 30, December 31, 2003 2002 ----------- -------------- (unaudited) ASSETS Cash . . . . . . . . . . . . . . . . . . . . . . . . $ 12,457 $ 59,031 Restricted cash. . . . . . . . . . . . . . . . . . . 10,000 - ----------- -------------- TOTAL ASSETS . . . . . . . . . . . . . . . . $ 22,457 $ 59,031 =========== ============== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable . . . . . . . . . . . . . . . . . . $ 2,456 $ 7,486 ----------- -------------- Total current liabilities. . . . . . . . . . . . . 2,456 7,486 ----------- -------------- SHAREHOLDERS' EQUITY Preferred stock, $0.0001 par value 5,000,000 shares authorized 0 (unaudited) and 0 shares issued and outstanding. - - Common stock, $0.001 par value 100,000,000 shares authorized 3,253,750 (unaudited) and 3,100,000 shares Issued and outstanding . . . . . . . . . . . . . 3,254 3,100 Additional paid-in capital . . . . . . . . . . . . . 120,111 104,900 Deficit accumulated during the development stage . . (103,364) (56,455) ----------- -------------- Total shareholders' equity . . . . . . . . . . 20,001 51,545 ----------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . $ 22,457 $ 59,031 =========== ==============
The accompanying notes are an integral part of these financial statements. F-2 BHC, INC. AND SUBSIDIARY (DEVELOPMENT STAGE COMPANIES) CONSOLIDATED STATEMENT OF OPERATIONS FOR THE PERIOD FROM SEPTEMBER 12, 2002 (INCEPTION) TO DECEMBER 31, 2002, FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED), AND FOR THE PERIOD FROM SEPTEMBER 12, 2002 (INCEPTION) TO JUNE 30, 2003 (UNAUDITED)
For the For the Period from Period From For the For the September 12, September, 12, Three Months Six Months 2002 2002 Ended Ended (Inception) to (Inception) to June 30, June 30, December 31, June 30, 2003 2003 2002 2003 ---------------- ---------------- --------------- --------------- (unaudited) (unaudited) (unaudited) GENERAL AND ADMINISTRATIVE EXPENSES . $ 29,724 $ 46,909 $ 55,655 $ 102,564 ---------------- ---------------- --------------- --------------- LOSS FROM OPERATIONS BEFORE PROVISION (29,724) (46,909) (55,655) (102,564) FOR INCOME TAXES PROVISION FOR INCOME TAXES. . . . . . - - 800 800 ---------------- ---------------- --------------- --------------- NET LOSS. . . . . . . . . . . . . . . $ (29,724) $ (46,909) $ (56,455) $ (103,364) ================ ================ =============== =============== BASIC AND DILUTED LOSS PER SHARE. . . $ (0.01) $ (0.01) $ (0.02) $ (0.03) ================ ================ =============== =============== WEIGHTED-AVERAGE SHARES OUTSTANDING . 3,252,806 3,227,958 2,521,818 2,960,593 ================ ================ =============== ===============
The accompanying notes are an integral part of these financial statements. F-3 BHC, INC. AND SUBSIDIARY (DEVELOPMENT STAGE COMPANIES) CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE PERIOD FROM SEPTEMBER 12, 2002 (INCEPTION) TO DECEMBER 31, 2002 AND FOR THE SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED)
Deficit Accumulated Common Stock Additional during the --------------------------- Paid-In Development Shares Amount Capital Stage Total ------------- ------------ ------------ --------- --------- BALANCE, SEPTEMBER 12, 2002 (INCEPTION). . . . - $ - $ - $ - $ - ISSUANCE OF COMMON STOCK FOR SERVICES RENDERED . . . . . 2,080,000 2,080 3,920 6,000 ISSUANCE OF COMMON STOCK IN PRIVATE PLACEMENT. . . . . 1,020,000 1,020 100,980 102,000 NET LOSS . . . . . . (56,455) (56,455) ------------- ------------ ------------ --------- --------- BALANCE, DECEMBER 31, 2002 3,100,000 3,100 104,900 (56,455) 51,545 ISSUANCE OF COMMON STOCK IN PRIVATE PLACEMENT (unaudited). . . . 153,750 154 15,211 15,365 NET LOSS (unaudited) (46,909) (46,909) ------------- ------------ ------------ --------- --------- BALANCE, JUNE 30, 2003 (UNAUDITED) . 3,253,750 $ 3,254 $ 120,111 $(103,364) $ 20,001 ============= ============ ============ ========= =========
The accompanying notes are an integral part of these financial statements. F-4 BHC, INC. AND SUBSIDIARY (DEVELOPMENT STAGE COMPANIES) CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD FROM SEPTEMBER 12, 2002 (INCEPTION) TO DECEMBER 31, 2002, FOR THE SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED), AND FOR THE PERIOD FROM SEPTEMBER 12, 2002 (INCEPTION) TO JUNE 30, 2003 (UNAUDITED)
For the For the Period from Period from For the September 12, September 12, Six Months 2002 2002 Ended (Inception) to (Inception) to June 30, December 31, June 30, 2003 2002 2003 ---------------- ---------------- --------------- (unaudited) (unaudited) Cash flow from operating activities Net loss . . . . . . . . . . . . . . . . . $ (46,909) $ (56,455) $ (103,364) Increase (decrease) in accounts payable. . (5,030) 7,486 2,456 ---------------- ---------------- --------------- Net cash used in operating activities. . . (51,939) (48,969) (100,908) ---------------- ---------------- --------------- Cash flows from investing activities Increase in restricted cash. . . . . . . . (10,000) - (10,000) ---------------- ---------------- --------------- Net cash used in investing activities. . . (10,000) - (10,000) ---------------- ---------------- --------------- Cash flows from financing activities Issuance of common stock for services rendered . . . . . . . . . . . . . . . - 6,000 6,000 Issuance of common stock in private placement. . . . . . . . . . . . . . . 15,365 102,000 117,365 ---------------- ---------------- --------------- Net cash provided by financing activities. 15,365 108,000 123,365 ---------------- ---------------- --------------- Net increase (decrease) in cash. . . . . . (46,574) 59,031 12,457 Cash, beginning of period. . . . . . . . . 59,031 - - ---------------- ---------------- --------------- Cash, end of period. . . . . . . . . . . . $ 12,457 $ 59,031 $ 12,457 ================ ================ ===============
The accompanying notes are an integral part of these financial statements. F-5 BHC, INC. AND SUBSIDIARY (DEVELOPMENT STAGE COMPANIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE 1 - ORGANIZATION AND LINE OF BUSINESS BHC, Inc. ("BHC") was incorporated on September 12, 2002 in the State of Delaware. On September 13, 2002, BHC acquired 100% of the outstanding common stock of BookFIoridaHotels.com, Inc. ("BookFlorida"), a Florida corporation, which plans to be a provider of branded online marketing and distribution of travel products and services for leisure and small business travelers. BHC's operations are going to be conducted through BookFlorida. NOTE 2 - GOING CONCERN The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company (as defined in Note 3) as a going concern. During the period from September 12, 2002 (inception) to December 31, 2002 and the six months ended June 30, 2003, the Company incurred a net loss of $56,455 and $46,909 (unaudited), respectively and it had negative cash flows from operations of $48,969 and $51,939 (unaudited), respectively. These factors raise substantial doubt about the Company's ability to continue as a going concern. Recovery of the Company's assets is dependent upon future events, the outcome of which is indeterminable. Successful completion of the Company's development program and its transition to the attainment of profitable operations is dependent upon the Company achieving a level of sales adequate to support the Company's cost structure. