-----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, EZceGaX42I1XlzzgUZlFQ892zAXZrVSBaQN8qmqzw+vBPQ/XG5JzGCIgMA+vIzas W9p/hvlXVKLXQ6hQgEj+Nw== 0000950144-99-012419.txt : 19991108 0000950144-99-012419.hdr.sgml : 19991108 ACCESSION NUMBER: 0000950144-99-012419 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19991105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REVENGE MARINE INC CENTRAL INDEX KEY: 0001059899 STANDARD INDUSTRIAL CLASSIFICATION: SHIP & BOAT BUILDING & REPAIRING [3730] IRS NUMBER: 363051776 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25003 FILM NUMBER: 99741820 BUSINESS ADDRESS: STREET 1: 2051 NW 11TH STREET CITY: MIAMI STATE: FL ZIP: 33004 BUSINESS PHONE: 3056430334 MAIL ADDRESS: STREET 1: 2051 NW 11TH STREET CITY: MIAMI STATE: FL ZIP: 33004 10-K 1 REVENGE MARINE, INC. FORM 10-K DATED 06/30/99 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO ___________ COMMISSION FILE NUMBER: 000-25003 REVENGE MARINE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEVADA 36-3051776 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 2051 NW 11TH STREET MIAMI, FLORIDA 33125 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) (305) 643-0334, EXT. 127 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting and non-voting common equity of the registrant held by non-affiliates of the registrant, as of June 30, 1999, was $1,481,500. Number of shares of Common Stock, $.001 par value, outstanding as of June 30, 1999: 10,898,810. DOCUMENTS INCORPORATED BY REFERENCE: Exhibit list begins on page ___ =============================================================================== 2 Part I Item 1. Business COMPANY HISTORY Revenge Marine, Inc., a Nevada corporation ("Revenge" or the "Company") was originally incorporated as a Nevada Corporation in December, 1979 as Contracap, Inc. Revenge then changed its name several times. In November, 1994, Revenge changed its name to Global Energy Organization Corporation. In January, 1998, Global Energy Organization Corporation entered into a stock exchange agreement with Revenge Marine, Inc., (formerly Revenge Yachts, Inc.), an Oklahoma corporation subsequent to which Global Energy Organization Corporation changed its name to Revenge Marine, Inc. Prior to January, 1998, neither Revenge Yachts, Inc. nor Global Energy Organization Corporation had any significant assets. Prior to January, 1998, Revenge had not engaged in significant activity involving the Yachting or Marine Industries. In January, 1998, Revenge restated its purpose as providing consulting services and investment opportunities in the Yachting and Marine industries. Revenge began a strategy of identification, acquisition and consolidation of marine industries. In May of 1998 Revenge entered into a stock exchange agreement with Consolidated Marine, Inc., a Florida Corporation ("Consolidated"), whereby Revenge acquired all of the outstanding stock of Consolidated in exchange for 636,942 shares of common stock in Revenge. Consolidated was a custom and production yacht builder, as well as a re-fitter and repairer of large watercraft. Revenge acquired Consolidated as the first acquisition in a series of acquisitions of marine manufacturers with the purpose of creating a leading marine manufacturing, repair and marketing organization that could serve diverse customer demands and offer a wide-range of products and services efficiently. Revenge entered into a stock exchange agreement with Egret Boat Company, a Florida Corporation ("Egret"), whereby Revenge acquired all the outstanding stock of Egret in exchange for 955,414 shares of common stock in Revenge. Egret was a production manufacturer of advanced composite motorized flats boats of less than 35 feet in length. In August, 1998, 180,692 additional shares were issued to Egret and Consolidated to complete the combined transactions and the full payment of the consideration specified in the stock exchange agreements. In September, 1998, Revenge entered into an agreement to purchase Consolidated Yacht Corporation, which contained within it certain assets that were not included in the Consolidated Marine, Inc. acquisition, but which added refurbishing, repair and production capability to what had been acquired in the Consolidated Marine, Inc. acquisition. In October of 1998, Revenge incorporated Revenge Marine, Inc., a Delaware corporation ("Revenge Delaware"). At the time of its incorporation, Revenge Delaware was not intended to be a wholly-owned subsidiary. It was intended that stock from Revenge Delaware be issued to shareholders of Revenge in exchange for the marine assets of Revenge which were to be vended into Revenge Delaware under an asset purchase agreement. Revenge then intended, once the divestiture of its marine holdings was complete, to merge with a telecommunications corporation. However, no aspect of this transaction was ever consummated in any fashion. For the reasons stated in this paragraph, certain of the commitments of Revenge, to Finova Capital Corporation and Detroit Diesel Corporation, were issued jointly from Revenge and Revenge Delaware or just from Revenge Delaware. Revenge Delaware assigned all assets and liabilities to Revenge Nevada and is now a dormant shell. 1 3 In October of 1998, Revenge had an option to purchase the assets of Blackfin Yacht Corporation ( the "Blackfin Assets") from Detroit Diesel Corporation. The option expired. Subsequent to the expiration of the option, Revenge sold the option to Revenge Delaware for its purchase price, $100,000. Detroit Diesel honored the expired option and on Friday, October 23, 1998, Revenge Delaware purchased the Blackfin Assets for a purchase price of $1,005,445 in cash and 545,455 warrants to acquire Revenge common stock exercisable at an exercise price of $6.44 per share. In addition, Revenge Delaware granted Blackfin Yacht Corporation a 2% fee of the per unit sale price for each vessel produced from the Blackfin Assets. Revenge Delaware also granted certain demand and piggyback registration rights to Blackfin Yacht Corporation for the warrants issued in the asset purchase. The Blackfin Assets provided a line of mid-size fiberglass yachts, from 27 to 48 feet. In addition, there was a dealer network for Blackfin products, which are visually unique and have a high level of brand identification. The completion of the three acquisitions outlined above and the assignment of Revenge Delaware's assets and liabilities to Revenge Nevada gave Revenge the capability to produce a wide range of high technology motor yachts and motor boats, ranging from 110 foot custom yachts to 16 foot flats boats. Consistent with its philosophy of acquiring and streamlining synergistic marine enterprises, Revenge entered into a long-term lease with an option to purchase on an 8.67 acre marine facility in Miami, Florida in July of 1998. Revenge consolidated its acquisitions and many of its operations in the Miami facility and therefore felt itself positioned to take advantage of economies of scale, improved production efficiencies and elimination of redundancies. In addition to the Miami facility, Revenge maintained a facility in Dania, Florida. Revenge continued to identify and explore other marine acquisitions that were consistent with its objectives. In February of 1999, in an effort to further streamline operations, Revenge closed its facility in Dania and consolidated its operations in the Miami facility. It was hoped that this move would lower operating costs and allow Revenge to begin to operate its Blackfin and Egret manufacturing facilities profitably, while utilizing the extensive capacity of the Miami facility to significantly increase the volume of repair and refurbishing of yachts being done by its Consolidated Marine division. In December of 1998, Revenge became aware that South Florida Yacht Sales and Harbor Yacht Sales were not going to provide sufficient dealer organization and resources to promote the Revenge products. Therefore, Revenge began seeking candidates to act as dealers for its products. Consistent with its long term vision of consolidation in the marine industry, the decision was made to acquire a network of existing dealerships in order to stabilize the revenue stream of Revenge, to diversify the outlets for its products and to capture the additional margin normally retained by retail dealers from sales of Revenge products. On February 11, 1999, Revenge entered into an agreement and plan of reorganization (the "Merger Agreement") with First Chance Marine Finance, Inc., a corporation organized under the laws of the State of Florida ("First Chance"), and First Chance Marine Finance Acquisition, Inc., a corporation organized under the laws of the State of Delaware ("Merger Sub") and a direct wholly owned subsidiary of Revenge. Pursuant to the Merger Agreement, (i) Merger Sub was to be merged (the "Merger") with and into First Chance and First Chance was to become a wholly owned subsidiary of Revenge, and(ii) each issued and outstanding share of capital stock of First Chance would be converted into the right to receive shares of common stock, par value $.001 per share, of Revenge ("Revenge Common Stock")or shares of preferred Stock of Revenge ("Revenge Preferred Stock"), par value $.001 per share, upon the terms set forth in the Merger Agreement. A total of approximately 9,363,693 shares of 2 4 Revenge Common Stock or Revenge Preferred Stock convertible into Revenge Common Stock were to be issued to former holders of capital stock of First Chance pursuant to the Merger. The Merger was concluded on March 16, 1999. However, no integration of First Chance and Revenge ever took place and the companies were operated as separate entities. It was the intention of Revenge that the combined companies would engage an underwriter to conduct a secondary offering of convertible preferred or common stock of Revenge in the range of $10,000,000 and that this sum would be used to develop and implement a marketing strategy for the Internet, to fund the expansion of a more robust retail network, to target, initiate and consummate other strategic acquisitions, to retire its $2.1 million dollar indebtedness from Finova Capital Corporation, to service approximately $750,000 in accounts payable and to make substantial capital and infrastructure improvements. At the time of the Merger, Revenge was experiencing severe liquidity problems and had difficulty remaining current in its financial obligations. The principals of First Chance had committed to a best efforts interim financing of $2 to $3 million dollars and an initial capital contribution to Revenge of $1,000,000, $666,666 of which was to be used to fund the marine operations of Revenge. Only $450,000 of these funds were ever delivered and First Chance was unable to procure any interim financing for the combined companies. In addition, the underwriter which was to complete the secondary offering indicated in April of 1999 that they were no longer interested in providing any assistance to the combined companies. The board of directors of Revenge concluded in May of 1999 that the rescission of the merger would be in the best interests of the shareholders of Revenge. On June 4, 1999, Revenge entered into an agreement to rescind an attempted merger with First Chance Marine Finance, Inc. ("First Chance"), a Florida corporation. Pursuant to this agreement, Revenge issued a total of 1,696,000 shares of its common stock, valued at $1,450,000 to First Chance and its associates. First Chance, which had previously advanced Revenge $450,000 in cash, issued 500,000 shares of its common stock, valued at $1,000,000 to Revenge. The 500,000 shares issued to Revenge equate to approximately 7% of First Chance's total outstanding common stock at June 30, 1999. Revenge had been approved in the winter of 1998 for an Industrial Revenue Bond issue for approximately $9,000,000 from Miami-Dade County, subject to Revenge's ability to find credit enhancement for the bond issue. Revenge attempted to find such credit enhancement, but was unsuccessful. Without the bond proceeds, without any interim financing proceeds, with insufficient sales of its marine products and with less than anticipated revenue from service and repair, Revenge was unable to meet many of its obligations. In July of 1999, Revenge was no longer able to service the lease payments for the Miami facility. Although Revenge's payments to Finova were on an interest only basis through June 30, 1999, Revenge was unable to resume either principal or interest payments to Finova and the Finova loan was accelerated in July of 1999. In June 1999, Revenge resolved to discontinue its marine operations and to sell substantially all of its assets. The assets were disposed of through the rescission of the Consolidated Yacht Corporation ("CYC") acquisition and through two cash sales totaling $2,200,000 in August 1999. Virtually all of the marine assets were disposed of during these sales and Revenge was left with 500,000 shares of common stock in First Chance as its only significant asset. 3 5 In August of 1999, the Board of Directors and officers of Revenge resigned, with the exception of President and director William C. Robinson. As of September, 1999, Revenge had no full-time employees other than Mr. Robinson. Mr. Robinson is presently engaged in settling the previous payable obligations of the marine operations of Revenge. On August 24, 1999, Revenge entered into a letter of intent ("LOI") with Reel Fishing Corporation ("Reelfishing"), a Delaware corporation, concerning a merger between Revenge and Reelfishing. Under the terms of the LOI, Revenge would acquire all of the issued and outstanding shares of Reelfishing in exchange for (1) a loan of $250,000 and (2) 65% of the capital stock of Revenge. There were a number of conditions to the merger, including the funding of a loan of $250,000 from Revenge to Reelfishing. Under the LOI, Revenge was to have made the loan to Reelfishing on or before September 7, 1999. This transaction has been abandoned by the parties and will not proceed. Revenge now intends to concentrate its efforts on the Internet and information technology sectors of the marine and other recreational products industries. The long term plan of Revenge is to leverage international relationships with marine entities and with existing marine manufacturers to create a business to business e-commerce internet site for the marine industry and a related site for consumers and sport fishing enthusiasts. Revenge is actively seeking acquisition candidates in the marine and recreational products industries who have a desire to enhance the internet presence of their businesses. Revenge is actively involved in negotiating joint venture and collaboration agreements with high profile web design companies, e-fulfillment and e-shipping concerns and other entities involved in the internet commerce industry. (a) Financial Information about Industry Segments Revenge derived 100% of its revenue and sustained 100% of its loss in the marine industry segment. Reference is made to the consolidated financial statements included in this report on Form 10-K. COMPETITION As Revenge is no longer competing in the marine manufacturing industry, information relevant to competition for Revenge now relates only to the intended information technology, internet related opportunities that Revenge is currently pursuing. The information technology services and internet industry is intensely competitive and Revenge's management believes competition will intensify in the future. If Revenge is able to become an independent provider of internet website features, e-commerce capability and business to business marketing assistance to marine and recreational product industry segments, Revenge will compete with companies which can provide a combination of product procurement and services such as existing marine manufacturers with internet capabilities as well as sophisticated competitors in the internet and e-commerce site development and maintenance industry. The principal competitive factors in the Revenge's new industry include the breath, quality and consistency of service offerings; website design, strategic relationships, working capital, marketing effectiveness, pricing; and expertise and size of technical, graphic, computer programming and systems integration and information technolgy workforces. OTHER COMPETITORS Boating.com, Yachting.com, the dupontregistry.com, boatstore.com, powerboats.com and fishing.com compete in the segment that Revenge intends to enter. These are established websites whose infrastructure has already been built and who have already built significant relationships with resellers and manufacturers. There are significant barriers to entry for Revenge in competing with well-financed, established marine e-commerce sites. 4 6 Most of Revenge's competitors have greater financial, technical and marketing resources and have in-country operations to service international customers. As a result, such companies may be able to respond more quickly to new or emerging technologies and changes in customer needs or devote more resources to the development, promotion and sales of their services than the Company. In addition, competition could result in price decreases and depress gross profit margins in the industry. Further declines in Revenge's gross margins may exacerbate the impact of fluctuating net revenues and operating costs on Revenge's operating results and have a material adverse effect on Revenge's business, operating results and financial condition. SERVICES Revenge is not presently providing any services, though it hopes to establish itself as a source for members of the marine and recreational products industries who want access to the internet and the potential exposure that a well-designed, well-integrated web presence can project. Like US WEB/CKS, the number one provider of websites and turnkey web solutions to the Fortune 500, Revenge intends to acquire existing web developers in the marine and recreational products industry to establish a competitive position quickly and without difficulty. Outsourcing Web Services. Outsourcing -- or hiring outside experts to manage web development, procurement, e-commerce, internet marketing, website hosting and other information technology functions -- is becoming more common among enterprises worldwide. Yet Revenge believes there is a significant opportunity to provide this web outsourcing to the marine and recreational products industries, which tend traditionally to have weak information technology staffs. Revenge hopes to provide customers with Outsourcing Services generally under long term contracts, allowing a stable stream of revenue and a base of relationships in the marine and recreational products industries that will add value to new clients. Internet Outsourcing Services are typically provided through a mixture of on-site and centrally managed resources. Revenge can be the central manager of marine industries web projects and presence. Revenge believes that the fragmentation in the marine industry and lack of effective trade groups and marketing strategies leaves a central web development out source as well as a central marine portal desirable for a wide range of industry consumers. However, Revenge anticipates that it will incur significant initial costs consisting of both personnel costs and capital expenditures in developing this plan. Recreational Products Superportal Revenge intends to use the webhosting, web development and information technology outsourcing relationships that it will develop to add substance and connectivity to its planned recreational super portal. Each of the relationships that Revenge establishes with marine industry companies who wish to take advantage of the web will also provide a content relationship for the umbrella recreational superportal. Revenge will derive revenue from this super portal through advertising and e-commerce revenue. Consulting Services Revenge intends to provide customers with analysis, design, implementation, integration and optimization services on a project-by-project basis, covering all potential internet needs of its customers. These services might include: (i) design, installation and upgrade of internet websites and e-commerce sites in the marine industry; (ii) implementation of messaging and internet/intranet technologies; (iii) comprehensive support to assist customers with their web hosting, updating, order fulfillment needs, systems, network-based applications and connectivity; (iv) design and installation of network, systems and enterprise management solutions for the marine and recreational products industry. 5 7 TRAVEL Revenge intends to develop a fully integrated, comprehensive recreational travel, yacht charter and vacation website which will offer compelling content, commerce and community for the recreational traveler. Revenge seeks to become a leading on-line community for recreational travelers and vacationers worldwide by offering consumers superior content and the largest database of vacation products on the Internet. Revenge intends to focus on the sale of vacation travel packages involving recreation, sports fishing, boating and golf, which offer higher gross margins than airfare, hotel and car rental reservations individually. Of course, Revenge also intends to offer our customers the ability to purchase individual airline tickets and make hotel and rental car reservations, through a value-added, entertainment and information driven user interface that contains elements currently absent in most mainstream e-travel sites. Revenge intends to develop a number of innovative techniques to draw initial visitors to the site, to maintain their interest and to cause them to return to the site again and again. These techniques might include television programming, national and in-flight magazine advertisements, CD ROM mailers, personalized travel club branding including frequent purchaser/site visitor rewards, a referral program, banner advertisements, Sunday Travel Auctions, an on-line geography game, travel related equipment and apparel, video clips and virtual visits, travel tips, currency exchange rates, an on line travel library, weather forecasts, location maps and concierge service, fishing tournament information, professional golf statistics and course evaluations, on-line tee times and yacht charter and pricing information. Revenge hopes that by a focus on recreational sports related travel, Revenge will create a niche market that captures an audience not currently served by other on-line travel agencies. Most on-line travel sites are simply airline reservation systems with little in the way of true value added content. Revenge will create its own branded travel vacation experience, so that a Revenge vacation tends to have positive brand qualities associated with it due to our consistently demanding standards from vacation providers, ease of use, one-stop shopping, competitive prices and exotic, well-packaged destinations that become synonymous with recreational sports. Rather than a blank screen offering unstructured and fragmented choices, Revenge will become a trusted recreational vacation adviser, giving gentle recommendations, providing needed advice and encouraging, through magazine, television and banner teaser ads, Revenge's brand identification. The twenty-four hour nature of the Internet and the easy one-click design of the Revenge site will allow for and encourage midnight surfing, "impulse click and buys", and designation as the browser default home page for boating, recreational sports, golf, active vacation and travel enthusiasts. Revenge intends to combine this content with strategic acquisitions, partnerships and a unique, outstanding multi-media campaign, to become a leading portal for recreational sports travel related consumer products, featuring sports and boating travel related news and information, travel tips, chat rooms, on-line auctions and a robust e-commerce marketplace for travel related equipment, merchandise, apparel, and accessories. Revenge hopes to build a website which functions as a place where sportsmen, fishermen, golfers, travelers and travel enthusiasts can interact, explore compelling and relevant content, and shop. The recreational sports traveler and sports vacation community represents one of the most appealing demographic groups on the world wide web in terms of income and purchasing power. This community drives our recreational sports and boating travel revenue growth and positions us to be a leading channel for marketers, merchants, and advertisers that are increasingly looking to the Internet to reach our demographic database. OPERATIONS Presently, Revenge has very little in the way of current operations. Although there are significant plans to establish an operating internet/e-commerce entity, these plans have not yet been executed and the right merger or acquisition match has not yet been found to fulfill the Revenge Marine operational vision. PRICING OF SERVICES Revenge has not yet determined how it might price its services. 6 8 SALES AND MARKETING Revenge intends to target its marketing efforts primarily at senior level executive, financial and information management personnel in the marine and recreational products industries. Revenge intends to pursue a strategy of building alliances, joint ventures, content swapping deals and strategic collaborations with the most prominent providers, portals, designers and auction sites on the Internet. VENDOR RELATIONSHIPS Presently, Revenge believes that its relationships with vendors and suppliers in the marine industry are rather strained due to the lack of working capital and outstanding commitments that Revenge has to its previous vendors. However, Revenge is presently engaged in rectifying this situation and believes that the personal relationships of its President, William C. Robinson, in the internet and recreational products industries will help to establish Revenge's position as an independent provider of internet Design, integration management services as well as the operation of its marine and recreational products superportals. Employees As of June 30, 1999, the Revenge had approximately 18 full time employees. Presently, however, Revenge has one full-time employee, its President, William C. Robinson. However, as soon as Revenge has concluded its negotiations with its previous marine vendors, Revenge intends to actively recruit veterans of the internet, marine and recreational products industries to assist in the development of the Revenge internet strategy. It is anticipated that a significant number of these employees will be hired by means of a merger or acquisition. Of course, the high technology nature of the Revenge's contemplated business requires the recruiting and training of a significant number of qualified technical personnel. Revenge will have to rapidly hire a significant number of technical personnel to staff projects at customer sites, on the marine and recreational superportals and support e-commerce fulfillment and marketing. Competition for qualified technical and sales personnel is intense, as Revenge competes with other service providers, as well as with its own customers. The growth of the internet has created a premium for a computer skilled workforce. Revenge's voluntary employee turnover for Fiscal 1999 is difficult to estimate as Revenge dismissed its full-time employees due to financial difficulties. Management estimates that the voluntary employee turnover was less than 10%. REORGANIZATION AND DIVESTITURE GLOBAL ENERGY ORGANIZATION CORPORATION In January 1998, Revenge Marine, Inc. (formerly Revenge Yachts, Inc.), an Oklahoma corporation, executed a Stock Exchange Agreement (the "Agreement") with Global Energy Organization Corporation ("Global"), a publicly traded Nevada corporation, which had been inactive for the previous five years. Pursuant to the Agreement dated January 23, 1998, Global issued 3,240,000 shares of its $.001 par value common stock in exchange for 100% of the issued and outstanding common stock of Revenge Marine, Inc. As a result of this "reverse acquisition", Revenge Marine, Inc. became a wholly owned subsidiary of Global. In accordance with the terms of the agreement, Global (the Nevada parent) adopted the name "Revenge Marine, Inc." 7 9 BYC ACQUISITION CORPORATION Under an agreement dated October 22, 1998, Revenge purchased substantially all of the assets and certain liabilities of BYC Acquisition Corporation ("BYC"), a Delaware corporation. In consideration of the transfer of assets and liabilities, Revenge paid $1,005,455 in cash and issued a warrant entitling BYC to purchase up to 545,455 shares of Revenge's common stock at an exercise price of $6.44 per share at any time through October 22, 2001. The agreement also called for Revenge to pay a 2% of sales price fee on all Blackfin sales to BYC for a period of three years from the agreement date. The assets acquired consist primarily of boat molds and shop equipment. The purchase agreement was terminated pursuant to a replacement agreement dated June 30, 1999, whereby all assumed liabilities were paid by the issuance of preferred shares to BYC, the stock warrant was returned to Revenge, and Revenge's obligation for any accrued fees on Blackfin sales was terminated. In consideration of the termination of the purchase agreement, Revenge issued to BYC 1,206 shares of its Series B Cumulative Convertible Preferred Stock and issued a warrant to purchase up to 1,500,000 shares of Revenge's common stock at an exercise price of $0.37 per share. Further, Revenge is obligated to pay BYC a fee equal to 1% of its total revenues from all sources for the period from April 1, 1999 to April 30, 2002. CONSOLIDATED YACHT CORPORATION, INC. On September 8, 1998, Revenge purchased substantially all of the assets of Consolidated Yacht Corporation, Inc. ("CYC") in exchange for a promissory note in the amount of $458,162. The president of CYC was a related party to Revenge as further disclosed in Note 7. The purchase agreement was terminated by means of a rescission agreement dated June 30, 1999. The rescission agreement called for the return of all purchased assets, the cancellation of the promissory note, and the immediate vesting of stock options held by the president of CYC. Further, an automobile was transferred to CYC in exchange for monies advanced to Revenge by CYC's president. CYC's president returned 895,333 shares of stock to Revenge, which had been issued to him pursuant to Revenge's acquisition of Egret Boat Company and Consolidated Marine (see following disclosures). CYC will assume the lease on Revenge's operating facility. In an amendment to the original agreement which was signed on October 18th allowed Jim Gardiner, Consolidated's owner to keep the originally canceled shares for the assumption of $175,000 in debt and all liabilities related to the Miami Facility. 8 10 FIRST CHANCE MARINE FINANCE, INC. On June 4, 1999, Revenge entered into an agreement to rescind an attempted merger with First Chance Marine Finance, Inc. ("First Chance"), a Florida corporation. Pursuant to this agreement, Revenge issued a total of 1,696,000 shares of its common stock, valued at $1,450,000 to First Chance and its associates. First Chance, which had previously advanced Revenge $450,000 in cash, issued 500,000 of its common stock, valued at $1,000,000 to Revenge. The 500,000 shares issued to Revenge equate to approximately 7% of First Chance's total outstanding common stock at June 30, 1999. EGRET BOAT COMPANY, INC. Pursuant to a stock exchange agreement dated May 21, 1998, Revenge issued 955,414 shares of its common stock, valued at $1,500,000, in exchange for all of the outstanding shares of Egret Boat Company, Inc., a Florida corporation. The acquisition was accounted for as a purchase and, accordingly, the results of operations of the acquired business and the fair market values of the acquired assets and liabilities are included with consolidated operations from the date of acquisition. The purchase price was allocated as follows: Property and equipment $ 117,547 Working capital, net 20,061 Other intangible assets 1,362,392 ---------- Total $1,500,000 ========== CONSOLIDATED MARINE, INC. Pursuant to a stock exchange agreement dated May 27, 1998, Revenge issued 636,942 shares of its common stock, valued at $1,000,000 in exchange for all of the outstanding common shares of Consolidated Marine, Inc. (CMI), a Florida corporation. The acquisition was accounted for as a purchase and, accordingly, the results of operations of the acquired business and the fair market values of the acquired assets and liabilities are included with consolidated operations from the date of acquisition. In August 1998, the purchase price was renegotiated and an additional 180,692 shares of Revenge stock valued at $237,068 were issued to CMI. The revised purchase price was allocated as follows: Organization costs $ 500 Other intangible assets 1,236,568 ---------- Total $1,237,068 ========== BUSINESS FACTORS Investors should carefully consider all of the information contained herein, including the following business factors. In addition, this Form 10-K contains certain forward looking statements and trend analysis based on current expectations. Actual results may differ materially due to a number of factors, including those set forth below. 9 11 High Degree of Leverage; No working Capital; No Employees; No Facilities; Future Capital Needs As of June 30, 1999, after giving effect to the cash sales of the marine assets, the application of the net proceeds there from, Revenge had outstanding indebtedness of approximately $1.1 million. Management is currently in the process of settling for equity the majority of this debt. However, there can be no assurance that this re-negotiation will be successful. This leverage may have several important consequences for the Revenge, including, but not limited to, the following: (i) Revenge's ability to obtain additional financing in the future for working capital, acquisitions, capital expenditures, general corporate or other requirements may be limited or impaired; (ii) a substantial portion of Revenge's cash flow from operations will be dedicated to servicing its indebtedness; and (iii) Revenge's ability to withstand competitive pressures or adverse economic conditions, and to take advantage of future business opportunities that may arise, may be negatively affected. The Company's inability to service its indebtedness or obtain additional financing, as needed, on favorable terms would have a material adverse effect on the Company's business, operating results and financial condition. Fluctuations in Operating Results Revenge's operating results have varied in the past, and Revenge expects its operating results to continue to fluctuate. Revenge's net revenues may fluctuate due to a variety of factors, including the success of Revenge at attracting new investment and new customers, the rate at which Revenge hires new employees, the amount Revenge is required to spend on development of its super portals and the amount of indebtedness Revenge is able to settle for equity. Once Revenge's internet operations commence, Revenge's operating results may be especially sensitive to changes in the margin mix of services sold and the level of its operating expenses. Revenge's operating expenses may fluctuate as a result of numerous factors, including the timing and rate of new employee hiring, the utilization rate of service personnel and competitive conditions. Revenge's costs are unknown in the near term, and Revenge may be unable to adjust spending in a timely manner to compensate for an unexpected revenue shortfall. As a result, revenue shortfalls may have an immediate and disproportionate adverse effect on operating results. In addition, if Revenge spends to build its capabilities to support higher revenue levels, Revenge's near term operating results will suffer until it achieves its revenue goals. Due to all of these factors, Revenge believes that its operating results are likely to vary. Intense Competition Boating.com, Yachting.com, the dupontregistry.com, boatstore.com, powerboats.com and fishing.com compete in the segment that Revenge intends to enter. These are established websites whose infrastructure has already been built and who have already built significant relationships with resellers and manufacturers. There are significant barriers to entry for Revenge in competing with well-financed, established marine e-commerce sites. 10 12 Most of Revenge's competitors have greater financial, technical and marketing resources and have in-country operations to service international customers. As a result, such companies may be able to respond more quickly to new or emerging technologies and changes in customer needs or devote more resources to the development, promotion and sales of their services than the Company. In addition, competition could result in price decreases and depress gross profit margins in the industry. Further declines in Revenge's gross margins may exacerbate the impact of fluctuating net revenues and operating costs on Revenge's operating results and have a material adverse effect on Revenge's business, operating results and financial condition. Need to Recruit and Retain Management, Technical and Sales Personnel Revenge believes that its future success depends, to a large extent, upon the efforts and abilities of its executive officers, managers, technical and sales personnel which it intends to hire shortly. Failure by Revenge to attract and train skilled managers, technical and sales personnel on a timely basis, or the inability of Revenge to attract such personnel, could materially adversely affect Revenge's business, operating results and financial condition. Control by Principal Stockholders The President of Revenge, William C. Robinson and his family and trusts related to his family beneficially own substantially in excess of a majority of the outstanding shares of common stock, $.001 par value, of Revenge (the "Common Stock"). As a result, Mr. Robinson is able to control the election of members of Revenge's Board of Directors and generally exercise control over Revenge's corporate actions. Year 2000 Readiness Revenge intends to use a significant number of computer software programs and operating systems in its internal operations, including applications used in internet web design, web hosting and financial business systems and various administration functions. As the Year 2000 approaches, each of these computer systems may be affected in some way by the rollover of the two-digit year value to "00". If these systems are unable to properly recognize date sensitive information when the year changes to 2000, they could generate erroneous data or fail. Revenge intends to utilize both internal and external resources to identify, correct or reprogram, and test the systems for Year 2000 compliance. Revenge intends to classify its Year 2000 project into five phases: inventory, assessment, renovation, validation and implementation. Inventory is the process in which all electronic/computer components are defined for all systems (information technology and non-information technology). Assessment is the process in which all components are classified as either "Y2K-ready" or not. Renovation is the process in which systems undergo necessary upgrades or replacements or are retired. Validation is the process in which renovated systems are tested within Revenge's infrastructure to validate that either the 11 13 readiness assessment is correct or that the renovated system or component can be integrated without causing or being affected by a Year 2000 impact. Implementation is the process in which a prepared system is installed into the Company's production environment and is utilized to support business operations. Revenge has not yet completed any of the above steps and may not be able to do so before December 31, 1999. Revenge has no basis, since its information technology operations have not yet commenced, of what it will spend on Year 2000 remediation. In addition to intending to upgrade its own systems, Revenge intends to contact certain significant customers and suppliers to determine their Year 2000 readiness profile if there are customers and suppliers in time to make such an inquiry relevant. All potential risks and uncertainties associated with the Year 2000 issue cannot be fully and accurately quantified. Contingency plans will be developed if third party data interchange partners fail compliance testing or if the replacement or renovation of other existing systems is not on schedule. Although Revenge does not believe that any additional costs or potential loss in revenue associated with Year 2000 readiness initiatives will have a material adverse effect on Revenge's business, operating results or financial condition, there can be no assurance that the costs associated with updating software or recovering from potential systems interruptions would not have a material adverse effect on Revenge's business, operating results and financial condition. Risk Factors Related to Revenge's Internet Plan Revenge intends to launch its web site in December, 1999. Revenge has virtually no operating history in the Internet, e-commerce or travel industries available to evaluate its business and prospects. There are many risks, expenses and uncertainties that may be encountered by development stage companies, particularly in the new and emerging Internet market: o An evolving and unproven business model; o Management of an expanding business in a rapidly changing market; o Attract new customers and maintain customer satisfaction; o Introduce new and enhanced sites, services, products, content, and alliances; o Maintain its profit margins notwithstanding price competition or rising wholesale prices; and o Minimize technical difficulties, system downtime and the effect of Internet brownouts. To address these risks Revenge must successfully: o Develop and extend relationships with manufacturers for merchandise; o Develop its web site into a web "community"; o Develop alliances with celebrities and parties in the recreational products business to provide web site content; o Implement an evolving and unproven business model; o Establish internal accounting systems and controls; o Manage growth; if any; o Develop and manage an efficient distribution system; o Develop and implement an efficient transaction processing system; and 12 14 o Successfully develop and market its new web site. If Revenge does not successfully manage these risks, its business will suffer. Revenge cannot assure that it will successfully address these risks or that its business strategy will be successful. REVENGE HAS INCURRED LOSSES AND EXPECTS TO INCUR SUBSTANTIAL LOSSES FOR THE FORESEEABLE FUTURE. Since inception, Revenge has been operating at a loss for virtually all periods since its inception. Revenge expects that operating losses and negative cash flow will continue for the foreseeable future as Revenge must invest in marketing and promotional activities, technology and operating systems in order to change its revenue model from manufacturing to service related industries. Revenge believes that increasing its revenues will depend in large part on its ability to: o Develop and increase consumer awareness of its online community and develop effective marketing and other promotional activities to drive traffic to its web site; o Generate advertising revenues from its online community; o Develop and Enhance its online travel agency, on-line store, transaction-processing systems and network infrastructure to support increased traffic; o Provide its customers with quality content and e-commerce experiences; and o Develop strategic relationships. Revenge's future profitability depends on generating and sustaining high revenue growth while maintaining reasonable expense levels. Slower revenue growth than Revenge anticipates or operating expenses that exceed its expectations would harm its business. If Revenge achieves profitability, Revenge cannot be certain that Revenge would be able to sustain or increase profitability in the future. Revenge cannot be certain when or if it will achieve sufficient revenues in relation to expenses to become profitable REVENGE WILL NEED ADDITIONAL CAPITAL TO FUND ITS BUSINESS. Revenge requires substantial working capital to fund its new business ventures into the internet and recreational products service industry and may need more in the future. Revenge will likely experience negative cash flow from operations for the foreseeable future. Revenge does not presently have sufficient working capital to implement its on-line strategy and there can be no assurance that such capital will be forthcoming on terms that Revenge will find acceptable. Revenge needs to raise additional funds through the issuance of equity, equity-related or debt securities and therefore the current shareholders' stock ownership percentage will be diluted. If Revenge is unable to obtain adequate additional financing on reasonable terms, its operations may never commence and Revenge may never become profitable. Revenge cannot be certain that additional financing will be available. REVENGE MAY BE UNABLE DEVELOP A COMPELLING WEBSITE OR SUPPORT THE VOLUME ON ITS WEB SITE. A key element of Revenge's strategy is to develop a website which will generate a high volume of traffic However, if Revenge is successful in creating such a site, growth in the number of users of its online community may strain or exceed the capacity of its computer systems and lead to declines in performance or systems failure. Revenge has no present systems and is not certain if it will be able to acquire adequate capacity to accommodate rapid growth in user demand. Revenge will therefore need to add hardware and software and to develop and after development, to improve and enhance the functionality and performance of its community, e-commerce, customer tracking and other technical systems. Revenge intends to develop on-line systems and implement new systems as Revenge anticipates new demand. Failure to implement these systems effectively or within a reasonable period of time would result in a failure of Revenge's on-line strategy. Revenge must also introduce additional or enhanced features and services to attract and retain customers to its web site. If a new service is not favorably received, its customers may visit its web site less frequently. These new services or features may not function well, and Revenge may need to 13 15 modify the design of these services significantly to correct errors. If users encounter difficulty with or do not accept its services or features, its business, operating results and financial condition would be adversely affected. REVENGE NEEDS TO ATTRACT, RETAIN AND MOTIVATE SKILLED PERSONNEL AND RETAIN ITS KEY PERSONNEL IN ORDER FOR ITS BUSINESS TO SUCCEED. Its ability to develop and maintain its web site and other necessary systems depends on its ability to attract, retain and motivate highly skilled technical, managerial and marketing personnel. Competition for skilled software engineers has greatly increased with the emergence of a number of internet retailers and other electronic commerce developments. If Revenge is unable to attract and retain the necessary personnel, its web site and other systems may not operate efficiently. These difficulties could materially and adversely affect its business and results of operations. REVENGE'S BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH COMPETITION IN THE MARKETPLACE. Revenge can make no assurance that Revenge will be able to compete successfully or that competitive pressures will not damage its business. Its competition includes: o Web sites maintained by other online retailers of recreational sports, boating and travel products; o Other retailers offering products comparable to those being sold by Revenge; and o Internet portals and on-line service providers that feature travel and recreation, such as Expedia, Preview Travel, Travelocity, Cheaptickets.com and Priceline. Revenge's competitors are larger than Revenge and have substantially greater financial, distribution and marketing resources. In addition, its competitors may be able to secure products, including airfare, resort accommodations and tour packages from vendors on more favorable terms, fulfill customer orders more efficiently and adopt more aggressive pricing or inventory availability policies than Revenge can. Traditional store-based retailers also enable customers to see products in a manner that is not possible over the Internet. Some online competitors may be able to use the Internet as a marketing medium to reach significant numbers of potential customers more effectively than Revenge can. REVENGE MAY HAVE DIFFICULTY OBTAINING CONTENT AND MERCHANDISE. Revenge wants to offer content to its customers to develop an Internet community. There can be no assurance that Revenge will be able to obtain such content or that Revenge will develop a viable Internet community. If Revenge is not able to develop a viable recreational products and travel based web community, its business, operating results and financial condition may never improve from the present state of virtual non-operation. 