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation ----------------------------- The consolidated financial statements include the accounts of BHC and its wholly owned subsidiary, BookFlorida (collectively, the "Company"). All significant inter-company accounts and transactions are eliminated in consolidation. Development Stage Enterprise ------------------------------ The Company is a development stage company as defined in Statement of Financial Accounting Standards No. 7, "Accounting and Reporting by Development Stage Enterprises." The Company is devoting substantially all of its present efforts to establish a new business, and its planned principal operations have not yet commenced. All losses accumulated since inception have been considered as part of the Company's development stage activities. F-6 BHC, INC. AND SUBSIDIARY (DEVELOPMENT STAGE COMPANIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Start-Up Costs --------------- Start-up costs include legal and professional fees. In accordance with Statement of Position 98-5, "Costs of Start-Up Activities," these costs have been expensed as incurred. Income Taxes ------------- The Company uses the asset and liability method of accounting for income taxes. The asset and liability method accounts for deferred income taxes by applying enacted statutory rates in effect for periods in which the difference between the book value and the tax bases of assets and liabilities are scheduled to reverse. The resulting deferred tax asset or liability is adjusted to reflect changes in tax laws or rates. Because the Company is in the development stage and has incurred losses from operations, a benefit has not been realized for the tax effect of the net operating loss carryforwards due to the uncertainty of their realization. Net Loss Per Share --------------------- The Company reports loss per share in accordance with SFAS No. 128, "Earnings per Share." Basic loss per share is computed by dividing loss available to common shareholders by the weighted-average number of common shares available. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive Estimates --------- The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Recently Issued Accounting Pronouncements -------------------------------------------- In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial Institutions." SFAS No. 147 removes the requirement in SFAS No. 72 and Interpretation 9 thereto, to recognize and amortize any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset. This statement requires that those transactions be accounted for in accordance with SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." In addition, this statement amends SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," to include certain financial institution-related intangible assets. This statement is not applicable to the Company. F-7 BHC, INC. AND SUBSIDIARY (DEVELOPMENT STAGE COMPANIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Recently Issued Accounting Pronouncements (Continued) -------------------------------------------- In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," an amendment of SFAS No. 123. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. This statement is effective for financial statements for fiscal years ending after December 15, 2002. This statement is not applicable to the Company. NOTE 4 - COMMITMENTS The Company has entered into a marketing agreement with Hospitality Group, Inc. ("Hospitality Group"), a franchisee of several Hampton Inn properties in southeast Florida, to provide the Company's customers with discounted rates and vacation packages at Hospitality Group's hotels. Hospitality Group will pay the Company commissions for booking its travel services through the Company's Web site. To date, commissions have not been earned. The Company has entered into a marketing agreement with Vici Marketing, a related party, to provide the Company's customers with discounted travel packages and related merchandise. Vici Marketing will pay the Company commissions for booking its travel services through the Company's Web site. To date, commissions have not been earned. NOTE 5 - SHAREHOLDERS' EQUITY Preferred Stock ---------------- The Company has authorized the issuance of 5,000,000 shares of preferred stock, which may be issued from time to time in one or more series by the Board of Directors. In addition, the Board is authorized to set the rights, preference, privileges, and restrictions of these shares, including dividends rights, conversion rights, voting rights, and liquidation preferences. These shares may have rights senior to those of the Company's common stock holders. As of As of December 31, 2002 and June 30, 2003 , the Company did not have any preferred shares outstanding. Common Stock ------------- On September 12, 2002, the Company issued 2,000,000 shares of common stock to the Company's Chief Executive Officer in exchange for services rendered valued at $2,000. On October 12, 2002, the Company issued 30,000 shares of common stock to a consultant firm in exchange for services provided in connection with the Company's corporate organization. The Company valued the services rendered at the fair value of the stock issued of $1,500. The President of the consulting firm is also a director of the Company. On October 12, 2002, the Company issued 50,000 shares of common stock to F-8 BHC, INC. AND SUBSIDIARY (DEVELOPMENT STAGE COMPANIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE 5 - SHAREHOLDERS' EQUITY (CONTINUED) KGL Investments, Ltd., the beneficial owner of which is Gottbetter & Partners, LLP, the Company's legal counsel, for non-legal services rendered. The Company valued the services rendered at the fair value of the stock issued of $2,500. During the period from September 12, 2002 (inception) to December 31, 2002, the Company issued 1,020,000 shares of common stock in exchange for cash of $102,000. During the six months ended June 30, 2003, the Company issued 153,750 shares (unaudited) of common stock in exchange for cash of $15,365 (unaudited). 2002 Stock Option Plan ------------------------- The Company adopted the 2002 Stock Option Plan (the 'Plan") during October 2002. The Plan provides for the granting of incentive stock options, non-statutory stock options, and stock appreciation rights. The incentive stock options can be granted to employees, or any subsidiary of the Company. The non-statutory stock options can be granted to all employees, including officers, non-employee directors, consultants or any subsidiary of the Company. The number of shares of common stock reserved for issuance under the Plan is 500,000, subject to adjustment in the event of a stock split, stock dividend, recapitalization, or similar change in the Company's capital structure. Incentive stock options must be granted prior to 10 years from the date the Plan was initially adopted by the Board of Directors. The option price for shares issued as incentive stock options must not be less than the fair market value of the Company's common stock at the date of grant, unless the option is granted to an individual who, at the date of the grant, owns more than 10% of the total combined voting power of all classes of the Company's stock (the "Principal Shareholder"). The option price granted to a Principal Shareholder must be at least 110% of the fair market value at the date the option was granted. Incentive stock options granted under the Plan must not be exercisable after 10 years from their grant dates. If an incentive stock option is granted to a Principal Shareholder, the exercise period is five years from the date of grant. The option price for shares issued under the non-statutory stock options will be determined at the sole discretion of the Board of Directors, but may not be less than 85% of the fair market value of the Company's common stock at the date of grant. A non-statutory stock option granted under the Plan may be of such duration as will be determined by the Board of Directors. The Board of Directors may grant options with a reload feature ("Reload Options"). Option holders granted a Reload Option will receive contemporaneously with the payment of the option price in shares of common stock a right to purchase that number of shares of the Company's common stock equal to the sum of (i) the number of shares of the Company's common stock used to exercise the option and (ii) with respect to non-statutory stock options the number of shares of the Company's common stock used to satisfy any tax withholding requirement incident to the exercise of such non-statutory stock options. F-9 BHC, INC. AND SUBSIDIARY (DEVELOPMENT STAGE COMPANIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE 5 - SHAREHOLDERS' EQUITY (CONTINUED) 2002 Stock Option Plan (Continued) ------------------------- The option price for a Reload Option relating to incentive stock options or non-statutory stock options granted to a person other than a Principal Shareholder must be the fair market value of a share of the Company's common stock at the date of grant of the Reload Option. For Principal Shareholders, the option price for Reload Options must be 110% of the fair market value of a share of the Company's common stock at the date of grant. Stock appreciation rights granted under the Plan must be evidenced by an agreement and may be exercised only if and to the extent that the related option is eligible to be exercised on the date of exercise of the stock appreciation right. Stock appreciation rights will terminate or expire upon the same conditions as the related option. The Company has not issued any options under this plan. NOTE 6 - INCOME TAXES The tax effects of temporary differences which give rise to the deferred tax provision at December 31, 2002 and June 30, 2003 consisted of the following:
June 30, December 31, 2003 2002 ---------- ------------- (unaudited) Deferred tax assest Net operating loss carryforward.$ 41,346 $ 17,770 Less valuation allowance . . . . 41,346 17,770 ---------- ------------- NET DEFERRED TAX ASSET . $ - $ - ========== =============
The deferred income tax benefit of the loss carryforward is the only significant deferred income tax asset of the Company and has been offset by a valuation allowance since management does not believe the recoverability of this deferred tax asset during the next fiscal year is more likely than not. Accordingly, a deferred income tax benefit for the period from September 12, 2002 (inception) to December 31, 2002 and the six months ended June 30, 2003 have not been recognized in these financial statements. The following table presents the current and deferred income tax provision for federal and state income taxes for the period from September 12, 2002 (inception) to December 31, 2002: F-10 BHC, INC. AND SUBSIDIARY (DEVELOPMENT STAGE COMPANIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 NOTE 6 - INCOME TAXES (CONTINUED) Current Federal $ - State 800 ------------ 800 ------------ Deferred Federal - State - ------------ - ------------ PROVISION FOR INCOME TAXES $ 800 ============ The provision for income taxes differs from the amount that would result from applying the federal statutory rate for the period from September 12, 2002 (inception) to December 31, 2002 as follows: Statutory regular federal income benefit rate 34.0% State taxes 5.8 Change in valuation allowance (40.3) Other (1.0) ------------ TOTAL (1.5)% ============ For the six months ended June 30, 2003, the Company's management has estimated its tax benefit based on its expected annual effective benefit rate. As management expects the Company to generate taxable losses for the year ended December 31, 2003 and since realization of any deferred tax assets generated during the year is not expected to be more likely than not, management expects its effective tax benefit rate to be 0%. Accordingly, a benefit has not been recorded for the three months ended June 30, 2003. NOTE 7 - RELATED PARTY TRANSACTIONS During the year ended December 31, 2002, the Company entered into a consulting agreement with a related party for services provided in connection with the design, implementation, and hosting of the Company's Web site. The president of the consulting firm is also a director of the Company. The agreement required the Company to pay $10,000 and issue 30,000 shares of common stock for such services. As of December 31, 2002 and June 30, 2003, the Company did not have any amounts due to the consulting firm. F-11 NOTE 7 - RELATED PARTY TRANSACTIONS (CONTINUED) The Company has been provided office space from a related party on a rent-free basis. Management estimates the fair value of the rental space to be approximately 1,000 per month. Once the Company generates revenues, it will record as an expense the fair value of the rental space. F-12 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Registrant's Certificate of Incorporation and by-laws permit it to eliminate the personal liability of its directors and to indemnify directors and officers to the fullest extent permitted by the Delaware General Corporation Law, or DGCL. Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, except (1) for any breach of the director's duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) pursuant to Section 174 of the DGCL, which provides for liability of directors for unlawful payments of dividends or unlawful stock purchases or redemptions, or (4) for any transaction from which a director derived an improper personal benefit. Under Section 145 of the DGCL, a corporation may indemnify its directors, officers, employees and agents and its former directors, officers, employees and agents and those who serve, at the corporation's request, in such capacity with another enterprise, against expenses (including attorney's fees), as well as judgments, fines and settlements in nonderivative lawsuits, actually and reasonably incurred in connection with the defense of any action, suit or proceeding in which they or any of them were or are made parties or are threatened to be made parties by reason of their serving or having served in such capacity. The DGCL provides, however, that such person must have acted in good faith and in a manner such person reasonably believed to be in (or not opposed to) the best interests of the corporation and, in the right of the corporation, where such person has been adjudged liable to the corporation, unless, and only to the extent that a court determines that such person fairly and reasonably is entitled to indemnity for costs the court deems proper in light of liability adjudication. Indemnity is mandatory to the extent a claim, issue or matter has been successfully defended. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The expenses payable by the Registrant in connection with the issuance and distribution of the securities being registered are as follows: SEC Registration Fee $ 81.00 Blue Sky Fees and Expenses 5,910.00 Legal Fees and Expenses 20,000.00 Accounting Fees and Expenses 5,000.00 Printing and Engraving 2,000.00 Miscellaneous 0.00 ------------ TOTAL $ 32,991.00 II-1 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. On September 12, 2002 the Registrant issued 2,000,000 shares of its common stock to its founder, chief executive officer, president and a director, Scott Roix, in exchange for services rendered by Scott Roix in connection with the Registrant's corporate organization. These shares were valued at par value, $.001 per share. On October 12, 2002 the Registrant issued 30,000 shares of its common stock to 51st State Systems, Inc. in exchange for services provided in connection with the Registrant's corporate organization. These shares were valued at $.05 per share. The president of 51st State Systems, Inc., Matt Sebal, is also a director of the Registrant. On October 12, 2002 the Registrant issued 50,000 shares of its common stock to KGL Investments, Ltd., the beneficial owners of which are the partners of Gottbetter & Partners, LLP, counsel to the Registrant. The shares were issued for non-legal services and were valued at $.05 per share. From November 2002 to March 2003, the Registrant sold 1,173,750 shares of its common stock at $.10 per share for a total of $117,375. The shares were sold to 11 accredited investors, 8 non-accredited investors and 19 foreign investors who had access to all material information pertaining to the Registrant. These investors were personal business acquaintances of the Registrant's officers. The sales were a private transaction without registration in reliance on the exemption provided by Section 4(2), Rule 506 of Regulation D and Regulation S of the Securities Act of 1933, as amended. A private placement memorandum was provided to the non-accredited and accredited investors. The issuances of securities described above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. The Company made the determination that each investor had enough knowledge and experience in finance and business matters to evaluate the risks and merits of the investment. There was no general solicitation or general advertising used to market the securities. Also, the non-accredited and accredited investors were given a private placement memorandum containing the kind of information normally provided in a prospectus. All purchasers represented in writing that they acquired the securities for their own accounts. A legend was placed on the stock certificates stating that the securities have not been registered under the Securities Act and cannot be sold or otherwise transferred without an effective registration or an exemption therefrom. II-2 ITEM 27. EXHIBITS. Exhibit Number Description - --------------- ----------- 3.1 Certificate of Incorporation* 3.2 By-Laws* 4.1 Specimen Certificate of Common Stock* 5.1 Opinion of Counsel (1) 10.1 Stock Option Plan of 2002* 10.2 Promotion Agreement between Vici Marketing, LLC and the Company, dated December 20, 2002.