14 16 GENERAL ECONOMIC CONDITIONS AND DISCRETIONARY CONSUMER SPENDING MAY AFFECT REVENGE'S PERFORMANCE. Revenge's operations depend upon a number of factors relating to or affecting consumer spending for discretionary goods, such as Revenge's products. Revenge's operations may be adversely affected by unfavorable local, regional, or national economic developments or by uncertainties regarding future economic prospects that reduce consumer spending in the markets served by Revenge. Consumer spending on non-essential goods can also be adversely affected as a result of declines in consumer confidence levels, even if prevailing economic conditions are favorable. In an economic downturn, consumer discretionary spending levels generally decline, often resulting in disproportionately large reductions in the purchase of discretionary goods. There can be no assurance that Revenge's results of operations would not be significantly adversely affected during any such period of adverse economic conditions or low consumer confidence REVENGE'S BRAND MAY NOT ATTAIN SUFFICIENT RECOGNITION. Revenge believes that establishing, maintaining and enhancing its brand is a critical aspect of its efforts to attract and expand its online traffic. The number of Internet sites that offer competing services and products increase the importance of establishing and maintaining brand name recognition. Promotion of its web site will depend largely on its success in providing a high-quality online experience supported by a high level of customer service, which cannot be assured. To attract and retain online users, and to promote and maintain its web site in response to competitive pressures, Revenge may find it necessary to increase substantially its financial commitment to creating and maintaining a strong brand loyalty among customers. This will require significant expenditures on advertising and marketing. If Revenge were unable to provide high-quality online services or customer support, or otherwise fails to promote and maintain its web site and online community, or if Revenge incurs excessive expenses in an attempt to promote and maintain its web site, its business prospects, operating results and financial condition would be materially adversely affected. REVENGE'S BUSINESS DEPENDS ON CONTINUED GROWTH OF ELECTRONIC COMMERCE. Its future revenues and profits, if any, will depend substantially upon the acceptance and use of the Internet and other online services as an effective medium of community and commerce by its target customers. Rapid growth in the use of and interest in the Internet and online services is a recent phenomenon. Acceptance and use of the Internet and other online services may not continue to develop at historical rates and a sufficiently broad base of consumers may not adopt, and continue to use, the Internet and other online services as a medium of commerce. Demand and market acceptance for recently introduced services and products over the Internet are subject to a high level of uncertainty and there exist few proven services and products. Revenge's target customer has historically used traditional means of commerce to purchase recreational sports products, services, travel, vacation packages and related merchandise and to obtain recreational products, boating, sports and travel information. For Revenge to be successful, these customers must accept and utilize its online program to provide them recreational products and information. In addition, the Internet may not be accepted as a viable long-term marketplace for information and products for a number of other reasons beyond Revenge's control, including potentially inadequate development of the necessary network infrastructure or delayed development of enabling technologies and performance improvements. To the extent that the Internet continues to experience significant expansion in the number of users and bandwidth growth requirements, the infrastructure for the Internet may be unable to support the demands placed upon it. In addition, the Internet could lose its viability due to delays in the development or adoption of new standards and protocols required to handle increased levels of Internet activity or more sophisticated levels of content (such as streaming video), or due to increased governmental regulation. Changes in or insufficient availability of telecommunications services to support the Internet also could result in slower response times and adversely affect usage of the Internet generally and its online community in particular. 15 17 REVENGE MUST KEEP UP WITH RAPID TECHNOLOGICAL CHANGES THAT AFFECT ELECTRONIC COMMERCE. To remain competitive, Revenge must continue to enhance and improve the responsiveness, functionality and features of its online operations. The Internet and the electronic commerce industry are characterized by: o Rapid technological change; o Changes in user and customer requirements and preferences; o Frequent new product, service, and content introductions embodying new technologies; and o The emergence of new industry standards and practices. The evolving nature of the Internet could render Revenge's intended online community, technology, and systems obsolete. Its success will depend, in part, on its ability to: o License leading technologies useful in its business; o Develop content, products, and services that appeal to its customers; o Develop new services and technology that address the increasingly sophisticated and varied needs of its customers; and o Respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. The development of Revenge's web site and other technology entails significant technical and business risks. Revenge may not use new technologies effectively or adapt its online community, technology, and transaction-processing systems to customer requirements or emerging industry standards. If Revenge were unable, for technical, legal, financial or other reasons, to adapt in a timely manner, in response to changing market conditions or customer requirements, its business, financial condition and results of operations could be seriously harmed. REVENGE DEPENDS ON THIRD PARTY SHIPPERS, CONTENT SOURCES, COMMUNICATIONS PROVIDERS AND VENDORS TO OPERATE ITS BUSINESS. Revenge depends on a number of third parties to deliver goods and services to Revenge and its customers. For example, Revenge will rely on the United States Postal Service, United Parcel Service, Federal Express and other carriers to ship merchandise to its customers. Strikes or other service interruptions affecting one or more of its shippers could impair its ability to deliver merchandise on a timely basis. Revenge will depend on communications providers to provide its Internet users with access to its online community. Its online community could experience disruptions or interruptions in service due to failures by these providers. In addition, its users depend on Internet service providers and web site operators for access to its online community. Each of these groups has experienced significant outages in the past and could experience outages, delays and other difficulties due to system failures unrelated to its systems. These types of occurrences could cause users to perceive its web site as not functioning properly and therefore cause them to stop using its services. Revenge depends on the ability of third-party vendors to provide it with recreational products, travel and vacation products and related merchandise at competitive prices and in sufficient quantities. Revenge has no relationships presently with such suppliers. Revenge may never develop such relationships. Even if Revenge is successful in developing such relationships, Revenge's suppliers may have limited resources, production capacities and operating histories. Revenge's business could be harmed if its ability to procure products becomes limited. REVENGE MAY BE SUBJECT TO SALES AND OTHER TAXES. Revenge may not collect sales or other similar taxes for physical shipments of goods into states other than the state where its on-line operations would be based. One or more local, state or foreign jurisdictions may seek to impose sales tax collection obligations on Revenge. In addition, any new operation in states outside Revenge's base of operations could subject Revenge's shipments in such states to state sales taxes under current or future 16 18 laws. If one or more states or any foreign country successfully asserts that Revenge should collect sales or other taxes on the sale of its products, the resulting tax liability could impair Revenge's business. Any such liability could also include liability for back taxes and penalties, which could cause significant harm to Revenge's financial condition and may require it to restate earnings for prior periods. CONFLICTS OF INTEREST MAY OCCUR IN TRANSACTIONS WITH AFFILIATES. Revenge may enter into transactions with its affiliates that involve conflicts of interest. Such arrangements would not be negotiated on an arms' length basis. While Revenge intends to enter into any future related party transactions on terms no less favorable than those Revenge could obtain from unrelated third parties, the interests of directors or officers of Revenge or holders of more than 5% of its Common Stock, in their individual capacities or capacities with related third-party entities, may conflict with the interests of such persons in their capacities with Revenge. ELECTRONIC COMMERCE IS SUBJECT TO SECURITY RISKS. A fundamental requirement of electronic commerce and communications is the secure transmission of confidential information over public networks. Revenge will rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary for secure transmission of confidential information, such as customer credit card numbers. In addition, Revenge intends to maintain an extensive confidential database of customer profiles and transaction information. Advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments may result in a compromise or breach of the methods used by Revenge to protect customer transaction data. If any such compromise of its security were to occur, it could seriously harm Revenge's reputation, business, financial condition and results of operations. A party who is able to circumvent Revenge's security measures could misappropriate proprietary information or cause interruptions in Revenge's operations. Revenge may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. Concerns over the security of the Internet and other online transactions and the privacy of users may also inhibit the growth of the Internet and other online services, especially as a means of conducting commercial transactions. To the extent that activities of Revenge or third-party contractors involve the storage and transmission of proprietary information, such as credit card numbers, security breaches could damage its reputation and expose Revenge to a risk of loss or litigation and possible liability. Revenge's security measures may not prevent security breaches and failure to prevent such security breaches may seriously harm its business, financial condition and results of operations. Revenge cannot assure that others will not independently develop substantially equivalent proprietary information and techniques. In addition, Revenge may be required to obtain licenses to certain intellectual property or other proprietary rights of third parties. Revenge cannot assure that any such licenses or proprietary rights would be made available to under acceptable terms, if at all. If Revenge does not obtain required licenses or proprietary rights, Revenge could encounter delays in product development or find that the development or sale of products requiring such licenses could be foreclosed. GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD BURDEN ITS BUSINESS. The adoption or modification of laws or regulations applicable to the Internet could harm Revenge's future on-line business. The U.S. Congress recently passed laws regarding children's online privacy, copyrights and taxation. The law governing the Internet, however, remains largely unsettled. New laws may impose burdens on companies conducting business over the Internet. Although its online transmissions generally originate in California, the governments of other states or foreign countries might attempt to regulate its transmissions or levy sales or other taxes relating to its activities. It may take years to determine whether and how existing laws governing intellectual 17 19 property, privacy, libel and taxation apply to the Internet and online advertising. In addition, the growth and development of online commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad. Revenge also may be subject to regulation not specifically related to the Internet, including laws affecting direct marketers. ITEM 2. PROPERTIES. Presently, Revenge does not have significant office facilities or operational facilities. Revenge is not currently making lease payments on any facility. Revenge believes that it would be able to occupy a portion of its former facility on the Miami river rent free by accommodation from former director James Gardiner, but there can be no assurance that this will take place. Presently, Revenge's corporate operations, which primarily involve winding down of its previous manufacturing capacity and pursuing the development of its on-line strategy, are conducted from the offices of director William C. Robinson in Tulsa, Oklahoma. Revenge pays no rent for the use of Mr. Robinson's office facilities. ITEM 3. LEGAL PROCEEDINGS. The Company is engaged in legal actions arising in the ordinary course of business. Revenge believes that these actions could result in no more than $79,000 in potential liabilities for Revenge. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during Fiscal 1999. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. As of June 30, 1999, Revenge had outstanding Common Stock, $0.001 par value, 50,000,000 shares authorized, 10,898,810 and 6,675,720 shares issued and outstanding at June 30, 1999 and 1998 respectively. MARKET PRICE OF COMMON EQUITY The Company's Common Stock, $.001 par value per share ("Common Stock")are listed on the National Association of Securities Dealers Over the Counter Bulletin Board Quotation System ("OTC"). There were approximately 2,546 18 20 beneficial holders of the Common Stock. The following table sets forth the high and low closing sale prices of Common Stock, as reported by the OTC, for the periods indicated. COMMON STOCK ---------------- 1998 HIGH LOW ----- ------ First Quarter .00 Second Quarter .00 Third Quarter 3.063 1.370 Fourth Quarter 2.50 1.031 COMMON STOCK ---------------- 1999 HIGH LOW ----- ------ First Quarter 1.75 .50 Second Quarter .75 .125 Third Quarter 1.375 .531 Fourth Quarter 1.062 .437 The Company has never paid dividends on its Common Stock. The Company has no present plans to pay cash dividends in the foreseeable future and intends to retain earnings for the future operation and expansion of the business. Any determination to declare or pay dividends in the future will be at the discretion of the Company's Board of Directors and will depend on the Company's results of operations, financial condition, any contractual restrictions, considerations imposed by applicable law and other factors deemed relevant by the Board of Directors. Described below are all sales of securities by the Company during the fiscal year ended June 30, 1999 that were not registered under the Securities Act of 1933, as amended (the "1933 Act"). On the issuance of these securities the Company relied on the exemption from registration under the 1933 Act set forth in Section 4(2) thereof, based on established criteria for effecting a private offering, including the number of offerees for each transaction, access to information regarding the Company, disclosure of information by the Company, restrictions on resale of the securities offered, investment representations by the purchasers, and the qualification of offerees as "accredited investors." In Fiscal 1999, the Company issued 4,223,090 shares of unregistered common stock in offerings described in part Revenge's previous filings on Form 10Q and Form 10. Certain of these issuances are reproduced below. The remainder are contained in Revenge's filings on Form 10 and Form 10Q for issuances during the first three quarters of fiscal year 1999. 1,696,000 shares of common stock were issued in connection with the merger with First Chance Marine Finance, effective March 16, 1999. Revenge received $450,000 in cash and 500,000 shares of First Chance common stock in exchange for the shares of Revenge common at the conclusion of the rescission of the merger. In June, 1999, Revenge issued Series B 10% Cumulative Convertible Preferred Stock, $40 par value, convertible into Common Stock based on a 40% discount to the bid price as listed on the NASDAQ Bulletin Board on the day of conversion; authorized 75,000 shares; 17,330 shares issued and 2,718 shares outstanding at June 30, 1999; liquidation preference equal to the par value of any outstanding shares plus accrued dividends, if any prior to any distributions to Common Stock holders. In January, 1999, Revenge issued 630,590 shares of common stock to assignees and affiliates of Roy Meadows at a price per share of $0.12. These shares were issued pursuant to the terms of a convertible debenture which Mr. Meadows purchased from its original holder. In January, 1999, Allied Capital Corporation, ("Allied") an affiliate of Director William C. Robinson, converted $200,000 of debt owed by the corporation to Allied into 588,235 shares of common stock of Revenge, pursuant to a resolution adopted by the Board of Directors of Revenge on December 15, 1998, at the then current market price of $0.37 per share. 19 21 Options and Warrants to Purchase Common Shares of Revenge In December 1998, the Company adopted its 1998 Incentive Stock Plan ("the Plan") under which 2.8 million options to purchase common stock were granted to substantially all full-time employees. The options granted under the Plan extend for 5 years from the date of grant and vest in monthly increments over a period of up to two years. The exercise price was equal to the stock price on the grant date. The Plan is considered to be a non-compensatory plan, as defined by Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation". Accordingly, no compensation cost has been recognized for the year ended June 30, 1999. The options were issued at per share exercise prices between $0.34 and $0.37 per share. In June 1999, the Company issued a warrant to purchase up to 1,500,000 shares of the Company's common stock at an exercise price of $0.37 per share to Detroit Diesel corporation. The warrant expires June 30, 2002. In June 1999, the Company issued a warrant to purchase up to 250,000 shares of the Company's common stock at an exercise price of $0.37 per share in exchange for consulting services relating to the Blackfin Yacht Corporation asset acquisition to Peter Johnson. The warrant expires June 30, 2002. In May 1998, the Company granted stock options pursuant to a consulting agreement to purchase 175,000 shares of common stock at $1.00 per share, 175,000 shares of common stock at $1.50 per share, and 175,000 shares of common stock at $2.00 per share to affiliates of Roy Meadows. The options expire December 31, 2000. In May 1998, the Company issued a warrant to purchase up to 20,000 shares of the Company's common stock at an exercise price of $1.50 per share as partial consideration for consulting services. 20 22 Information with respect to all stock options and warrants is summarized below: WEIGHTED-AVERAGE SHARES EXERCISE PRICE ------ ---------------- Outstanding at inception -- $ -- Granted 1998 545,000 1.50 ---------- ----- Outstanding at June 30, 1998 545,000 1.50 Granted 1999 4,550,000 0.37 ---------- ----- Outstanding at June 30, 1999 5,095,000 0.49 ========== ===== Options exercisable, June 30, 1998 545,000 1.50 Options exercisable, June 30, 1999 4,373,054 0.51 21 23 Item 6. Selected Financial Data The following table sets forth selected historical financial data of the Company as of the dates and for the periods indicated. The selected financial data of the Company were derived from the audited consolidated financial statements included herein. The selected consolidated financial information presented below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements and related notes thereto of the Company appearing elsewhere herein. Although Regulation S-K, Item 301, indicates that information should be provided for continuing operations, the Registrant has no continuing operations at the present time. Therefore, providing a convenient format to highlight certain significant trends in registrants operations and financial condition may not be helpful, as the operations are no longer continuing. Nevertheless, information for discontinued operations is provided below
Item Fiscal 1999 Fiscal 1998 - ---- ----------- ----------- Loss from Discontinued Operations (3,432,808) (318,932) Loss on Disposal of Assets from Discontinued Operations (918,047) -- Net Loss (4,350,855) (318,932) Weighted Average Shares Outstanding 7,129,680 4,325,237 Net Loss From Operations Per Share (0.61) (0.07)
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation The following discussion and analysis of the Company's consolidated financial position and consolidated results of operations should be read in conjunction with the Company's Selected Consolidated Financial Information included and the Consolidated Financial Statements and related Notes thereto included herein. FORWARD LOOKING STATEMENTS THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS. ADDITIONAL WRITTEN OR ORAL FORWARD LOOKING STATEMENTS MAY BE MADE BY THE COMPANY FROM TIME TO TIME IN FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION OR OTHERWISE. SUCH FORWARD LOOKING STATEMENTS ARE WITHIN THE MEANING OF THE TERM IN SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS MAY INCLUDE, BUT NOT BE LIMITED TO, PROJECTIONS OF REVENUES, INCOME, OR LOSS, ESTIMATES OF CAPITAL EXPENDITURES, PLANS FOR FUTURE OPERATIONS, PRODUCTS OR SERVICES, AND FINANCING NEEDS OR PLANS, AS WELL AS ASSUMPTIONS RELATING TO THE FOREGOING. THE WORDS "BELIEVE," "EXPECT," "ANTICIPATE," "ESTIMATE," "PROJECT," AND SIMILAR EXPRESSIONS IDENTIFY FORWARD LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE THE STATEMENT WAS MADE. FORWARD LOOKING STATEMENTS ARE INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES, SOME OF WHICH CANNOT BE PREDICTED OR QUANTIFIED. FUTURE EVENTS AND ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN, CONTEMPLATED BY, OR UNDERLYING THE FORWARD LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS, OR OTHERWISE. THE FOLLOWING DISCLOSURES, AS WELL AS OTHER STATEMENTS IN THIS REPORT ON FORM 10-K, AND IN THE NOTES TO THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS, DESCRIBE FACTORS, AMONG OTHERS, THAT COULD CONTRIBUTE TO OR CAUSE SUCH DIFFERENCES, OR THAT COULD AFFECT THE COMPANY'S STOCK PRICE. 22 24 RESULTS OF OPERATIONS Revenge was originally incorporated as Contracap, Inc., a Nevada corporation in 1979. After undergoing several name changes, Contracap, Inc. became Global Energy Organization Corporation ("Global") which had no business activities as of September, 1998. In January, 1998, the present Revenge entity was created by means of a Reverse merger of Revenge Yachts, Inc., an Oklahoma corporation, into Global, which created Revenge Marine, Inc., a Nevada corporation. Revenge restated its purpose as consolidating marine manufacturing and marketing operations. Revenge completed acquisitions of Egret Boat Company and Consolidated Marine, Inc. in June and August of 1998. These acquisitions gave Revenge manufacturing and repair capabilities. In October, 1998, Revenge completed the acquisition of the manufacturing assets of Blackfin Yacht Corporation. Revenge borrowed $2.1 million from Finova Capital Corporation to procure these assets and provide working capital. In October, 1998, Revenge commenced its manufacturing operations in its newly renovated Miami facility and began closing the Consolidated Marine facility in Dania. Revenge was unable to generate sufficient cash flow or revenues to continue its marine manufacturing operations, to service its obligations to Finova Capital Corporation or to pay its lease payments on the Miami facility. Revenge was unable to raise sufficient funds from equity or debt to allow its manufacturing operation to continue. Revenge attempted a merger with First Chance Marine, Inc. in order to increase sales opportunities and investment possibilities for the combined companies in March of 1999. The merger was not successful in achieving these goals and was rescinded in June of 1999. Except for the completion of a few boats in progress which were financed entirely by customers, Revenge ceased its manufacturing operations in June of 1999. Subsequent to the end of the fiscal year covered by this report on Form 10 K, Revenge disposed of its marine manufacturing assets, which constituted substantially all of the Revenge assets, excluding 500,000 common shares of First Chance Marine Finance, Inc. With no significant assets and no revenue, Revenge restated its purpose in September of 1999 as developing, coordinating and deploying internet and e-commerce solutions to the recreational products, recreational sports and recreational sports travel market, as well as recreational boating and sports fishing. No operations consistent with the restated purpose have commenced as of the filing of this statement. LACK OF COMPARABILITY. For accounting purposes, and as a result of the discontinuations of the manufacturing operations of Revenge, the operational results for Fiscal 1998 and Fiscal 1999 are not comparable. Revenge had just commenced its manufacturing operations at the close of Fiscal 1998. Because operations had just commenced, the relatively modest losses occuring in Fiscal 1998 relative to Fiscal 1999 do not necessarily indicate the development of a new trend. REVENUES. Revenge's net loss from operations increased from a loss of $318,932 in Fiscal 1998 to $4,350,855 in Fiscal 1999. The increase was primarily the result of three elements: (i) the 1998 loss did not reflect more than two months of manufacturing operations as opposed to the nearly twelve months of manufacturing operations contained in the Fiscal 1999 loss; (ii) Revenge significantly increased its overhead and expenses with the Blackfin Acquisition and development of the Blackfin manufacturing capability and the opening of the Miami facility; and (iii) Revenge was losing money on each vessel that it built from the commencement of its operations, so that an increase in vessel construction naturally corresponded to a proportionate increased loss. LOSS RELATING TO DISCONTINUED OPERATIONS The Company incurred a loss of approximately $3,432,808 from discontinued operations and a loss of $918,047 on the disposal of assets for the year ended June 30, 1999 which were not incurred in 1998, and which the Company believes will not recur in the future. These charges were associated with discontinuation of manufacturing operations and the Company's shift to focus on the internet and related information technology industries. 23 25 INTEREST EXPENSE. Interest expense totaled $155,316 for the year ended June 30, 1999 compared to $8,134 during 1998, an increase of $147,182 or 95%. This resulted primarily from interest on debt attributable to the Blackfin Asset Acquisition and working capital related thereto borrowed from Finova Captial Corporation. LIQUIDITY AND CAPITAL RESOURCES The following table sets forth the major components of the decrease in the cash and cash equivalents of Revenge:
Item 1999 1998 - ---- ----------- -------- Net Cash Used by Discontinued Operations (1,536,245) (275,839) Net Cash used by Investing Activities (1,499,602) (108,063) Net Cash Provided by Financing Activities 2,933,054 486,695 Net Increase (Decrease) in cash (102,793) 102,793
The net decrease in cash for the period can be attributed primarily to the increased overhead of the Miami facility, the expenses associated with establishing and maintaining the Blackfin production line and with servicing the increased overhead of the Miami facility and the Finova obligations. Although Revenge took certain steps during Fiscal 1999 to increase the amount of available cash through financings, it was only able to raise $450,000 from the aborted First Chance merger. Although management took an across the board 15% paycut and laid off nearly 40% of the workforce during the third quarter of 1999, these changes were not sufficient to provide any available cash to the company for its operations. OPERATIONAL CHANGES. Management undertook a major restructuring of the Company beginning in late fiscal 1999 with the intent of divesting the Company of its marine manufacturing assets. Some components of the restructuring included the following: Laying off or terminating all of the full-time employees with the exception of Mr. Robinson, ceasing all payment of salary, vacating the Miami facility, selling the manufacturing assets for cash to pay off the Finova debt and attempting to settle the outstanding payables to creditors. Most of these efforts were not commenced until the end of Fiscal 1999 and the beginning of Fiscal 2000. There is no meaningful comparison between the financial results of a non-operating company and those of an operating company and therefore, no meaningful trend can be inferred by financial developments during the last quarter of fiscal 1999. CREDIT FACILITIES. The Company's credit facility with Finova Capital Corporation was retired in August, 1999, after the close of Fiscal 1999. In addition, any debts associated with the original acquisition of Egret and Consolidated were disposed of in August of 1999. SEASONALITY. Management doesn't believe that seasonality played a meaningful role in the operational results of Fiscal 1999. INFLATION. Management believes that there were no significant inflationary price pressures that effected earnings from Fiscal 1998 to Fiscal 1999. RECENT ACCOUNTING PRONOUNCEMENT The Company does not believe its results for Fiscal 1999 were significantly impacted by any recent accounting pronouncements. Item 7A. Quantitative and Qualitative Disclosures about Market Risk Revenge does not invest or trade in foreign currency or commodity transactions which would ordinarily be subject to market risk. As Revenge has very little indebtedness presently tied to the prime rate, Revenge would not be immediately effected by increases in the prime rate, except as Revenge began to borrow additional capital to implement its internet and information technology business plans. Revenge believes, however, that its financial instruments are 24 26 disclosed at their fair values. Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument; they are subjective in nature and involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular instrument. Changes in assumptions could significantly affect these estimates. The carrying amount of cash and cash equivalents is assumed to be the fair value because of the liquidity of these instruments. The carrying amount of accounts payable and accrued expenses approximates fair value because of the short maturity of these instruments. The terms of the Company's notes payable approximates the terms in the market place at which they could be replaced. Therefore, the fair value approximates the carrying value of these financial instruments. Item 8. Financial Statements and Supplementary Data The financial statements are set forth in appendix A hereto. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Part III Item 10. Directors and Officers of the Registrant The executive officers, directors and other key employees of the Company, and their ages and positions as of June 30, 1999, are as follows: NAME AGE POSITION - ---- --- -------- William Robinson 43 President, Chief Executive Officer, Director and Secretary of Revenge James Gardiner 43 Vice President and Director of Revenge* Scott Flanders 54 Vice President and Director of Revenge* James Gardiner, Scott Flanders resigned their offices and directorships of Revenge in August of 1999. William C. Robinson has served as a Director of Revenge since its present inception in January of 1998. Mr. Robinson has served as President and Chief Excutive Officer of Revenge since February of 1999. Prior to Revenge, Mr. Robinson served as an officer of Maxxon, Inc., a medical device manufacturer from February of 1997 through September of 1998. From February of 1996 until February of 1997, Mr. Robinson served as President of Marine Acquisitions, Inc., a manufacturer of sportfishing yachts. Prior to Marine Acquisitions, Mr. Robinson served as a Vice President of Investments of Prudential Securities. James Gardiner has served as a director and vice president of Revenge since July of 1998. For the five years prior to Revenge, Mr. Gardiner was the founder of Consolidated Yacht Corporation, which, under his leadership grew to an $8 million boat builder, re-fitter, and repairer in five years, utilizing advanced composite materials that today lead the industry. Egret Boat has become the recognized quality and design leader in the highly specialized 16' and 18' fishing boat, or "flats boat", industry that sells to affluent fishing enthusiasts. Prior to founding Consolidated and Egret, Jim was a composite materials consultant to Gougeon Bros., a custom builder of boats, plugs, and molds. He has also served as production manager in charge of construction of plugs, molds, and custom fiberglass motor yachts, developing advanced vacuum-bagged, cored fiberglass construction. 25 27 Scott Flanders has served as a director and vice-president of Revenge since July, 1998. Concurrent with his involvement at Revenge, Mr. Flanders has been for more than six years, a sales representative of Lewis Marine, a supplier of parts and accessories to the marine trade. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 The registrant was not supplied with copies of any forms filed by any individuals under section 16(a) of the Securities and Exchange Act of 1934 and has no basis to assess compliance with the same. Item 11. Executive Compensation EXECUTIVE OFFICER COMPENSATION The following table sets forth information concerning the compensation paid by the Company during the Company's fiscal years ending June 30, 1999 and June 30, 1998 to the Company's Chief Executive Officer. Note that no other executive officer was compensated in excess of $100,000 per year. No directors were compensated as such. Summary Compensation Table
Restricted Other Annual Stock LTIP All Other Name and Position Year Salary Bonus Compensation Awards SAR's Payouts Compensation - ------------------ ---- ------ ----- ------------- ----------- ----- ------- ------------ William Robinson 1998 0 0 0 0 0 0 0 CEO William Robinson 1999 $72,000 0 0 0 605,000 0 $2.900 CEO Donald Mitchell 1998 0 0 0 0 0 0 0 CEO* Donald Mitchell 1999 $90,000 0 0 0 300,000 0 $2,900 CEO
* Donald Mitchell served as CEO of Revenge from September, 1998 through February, 1999. Option/SAR Grants Table
% of total SARs granted Potention Gain Potential Gain Name Numbe of SARs to employees Exercise Price Expiration at 5% a 10% - ---- ------------- ------------ -------------- ---------- -------------- --------------- William C. 605,000 22% $0.37 12-31-03 $11,192.50 $22,385 Robinson CEO Donald Mitchell 300,000 11% $0.34 12-31-03** $ 5,100 $10,200 CEO*
* Donald Mitchell served as CEO of Revenge from September, 1998 through February, 1999. ** Although the expiration date of the option is 12-31-03, the option contract provides that exercise must take place within two months of termination from Revenge. Mr. Mitchell did not exercise any options within two months of his termination. Management has not yet determined whether the terms of Mr. Mitchell's departure from the company allow his options to expire on 12-31-03 or whether they are already expired. 26 28 Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
Number of Value of Unexercised Unexercised Shares Options In-the-Money Acquired on Exerciseable/ Optionsbat FY Name Exercise Value Realized Unexercisable End ($) - ---- ----------- -------------- ------------- -------------- William C. Robinson 0 0 554,583/ 0 CEO 50,417 Donald Mitchell 0 0 300,000/ 0 CEO* 0
* Donald Mitchell served as CEO of Revenge from September, 1998 through February, 1999. Director Compensation The directors are not compensated for being directors. Employment Agreements The Registrant has no employment agreements. Item 12. Security Ownership of Certain Beneficial Owners and Management Security Ownership of Certain Beneficial Owners and Management Security Ownership of Certain Beneficial Owners
Name and Address of Beneficial Owner Shares beneficially Owned Percentage of Class - ------------------- ------------------------- ------------------- Capital Markets Alliance and Affiliates(2) 2,464,271(2)(3) 22.6% James Gardiner(5) 1,295,333(4) 11.8% Andrew M. Badolato 1,000,000 9.2% Roy Meadows 900,171 8.25% Scott Flanders(5) 579,058(3) 5.31%
(1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Common Stock subject to options held by that person that are currently exercisable or exercisable within 60 days of June 30, 1998 are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of each other person. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder's name. 27 29 (2) Shares owned by Capital Market Alliance, Inc. are under the beneficial ownership of Mrs. Desai Robinson, wife of William C. Robinson, an officer and director. Capital Markets Alliance, Inc., is owned by Allied Capital Corporation, which is owned by the Desai V. Robinson Living Trust. In addition, Allied Capital Corporation owns 40,000 shares of Common Stock. 100,000 shares of Common Stock are also held by the Desai Vol Robinson Children's Trust for the benefit of Mrs. Robinson's children. (3) Includes the right to acquire 605,000 common shares at a per share price of $0.37. (4) Includes the right to acquire 605,000 common shares at a per share price of $0.37 (5) Resigned as an officer and director effective August, 1999. Item 13. Certain Relationships and Related Transactions ALLIED CAPITAL CORPORATION Since inception, Allied Capital Corporation ("Allied") has periodically advanced cash to the Company and has directly paid legal and other expenses on behalf of the Company. Allied owns 40,000 shares of the Company's common stock and is the owner of Capital Markets Alliance, Inc., which is the Company's principal shareholder, owning 1,954,431 of the 10,898,810 shares of common stock outstanding at June 30, 1999. Allied is wholly owned by the Desai Robinson Trust Fund. Desai Robinson is the former president of Revenge Marine during fiscal 1998 and is the wife of William C. Robinson, President and Chief Executive Officer of the Company. Thomas Schroeder, who resigned as Vice President and Chief Financial Officer of Revenge Marine, Inc. effective June 30, 1998, and as a director in August, 1999, is President of Capital Markets Alliance. At June 30, 1999 and 1998, the Company's total debt to Allied was $127,304 and $145,528, respectively. CONSOLIDATED YACHT CORPORATION The Company purchased certain assets of Consolidated Yacht Corporation in October 1998. Jim Gardiner, President of CYC, was an officer of Revenge Marine at the time of the asset purchase and CYC shared its manufacturing facilities with Egret Boat Company prior to the asset purchase. 28 30 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K FINANCIAL STATEMENTS AND SCHEDULES Financial Statements and Financial Statement Schedules. The following Consolidated Financial Statements and supporting schedule of Revenge Marine, Inc. and the Report of Independent Auditors are included at pages F-1 through F- of this Form 10-K.
Description Page No. - ----------- -------- Independent Auditors' Report.................................................... ...................F-1 Consolidated Balance Sheets as of June 30, 1999 and June 30, 1998...................................F-2 Consolidated Statements of Operations for Years Ended June 30, 1999 and June 30, 1998.............................................................................................F-3 Consolidated Statements of Cash Flows for the Years Ended June 27, 1999 and June 28, 1998.............................................................................................F-4 Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended June 27, 1999 and June 28, 1998..................................................................F-5 Notes to Consolidated Financial Statements..........................................................F-6
Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Consolidated Financial Statements or notes thereto. REPORTS ON FORM 8-K Current Report on Form 8-K dated February 26, 1999, reporting the terms of a merger with First Chance Marine Finance, Inc. Current Report on Form 8-K dated March 29, 1999, reporting the revised terms of a merger with First Chance Marine Finance, Inc. Current Report on Form 8-K dated September 9, 1999, reporting the terms of a letter of intent for merger with Reel Fishing Corporation, the sale of the Blackfin Assets, the sale of the Egret Assets and the sale of the Consolidated Yacht Assets. Current Report on Form 8-K dated September 9, 1999, reporting the terms of a letter of intent for merger with Reel Fishing Corporation, the sale of the Blackfin Assets, the sale of the Egret Assets and the sale of the Consolidated Yacht Assets. 29 31 EXHIBITS EXHIBIT NUMBER DESCRIPTION - -------------- ----------- 3.1 Certificate of Incorporation of the Company, as amended, incorporated by reference to the Company's registration statement on Form 10 filed on October 28, 1998. 3.2 Amended and Restated Bylaws of the Company, incorporated by reference to the Company's registration statement on Form 10 filed on October 28, 1998. 4.1 Form of the Company's Common Stock Certificate, incorporated by reference to the Company's Form 10 10.1 Agreement of Merger with First Chance Marine Finance, Inc. incorporated by reference from the Company's report on 8-K dated March 29, 1999. 10.2 Rescission Agreement with First Chance Marine Finance, Inc., incorporated by reference from the Company's report on 10-Q dated July 29, 1999. 10.3 1998 Revenge Marine, Inc. Incentive Stock Option Plan and Related Agreements Adopted by the Board of Directors. 10.4 Termination and Replacement Agreement between Registrant and Blackfin Yacht Acquisition Corporation dated June 30, 1999. 10.5 Warrant Agreement between Registrant and Blackfin Yacht Acquisition Corporation dated June 30, 1999. 10.6 Warrant Agreement between Registrant and Pete Johnson dated June 30, 1999. 10.7 Asset Purchase Agreement between Registrant and Consolidated Yacht Corporation dated June 30, 1999 and incorporated by reference from the Company's report on 8-K dated September 9, 1999. 21.1 List of Subsidiaries. 23.1 Consent of Cross and Robinson, Independent Auditors. 27.1 Financial Data Schedule for June 30, 1998. 27.2 Financial Data Schedule for June 30, 1999. 30 32 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 3, 1999 REVENGE MARINE, INC. By /s/ William C.Robinson ------------------------------------- William C. Robinson President and Chief Executive Officer 31 33 REVENGE MARINE, INC. -------------------- CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 AND 1998 AND INDEPENDENT AUDITOR'S REPORT 34 REVENGE MARINE, INC. -------------------- C O N T E N T S PAGE ---- Independent Auditor's Report 1 Consolidated Balance Sheet 2 Consolidated Income Statements 3 June 30, 1999 Consolidated Statement of Shareholders' Equity 4 June 30, 1998 Consolidated Statement of Shareholders' Equity 5 Consolidated Statement of Cash Flows 6 Notes to Consolidated Financial Statements 7-19 35 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders of Revenge Marine, Inc. We have audited the accompanying consolidated balance sheets of Revenge Marine, Inc., (a Nevada corporation) and subsidiaries as of June 30, 1999 and 1998, and the related consolidated statements of income, shareholders' equity, and cash flows for the year ended June 30, 1999 and for the period from September 5, 1997 (date of inception) to June 30, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Revenge Marine, Inc. as of June 30, 1999 and 1998, and the results of its operations and its cash flows for the initial period then ended in conformity with generally accepted accounting principles. CROSS AND ROBINSON Certified Public Accountants September 10, 1999 Page 1 of 19 36 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ---------------- CONSOLIDATED BALANCE SHEETS --------------------------- JUNE 30, 1999 AND 1998 -----------------------
1999 1998 ---- ---- ASSETS CURRENT ASSETS Cash $ -- $ 102,793 Proceeds receivable, discontinued operations (Note 3) 2,200,000 -- Prepaid Expenses 60,000 176,608 Work in Progress -- 60,500 ----------- ----------- TOTAL CURRENT ASSETS 2,260,000 339,901 ----------- ----------- PROPERTY AND EQUIPMENT, NET (NOTE 5) 1,796 239,420 ----------- ----------- OTHER ASSETS Deposits -- 50,000 Investment in First Chance Marine Finance, Inc. (Note 4) 1,000,000 -- Intangible assets, net (Note 6) 1,700 2,366,483 ----------- ----------- TOTAL OTHER ASSETS 1,001,700 2,416,483 ----------- ----------- TOTAL ASSETS $ 3,263,496 $ 2,995,804 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Cash overdrafts $ 3,636 $ -- Accounts payable 933,557 28,916 Accounts payable-related parties (Note 7) 127,304 50,786 Accrued liabilities 198,744 9,283 Customer deposits -- 64,500 Notes payable (Note 8) 2,116,500 66,252 Notes payable-related parties (Note 8) -- 94,742 ----------- ----------- TOTAL LIABILITIES 3,379,741 314,479 ----------- ----------- COMMITMENTS AND CONTINGENCIES (NOTE 13) 79,000 0 ----------- ----------- SHAREHOLDER'S EQUITY Preferred stock, 5,000,000 shares authorized, no shares outstanding at June 30, 1998; 2718 shares of $40 par Series B Convertible Preferred Stock (liquidation 108,720 -- preference $108,720) outstanding at June 30, 1999 Common stock $0.001 par value, 50,000,000 shares authorized 10,898,810 and 6,675,720 shares issued and outstanding at June 30, 1999 and 1998, respectively 10,899 6,676 Subscriptions receivable -- (100,000) Additional paid-in capital 4,354,923 3,093,581 Retained earnings (4,669,787) (318,932) ----------- ----------- TOTAL SHAREHOLDER'S EQUITY (195,245) 2,681,325 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 3,263,496 $ 2,995,804 =========== ===========
Accompanying notes are an integral part of the consolidated financial statements. Page 2 of 19 37 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ----------------- CONSOLIDATED INCOME STATEMENTS ------------------------------ FOR THE YEAR ENDED JUNE 30, 1999 AND FOR THE PERIOD ------------------------------------------------------ SEPTEMBER 5, 1997 (DATE OF INCEPTION) TO JUNE 30, 1998 ------------------------------------------------------
1999 1998 ---- ---- DISCONTINUED OPERATIONS (NOTE 3): LOSS FROM DISCONTINUED OPERATIONS $(3,432,808) (318,932) LOSS ON DISPOSAL OF ASSETS FROM DISCONTINUED OPERATIONS (918,047) -- ----------- -------- NET LOSS $(4,350,855) $ (318,932) =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING (NOTE 10) 7,129,680 4,325,237 =========== =========== NET LOSS PER SHARE FROM DISCONTINUED OPERATIONS $ (0.61) $ (0.07) =========== ===========
Accompanying notes are an integral part of the consolidated financial statements. Page 3 of 19 38 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ----------------- CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY ---------------------------------------------- FOR THE YEAR ENDED JUNE 30, 1999 --------------------------------
ADDITIONAL RETAINED PREFERRED COMMON PAID-IN EARNINGS STOCK STOCK CAPITAL (DEFICIT) --------- ------ ---------- --------- BALANCE AT JUNE 30, 1998 $ -- $ 6,676 $ 3,093,581 $ (318,932) 1,004,005 shares issued through conversion of debentures -- 1,004 243,546 180,692 shares issued pursuant to asset purchase agreement (Note 4) -- 180 236,888 194,281 shares issued in exchange for services rendered -- 194 155,299 1,692,558 shares issued to First Chance per rescission agreement (Note 4) -- 1,693 1,448,307 895,333 shares cancelled pursuant to CYC rescission agreement (Note 4) -- (895) (1,368,964) 895,333 shares issued pursuant to lease settlement agreement (Note 13) -- 895 177,105 5,938 shares issued in exchange for cancellation of debt 237,500 -- -- 1,206 shares issued pursuant to BYC rescission agreement (Note 4) 48,240 -- -- 4,832 shares issued for cash 193,293 -- -- 9,258 shares of preferred stock converted into 1,151,554 common shares (370,313) 1,152 369,161 NET LOSS (4,350,855) ---------- -------- ----------- ----------- BALANCE AT JUNE 30, 1999 $ 108,720 $ 10,899 $ 4,354,923 $(4,669,787) ========== ======== =========== ===========
Accompanying notes are an integral part of the consolidated financial statements. Page 4 of 19 39 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ----------------- CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY ---------------------------------------------- FOR THE PERIOD SEPTEMBER 5, 1997 (DATE OF INCEPTION) ---------------------------------------------------- TO JUNE 30, 1998 ----------------
COMMON STOCK ADDITIONAL ----------------------- PAID - IN RETAINED SHARES AMOUNT CAPITAL EARNINGS ------ ------ ------------ -------- COMMON STOCK, PAR VALUE $0.001 50,000,000 SHARES AUTHORIZED: Issued for cash, September 1997 3,000,000 3,000 -- Stock subscription, December 1997, less issuance costs of $ 7,800 240,000 240 471,960 Issued to original Global shareholders, per agreement dated January 23, 1998 798,890 799 (799) Proceeds from 504 offering dated February 2, 1998 500,000 500 -- Proceeds from conversion of debentures dated March 27, 1998 250,713 251 249,749 Issued through private offering dated May 10, 1998, in exchange for services 333,761 334 174,223 Private offering dated May 15, 1998: Issued for cash 100,000 100 99,900 Subscribed to at June 30,1998 100,000 100 99,900 Issued to the shareholder's of Egret Boat Company, May 1998 955,414 955 1,499,045 Issued to the shareholder's of Consolidated Marine, Inc., May 1998 636,942 637 999,363 Stock issuance costs January - June 1998 -- -- (20,000) Stock subscription cancelled (240,000) (240) (479,760) Net loss for the period -- -- -- (318,932) ----------- --------- ----------- --------- BALANCE AT JUNE 30, 1998 $ 6,675,720 $ 6,676 $ 3,093,581 $(318,932) =========== ========= =========== =========
Accompanying notes are an integral part of the consolidated financial statements. Page 5 of 19 40 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ----------------- CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ FOR THE YEAR ENDED JUNE 30, 1999 AND FOR THE PERIOD --------------------------------------------------- SEPTEMBER 5, 1997 (DATE OF INCEPTION) TO JUNE 30, 1998 ------------------------------------------------------
1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from customers $ 6,817,156 $ 142,286 Interest received 18,120 15 Cash paid for goods and services (8,216,205) (416,600) Interest paid (155,316) (1,540) ----------- ----------- NET CASH USED BY OPERATING ACTIVITIES (1,536,245) (275,839) ----------- ----------- NET CASH USED BY INVESTING ACTIVITIES: Fixed asset purchases and improvements (1,499,602) (108,063) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 721,048 353,500 Proceeds from long-term debt 2,100,000 -- Proceeds from short-term debt 331,500 161,952 Repayment of short-term debt (160,994) (957) Repayment of long-term debt (58,500) -- Stock issuance costs incurred -- (27,800) ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 2,933,054 486,695 ----------- ----------- NET INCREASE IN CASH (102,793) 102,793 CASH AT BEGINNING OF PERIOD 102,793 -- ----------- ----------- CASH AT END OF PERIOD $ -- $ 102,793 =========== =========== RECONCILIATION OF NET LOSS TO NET CASH USED BY OPERATING ACTIVITIES: Net Loss .............................................. $(4,350,855) $ (318,932) Adjustments to reconcile net loss to net cash used by operating activities: Loss on sale of assets ........................... 918,047 -- Depreciation ..................................... 174,790 6,752 Amortization of intangible assets ................ 61,268 6,511 Stock issued in exchange for services ............ 322,288 174,557 Stock issued pursuant to BYC rescission .......... 48,240 -- Increase (Decrease) in customer deposits ......... (64,500) 64,500 (Increase) Decrease in work in progress .......... 60,500 (60,500) (Increase) Decrease in deposits .................. 50,000 (50,000) Increase (Decrease) in accrued liabilities ....... 501,971 60,066 (Increase) Decrease in stock subscriptions rec.... 100,000 -- (Increase) Decrease in prepaid assets ............ 89,561 (176,607) (Increase) Decrease in accounts receivable ....... (238,430) (Increase) Decrease in intangible assets ......... -- (11,102) Increase (Decrease) in accounts payable .......... 708,238 28,916 Increase (Decrease) in contingent liabilities .... 79,000 -- Increase (Decrease) in cash overdrafts ........... 3,636 -- ----------- ----------- Total adjustments ................................ 2,814,610 43,093 ----------- ----------- NET CASH USED BY OPERATING ACTIVITIES ................. $(1,536,245) $ (275,839) =========== =========== SCHEDULE OF OTHER NON-CASH TRANSACTIONS: Stock issued in connection with subsidiary acquisitions $ 237,068 $ 2,500,000 Stock issued pursuant to a subscription agreement ..... $ -- $ 100,000 Loans converted to stock .............................. $ 237,500 $ -- Stock issued pursuant to rescission agreements ........ $ 1,498,240 $ -- Stock cancelled pursuant to rescission agreements ..... $(1,369,859) $ --
Accompanying notes are an integral part of the consolidated financial statements. Page 6 of 19 41 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ JUNE 30, 1999 AND 1998 ---------------------- NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS Revenge Marine, Inc. (hereinafter referred to as "Revenge" or "the Company") is a publicly traded Nevada company that was incorporated December 28, 1979. The Company has operated under various names since its incorporation, most recently operating as Global Energy Organization Corporation ("Global"). The Company had no significant operations from January 1995 through January 1998. The Company entered the development stage after it reorganized in January 1998 (see Note 4) and changed its primary focus to acquiring yacht manufacturing and marine technology companies. In July 1998, the Company commenced its principal operations and was no longer considered to be in the development stage for the fiscal year ended June 30, 1999. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPALS OF CONSOLIDATION The consolidated financial statements include the accounts of Revenge Marine, Inc. and its wholly owned subsidiaries, Revenge Marine, Inc., (an Oklahoma corporation), Egret Boat Company, Inc., (a Florida corporation), and Consolidated Marine, Inc. (a Florida corporation), after elimination of all material intercompany transactions and balances. CASH AND CASH EQUIVALENTS The Company considers highly liquid investments (that are readily convertible to cash) purchased with original maturity dates of three months or less to be cash equivalents. Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks in accordance with the Company's cash management policies. REVENUE RECOGNITION Revenue from newly manufactured boats is recognized when the completed boat is delivered and title is transferred to the customer. Revenue from other projects is recognized upon completion of the project. Revenues are recorded net of returns, allowances and discounts. Page 7 of 19 42 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ JUNE 30, 1999 AND 1998 ---------------------- NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INTANGIBLE ASSETS Intangible assets include organizational costs, costs associated with developing a new line of yachts, and the Company's investment in its subsidiaries in excess of the book value of the subsidiaries' net assets. Intangible assets are amortized over their estimated useful life (generally 5 to 15 years) using the straight-line method. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and depreciated using the straight-line method for financial reporting and accelerated methods for income tax purposes over the estimated useful life of the asset, typically 5 to 10 years. Leasehold improvements are amortized over the shorter of the useful life of the improvement or the remaining term of the lease. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations in the period realized. INCOME TAXES The Company uses the liability method of accounting for income taxes as set forth in Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under the liability method, deferred taxes are determined based on the differences between the financial statement and tax bases of assets and liabilities at enacted tax rates in effect in the years in which the differences are expected to reverse. Presently, the Company files its tax returns on a calendar year basis, which may result in temporary differences in book and tax reporting. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Page 8 of 19 43 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ JUNE 30, 1999 AND 1998 ---------------------- NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EARNINGS (LOSS) PER SHARE The Company has adopted the provisions of SFAS No. 128, "Earnings per Share", which requires presentation on the face of the income statement of both basic and diluted earnings per share. Basic and diluted earnings per share have replaced the previously presented primary and fully diluted earnings per share. Basic earnings per share is computed by dividing net income attributable to common shares by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed based on the assumption that all of the Company's outstanding common stock options, warrants, and convertible preferred stock are converted into common shares. In years where the Company recognizes a loss from continuing operations, the assumed exercise of outstanding stock options, warrants, and convertible preferred stock has an antidilutive effect (i.e., it increases net loss per share). As a result, these items are not included in the weighted average number of shares used in the calculation of loss per share in Note 10. PREPAID EXPENSES Certain expenses are routinely paid that cover more than the current fiscal period. Prepaid expenses at June 30, 1999 and 1998 consisted of consulting services. MARKETABLE SECURITIES The Company accounts for marketable securities in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This statement requires certain investments to be recorded at fair value or amortized cost. The appropriate classification of the investments in marketable equity securities is determined at the time of purchase and re-evaluated at each balance sheet date. The Company's investment in First Chance Marine Finance, Inc. (see Note 4) is recorded at cost, as the fair market value of the equity securities could not be readily determined. INVENTORIES Inventories are stated at cost, determined by the first-in, first-out method. Page 9 of 19 44 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ JUNE 30, 1999 AND 1998 ---------------------- LEASES Leases that transfer substantially all of the risks and benefits of ownership are capital leases. Other leases are operating leases. Capital leases are included in fixed assets and are amortized using the straight-line method over their respective terms. Operating leases are expensed over the terms of the leases using the straight-line method. ADVERTISING The Company expenses all advertising costs as they are incurred. Total advertising costs for the years ended June 30, 1999 and 1998 were $371,350 and $5,821, respectively. NOTE 3 - DISCONTINUED OPERATIONS In June 1999, the Company resolved to discontinue its marine operations and to sell substantially all of its assets. The assets were disposed of through the rescission of the Consolidated Yacht Corporation ("CYC") acquisition (see Note 4) and through two cash sales totaling $2,200,000 in August 1999. Accordingly, the results of the Company's operations and the loss on the disposal of assets have been reflected as discontinued operations on the income statement. The balance sheet reflects the assets remaining after the disposal of assets was complete. NOTE 4 - REORGANIZATION AND ACQUISITIONS GLOBAL ENERGY ORGANIZATION CORPORATION In January 1998, Revenge Marine, Inc. (formerly Revenge Yachts, Inc.), an Oklahoma corporation, executed a Stock Exchange Agreement (the "Agreement") with Global Energy Organization Corporation ("Global"), a publicly traded Nevada corporation, which had been inactive for the previous five years. Pursuant to the Agreement dated January 23, 1998, Global issued 3,240,000 shares of its $.001 par value common stock in exchange for 100% of the issued and outstanding common stock of Revenge Marine, Inc. As a result of this "reverse acquisition", Revenge Marine, Inc. became a wholly owned subsidiary of Global. In accordance with the terms of the agreement, Global (the Nevada parent) adopted the name "Revenge Marine, Inc." Page 10 of 19 45 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ JUNE 30, 1999 AND 1998 ---------------------- BYC ACQUISITION CORPORATION Under an agreement dated October 22, 1998, the Company purchased substantially all of the assets and certain liabilities of BYC Acquisition Corporation ("BYC"), a Delaware corporation. In consideration of the transfer of assets and liabilities, Revenge paid $1,005,455 in cash and issued a warrant entitling BYC to purchase up to 545,455 shares of Revenge's common stock at an exercise price of $6.44 per share at any time through October 22, 2001. The agreement also called for Revenge to pay a 2% of sales price fee on all Blackfin sales to BYC for a period of three years from the agreement date. The assets acquired consist primarily of boat molds and shop equipment. The purchase agreement was terminated pursuant to a replacement agreement dated June 30, 1999, whereby all assumed liabilities were returned to BYC, the stock warrant was returned to Revenge, and the Company's obligation for any accrued fees on Blackfin sales was terminated. In consideration of the termination of the purchase agreement, the Company issued to BYC 1,206 shares of its Series B Cumulative Convertible Preferred Stock and issued a warrant to purchase up to 1,500,000 shares of Revenge's common stock at an exercise price of $0.37 per share. Further, the Company is obligated to pay BYC a fee equal to 1% of its total revenues from all sources for the period from April 1, 1999 to April 30, 2002. CONSOLIDATED YACHT CORPORATION, INC. On September 8, 1998, the Company purchased substantially all of the assets of Consolidated Yacht Corporation, Inc. ("CYC") in exchange for a promissory note in the amount of $458,162. The president of CYC was a related party to the Company as further disclosed in Note 7. The purchase agreement was terminated by means of a rescission agreement dated June 30, 1999. The rescission agreement called for the return of all purchased assets, the cancellation of the promissory note, and the immediate vesting of stock options held by the president of CYC. Further, an automobile was transferred to CYC in exchange for monies advanced to Revenge by CYC's president. CYC's president returned 895,333 shares of stock to the Company, which had been issued to him pursuant to Revenge's acquisition of Egret Boat Company and Consolidated Marine (see following disclosures). CYC will assume the lease on the Company's operating facility. Page 11 of 19 46 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ JUNE 30, 1999 AND 1998 ---------------------- NOTE 4 - REORGANIZATION AND ACQUISITIONS (CONTINUED) FIRST CHANCE MARINE FINANCE, INC. On June 4, 1999, the Company entered into an agreement to rescind an attempted merger with First Chance Marine Finance, Inc. ("First Chance"), a Florida corporation. Pursuant to this agreement, the Company issued a total of 1,696,000 shares of its common stock, valued at $1,450,000 to First Chance and its associates. First Chance, which had previously advanced the Company $450,000 in cash, issued 500,000 of its common stock, valued at $1,000,000 to Revenge. The 500,000 shares issued to Revenge equate to approximately 7% of First Chance's total outstanding common stock at June 30, 1999. EGRET BOAT COMPANY, INC. Pursuant to a stock exchange agreement dated May 21, 1998, the Company issued 955,414 shares of its common stock, valued at $1,500,000, in exchange for all of the outstanding shares of Egret Boat Company, Inc., a Florida corporation. The acquisition was accounted for as a purchase and, accordingly, the results of operations of the acquired business and the fair market values of the acquired assets and liabilities are included with consolidated operations from the date of acquisition. The purchase price was allocated as follows: Property and equipment $ 117,547 Working capital, net 20,061 Other intangible assets 1,362,392 ----------- Total $ 1,500,000 =========== CONSOLIDATED MARINE, INC. Pursuant to a stock exchange agreement dated May 27, 1998, the Company issued 636,942 shares of its common stock, valued at $1,000,000 in exchange for all of the outstanding common shares of Consolidated Marine, Inc. (CMI), a Florida corporation. The acquisition was accounted for as a purchase and, accordingly, the results of operations of the acquired business and the fair market values of the acquired assets and liabilities are included with consolidated operations from the date of acquisition. In August 1999, the purchase price was renegotiated and an additional 180,692 shares of Revenge stock valued at $237,068 were issued to CMI. The revised purchase price was allocated as follows: Organization costs $ 500 Other intangible assets 1,236,568 ------------- Total $ 1,237,068 ============= Page 12 of 19 47 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ JUNE 30, 1999 AND 1998 ---------------------- NOTE 5 - PROPERTY AND EQUIPMENT Property and equipment consists of the following at June 30:
1999 1998 --------- --------- Molds and prototype $ -- $ 242,523 Equipment -- 85,000 Automobiles -- 45,493 Office equipment 5,374 5,429 --------- --------- Total consolidated property and Equipment 5,374 378,445 Less accumulated depreciation (1,229) (139,025) --------- --------- Net property and equipment $ 4,145 $ 239,420 ========= =========
Total depreciation expense for 1999 and 1998 was $174,790 and $6,752, respectively. NOTE 6 - INTANGIBLE ASSETS Intangible assets consists of the following at June 30:
ESTIMATED USEFUL 1999 1998 LIFE --------------- ---------------- --------------- Investment in subsidiaries in excess of book value $ -- $ 2,361,892 15 years Marine assets -- 8,602 5 years Organizational costs 2,500 2,500 5 years ----------- -------- Total intangible assets 2,500 2,372,994 Less accumulated amortization (800) (6,511) ----------- ----------- Net intangible assets $ 1,700 $ 2,366,483 =========== ===========
The investment in subsidiaries and the marine assets were charged to discontinued operations in the current year (see Note 3). Total amortization expense for 1999 and 1998 was $61,268 and $6,511, respectively. NOTE 7 - RELATED PARTY TRANSACTIONS ALLIED CAPITAL CORPORATION Since inception, Allied Capital Corporation ("Allied") has periodically advanced cash to the Company and has directly paid legal and other expenses on behalf of the Company. Allied owns 40,000 shares of the Company's common Page 13 of 19 48 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ JUNE 30, 1999 AND 1998 ---------------------- NOTE 7 - RELATED PARTY TRANSACTIONS (CONTINUED) stock and is the owner of Capital Markets Alliance, Inc., which is the Company's principal shareholder, owning 1,954,431 of the 10,898,810 shares of common stock outstanding at June 30, 1999. Allied is wholly owned by the Desai Robinson Trust Fund. Desai Robinson is the former president of Revenge Marine and is the wife of William C. Robinson, President and Chief Executive Officer of the Company. Thomas Schroeder, who resigned as Vice President and Chief Financial Officer of Revenge Marine, Inc. effective June 30, 1998, is President of Capital Markets Alliance. At June 30, 1999 and 1998, the Company's total debt to Allied was $127,304 and $145,528, respectively. CONSOLIDATED YACHT CORPORATION As further disclosed in Note 4, the Company purchased certain assets of Consolidated Yacht Corporation in October 1998. Jim Gardiner, President of CYC, was an officer of Revenge Marine at the time of the asset purchase and CYC shared its manufacturing facilities with Egret Boat Company prior to the asset purchase. NOTE 8 - NOTES PAYABLE Notes payable consists of the following at June 30:
1999 1998 --------------- --------------- Notes payable to related-party shareholders (see Note 7): Promissory note, due on or before November 16, 1998 at an interest rate of 10% per annum. $ -- $ 94,742 Notes payable to other entities: Note payable to FINOVA Capital Corporation, secured by certain fixed assets, due on or before October 00,0000, in default at June 30, 1999, with interest equal to the prime rate plus 1% (10% at June 30, 1999). 2,041,500 -- Demand note due on or before June 1, 1998, in default at June 30, 1999, with an interest rate of 10% per annum. $ -- 7,153
Page 14 of 19 49 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ JUNE 30, 1999 AND 1998 ----------------------
Unsecured $75,000 operating line of credit with First Union National Bank, with interest only payments due monthly at an interest rate equal to the prime rate plus 2% (9.75% and 10.5% at June 30, 1999 and 1998, respectively). 75,000 53,000 Retail vehicle installment contract with Chrysler Financial Corporation, due in monthly installments of principal and interest of $613, with fixed interest at 8.9% until February 22, 1999. This note is secured by a Dodge Caravan. -- 4,164 Retail vehicle installment contract with Ford Motor Credit, due in monthly installments of principal and interest of $613 with fixed interest at 8.25% until December 29, 1998. This note is secured by a 1995 Ford Econoline Van. -- 1,935 --------------- ---------------- Total Current Notes Payable $2,116,500 $160,994 =============== ================
The note payable to FINOVA Capital Corporation was paid in August 1999 from the proceeds of the asset sale referred to in Note 3. NOTE 9 - CAPITALIZATION The capital stock of the corporation at June 30, 1999 was as follows: Series B 10% Cumulative Convertible Preferred Stock, $40 par value, convertible into Common Stock based on a 40% discount to the bid price as listed on the NASDAQ Bulletin Board on the day of conversion; authorized 75,000 shares; 17,330 shares issued and 2,718 shares outstanding at June 30, 1999; liquidation preference equal to the par value of any outstanding shares plus accrued dividends, if any prior to any distributions to Common Stock holders. Common Stock, $0.001 par value, 50,000,000 shares authorized, 10,898,810 and 6,675,720 shares issued and outstanding at June 30, 1999 and 1998. Page 15 of 19 50 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ JUNE 30, 1999 AND 1998 ---------------------- NOTE 10 - INCOME PER COMMON SHARE The computations of basic and dilutive income per share from continuing operations were as follows:
1999 1998 ---------------- ----------- Income (loss) attributable to common shares $ (4,350,855) $ (318,932) ================ =========== Weighted average common shares outstanding 7,129,680 4,325,237 ================ =========== Basic and dilutive income (loss) per share $ (0.61) $ (0.07) ================ ===========
The Company's outstanding common stock options, warrants and convertible preferred stock referred to in Notes 9 and 11 were not included in the computation of diluted loss per share because the effect of their inclusion would be antidilutive. NOTE 11 - STOCK OPTIONS AND WARRANTS In December 1998, the Company adopted its 1998 Incentive Stock Plan ("the Plan") under which 2.8 million options to purchase common stock were granted to substantially all full-time employees. The options granted under the Plan extend for 5 years from the date of grant and vest in monthly increments over a period of up to two years. The exercise price was equal to the stock price on the grant date. The Plan is considered to be a non-compensatory plan, as defined by Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation". Accordingly, no compensation cost has been recognized for the year ended June 30, 1999. In June 1999, the Company issued a warrant to purchase up to 1,500,000 shares of the Company's common stock at an exercise price of $0.37 per share. The warrant was issued pursuant to a rescission agreement further disclosed in Note 4. The warrant expires June 30, 2002. In June 1999, the Company issued a warrant to purchase up to 250,000 shares of the Company's common stock at an exercise price of $0.37 per share in exchange for consulting services relating to the BYC asset acquisition further disclosed in Note 4. The warrant expires June 30, 2002. In May 1998, the Company granted stock options pursuant to a consulting agreement to purchase 175,000 shares of common stock at $1.00 per share, 175,000 shares of common stock at $1.50 per share, and 175,000 shares of common stock at $2.00 per share. The options expire December 31, 2000. In May 1998, the Company issued a warrant to purchase up to 20,000 shares of the Company's common stock at an exercise price of $1.50 per share as partial consideration for consulting services. Page 16 of 19 51 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ JUNE 30, 1999 AND 1998 ---------------------- Information with respect to all stock options and warrants is summarized below:
WEIGHTED- AVERAGE SHARES EXERCISE PRICE ------------ --------------- Outstanding at inception -- $ -- Granted 1998 545,000 1.50 ------------ --------------- Outstanding at June 30, 1998 545,000 1.50 Granted 1999 4,550,000 0.37 ------------ --------------- Outstanding at June 30, 1999 5,095,000 0.49 ============ =============== Options exercisable, June 30, 1998 545,000 1.50 Options exercisable, June 30, 1999 4,373,054 0.51
NOTE 12 - INCOME TAXES The Company has incurred net operating losses since inception and has a loss carryforward of approximately $4,300,000 at June 30, 1999, expiring in years beginning in 2013. As of June 30, 1999 and 1998, the Company had a net deferred tax asset of $1,739,402 and $127,573 respectively. A valuation allowance has been recognized to fully offset this asset due to the uncertainty of realizing the future benefit in accordance with the provisions of FASB Statement No. 109, "Accounting for Income Taxes". The Company continually reviews the adequacy of the valuation allowance and will recognize the tax benefits of these assets only as assessment indicates that it is more likely than not that the benefits will be realized. Significant components of the Company's deferred tax assets and liabilities as of June 30, 1999 and 1998 are as follows:
1999 1998 ----------- ----------- Deferred tax assets: Net operating loss carryforward $ 1,739,402 $ 127,573 Valuation allowance (1,372,183) (110,861) ----------- ----------- Total deferred tax assets 367,219 16,712 ----------- ----------- Deferred tax liabilities: Loss on discontinued operations $ 367,219 Tax over book depreciation -- $ 18,680 Book over tax amortization -- (1,968) ----------- ----------- Net tax deferred liabilities 367,219 16,712 ----------- ----------- Net deferred tax assets $ -- $ -- =========== ===========
Page 17 of 19 52 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ JUNE 30, 1999 AND 1998 ---------------------- Deferred taxes reflect a combined federal and state tax rate of approximately 40%. A reconciliation between the amount of federal and state income taxes, based on a forty percent (40%) tax rate, and the effective amount of income taxes charged to operations is as follows:
1999 1998 ----------- ----------- Statutory federal income taxes (refund) (1,739,402) $ (127,573) Loss on discontinued operations 367,219 -- Tax over book depreciation -- 16,712 Book over tax amortization -- 1,968 Valuation allowance 1,372,183 110,861 ----------- ----------- Effective income taxes $ -- $ -- =========== ===========