** 10.3 Site Development Agreement between 51st State Systems, Inc. and the Company, dated as of December 6, 2002** 10.4 Hosting Agreement between 51st State Systems, Inc. and the Company, dated as of December 6, 2002.** 10.5 Travel Services Promotion Agreement between Hospitality Group, Inc. and the Company dated as of November 30, 2002.** 10.6 License issued to the Company from the Florida Department of Agriculture and Consumer Services.** 10.7 Associate Program Agreement by and between Expedia, Inc. and the Company(1) 21.1 List of Subsidiaries* 23.1 Accountant's Consent (1) 23.2 Counsel's Consent to Use Opinion (included in Exhibit 5.1) (1) * Incorporated by reference to Registration Statement on Form SB-2 filed with the Securities and Exchange Commission, Registration Statement No. 333-104213, on April 1, 2003. ** Incorporated by reference to Amendment No. 1 to the Registration Statement on Form SB-2 filed with the Securities and Exchanged Commission, Registration Statement No. 333-104213, on June 16, 2003. (1) Filed herewith. II-3 ITEM 28. UNDERTAKINGS. The Registrant undertakes to: (1) File, during any period in which it offers or sales securities, a post-effective amendment to this registration statement to: (i) Include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424 (b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at then end of the offering. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to any provisions contained in its Certificate of Incorporation, or by-laws, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant 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 Registrant 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 indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-4 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in Clearwater, Florida on September 5, 2003. BHC, Inc. By: /s/Scott Roix ----------------------------- Scott Roix, President and CEO (principal financial officer) In accordance with the requirements of the Securities Act of 1933, the Registration Statement has been signed by the following persons in the capacities and on the dates stated. Signature Title Dated --------- ----- ----- /s/Scott Roix President, CEO, and Director - ------------------- (principal financial officer) September 5, 2003 Scott Roix /s/Matt Sebal - ------------------- Director September 5, 2003 Matt Sebal /s/Cathy Davenport Secretary - ------------------- (principal accounting officer) September 5, 2003 Cathy Davenport BHC, INC. EXHIBIT INDEX Exhibit Number Description - --------------- ----------- 3.1 Certificate of Incorporation* 3.2 By-Laws* 4.1 Specimen Certificate of Common Stock* 5.1 Opinion of Counsel (1) 10.1 Stock Option Plan of 2002* 10.2 Promotion Agreement between Vici Marketing, LLC and the Company, dated December 20, 2002.** 10.3 Site Development Agreement between 51st State Systems, Inc. and the Company, dated as of December 6, 2002** 10.4 Hosting Agreement between 51st State Systems, Inc. and the Company, dated as of December 6, 2002.** 10.5 Travel Services Promotion Agreement between Hospitality Group, Inc. and the Company dated as of November 30, 2002.** 10.6 License issued to the Company from the Florida Department of Agriculture and Consumer Services.** 10.7 Associate Program Agreement by and between Expedia, Inc. and the Company (1) 21.1 List of Subsidiaries* 23.1 Accountant's Consent (1) 23.2 Counsel's Consent to Use Opinion (included in Exhibit 5.1) (1) * Incorporated by reference to Registration Statement on Form SB-2 filed with the Securities and Exchange Commission, Registration Statement No. 333-104213, on April 1, 2003. Filed herewith ** Incorporated by reference to Amendment No. 1 to the Registration Statement on Form SB-2 filed with the Securities and Exchanged Commission, Registration Statement No. 333-104213, on June 16, 2003. (1) Filed herewith. EX-5.1 3 doc9.txt OPINION OF COUNSEL EXHIBIT 5.1 Gottbetter & Partners, llp 488 Madison Avenue New York, New York 10022 (212) 400-6900 September 3, 2003 BHC, Inc. 14001 63rd Way North Clearwater, Florida 33760 Re: BHC, Inc. Registration Statement on Form SB-2 for 1,253,750 Shares of Common Stock Dear Sirs: At your request, we have examined (i) the Registration Statement on Form SB-2 (the "Registration Statement") filed by BHC, Inc., a Delaware corporation (the "Company"), with the Securities and Exchange Commission (the "Commission") on April 1, 2003, (ii) Amendment No. 1 to the Registration Statement filed by the Company with the Commission on June 16, 2003 and (iii) Amendment No. 2 to the Registration Statement to be filed by the Company with the Commission on September [5], 2003 in connection with the registration under the Securities Act of 1933, as amended, of an aggregate of 1,253,750 shares of the Company's Common Stock (the "Shares") all of which will be sold or distributed by certain selling security holders (the "Selling Security Holders"). In rendering this opinion, we have examined the following: - the Registration Statement, together with the Exhibits filed as a part thereof or incorporated therein by reference; - the minutes of meetings and actions by written consent of the stockholders and Board of Directors that are contained in the Company's minute books; and - the Company's stock transfer ledger stating the number of the Company's issued and outstanding shares of capital stock as of September 2, 2003. In our examination of documents for purposes of this opinion, we have assumed, and express no opinion as to, the genuineness of all signatures on original documents, the authenticity and completeness of all documents submitted to us as originals, the conformity to originals and completeness of all documents submitted to us as copies, the legal capacity of all persons or E-1 entities executing the same, the lack of any undisclosed termination, modification, waiver or amendment to any document reviewed by us and the due authorization, execution and delivery of all documents where due authorization, execution and delivery are prerequisites to the effectiveness thereof. We have also assumed that the certificates representing the Shares have been, or will be when issued, properly signed by authorized officers of the Company or their agents. As to matters of fact relevant to this opinion, we have relied solely upon our examination of the documents referred to above and have assumed the current accuracy and completeness of the information obtained from records and documents referred to above. We have made no independent investigation or other attempt to verify the accuracy of any of such information or to determine the existence or non-existence of any other factual matters; however, we are not aware of any facts that would cause us to believe that the opinion expressed herein is not accurate. Our opinion is limited in all cases to