NOTE 13 - COMMITMENTS AND CONTINGENCIES PROMISSORY NOTE On July 14, 1999, the Company signed a promissory note to pay a related party $100,000 in exchange for funds advanced by the payee to complete the construction of various boats. The note, which is collateralized by a Blackfin boat, bears interest at a rate of 10% per annum and is due on January 1, 2000. LEGAL PROCEEDINGS The Company is engaged in legal proceedings arising from normal business activities. In the opinion of legal counsel, the maximum future liability arising from these proceeding would not exceed $79,000. LEASE OBLIGATIONS In 1999, the Company was obligated under operating and capital leases for its operating facility and certain office equipment, most of which were cancelled or assumed by other parties after the Company decided to discontinue its marine operations (see Note 3). Amounts capitalized under a capital lease were charged to discontinued operations upon transfer of the lease to another party. The lease on the Company's operating facility was assumed by Consolidated Yacht Corporation, pursuant to an October 1999 agreement with the owner of the property. In a related settlement agreement with the landlord, the Company co-signed a promissory note for $178,000, which is to be paid by CYC. In consideration for paying the promissory note, the Company agreed to nullify the cancellation of 895,333 shares of Revenge Marine common stock owned by CYC's president. These shares were to be cancelled pursuant to the June 30, 1999 rescission agreement disclosed in Note 4. Page 18 of 19 53 REVENGE MARINE, INC. -------------------- AND SUBSIDIARIES ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ JUNE 30, 1999 AND 1998 ---------------------- The Company is obligated under a non-cancelable lease for computer equipment. Subsequent to June 30, 1999, the Company entered into an agreement to sublease the computer equipment to Consolidated Yacht Corporation. The Company's future minimum obligation under the computer lease and the amount to be received under the subleasing agreement is as follows: FISCAL YEAR ENDED JUNE 30, ------------------- 2000 $ 5,283 2001 5,283 2002 5,283 2003 4,403 ------------ $ 20,252 ============ Total rental expense under all leases was $623,672 and $ -0- in 1999 and 1998, respectively. NOTE 14 - RECLASSIFICATIONS OF FINANCIAL STATEMENT PRESENTATION Certain reclassifications have been made to the 1998 financial statements to conform with the 1999 financial statement presentation. Such reclassifications had no effect on net income as previously reported. Page 19 of 19 EX-10.3 2 1998 REVENGE MARINE, INC. INCENTIVE STOCK OPTION 1 EXHIBIT 10.3 REVENGE MARINE, INC. 1998 INCENTIVE STOCK PLAN 1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "ADMINISTRATOR" means the Board or any of its Committees as shall be administering the Plan in accordance with Section 4 hereof. (b) "APPLICABLE LAWS" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any other country or jurisdiction where Options or Stock Purchase Rights are granted under the Plan. (c) "BOARD" means the Board of Directors of the Company. (d) "CODE" means the Internal Revenue Code of 1986, as amended. (e) "COMMITTEE" means a committee of Directors appointed by the Board in accordance with Section 4 hereof. (f) "COMMON STOCK" means the Common Stock of the Company. (g) "COMPANY" means Revenge Marine, Inc., a Nevada corporation. (h) "CONSULTANT" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services to such entity. (i) "DIRECTOR" means a member of the Board of Directors of the Company. (j) "DISABILITY" means total and permanent disability as defined in Section 22(e)(3) of the Code. 2 (k) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (m) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation, The Nasdaq OTC Bulletin Board, The Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in THE WALL STREET JOURNAL or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. (o) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. (p) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. -2- 3 (q) "OPTION" means a stock option granted pursuant to the Plan. (r) "OPTION AGREEMENT" means a written or electronic agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (s) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding Options are exchanged for Options with a lower exercise price. (t) "OPTIONED STOCK" means the Common Stock subject to an Option or a Stock Purchase Right. (u) "OPTIONEE" means the holder of an outstanding Option or Stock Purchase Right granted under the Plan. (v) "PARENT" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (w) "PLAN" means this 1998 Incentive Stock Plan. (x) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant to a grant of a Stock Purchase Right under Section 11 below. (y) "SECTION 16(b)" means Section 16(b) of the Securities Exchange Act of 1934, as amended. (z) "SERVICE PROVIDER" means an Employee, Director or Consultant. (aa) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 12 below. (bb) "STOCK PURCHASE RIGHT" means a right to purchase Common Stock pursuant to Section 11 below. (cc) "SUBSIDIARY" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares which may be subject to option and sold under the Plan is 1,500,000 Shares. The Shares may be authorized but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the -3- 4 unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise of either an Option or Stock Purchase Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. ADMINISTRATION OF THE PLAN. (a) ADMINISTRATOR. The Plan shall be administered by the Board or a Committee appointed by the Board, which Committee shall be constituted to comply with Applicable Laws. (b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority in its discretion: (i) to determine the Fair Market Value; (ii) to select the Service Providers to whom Options and Stock Purchase Rights may from time to time be granted hereunder; (iii) to determine the number of Shares to be covered by each such award granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(e) instead of Common Stock; (vii) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; -4- 5 (viii) to initiate an Option Exchange Program; (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (x) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and (xi) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees. 5. ELIGIBILITY. (a) Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. (b) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (c) Neither the Plan nor any Option or Stock Purchase Right shall confer upon any Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall it interfere in any way with his or her right or the Company's right to terminate such relationship at any time, with or without cause. -5- 6 6. TERM OF PLAN. The Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. 7. TERM OF OPTION. The term of each Option shall be stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 8. OPTION EXERCISE PRICE AND CONSIDERATION. (a) The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option (A) granted to a Service Provider who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any other Service Provider, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other corporate transaction. -6- 7 (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). Such consideration may consist of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option, have been owned by the Optionee for more than six months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised, (5) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. EXERCISE OF OPTION. (a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option granted hereunder shall be exercisable according to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Except in the case of Options granted to Officers, Directors and Consultants, Options shall become exercisable at a rate of no less than 20% per year over five (5) years from the date the Options are granted. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. -7- 8 (b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an Optionee ceases to be a Service Provider, such Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement (of at least thirty (30) days) to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement (of at least six (6) months) to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) DEATH OF OPTIONEE. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (of at least six (6) months) to the extent that the Option is vested on the date of death (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to the entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) BUYOUT PROVISIONS. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 10. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. The Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in -8- 9 any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 11. STOCK PURCHASE RIGHTS. (a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer. The terms of the offer shall comply in all respects with Applicable Law. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator. (b) REPURCHASE OPTION. Unless the Administrator determines otherwise, the Restricted Stock purchase agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted Stock purchase agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine. Except with respect to Shares purchased by Officers, Directors and Consultants, the repurchase option shall in no case lapse at a rate of less than 20% per year over five (5) years from the date of purchase. (c) OTHER PROVISIONS. The Restricted Stock purchase agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. (d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is exercised, the purchaser shall have rights equivalent to those of a shareholder and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 12 of the Plan. -9- 10 12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE. (a) CHANGES IN CAPITALIZATION. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option or Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company. The conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option or Stock Purchase Right until fifteen (15) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option or Stock Purchase Right would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. (c) MERGER OR ASSET SALE. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock -10- 11 Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 13. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Service Provider to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant. 14. AMENDMENT AND TERMINATION OF THE PLAN. (a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend or terminate the Plan. (b) SHAREHOLDER APPROVAL. The Board shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 15. CONDITIONS UPON ISSUANCE OF SHARES. (a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall -11- 12 comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an Option, the Administrator may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. -12- 13 16. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 17. RESERVATION OF SHARES. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 18. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under Applicable Laws. 19. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide to each Optionee and to each individual who acquires Shares pursuant to the Plan, not less frequently than annually during the period such Optionee or purchaser has one or more Options or Stock Purchase Rights outstanding, and, in the case of an individual who acquires Shares pursuant to the Plan, during the period such individual owns such Shares, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. -13- 14 Sample Option Agreement REVENGE MARINE, INC. 1998 INCENTIVE STOCK PLAN STOCK OPTION AGREEMENT UNLESS OTHERWISE DEFINED HEREIN, THE TERMS DEFINED IN THE PLAN SHALL HAVE THE SAME DEFINED MEANINGS IN THIS OPTION AGREEMENT. I. NOTICE OF STOCK OPTION GRANT - ---------------------- The undersigned Optionee has been granted an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Date of Grant Vesting Commencement Date Exercise Price per Share $ Total Number of Shares Granted Total Exercise Price $ Type of Option: Incentive Stock Option Nonstatutory Stock Option Term/Expiration Date: VESTING SCHEDULE: This Option shall be exercisable, in whole or in part, according to the following vesting schedule: One-half of the Shares subject to the Option shall become exercisable upon the one year anniversary of the Vesting Commencement Date, and an additional one-twenty-fourth (1/24) -14- 15 of the Shares subject to the Option shall become exercisable each full month thereafter, subject to Optionee's continuing to be a Service Provider on such dates. TERMINATION PERIOD: This Option shall be exercisable for two months after Optionee ceases to be a Service Provider. Upon Optionee's death or disability, this Option may be exercised for such longer period as provided in the Plan. In no event may Optionee exercise this Option after the Term/Expiration Date as provided above. II. AGREEMENT 1. GRANT OF OPTION. The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant (the "Optionee"), an option (the "Option") to purchase the number of Shares set forth in the Notice of Grant, at the exercise price per Share set forth in the Notice of Grant (the "Exercise Price"), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 14(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms and conditions of the Plan shall prevail. If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option ("NSO"). 2. EXERCISE OF OPTION. (a) RIGHT TO EXERCISE. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and with the applicable provisions of the Plan and this Option Agreement. (b) METHOD OF EXERCISE. This Option shall be exercisable by delivery of an exercise notice in the form attached as Exhibit A (the "Exercise Notice") which shall state the election to exercise the Option, the number of Shares with respect to which the Option is being exercised, and such other representations and agreements as may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of an Option unless such issuance and such exercise complies with Applicable laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares. -15- 16 3. OPTIONEE'S REPRESENTATIONS. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, the Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as Exhibit B. 4. LOCK-UP PERIOD. Optionee hereby agrees that, if so requested by the Company or any representative of the underwriters (the "Managing Underwriter") in connection with any registration of the offering of any securities of the Company under the Securities Act, Optionee shall not sell or otherwise transfer any Shares or other securities of the Company during the 180-day period (or such other period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company) (the "Market Standoff Period") following the effective date of a registration statement of the Company filed under the Securities Act. Such restriction shall apply only to the first registration statement of the Company to become effective under the Securities Act that includes securities to be sold on behalf of the Company to the public in an underwritten public offering under the Securities Act. The Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period. 5. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee: (a) cash or check; (b) consideration received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or (c) surrender of other Shares which, (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares. 6. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such time as the Plan has been approved by the shareholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any Applicable Law. 7. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. -16- 17 8. TERM OF OPTION. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option. 9. TAX CONSEQUENCES. Set forth below is a brief summary as of the date of this Option of some of the federal tax consequences of exercise of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) EXERCISE OF ISO. If this Option qualifies as an ISO, there will be no regular federal income tax liability upon the exercise of the Option, although the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise. (b) EXERCISE OF ISO FOLLOWING DISABILITY. If the Optionee ceases to be an Employee as a result of a disability that is not a total and permanent disability as defined in Section 22(e)(3) of the Code, to the extent permitted on the date of termination, the Optionee must exercise an ISO within three months of such termination for the ISO to be qualified as an ISO. (c) EXERCISE OF NONSTATUTORY STOCK OPTION. There may be a regular federal income tax liability upon the exercise of a Nonstatutory Stock Option. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Shares on the date of exercise over the Exercise Price. If Optionee is an Employee or a former Employee, the Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. (d) DISPOSITION OF SHARES. In the case of an NSO, if Shares are held for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. In the case of an ISO, if Shares transferred pursuant to the Option are held for at least one year after exercise and of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal income tax purposes. If Shares purchased under an ISO are disposed of within one year after exercise or two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (1) the Fair Market Value of the Shares on the date of exercise, or (2) the sale price of the Shares. Any additional gain will be taxed as capital gain, short-term or long-term depending on the period that the ISO Shares were held. -17- 18 (e) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after the date of exercise, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee. 10. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws but not the choice of law rules of Nevada. 11. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Optionee further agrees to notify the Company upon any change in the residence address indicated below. -18- 19 OPTIONEE: ___________________ REVENGE MARINE, INC. - ------------------------------------ ----------------------------------- William C. Robinson, President and CEO - ------------------------------------ - ------------------------------------ Residence Address -19- 20 EXHIBIT A --------- 1998 INCENTIVE STOCK PLAN EXERCISE NOTICE Revenge Marine, Inc. 2051 NW 11th St. Miami, FL 33125 Attention: Secretary I. EXERCISE OF OPTION. Effective as of today, ___________, 19__, the undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase _________ shares of the Common Stock (the "Shares") of Revenge Marine, Inc. (the "Company") under and pursuant to the 1998 Incentive Stock Plan (the "Plan") and the Stock Option Agreement dated __________, 19 (the "Option Agreement"). I. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option Agreement. I. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. I. RIGHTS AS SHAREHOLDER. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares shall be issued to the Optionee as soon as practicable after the Option is exercised. No adjustment shall be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section 12 of the Plan. I. TAX CONSULTATION. Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultants Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice. I. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS. A. LEGENDS. Optionee understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon 1 21 any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES. STOP-TRANSFER NOTICES. Optionee agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records. REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon Optionee and his or her heirs, executors, administrators, successors and assigns. INTERPRETATION. Any dispute regarding the interpretation of this Agreement shall be submitted by Optionee or by the Company forthwith to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator shall be final and binding on all parties. 2 22 GOVERNING LAW; SEVERABILITY. This Agreement is governed by the internal substantive laws but not the choice of law rules, of Florida. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan, the Option Agreement and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by both parties. Submitted by: Accepted by: OPTIONEE: REVENGE MARINE, INC. ------------------- - ----------------------------------- ----------------------------------- William C. Robinson, President and CEO - ------------------------------------ - ------------------------------------ Residence Address 3 23 EXHIBIT B --------- INVESTMENT REPRESENTATION STATEMENT OPTIONEE: _________ COMPANY: REVENGE MARINE, INC. SECURITY: COMMON STOCK AMOUNT: 9797 DATE: 12/15/98 The Optionee agrees and represents to the following in connection with the purchase of the Company's Securities: Optionee is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. Optionee is acquiring these Securities for investment for Optionee's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). Optionee acknowledges and understands that the Securities constitute "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Optionee's investment intent as expressed herein. In this connection, Optionee understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Optionee's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. Optionee further understands that the Securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Optionee further acknowledges and understands that the Company is under no obligation to register the Securities. Optionee understands that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company and any other legend required under applicable state securities laws. Optionee is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of the grant of the Option to the Optionee, the exercise will be exempt from registration under -1- 24 the Securities Act. In the event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may be resold, subject to the satisfaction of certain of the conditions specified by Rule 144, including: (1) the resale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of certain public information about the Company, (3) the amount of Securities being sold during any three month period not exceeding the limitations specified in Rule 144(e), and (4) the timely filing of a Form 144, if applicable. In the event that the Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances subject to the provisions of Rule 144, which requires the resale to occur not less than one year after the later of the date the Securities were sold by the Company or the date the Securities were sold by an affiliate of the Company, within the meaning of Rule 144; and, in the case of acquisition of the Securities by an affiliate, or by a non-affiliate who subsequently holds the Securities less than two years, the satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of the paragraph immediately above. Optionee further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or 701 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Optionee understands that no assurances can be given that any such other registration exemption will be available in such event. Signature of Optionee: ------------------------------------- Date:__________________________, 19___ 2 EX-10.4 3 TERMINATION & REPLACEMENT AGREEMENT 1 EXHIBIT 10.4 TERMINATION AND REPLACEMENT AGREEMENT dated as of June 30, 1999 between REVENGE MARINE, INC. and BYC ACQUISITION CORPORATION 2 Index ----- 1. Termination and Replacement...........................................1 2. Warrant...............................................................2 3. Fees..................................................................5 4. Representations and Warranties of Revenge.............................6 5. Representations and Warranties of BYC.................................8 6. Covenants.............................................................8 7. Legend................................................................9 8. Fees and Expenses....................................................10 9. Indemnification......................................................10 10. Survival of Representations, Warranties, Etc.........................12 11. Notices..............................................................12 12. Miscellaneous........................................................12 Definitions ----------- Agreement.................. 1 NASDAQ.................... 8 Assumed Liabilities........ 1 Purchase Agreement........ 1 BYC........................ 1 Revenge................... 1 Common Stock............... 2 Revenge Delaware.......... 1 Exchange Act............... 7 SEC....................... 3 Exercise Date.............. 6 Warrant................... 2 Indemnified Party.......... 11 Warrant Shares............ 2 Indemnifying Party......... 11 3 TERMINATION AND REPLACEMENT AGREEMENT This Replacement Agreement (the "Agreement") dated June 30, 1999, is entered into by and between Revenge Marine, Inc., a Nevada corporation ("Revenge"), and BYC Acquisition Corporation, a Delaware corporate ("BYC"). Recitals -------- A. BYC and Revenge Marine, Inc., a Delaware corporation ("Revenge Delaware") consummated the purchase and sale of substantially all of the assets of BYC, and the transfer and assumption of certain of the liabilities of BYC, pursuant to a Purchase Agreement dated October 22, 1998 (the "Purchase Agreement"). B. Revenge Delaware has assigned to Revenge, its corporate parent, all of its rights and obligations under the Purchase Agreement and the warrant issued in connection therewith. B. The parties desire to replace their remaining rights and obligations under the Purchase Agreement with the rights and obligations contained in this Agreement. The parties hereto agree as follows: 1. Termination and Replacement. ---------------------------- (a) The Purchase Agreement is hereby terminated, and neither party will have any further rights or obligations thereunder. In connection with such termination, the parties acknowledge the following: (1) BYC's right to receive, and Revenge's obligation to pay, the fees described in Sections 1(c) and 4 of the Purchase Agreement, including amounts accrued thereunder, is hereby terminated. (2) BYC is simultaneously surrendering to Revenge the warrant described in Section 1(b) of the Purchase Agreement for cancellation. (3) Revenge hereby grants, bargains, sells, transfers, assigns and delivers to BYC all of its obligations with respect to the Assumed Liabilities (as defined in the Purchase Agreement), and BYC hereby agrees to assume, perform, and discharged the Assumed Liabilities. (b) In consideration of the termination of the Purchase Agreement, and in replacement of the rights and obligations described above: (1) Revenge shall pay BYC the fees described in Section 3 of this Agreement. 