matters arising under the general corporate law of Delaware. Based upon the foregoing, it is our opinion that the Shares to be sold or distributed by the Selling Security Holders pursuant to the Registration Statement are validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to all references to us, if any, in the Registration Statement and any amendments thereto. This opinion is intended solely for use in connection with the issuance and sale of shares subject to the Registration Statement and is not to be relied upon for any other purpose. Very truly yours, GOTTBETTER & PARTNERS, LLP /S/ GOTTBETTER & PARTNERS, LLP ---------------------------------- E-2 EX-10.7 4 doc10.txt EXPEDIA AGREEMENT EXHIBIT 10.7 EXPEDIA, INC. ASSOCIATE PROGRAM AGREEMENT This agreement ("Agreement") contains the complete terms and conditions for your participation in the Expedia, Inc. Associate Program ("Program"), and the establishment of links from your Web site(s) to our domestic Web site, as defined below. As used in this Agreement, "you" means (and "your" refers to) the applicant seeking to participate as an Associate in the Program, "we" means (and "us", "our" and "ours" refer to) Expedia, Inc. THIS IS A LEGAL AGREEMENT BETWEEN YOU AND EXPEDIA, INC. BY CLICKING ON THE "ACCEPT" BUTTON AT THE END OF THIS AGREEMENT, YOU AGREE THAT YOU ARE AFFIRMATIVELY STATING THAT YOU HAVE CAREFULLY READ AND UNDERSTAND THE TERMS SET FORTH IN THIS AGREEMENT AND YOU AGREE TO BE BOUND BY THE TERMS OF THIS AGREEMENT. 1. DEFINITIONS 1.1 "ACCOMMODATION TRANSACTION" means the Commencement Date of a stay in one or more rooms or suites in a single hotel for an uninterrupted stay of any duration or any accommodations available for reservation or purchase on Expedia for an uninterrupted stay of any duration, and where such reservation or purchase is completed by a User who has Linked directly to Expedia from your Associate Site via one of the EI Icons or Links with the purpose of shopping or buying travel during a single browser session. 1.2 "AFFILIATE" means any person, partnership, joint venture, corporation or other form of enterprise, domestic or foreign, including but not limited to subsidiaries, that directly or indirectly, control, are controlled by, or are under common control with a party. 1.3 "AIR TRANSACTION" means the Commencement Date of a trip (round-trip, or one-way if no round-trip is purchased) by one person or more, and where such purchase of one air ticket or more is completed by a User who has Linked directly to Expedia from your Associate Site via one of the EI Icons or Links with the purpose of shopping or buying travel during a single browser session. 1.4 "ASSOCIATE SITE" means one or more of your web sites, and any successor web site to those sites, once you have been accepted into the Program. 1.5 "BANNER ADVERTISEMENTS" means those certain rotating or permanent banner advertisements created and provided by us to you containing a Linking URL that are located on your Associate Site, and are no larger than 468 pixels by 60 pixels (or such other dimensions as the parties may from time to time agree upon), which permits Users to navigate directly to a page on Expedia as selected by us. You agree not to revise, change or modify any Banner Advertisement provided by us to you for placement on your Associate Site. 1.6 "CAR TRANSACTION" means the Commencement Date of a car rental by one person, and where such transaction is completed by a User who has Linked directly to Expedia from your Associate Site via one of the EI Icons or Links with the purpose of shopping or buying travel during a single browser session. 1.7 "CLICK-THROUGH" means each instance in which a User navigates to and fully loads a page on Expedia. As used herein, a page "fully loads" when the entire page is displayed on the electronic device that has accessed the page. 1.8 "COMMENCEMENT DATE" means the date upon which the air travel, car rental, accommodation stay, cruise trip or any travel package combination thereof commences. E-3 1.9 "CRUISE TRANSACTION" means the Commencement Date of one cruise by one person or more, for a stay of any duration, and where such transaction is completed by a User who has Linked directly to Expedia from your Associate Site via one of the EI Icons or Links with the purpose of shopping or buying travel during a single browser session. 1.10 "EI ICONS" means any graphical or text link, including, without limitation, Banner Advertisements and persistent hyperlinks in the form of an Expedia logo or Expedia storefront booking form, that is located on your Associate Site through which Users may directly Link to a location on Expedia. 1.11 "EXPEDIA" means the software code, informational databases, products, and other components that make up our service which is marketed for use by individual end users in the United States, Canada, Germany, the United Kingdom and/or such other locales as we may elect to market our service, at our sole discretion, to enable such end users to shop for, reserve, book (including, at a minimum, air travel, accommodations, travel packages, and car rentals) and pay for certain travel services via a personal computer (or other interactive device) connected to the Internet or any other network. We currently offer these services on the Web under the name "Expedia," but we may change the name from time to time, and the term "Expedia" as we use it in this Agreement is deemed to refer to all future versions of our online services described in this Agreement, regardless of the name under which it is offered from time to time, and includes without limitation any and all additional, follow-on, successor or replacement versions of these services. 1.12 "LINK" means either, (i) one or more hyperlinks located on the applicable areas of your Associate Site or Expedia, (ii) any "keywords", such as "Travel", "Air", "Hotel", "Car", etc. that invokes your software program on your Associate Site and returns an EI Icon, or (iii) any other alternative method that enables a User to access Expedia or return to your Associate Site. Links also include any connection to Expedia through the Internet, email, broadband, Internet II, wireless and handheld devices, cell phones, digital appliances, or other digital interactive means, networks, devices, or transmissions (whether existing now or in the future). 1.13 "LOOK AND FEEL" means the distinctive and particular elements of graphics, design, organization, presentation, layout, user interface, navigation, trade dress, colors and stylistic convention (including the digital implementations thereof) within a World Wide Web site, and the total appearance and impression substantially formed by the combination, coordination and interaction of such elements, and any derivative works. 1.14 "MERCHANT ACCOMMODATION TRANSACTION" means the reservation of a single room or suite in a single hotel for an uninterrupted stay of any duration, or any accommodations available for reservation or purchase on Expedia for an uninterrupted stay of any duration, where an Expedia Affiliate is the Merchant of Record for the transaction, and where such transaction is completed by a User who has Linked directly to Expedia from your Associate Site via one of the EI Icons or Links with the purpose of shopping or buying travel during a single browser session. 1.15 "MERCHANT NET REVENUE" means the net revenue that the Merchant of Record receives as a direct result of Users effectuating Merchant Accommodation Transactions and/or Travel Package Transactions on Expedia, after taking deductions for: (i) amounts collected by the Merchant of Record for sales taxes, duties, handling, and similar charges, (ii) 3% of the total amount of each transaction for credit card fees, and (iii) .05% of the total amount of each transaction for amounts due to suppliers due to credit card fraud and bad debt. 1.16 "MERCHANT OF RECORD" means an Affiliate of ours, whose name appears on the credit card charge and to whom the applicable credit card company shall reimburse for the amount of the credit card charge. 