1 4 (2) Revenge is simultaneously issuing to BYC 1,206 shares of its Series B Cumulative Convertible Preferred Stock pursuant to a separate stock purchase agreement. (3) Revenge is simultaneously issuing to BYC a warrant (the "Warrant") to purchase up to 1,500,000 shares (subject to adjustment) of Revenge's Common Stock, par value $0.001 per share (the "Common Stock"), at an exercise price of $0.37 per share (subject to adjustment). 2. WARRANT. This section describes certain provisions specific to the Warrant and the shares of Common Stock that BYC may from time to time acquire upon exercise of the Warrant (the "Warrant Shares"): (a) DEMAND REGISTRATION. Upon BYC's written request in accordance with Section 2(c) any time on or after the first anniversary of the first exercise of the Warrant Shares but before the fourth anniversary of such exercise, Revenge will use reasonable efforts to register under the Securities Act any Warrant Shares, as soon as reasonably practicable following such request so as to permit the sale of such shares. Revenge will be entitled to postpone for a reasonable period of time, the filing of any registration statement otherwise required to be prepared and filed by it with respect to such registration if, at the time it receives such request, Revenge (i) in its reasonable judgment and based on the advice of counsel, determines that such registration and sale would materially interfere with any financing, acquisition, corporate reorganization or other material transaction and promptly gives BYC written notice of such determination, or (ii) has filed or is about to file a registration statement relating to Revenge's securities and the managing underwriters of such offering have advised in writing that the filing of a registration statement would materially and adversely affect Revenge's offering. If Revenge so postpones a registration statement filing, then BYC may withdraw the request for registration by giving Revenge written notice within 30 calendar days after receipt of the notice of postponement. Revenge will have no further obligation to register any Warrant Shares under this Section 2(a) after it has filed two separate registration statements that have become effective pursuant to requests by BYC under this Section 2(a). (b) PIGGYBACK REGISTRATION. At any time after an initial public offering of shares, if Revenge proposes to register under the Securities Act any of its Common Stock or other securities convertible into Common Stock relating to an underwritten public sale of such securities, it will at each such time give written notice to BYC of its intention to do so, together with reasonable details regarding such proposed registration and sale. Upon BYC's written request in accordance with Section 2(c) made within 15 days after the receipt of any such notice, Revenge will use reasonable efforts to include in such registration the number of Warrant Shares requested by BYC. Notwithstanding the foregoing, Revenge will not be required to provide BYC notice of, and BYC will not have any right to have Warrant Shares included in, (i) a registration of securities solely in connection with any plan for the acquisition of securities by employees of Revenge or any dividend reinvestment plan, (ii) a registration on Form S-4 or similar form or (iii) a registration of securities solely in connection with the acquisition of a business. Revenge's obligations under this Section 2(b) are subject to the following conditions: 2 5 (1) If at any time after giving written notice of its intention to register any securities under this Section 2(b) and prior to the effective date of the registration statement filed in connection with such registration, Revenge determines for any reason not to register such securities, Revenge will give BYC written notice of such determination and, thereupon, will be relieved from its obligation to proceed with such registration. (2) If the managing underwriter advises Revenge in writing that, in its opinion, the amount of securities to be offered should be limited in order to assure a successful offering, the amount of Warrant Shares to be included in such registration will be limited and will be allocated among the persons selling such securities in the following order of priority: (i) first to be registered will be the securities Revenge proposes to sell, and (ii) next to be registered will be the Warrant Shares and any other Common Stock subject to similar piggyback registration rights granted by Revenge, in proportion, as nearly as practicable, to the number of Common Stock desired and eligible to be sold by each holder of such Common Stock. (c) FORM OF BYC REQUEST. Each BYC request for registration under Section 2(a) or (b) will (i) specify the number of Warrant Shares intended to be offered and sold, and (ii) describe the intended method of disposition of such Warrant Shares. (d) REGISTRATION EXPENSES. Revenge will pay all registration expenses in connection with any registration of Warrant Shares under Section 2(a) or (b). The registration expenses referred to in the preceding sentence include, without limitation, the fees and expenses of Revenge's counsel and accountants, the costs and expenses incident to the preparation, printing and filing by Revenge of the registration statement (including the financial statements included in, and all amendments and exhibits to, the registration statement), the preliminary prospectus and the final prospectus and any amendment or supplement to any of the foregoing, the filing fees of the Securities and Exchange Commission (the "SEC"), the National Association of Securities Dealers, Inc., and of any state securities or blue sky authorities, the fees and expenses of counsel in connection with the qualification of the securities under state securities or blue sky laws, the costs of printing and copying the various underwriting and blue sky documents, any fees relating to the listing of the securities on the National Association of Securities Dealers, Inc. Automated Quotation System or in any other market in which Revenge's securities are traded, the cost of printing certificates representing the securities being offered, any fees of the transfer agent, the cost of preparing and publishing advertisements, including "tombstone" advertisements, relating to the offering, and the cost of preparing bound volumes relating to the offering; provided, however, that BYC and Revenge shall share equally all costs of printing and delivering preliminary and final prospectuses in connection with any registration of Warrant Shares under Section 2(a). BYC will be solely responsible for any underwriting discounts or commissions applicable to its securities sold in the offering. Notwithstanding the foregoing, Revenge and BYC will in good faith discuss BYC sharing a pro rata portion of the offering expenses in connection with any registration of Warrant Shares under Section 2(a) or (b) if such sharing is required to effect the registration of securities in a particular jurisdiction and the managing underwriter advises Revenge in writing that, in its opinion, the registration of securities in that jurisdiction is necessary to assure a successful offering. 3 6 (e) REGISTRATION PROCEDURES. If and whenever Revenge is required to use reasonable efforts to effect the registration of any Warrant Shares under the Securities Act as provided in Sections 2(a) and (b), Revenge will promptly: (1) prepare and file with the SEC a registration statement with respect to such Warrant Shares and use reasonable efforts to cause such registration statement to become effective; (2) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period up to 180 days and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until such time as all of such securities have been disposed of in accordance with the intended methods of disposition by BYC as set forth in such registration statement; (3) furnish to BYC such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act, and such other documents, as BYC may reasonably request in order to facilitate the disposition of the Warrant Shares by BYC; provided, however, that BYC and Revenge shall share equally all costs of printing and delivering preliminary and final prospectuses in connection with any registration of Warrant Shares under Section 2(a); (4) use its reasonable efforts to register or qualify such securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as BYC may reasonably request, and do any and all other acts and things which may be reasonably necessary or advisable to enable BYC to consummate the disposition in such jurisdictions of the Warrant Shares owned by BYC, except that Revenge will not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it is not so qualified, or to consent to general service of process in any such jurisdiction; (5) notify BYC at any time when a prospectus relating to its Warrant Shares is required to be delivered under the Securities Act of the happening or any event as a result of which the prospectus included in such registration statement, as then in effect, is known by Revenge to include an untrue statement of material fact or to omit to state any material fact required to be stated therein or necessary to make statements therein not misleading in the light of the circumstances then existing (provided that the period during which such a condition may occur shall not be permitted by the Company to persist for longer than 30 days nor shall two or more 4 7 such periods be permitted by the Company to persist for an aggregate of longer than 60 days during the term of such registration), and promptly prepare, file and furnish to BYC a reasonable number of copies of a supplement to, or an amendment of, such prospectus as may be necessary so that, as delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; and (6) advise BYC as to the time when such registration statement becomes effective and as to the issuance by the SEC of any stop order suspending the effectiveness of such registration statement or the institution of any proceedings for that purpose, and use reasonable efforts to prevent the issuance of any such stop order and to obtain as soon as possible the lifting thereof, if issued. BYC will furnish to Revenge such information regarding BYC and the distribution of the Warrant Shares as Revenge may from time to time reasonably request. (f) TAG-ALONG RIGHTS. If at any time Revenge proposes to sell securities representing, or convertible into or exchangeable for, more than 20% of its then outstanding Common Stock to a third party, other than pursuant to a registered public offering under the Securities Act or a bona fide business acquisition, then Revenge will give written notice to BYC. BYC may, upon giving written notice to Revenge within 20 business days after receipt of Revenge's notice, participate in such sale at the same price and upon the same terms and conditions as are applicable to Revenge in such transaction. BYC may sell up to the lesser of (i) one third of the total number of shares proposed to be sold by Revenge, or (ii) all of the Warrant Shares. If BYC gives timely notice under this Section 2(f), then Revenge will require as a condition precedent to consummating the purchase of shares from Revenge, that the purchaser purchase the Warrant Shares that BYC is entitled to sell under this Section 2(f), and Revenge will not complete its sale to the purchaser if the purchaser fails to satisfy such condition. The purchaser's purchase of the Warrant Shares be on terms no less favorable than those set forth in Revenge's notice. referred to in the second preceding sentence. (g) RESTRICTIONS ON BYC'S RIGHTS. Notwithstanding any provision of this Section 3, BYC shall not have any demand registration rights under Section 3(a) or tag-along rights under Section 2(f) at any time in which BYC could sell the Warrant Shares it holds under Rule 144 or in another transaction exempt from registration during the following 180 days. 3. Fees. ----- (a) Revenge will pay BYC a fee of 1% of its total revenues from all Blackfin Sales sources for the period from April 1, 1999 to June 30, 1999 and 1% of its total revenues from June 30, 1999 to April 30, 2002 Not to include the sale of the assets listed in the security agreement with Finova Capital. The fee will be due and payable quarterly by wire transfer to BYC's designated account in United States dollars or acceptable securities within 30 days following each calendar quarter during the applicable term, beginning with the year ending June 5 8 30, 1999. Revenge will simultaneously with each such payment furnish BYC the quarterly financial statements described in Section 6(e), together with such other information as BYC may from time to time reasonably request. (b) Revenge will maintain complete, clear and accurate records in sufficient detail to enable the fees payable under this Section 3 to be determined or audited, and Revenge will retain such records, and make them available for inspection at any time, for a period of four years. BYC may designate independent certified public accountants reasonably acceptable to Revenge to audit, on a confidential basis, any fee certificates delivered or due to BYC pursuant to this Section 3, provided that no more than two such audits may be conducted during any 12-month period. Revenge will give the accountants reasonable access to its facilities, as well as the opportunity to inspect at such facilities all records that are reasonably necessary for the accountants to determine if the fees have been properly calculated. The accountants will not disclose any financial information but will only state that the calculated fees were correct or that Revenge has correctly paid, overpaid or underpaid the fees. If the accountants determine that Revenge has underpaid the fees, then Revenge will promptly pay BYC the amount of the underpayment, together with interest calculated from the date such amount was originally due at the rate of 12% per annum or the maximum amount permitted by applicable law, if lower, by wire transfer to BYC's designated account in United States dollars. If the accountant determines that Revenge has overpaid the fees, then Revenge will receive a credit in the amount of such overpayment on its next quarterly payment. BYC will bear the costs of the audit unless the accountants determine that Revenge has underpaid the fees by ten percent or more, in which case Revenge will bear such costs. 4. REPRESENTATIONS AND WARRANTIES OF REVENGE. Revenge hereby represents and warrants to BYC on the date hereof and on each Exercise Date (as defined in the Warrant) as follows: (a) Revenge has been duly incorporated and is validly existing in good standing under the laws of State of Nevada. (b) The execution, delivery and performance of this Agreement and the Warrant by Revenge have been duly authorized by all requisite corporate action; and no further consent or authorization of Revenge, its Board of Directors or its stockholders is required. This Agreement and the Warrant have been duly executed and delivered by Revenge and, when duly authorized, executed and delivered by BYC, will be valid and binding agreements, enforceable against Revenge in accordance with their terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity. (c) Revenge has full corporate power and authority necessary to execute and deliver this Agreement and the Warrant and to perform its obligations hereunder and thereunder. (d) No consent, approval, authorization or order of any court, governmental agency or other body is required for execution and delivery by Revenge of this Agreement or the Warrant or the performance by Revenge of any of its obligations hereunder or thereunder, other than, 6 9 with respect to any Exercise Date, any consent, approval, authorization or order which is received on or prior to such date. (e) Neither the execution and delivery by Revenge of this Agreement or the Warrant nor the performance by Revenge of any of its obligations hereunder or thereunder: (1) violates, conflicts with, results in a breach of, or constitutes a default (or an event which with the giving of notice or the lapse of time or both would be reasonably likely to constitute a default) under (i) the Certificate of Incorporation or by-laws of Revenge or any of its subsidiaries or any Certificate of Designation relating to any securities of Revenge or any of its subsidiaries, (ii) any decree, judgment, order, law, treaty, rule, regulation or determination of which Revenge is aware (after due inquiry) of any court, governmental agency or body, or arbitrator having jurisdiction over Revenge or any of its subsidiaries or any of their respective properties or assets, (iii) the terms of any bond, debenture, note or any other evidence of indebtedness, or any agreement, stock option or other similar plan, indenture, lease, mortgage, deed of trust or other instrument to which Revenge or any of its subsidiaries is a party, by which Revenge or any of its subsidiaries is bound, or to which any of the properties or assets of Revenge or any of its subsidiaries is subject, (iv) the terms of any "lock-up" or similar provision of any underwriting or similar agreement to which Revenge or any of its subsidiaries is a party or (v) any rules of the National Association of Securities Dealers, Inc. applicable to Revenge or the transactions contemplated hereby; or (2) results in the creation or imposition of any lien, charge or encumbrance upon (i) the Warrant or (ii) any of the properties or assets of Revenge or any of its subsidiaries. (f) Revenge has authorized and reserved 1,500,000 shares of Common Stock for issuance upon exercise of the Warrants. When issued to BYC against payment therefor in accordance with the terms of the Warrant, each Warrant Share (i) will have been duly and validly authorized, duly and validly issued, fully paid and nonassessable; (ii) will be free and clear of any security interests, liens, claims or other encumbrances; and (iii) will not have been issued or sold in violation of any preemptive or other similar rights of the holders of any securities of Revenge. (g) There is no pending or, to the best knowledge of Revenge, threatened action, suit, proceeding or investigation before any court, governmental agency, self regulatory agency, or body, or arbitrator having jurisdiction over Revenge or any of its affiliates that would materially adversely affect Revenge, or the execution or performance of its obligations under this Agreement or the Warrant. (h) Revenge has timely filed all filings with the SEC under the Securities Act or the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), required to be filed by Revenge pursuant to such Acts, and no such filing, or press release containing information material to the business of Revenge as a whole, contained any untrue statement of a material fact or omitted to state any material fact 7 10 necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading. 5. REPRESENTATIONS AND WARRANTIES OF BYC. BYC hereby represents and warrants to Revenge on the date hereof as follows: (a) BYC has been duly incorporated and is validly existing in good standing under the laws of State of Delaware. (b) The execution, delivery and performance of this Agreement by BYC have been duly authorized by all requisite corporate action; and no further consent or authorization of BYC, its Board of Directors or its stockholders is required. This Agreement has been duly executed and delivered by BYC and, when duly authorized, executed and delivered by Revenge, will be a valid and binding agreement, enforceable against BYC in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity. (c) Subject to Section 2, BYC understands that the Warrant and the Warrant Shares have not been registered under the Securities Act and may not be re-offered or resold other than pursuant to such registration or an available exemption therefrom. (d) BYC is an "accredited investor" as that term is defined in Regulation D. BYC is acquiring the Warrant for its own account for investment only and not with a view to, or for resale in connection with, the public sale or distribution thereof except pursuant to sales registered under the Securities Act or an exemption from registration thereunder. 6. COVENANTS. Revenge covenants and agrees with BYC as follows: (a) Following an initial public offering of Common Stock and for so long as any portion of the Warrant remains outstanding, Revenge will use reasonable efforts to (i) maintain the eligibility of the Common Stock for quotation on NASDAQ National Market ("NASDAQ") or listing on a national or regional securities exchange (as defined in the Exchange Act) and (ii) use reasonable efforts to regain the eligibility of the Common Stock for quotation on NASDAQ in the event that the Common Stock is delisted by NASDAQ or national or regional securities exchange. (b) Revenge will (i) provide BYC with an opportunity to review and comment on any public disclosure by Revenge of information regarding this Agreement and the transactions contemplated hereby, (ii) promptly notify BYC if there is any public disclosure by Revenge of material information regarding Revenge or its financial condition, prospects or results of operation and (iii) provide BYC with copies of all registration statements, annual reports, quarterly reports, proxy materials and other filings with the SEC, NASDAQ and any national or regional securities exchange on which the Common Stock is listed. (c) Revenge will comply with the terms and conditions of the Warrant as set forth in the Warrant (as duly amended from time to time by the parties hereto). 8 11 (d) For so long as any portion of the Warrant remains outstanding, Revenge will at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, for issuance upon exercise of such Warrant, the maximum number of Warrant Shares then so issuable. If at any time the number of authorized but unissued shares of Common Stock is not sufficient to effect the exercise of the Warrant for all the Warrant Shares issuable thereunder, Revenge shall use reasonable efforts to increase its number of authorized shares of Common Stock to such number of shares as shall be sufficient to effect such exercise, including causing its Board of Directors to call a meeting of stockholders and recommending such increase, and after obtaining any such approval Revenge shall reserve for issuance to BYC the number of shares of Common Stock required to effect such exercise. (e) Revenge will furnish BYC financial statements as follows: (i) within 30 days after the end of each calendar quarter, financial statements prepared and certified by management, and (ii) within 90 after the end of each fiscal year, audited financial statements, prepared by certified public accountants of national standing. The financial statements provided by Revenge under this subsection (e) will be prepared in accordance with generally accepted accounting principles, consistently applied, and will include all balance sheets, cash flows and earnings statements, and other financial information which BYC may from time to time reasonably request. (f) As long as the Warrant or any Warrant Shares are outstanding, unless BYC otherwise consents in advance in writing: (1) Revenge will continue to engage in business of the same general type as conducted on the closing date and do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business. (2) Revenge will not convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets, whether now owned or hereafter acquired, other than in the ordinary course of business other than the manufacturing assets know as Blackfin and Egret and Consolidated. (3) Revenge will not enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any affiliate unless such transaction is (a) in the ordinary course of Revenge's and such affiliate's business and (b) upon fair and reasonable terms no less favorable to Revenge than it would obtain in a comparable arm's length transaction with a person which is not an affiliate. 