1.17 "NET REVENUE" means the net revenue we receive as a direct result of Users effectuating Accommodation Transactions and/or Car Transactions on E-4 Expedia, excluding: (i) amounts we collect for sales taxes, duties, handling, and similar charges, (ii) .05% of the total amount of each transaction for amounts due to suppliers due to credit card fraud and bad debt, and (iii) .25% of the total amount of each transaction for credits due to suppliers for cancellations or returns. 1.18 "TRAVEL PACKAGE TRANSACTION" means: (i) a combination of two or more of the following transactions that have been effectuated by one User during a single browser session: an Air Transaction, an Accommodation Transaction, a Car Transaction, a Cruise Transaction, or a Merchant Accommodation Transaction; or (ii) a combination of two or more transactions identified in this Section 1.18 which have either a common Commencement Date or proximately related Commencement Dates, and which may be effectuated by the same User in more than one browser session, and where such transaction is completed by a User who has Linked directly to Expedia from your Associate Site via one of the EI Icons or Links with the purpose of shopping or buying travel during a single browser session. 1.19 "USER" means individuals or entities that access Expedia directly from your Associate Site. For purposes of clarification, the meaning of "User" shall not include any software program or routine that generates a Click-Through with no individual person actually present, such as shoppingbots or other computer programming routines that are intended to scrape, mine, surreptitiously intercept or expropriate any information for the purpose of comparison shopping. 2. INELIGIBLE PARTY; LIQUIDATED DAMAGES If you are an employee or agent of a Competitor of ours, a travel agent or a travel supplier (collectively, "Ineligible Party"), you are not eligible to enroll in the Expedia Associate Program. For the purposes of this Agreement, a "Competitor" includes, but isn't limited to, Travelocity, Orbitz, Hotel Reservation Network, Mark Travel, Cheap Tickets, Priceline, Biz Travel, Hotwire, Last Minute, American Express, Rosenbluth, Carlson Wagonlit, Site59, any airline, any car rental, any cruise operator and any hotel company. If you fall into any of these categories and you still wish to enroll in the Associate Program, you must obtain prior written approval from us for your participation as an Associate. IF YOU HAVE ANY QUESTIONS WHETHER YOU ARE OR ARE NOT AN INELIGIBLE PARTY, PLEASE CONTACT US BEFORE YOU EXECUTE THIS AGREEMENT. In addition, you agree to: (i) terminate this Agreement immediately if you become an Ineligible Party following your enrollment in the Associate Program; and (ii) keep confidential any Confidential Information, as defined in this Agreement, which we have provided to you during your enrollment in the Associate Program. You specifically agree that the obligation for confidentiality in this Agreement survives any termination of this Agreement. YOU ACKNOWLEDGE AND AGREE TO THESE RESTRICTIONS AND SPECIFICALLY AGREE THAT ANY BREACH OF THIS SECTION 2 SHALL BE DEEMED A MATERIAL BREACH OF THIS AGREEMENT. IF YOU ARE AN INELIGIBLE PARTY AND ENROLL IN THE ASSOCIATE PROGRAM, YOU AND WE AGREE THAT WE WILL BE MATERIALLY DAMAGED BY YOUR ACCESS TO OUR CONFIDENTIAL INFORMATION IN AN AMOUNT THAT IS DIFFICULT TO ASCERTAIN. ACCORDINGLY, YOU AND WE AGREE THAT IF YOU ARE AN INELIGIBLE PARTY AND ENROLL IN THE ASSOCIATE PROGRAM, THAT YOU WILL PAY FIVE HUNDRED THOUSAND DOLLARS (US$500,000.00) TO US AS LIQUIDATED DAMAGES. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS PROVISION SHALL PREVENT US FROM PURSUING EQUITABLE REMEDIES RESULTING FROM A BREACH OF THIS AGREEMENT. IF FOLLOWING YOUR ENROLLMENT IN THE ASSOCIATE PROGRAM YOU BECOME AN INELIGIBLE PARTY AND DO NOT IMMEDIATELY TERMINATE THIS AGREEMENT, YOU AND WE AGREE THAT YOUR CONTINUED ACCESS TO OUR CONFIDENTIAL INFORMATION WILL PUT US AT RISK. FURTHER, YOU AND WE AGREE THAT ANY USE BY YOU OF THE CONFIDENTIAL INFORMATION OBTAINED PRIOR TO TERMINATION OF THE AGREEMENT WILL PUT US AT RISK. ACCORDINGLY, YOU AND WE AGREE THAT IF: (I) YOU DO NOT KEEP CONFIDENTIAL THE CONFIDENTIAL INFORMATION YOU OBTAINED PRIOR TO BECOMING AN INELIGIBLE PARTY; OR (II) YOU DO NOT TERMINATE THE AGREEMENT AS REQUIRED AND THEREFORE CONTINUE TO E-5 ACCESS OUR CONFIDENTIAL INFORMATION, THAT WE WILL BE MATERIALLY DAMAGED BY YOU IN AN AMOUNT THAT IS DIFFICULT TO ASCERTAIN AND YOU WILL PAY FIVE HUNDRED THOUSAND DOLLARS (US$500,000.00) TO US AS LIQUIDATED DAMAGES. NOTWITHSTANDING THE FOREGOING, NOTHING IN THIS PROVISION SHALL PREVENT US FROM PURSUING EQUITABLE REMEDIES RESULTING FROM A BREACH OF THIS AGREEMENT. 3. YOUR OBLIGATIONS 3.1 To begin the enrollment process, you will submit a completed program application ("Program Application") via Expedia. We will evaluate your Program Application and will notify you of your acceptance or rejection in a timely manner. We may reject your Program Application if we determine, in our sole discretion, that you are an Ineligible Party, or your site is unsuitable for the Program for any reason, including, but not limited to, if your site incorporates images or content that is in any way unlawful, harmful, threatening, defamatory, obscene, harassing or racially, ethically or otherwise objectionable such as sites that depict sexually explicit images; promotes violence, illegal activities, or unlawfully discrimination of any kind; promotes or incorporates any materials which infringe or assist others to infringe the intellectual property rights of others (collectively "Content Restrictions"). If we reject your Program Application, you are welcome to reapply to the Associate Program at any time. If you are accepted into the Program: 3.2 You shall prominently display and maintain the EI Icons provided to you by us, or any addition to or substitute thereof that we may provide to you from time-to-time during the term of this Agreement, on your Associate Site which shall Link directly to Expedia. You agree not to place the EI Icons on the same page on your Associate Site with the logos or trademarks from Travelocity.com Inc., Hotel Reservations Network, Inc., Hotwire and Mark Travel. In the event we provide you with new or modified EI Icons, you agree to implement the new EI Icons within thirty (30) days following receipt of the update from us. You agree to comply with the EI Icon Guidelines for Linking that we provide to you or any other replacement guidelines that we may provide to you in writing from time-to-time during the term of this Agreement. The EI Icon Guidelines are available at http://www.expedia.com/daily/associates/EI_Icon_Guidelines.htm. Additionally, we encourage (but do not require) you to include a Link to the home page of Expedia. 3.3 In no event shall you or your agents make or extend any representation or warranty on our behalf with respect to Expedia or the services available therein. 3.4 You warrant and represent to us that your Associate Site: (i) is in compliance with all applicable laws and regulations; (ii) does not contain any material that is fraudulent, defamatory or obscene; and (iii) is suitable in all respects to be Linked to from Expedia. You agree that your Associate Site will not, in any way, copy or resemble the Look and Feel of Expedia nor will you create an impression that your Associate Site is Expedia or part of Expedia, nor will you frame any page on Expedia being viewed by a User of your Associate Site who links to Expedia through a Link. You agree that during the term of this Agreement, your Associate Site shall not contain any of the Content Restrictions described in Section 3.1 above, nor shall it disparage Expedia or us in any way. We may test your Associate Site's URL, and if such URL is not in compliance with the terms and conditions of Section 3.2 and this Section 3.4, we, in our sole discretion may (i) remove such non-conforming URL; and/or (ii) terminate this Agreement. 4. EXPEDIA'S OBLIGATIONS 4.1 We shall provide you with one or more EI Icons, or any substitute thereof that we, in our sole discretion, may provide to you from time to time during the term of this Agreement for use on your Associate Site. Additionally, E-6 we shall provide you with EI Icon Linking guidelines, or such other replacement guidelines as we may provide to you in writing from time-to-time during the term of this Agreement. 4.2 We shall provide customer support and fulfillment services to Users in accordance with our then-current standard terms and conditions and standard customer service policies and procedures applying generally to users of Expedia. You acknowledge that we reserve the right to refuse to provide customer/fulfillment services to a User for a variety of reasons, including but not limited to: (a) purchase rejection by applicable credit card company; (b) inability to authenticate credit card; (c) inability to authenticate card holder; and (d) User's purchase history with us and/or our Affiliates. 4.3 We shall make available to you monthly reports that set forth, at a minimum, the number of Users to Expedia from your Associate Site, and the number of Accommodation Transactions, Air Transactions, Car Transactions, Cruise Transactions, Merchant Accommodation Transactions and Travel Package Transactions completed by Users Linking directly to Expedia from your Associate Site during the applicable month. 4.4 The parties acknowledge that a third party reporting agent, such as "Be Free, Inc." ("Reporting Agent") will assist us in fulfilling our tracking and reporting requirements hereunder. To ensure that reporting begins as soon as possible, you agree to register with the Reporting Agent as soon as practicable and to provide us with the SiteID or other necessary information assigned by the Reporting Agent. 5. USE OF TRADEMARKS You agree that we may include your logos, trademarks, trade names and similar identifying material ("Your Marks") on Expedia in a listing of companies who are participating in the Program; provided however, that in no event shall we be required to include Your Marks in any such listing. You represent and warrant that you are the sole and exclusive owner of Your Marks and have the right and power to grant to us the license to use them in the manner described herein, and such grant does not or will not breach, conflict with, or constitute a default under any agreement or other instrument applicable to you or binding upon you; or infringe upon any trademark, trade name, service mark, copyright, or other proprietary right of any other person or entity. We will remove Your Marks from any such lists upon the effective date of the expiration or termination of this Agreement. 6. OWNERSHIP OF EXPEDIA 6.1 We shall own all intellectual property rights (including without limitation all copyrights, patents, trademarks and trade secrets) in connection with and in all versions of Expedia. 6.2 We will own all data generated by Users of Expedia, and all of the terms and conditions, rules, policies and operating procedures of Expedia (including but not limited to policies relating to the use of customer personal identification information, customer orders, customer service and ticket fulfillment) will apply to such Users of Expedia; and we reserve the right to change such terms and conditions, rules, policies and operating procedures at any time. 7. FEE STRUCTURE You are eligible to earn Transaction Fees on all sales during the term of this Agreement, where the User follows a Link from your Associate Site directly to Expedia and that User, using Expedia's online travel and booking system, successfully effectuates an Accommodation Transaction, Air Transaction, Car Transaction, Cruise Transaction, Merchant Accommodation Transaction or Travel Package Transaction, which is completed during the term of this Agreement on either a "Flat Rate", "Net Revenue" or "Merchant Net Revenue" basis (the "Transaction Fees"), as applicable. The Transaction Fee for an Air Transaction will not be awarded in the event of credit card fraud, bad debt, and credits due for cancellations or returns. We will pay you a Transaction Fee only if the User is tracked on our internal online ordering system from the time the Link is E-7 initiated on your Associate Site to the time of the sale. You agree that no Transaction Fees will be paid if the User cannot be tracked by our internal ordering system. Transaction Fees shall be paid as follows: 7.1 Air Transaction Fees. We will pay you Two Dollars (US$2.00) for ---------------------- each Air Transaction ("Air Transaction Fees"). 7.2 Accommodation Transaction Fees. We will pay you three percent -------------------------------- (3%) on Net Revenue, per Accommodation Transaction ("Accommodation Transaction Fees"). 7.3 Car Transaction Fees. We will pay you two percent (2%) on Net Revenue, --------------------- per Car Transaction ("Car Transaction Fees"). 7.4 Cruise Transaction Fees. We will pay you Twenty Dollars (US$20.00) for ------------------------ each Cruise Transaction ("Cruise Transaction Fees"). 7.5 Merchant Accommodation Transaction Fees. We will pay you five percent ----------------------------------------- (5%) on Merchant Net Revenue, per Merchant Hotel Transaction ("Merchant Hotel Transaction Fees"). 7.6 Travel Package Transaction Fees. We will pay you two percent (2%) on ---------------------------------- Merchant Net Revenue, per Travel Package Transaction ("Travel Package Transaction Fees."), E-8 8. PAYMENTS Within forty-five (45) days after the end of each month during the term of the Agreement with respect to which we owe you any Transaction Fees, we will furnish you a statement together with payment for any amount due to you. The statement will contain information sufficient to discern how the payment was computed. In the event that the total monthly Transaction Fees payable to you is less than Fifty Dollars (US$50.00) for the applicable month ("Monthly Minimum Threshold"), we will hold the payment until the aggregate total Transaction Fees meet or exceed the Monthly Minimum Threshold. We will remit all payments owed to you to your address provided in the Program Application submitted in accordance with Section 3. 9. MODIFICATION We may modify any of the terms and conditions contained in this Agreement, at any time in our sole discretion. Notification to you of any change by e-mail or posting of a change notice on Expedia and/or the Internet site of any designated Reporting Agent, as described in Section 4.4 above, at our sole option, shall be considered sufficient notice to you of a modification to the terms and conditions of this Agreement. Modifications may include, but are not limited to, changes in the scope of available commission fees, commission schedules, payment procedures, and Program rules. If any modification is unacceptable to you, your recourse is to terminate this Agreement. Your continued participation in the Program following our posting of a change notice or a new agreement on Expedia will constitute binding acceptance of the change. 10. EFFECT OF ECONOMIC CONDITIONS In the event we deem, in our sole discretion, that military action or extraordinary political, economic, or other conditions or occurrences beyond our control significantly impacts the travel business, our businesses, access or navigation to Expedia from you or your business(es) and alters our exposure under this Agreement, we may, at any time, suspend performance (in part or whole) of any or all terms and conditions of this Agreement, suspend payment due hereunder (in part or whole) or terminate the Agreement (in part or whole), in our sole discretion. We will provide you with written notice five (5) days prior to the effective date of such change(s). 11. TERM AND TERMINATION This Agreement shall commence upon our acceptance of your Program Application and shall continue until terminated by either party. Either party may terminate this Agreement at any time, with or without cause, by giving the other party written notice of termination. Written notice can be in the form of mail, email or fax. You are only eligible to earn Transaction Fees occurring during the term of the Agreement, and commissions earned through the date of termination will remain payable in accordance with Section 7. If this Agreement is terminated because (i) you have violated the terms of this Agreement, or (ii) your Associate Site becomes subject to the Content Restrictions set forth in Section 3, you are not eligible to receive any commission payments, even for commissions earned prior to termination. We reserve the right to withhold your final payment for a reasonable time to ensure that the correct amount is paid. Upon termination or expiration of this Agreement for any reason, you shall immediately remove any EI Icon or Link from your Associate Site. 12. REPRESENTATIONS AND WARRANTIES You represent and warrant to us that you are not an Ineligible Party, as defined in Section 2, and that this Agreement has been duly and validly executed by you by virtue of your clicking on the "Accept" button at the end of this Agreement and constitutes your legal, valid and binding obligation, enforceable against you in accordance with its terms; and that the execution, delivery, and performance by you of this Agreement are within your legal capacity and power, have been duly authorized by all requisite action on your part, require the approval or consent of no other persons; and neither violate nor constitute a default under the provision of any law, rule, regulation, order, judgment or decree to which you are subject or which is binding upon you, or the terms of E-9 any other agreement, document or instrument applicable to you or binding upon you. The representations and warranties in this Section 12 are continuous in nature and shall be deemed to have been given by you upon your acceptance via the "Accept" button at the end of this Agreement and at each stage of performance hereunder. These representations and warranties and covenants shall survive termination or expiration of this Agreement. 13. INDEMNIFICATION You hereby agree to indemnify, defend, and hold harmless us and our Affiliates, and their directors, officers, employees, agents, shareholders, partners, members, and other owners, against any and all claims, actions, demands, liabilities, losses, damages, judgments, settlements, costs, and expenses (including reasonable attorneys' or other professionals' fees) (any or all of the foregoing hereinafter referred to as "Losses") insofar as such Losses (or actions in respect thereof) arise out of or are based on (i) any claim that our use of Your Marks infringe on any trademark, trade name, service mark, copyright, license, intellectual property, or another proprietary right of any third party, (ii) any misrepresentation of a representation or warranty or breach of a covenant and agreement made by you herein, or (iii) any claim related to your Associate Site including, without limitation, content therein not attributable to us. 14. DISCLAIMERS AND LIMITATION OF LIABILITY We make no express or implied warranties or representations with respect to the Program or any service, product or other items sold through the Program, including implied warranties of merchantability, fitness for a particular purpose or freedom from patent, trademark or copyright infringements, whether arising by law, custom or conduct, or as to the accuracy or completeness of the information provided by us. In addition, we make no representation that the operation of Expedia will be uninterrupted or error-free, and we will not be liable for the consequences of any interruptions or errors. WE WILL NOT BE LIABLE FOR INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES, OR ANY LOSS OF REVENUE, PROFITS, OR DATA, ARISING IN CONNECTION WITH THIS AGREEMENT OR THE PROGRAM, EVEN IF WE HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. FURTHER, OUR AGGREGRATE LIABILITY ARISING WITH RESPECT TO THIS AGREEMENT AND THE PROGRAM WILL NOT EXCEED THE TOTAL COMMISSIONS PAID OR PAYABLE TO YOU UNDER THIS AGREEMENT. THE FOREGOING LIMITATION SHALL APPLY REGARDLESS OF THE CAUSE OF ACTION UNDER WHICH SUCH DAMAGES ARE SOUGHT. 15. CONFIDENTIALITY; MEDIA COMMUNICATIONS 15.1 If you have entered into a Non-Disclosure Agreement with us, you agree that the terms of that agreement shall be deemed to be incorporated herein. If you have not entered into a Non-Disclosure Agreement with us, then you understand and agree that the following terms and conditions will apply to certain information that we may disclose to you as a result of your participation in the Program information that we consider to be confidential (the "Confidential Information"). For purposes of this Agreement, the term "Confidential Information", shall include, but not be limited to, the terms of this Agreement, any modifications to the terms and provisions of the Agreement made specifically for your Associate Site and not generally available to other members of the Program, business and financial information, customer and vendor lists, and pricing and sales information, concerning us or you, respectively, or any members of the Program, other than you. Confidential Information shall also include any information that we designate as confidential during the term of this Agreement. 15.2 You agree not to disclose any Confidential Information and that such Confidential Information shall remain strictly confidential and shall not be utilized, directly or indirectly, by you for your own business purposes or for any other purpose except and solely to the extent that any such information is generally known or available to the public or if same is required by law or legal process. 16. INDEPENDENT INVESTIGATION E-10 YOU ACKNOWLEDGE THAT YOU HAVE READ THIS AGREEMENT AND AGREE TO ALL ITS TERMS AND CONDITIONS. YOU UNDERSTAND THAT WE MAY AT ANY TIME (DIRECTLY OR INDIRECTLY) ENGAGE IN SIMILAR ARRANGEMENTS ON TERMS THAT MAY DIFFER FROM THOSE CONTAINED IN THIS AGREEMENT OR OPERATE WEB SITES THAT ARE SIMILAR TO OR COMPETE WITH YOUR ASSOCIATE SITE. YOU HAVE INDEPENDENTLY EVALUATED THE DESIRABILITY OF PARTICIPATING IN THE PROGRAM AND ARE NOT RELYING ON ANY REPRESENTATION, GUARANTEE, OR STATEMENT OTHER THAN AS SET FORTH IN THIS AGREEMENT. 17. GOVERNING LAW This Agreement will be governed by the laws of the United States and the State of Washington, without reference to rules governing choice of laws. Any action relating to this Agreement must be brought in the federal or state courts located in Washington State and you irrevocably consent to the jurisdiction of such courts. If either party employs attorneys to enforce any rights arising out of or relating to this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees and costs, including expert witness fees. 18. ASSIGNABILITY You may not assign this Agreement, by operation of law or otherwise, without our prior written consent. Subject to that restriction, this Agreement will be binding on and enforceable against the parties and their respective successors and assigns. This Agreement is the complete Agreement between the parties and supersedes any prior oral or written agreement concerning the subject matter 19. NO WAIVER Our failure to enforce your strict performance of any provision of this Agreement will not constitute a waiver of our right to subsequently enforce such a provision or any other provision of this Agreement. E-11 EX-23.1 5 doc7.txt AUDITOR'S CONSENT EXHIBIT 23.1 [Letterhead of Singer Lewak Greenbaum & Goldstein LLP] Consent of Independent Auditors We consent to the use in this Registration Statement of BHC, Inc. on Form SB-2 (No. 33-104213) of our report, dated February 6, 2003, which includes an emphasis paragraph relating to the Company's ability to continue as a going concern, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to our Firm under the caption "Experts" in the Prospectus. /s/Singer Lewak Greenbaum & Goldstein LLP Los Angeles, California September 5, 2003 E-12 -----END PRIVACY-ENHANCED MESSAGE-----