7. LEGEND. BYC understands that the certificates or other instruments representing the Warrant and, until such time as the Warrant Shares shall have been sold pursuant to a registration under the Securities Act as contemplated by this Agreement, the stock certificates representing the Warrant Shares shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such certificates or other instruments): 9 12 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS. The legend set forth above shall be removed and Revenge shall issue a certificate without such legend to any holder of the Warrant Shares if, unless otherwise required by state securities laws, (i) the same are sold pursuant to an effective registration statement under the Securities Act, or (ii) in connection with a sale transaction, such holder provides Revenge with an opinion of counsel, in form, substance and scope reasonably acceptable to Revenge, to the effect that a public sale, assignment or transfer thereof maybe lawfully effected without registration under the Securities Act, or (iii) such holder provides Revenge with assurances reasonably satisfactory to Revenge that the same may be publicly sold pursuant to Rule 144 without restriction. 8. FEES AND EXPENSES. Except as otherwise provided in this Agreement or the Warrant, each party will be bear its own legal fees and expenses incurred in connection with preparing this Agreement and the related transactions. 9. INDEMNIFICATION. (a) INDEMNIFICATION OF BYC. Revenge hereby agrees to indemnify BYC and each of its officers, directors, employees, agents and affiliates and each person that controls (within the meaning of Section 20 of the Exchange Act) any of the foregoing persons against any claim, demand, action, liability, damages, loss, cost, settlement, disposition or expense (including, without limitation, reasonable legal fees and reasonable investigation expenses), that it incurs in connection with: (1) any material breach of or failure to perform any covenant, agreement or obligation of Revenge made in this Agreement or the Warrant; (2) any material inaccuracy in or material breach of the representations and warranties of Revenge made in this Agreement or the Warrant; or (3) any untrue statement or alleged untrue statement of any material fact contained in any registration statement, prospectus, or any amendment or supplement thereto, or any related preliminary prospectus filed by or on behalf of Revenge, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; except to the extent that any such claim, demand, action, liability, damages, loss, cost, settlement, disposition or expense arises out of or is based upon an untrue 10 13 statement or alleged untrue statement or omission or alleged omission made in any such document or amendment or supplement thereto, in reliance upon and in conformity with written information furnished to Revenge by, or on behalf of, BYC specifically for use therein. (b) INDEMNIFICATION OF REVENGE. BYC hereby agrees to indemnify Revenge and each of its officers, directors, employees, agents and affiliates and each person that controls (within the meaning of Section 20 of the Exchange Act) any of the foregoing persons against any claim, demand, action, liability, damages, loss, cost, settlement, disposition or expense (including, without limitation, reasonable legal fees and reasonable investigation expenses), that it incurs in connection with: (1) any material breach of or failure to perform any covenant, agreement or obligation of BYC made in this Agreement or the Warrant; (2) any material inaccuracy in or material breach of the representations and warranties of BYC made in this Agreement or the Warrant; or (3) any untrue statement or alleged untrue statement of any material fact contained in any registration statement, prospectus, or any amendment or supplement thereto, or any related preliminary prospectus filed by or on behalf of Revenge, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the to the extent that any such claim, demand, action, liability, damages, loss, cost, settlement, disposition or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any such document or amendment or supplement thereto, in reliance upon and in conformity with written information furnished to Revenge by, or on behalf of, BYC specifically for use therein. (c) CONDUCT OF CLAIMS. Whenever a claim for indemnification arises under this Section 9, the party seeking indemnification (the "Indemnified Party") will notify the party from whom such indemnification is sought (the "Indemnifying Party") in writing of the relevant event or proceeding and the facts constituting the basis for such claim in reasonable detail. Upon delivery of such notice, such Indemnified Party will take all reasonable steps to mitigate any losses, liabilities, costs, charges and expenses relating to any such event or proceeding. Such Indemnifying Party shall have the right to retain counsel of its choice in connection with such event or proceeding and to participate at its own expense in the defense of any such event or proceeding. An Indemnifying Party will not, without the prior written consent of the applicable Indemnified Parties (which consent may not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification could be sought under this Section 9 unless such settlement, compromise or consent (i) includes an unconditional release of each Indemnified Party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) 11 14 does not include a statement constituting an admission of fault, culpability or a failure to act by or on behalf of any Indemnified Party. 10. SURVIVAL OF REPRESENTATIONS, WARRANTIES, ETC. The respective representations, warranties, and agreements made herein by or on behalf of the parties hereto will remain in full force and effect, regardless of any investigation made by or on behalf of the other party to this Agreement or any officer, director or employee of, or person controlling or controlled by or under common control with, such party and will survive delivery of and payment for the Warrant and any Warrant Shares. 11. NOTICES. All communications hereunder will be in writing, and will be delivered by hand, sent by registered mail or transmitted and confirmed by facsimile If to Revenge: Revenge Marine, Inc. 2051 NW 11th Miami, Florida 33125 Fax: (305) 643-0393 Attention: William Robinson, President If to BYC: BYC Acquisition Corporation c/o Detroit Diesel Corporation 13400 Outer Drive, West Detroit, Michigan 48239-4001 Fax: (313) 592-7323 Attention: Daniel J. McEnroe, Treasurer 12. MISCELLANEOUS. (a) This Agreement may be executed in one or more counterparts and it is not necessary that signatures of all parties appear on the same counterpart, but such counterparts together shall constitute but one and the same agreement. (b) This Agreement and the Warrant shall inure to the benefit of and be binding upon the parties hereto, their respective successors and assigns and, with respect to Section 9 hereof, their respective officers, directors, employees, agents, affiliates and controlling persons, and no other person shall have any right or obligation hereunder. BYC may not transfer its rights and obligations under this Agreement or the Warrant without Revenge's prior written consent, which may not be unreasonably withheld or delayed, except that BYC may transfer its rights and obligations to Detroit Diesel Corporation (or any of its affiliates) without such consent. Revenge may not assign its rights or obligations under this Agreement or the Warrant. (c) This Agreement and the Warrant shall be governed by, and construed in accordance with, the internal laws of the State of Michigan, and each of the parties hereto hereby submits to the non-exclusive jurisdiction of any Federal court in the Eastern District of Michigan or appropriate State court in Michigan and any court hearing any appeal therefrom, over any suit, action or proceeding against it arising out of or based upon this Agreement and the Warrant. 12 15 Each of the parties hereto hereby waives any objection to any such suit, action or proceeding in such courts whether on the grounds of venue, residence or domicile or on the ground that such suit, action or proceeding has been brought in an inconvenient forum. (d) The provisions of this Agreement and the Warrant are severable, and if any clause or provision hereof shall be held invalid, illegal or unenforceable as a whole or in part, such invalidity or unenforceability shall not in any manner affect any other clause or provision of this Agreement or the Warrant. (e) The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement. (f) This Agreement and the Warrant constitute the entire agreement and supersedes all prior agreements and understandings, written or oral, between the parties hereto with respect to the subject matter of this Agreement and the Warrant, including the Purchase Agreement. Neither this Agreement nor the Warrant is intended to confer upon any person other than the parties hereto any rights or remedies hereunder or thereunder. (g) As used in this Agreement, the phrase "reasonable efforts" means, with respect to any action, those reasonable good faith efforts required to diligently pursue completion of the subject action in a timely manner. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement, all as of the day and year first above written. REVENGE MARINE, INC. By: ---------------------------------- William Robinson Its: President BYC ACQUISITION CORPORATION By: ---------------------------------- Daniel J. McEnroe Its: Vice President 13 EX-10.5 4 WARRANT AGREEMENT BETWEEN REGISTRANT & BLACKFIN 1 EXHIBIT 10.5 THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. THE EXERCISE OF THIS WARRANT IS SUBJECT TO COMPLIANCE WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS. REVENGE MARINE, INC. WARRANT TO PURCHASE 1,500,000 COMMON SHARES THIS CERTIFIES THAT, for value received, BYC Acquisition Corporation is entitled to subscribe for and purchase 1,500,000 of the fully paid and nonassessable common shares (as adjusted pursuant to Section 2 hereof, the "Shares") of Revenge Marine, Inc., a Nevada corporation (the "Company"), at the price of $0.37 per Share (such price and such other price as shall result, from time to time, from the adjustments specified in Section 2 hereof is herein referred to as the "Warrant Price"), subject to the provisions and upon the terms and conditions hereinafter set forth. Any permitted assignee of this Warrant, by acceptance hereof, assumes and agrees to the rights and restrictions set forth herein. 1. TERM. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time and from time to time from June 30, 1999 (the "Effective Date") through April 30, 2002. 2. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The Warrant Price and the number of Shares issuable upon the exercise of this Warrant shall be subject to adjustment from time to time, and the Company agrees to provide notice upon the happening of certain events as follows: (a) RECLASSIFICATION, ETC. If the Company at any time shall, by subdivision, combination or reclassification of securities, change any of the securities to which purchase rights under this Warrant exist into the same or a different number of securities of any class or classes, this Warrant shall thereafter permit the holder hereof (the "Holder") to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant immediately prior to such subdivision, combination or reclassification. If shares of the class of the Company's capital stock for which this Warrant is being exercised are subdivided or combined into a greater or smaller number of shares, the Warrant Price shall be proportionately reduced in case of subdivision of shares or proportionately increased in the case of combination of shares, in both cases by the ratio which the total number of shares of such class to be outstanding immediately after such event bears to the total number of shares of such class outstanding immediately prior to such event. (b) ADJUSTMENT FOR DIVIDENDS IN SHARES. In case at any time or from time to time on or after the Effective Date the holders of the common shares of the Company (or any other shares or other securities at the time receivable upon the exercise of this Warrant) shall have received, or, on or after the record date fixed for the determination of eligible shareholders, shall have become entitled to receive, without payment therefor, other or additional shares of the Company by way of dividend, then and in each case, the Holder shall, upon the exercise hereof, be entitled to receive, in addition to the number of Shares receivable thereupon, and without payment of any additional 1 2 consideration therefor, the amount of such other or additional shares of the Company which such Holder would hold on the date of such exercise had it been the holder of record of such Shares on the Effective Date and had thereafter, during the period from the Effective Date to and including the date of such exercise, retained such shares and/or all other additional shares receivable by it as aforesaid during such period, giving effect to all adjustments called for during such period by paragraphs (a) and (b) of this Section 2. (c) CERTIFICATE OF ADJUSTMENT. Whenever the Warrant Price or number or type of securities issuable upon exercise of this Warrant is adjusted, as herein provided, the Company shall promptly deliver to the record holder of this Warrant a certificate of an officer of the Company setting forth the nature of such adjustment and a brief statement of the facts requiring such adjustment. 3. NO STOCKHOLDER RIGHTS. This Warrant, by itself as distinguished from the Shares purchasable hereunder, shall not entitle the Holder to any of the rights of a shareholder of the Company until the Warrant is exercised and then only as to the Warrant Shares so purchased. 4. AUTHORIZATION AND RESERVATION OF STOCK. The Company will reserve from its authorized and unissued common shares a sufficient number of shares to provide for the issuance of the Shares upon the exercise of this Warrant. Issuance of this Warrant shall constitute full authority to the Company's officers who are charged with the duty of executing certificates to execute and issue the necessary certificates for the Shares upon the exercise of this Warrant. 5. EXERCISE OF WARRANT; NET EXERCISE. (a) EXERCISE OF WARRANT. Subject to compliance with applicable federal and state securities laws, this Warrant may be exercised in whole or in part by the Holder at any time by the surrender of this Warrant, together with the Notice of Exercise and Subscription Agreement attached hereto as Exhibits A and B, respectively, duly completed and executed, at the principal office of the Company, accompanied by payment in full of the Warrant Price in cash or by check with respect to the Shares being purchased. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the Shares issuable upon such exercise shall be treated for all purposes as the Holder of such Shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full common shares issuable upon such exercise. Upon any partial exercise of this Warrant, the Company will issue to the Holder a new warrant for the number of the Shares as to which this Warrant was not exercised. (b) FRACTIONAL SHARES. No fractional common shares will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor based on the fair market value of the common shares on the date of exercise as reasonably determined in good faith by the Company's Board of Directors. 2 3 6. TRANSFER OF WARRANT. This Warrant and the rights provided for herein may be transferred or assigned by the Holder hereof in whole or in part, provided that: (i) prior written notice is given to the Company and the transferor shall provide, at the Company's reasonable request, an opinion of counsel reasonably satisfactory to the Company that such transfer does not require registration under the Securities Act of 1933, as amended; and (ii) this Warrant may be transferred by the Holder hereof only to (a) an entity controlled by, which controls, or which is under common control with the transferor or (b) another entity which is at the time of transfer, or which becomes immediately thereafter, a lender to the Company. 7. MISCELLANEOUS. This Warrant shall be governed by the internal laws of the State of Michigan. The headings in this Warrant are for purposes of convenience and reference only, and shall not be deemed to constitute a part hereof. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally but only by an instrument in writing signed by the Company and the Holder. All notices and other communications from the Company to the holder of this Warrant shall be delivered personally or mailed by first class mail, postage prepaid, to the address furnished to the Company in writing by the last holder of this Warrant who shall have furnished an address to the Company in writing, and if mailed shall be deemed given three days after deposit in the United States mail. The Company shall pay and hold the Holder harmless from liability for the payment of fees and expenses (including the reasonable fees and expenses of counsel) incurred in the enforcement of rights granted to the Holder under this Warrant. ISSUED June 30, 1999. REVENGE MARINE, INC. By: -------------------------------- Its: ---------------------------- Accepted and agreed to: BYC ACQUISITION CORPORATION By: --------------------------------------- Its: ----------------------------------- 3 4 Exhibit A NOTICE OF EXERCISE TO: REVENGE MARINE, INC. 1. The undersigned hereby elects to purchase ________________ common shares, of Revenge Marine, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price in full. 2. Please issue a certificate or certificates representing said common shares in the name of the undersigned or in such other name as is specified below: -------------------------------------- (Name) -------------------------------------- (Address) - -------------------------- -------------------------------------- (Date) (Name of Warrant Holder) By: ------------------------------------- Its: ----------------------------------- (name of purchaser, and title and signature of authorized person) 5 Exhibit B SUBSCRIPTION AGREEMENT EX-10.6 5 WARRANT AGREEMENT BETWEEN REGISTRANT & P. JOHNSON 1 EXHIBIT 10.6 THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT. THE EXERCISE OF THIS WARRANT IS SUBJECT TO COMPLIANCE WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS. REVENGE MARINE, INC. WARRANT TO PURCHASE 250,000 COMMON SHARES THIS CERTIFIES THAT, for value received, Pete Johnson is entitled to subscribe for and purchase 250,000 of the fully paid and nonassessable common shares (as adjusted pursuant to Section 2 hereof, the "Shares") of Revenge Marine, Inc., a Nevada corporation (the "Company"), at the price of $0.37 per Share (such price and such other price as shall result, from time to time, from the adjustments specified in Section 2 hereof is herein referred to as the "Warrant Price"), subject to the provisions and upon the terms and conditions hereinafter set forth. Any permitted assignee of this Warrant, by acceptance hereof, assumes and agrees to the rights and restrictions set forth herein. 1. TERM. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time and from time to time from June 30, 1999 (the "Effective Date") through April 30, 2002. 2. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The Warrant Price and the number of Shares issuable upon the exercise of this Warrant shall be subject to adjustment from time to time, and the Company agrees to provide notice upon the happening of certain events as follows: (a) RECLASSIFICATION, ETC. If the Company at any time shall, by subdivision, combination or reclassification of securities, change any of the securities to which purchase rights under this Warrant exist into the same or a different number of securities of any class or classes, this Warrant shall thereafter permit the holder hereof (the "Holder") to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant immediately prior to such subdivision, combination or reclassification. If shares of the class of the Company's capital stock for which this Warrant is being exercised are subdivided or combined into a greater or smaller number of shares, the Warrant Price shall be proportionately reduced in case of subdivision of shares or proportionately increased in the case of combination of shares, in both cases by the ratio which the total number of shares of such class to be outstanding immediately after such event bears to the total number of shares of such class outstanding immediately prior to such event. (b) ADJUSTMENT FOR DIVIDENDS IN SHARES. In case at any time or from time to time on or after the Effective Date the holders of the common shares of the Company (or any other shares or other securities at the time receivable upon the exercise of this Warrant) shall have received, or, on or after the record date fixed for the determination of eligible shareholders, shall have become entitled to receive, without payment therefor, other or additional shares of the Company by way of dividend, then and in each case, the Holder shall, upon the exercise hereof, be entitled to receive, in addition to the number of Shares receivable thereupon, and without payment of any additional consideration therefor, the amount of such other or additional 1 2 shares of the Company which such Holder would hold on the date of such exercise had it been the holder of record of such Shares on the Effective Date and had thereafter, during the period from the Effective Date to and including the date of such exercise, retained such shares and/or all other additional shares receivable by it as aforesaid during such period, giving effect to all adjustments called for during such period by paragraphs (a) and (b) of this Section 2. (c) CERTIFICATE OF ADJUSTMENT. Whenever the Warrant Price or number or type of securities issuable upon exercise of this Warrant is adjusted, as herein provided, the Company shall promptly deliver to the record holder of this Warrant a certificate of an officer of the Company setting forth the nature of such adjustment and a brief statement of the facts requiring such adjustment. 3. NO STOCKHOLDER RIGHTS. This Warrant, by itself as distinguished from the Shares purchasable hereunder, shall not entitle the Holder to any of the rights of a shareholder of the Company until the Warrant is exercised and then only as to the Warrant Shares so purchased. 4. AUTHORIZATION AND RESERVATION OF STOCK. The Company will reserve from its authorized and unissued common shares a sufficient number of shares to provide for the issuance of the Shares upon the exercise of this Warrant. Issuance of this Warrant shall constitute full authority to the Company's officers who are charged with the duty of executing certificates to execute and issue the necessary certificates for the Shares upon the exercise of this Warrant. 5. EXERCISE OF WARRANT; NET EXERCISE. (a) EXERCISE OF WARRANT. Subject to compliance with applicable federal and state securities laws, this Warrant may be exercised in whole or in part by the Holder at any time by the surrender of this Warrant, together with the Notice of Exercise and Subscription Agreement attached hereto as Exhibits A and B, respectively, duly completed and executed, at the principal office of the Company, accompanied by payment in full of the Warrant Price in cash or by check with respect to the Shares being purchased. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the Shares issuable upon such exercise shall be treated for all purposes as the Holder of such Shares of record as of the close of business on such date. As promptly as practicable after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full common shares issuable upon such exercise. Upon any partial exercise of this Warrant, the Company will issue to the Holder a new warrant for the number of the Shares as to which this Warrant was not exercised. (b) FRACTIONAL SHARES. No fractional common shares will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor based on the fair market value of the common shares on the date of exercise as reasonably determined in good faith by the Company's Board of Directors. 2 3 6. TRANSFER OF WARRANT. This Warrant and the rights provided for herein may be transferred or assigned by the Holder hereof in whole or in part, provided that: (i) prior written notice is given to the Company and the transferor shall provide, at the Company's reasonable request, an opinion of counsel reasonably satisfactory to the Company that such transfer does not require registration under the Securities Act of 1933, as amended; and (ii) this Warrant may be transferred by the Holder hereof only to (a) an entity controlled by, which controls, or which is under common control with the transferor or (b) another entity which is at the time of transfer, or which becomes immediately thereafter, a lender to the Company. 7. MISCELLANEOUS. This Warrant shall be governed by the internal laws of the State of Michigan. The headings in this Warrant are for purposes of convenience and reference only, and shall not be deemed to constitute a part hereof. Neither this Warrant nor any term hereof may be changed, waived, discharged or terminated orally but only by an instrument in writing signed by the Company and the Holder. All notices and other communications from the Company to the holder of this Warrant shall be delivered personally or mailed by first class mail, postage prepaid, to the address furnished to the Company in writing by the last holder of this Warrant who shall have furnished an address to the Company in writing, and if mailed shall be deemed given three days after deposit in the United States mail. The Company shall pay and hold the Holder harmless from liability for the payment of fees and expenses (including the reasonable fees and expenses of counsel) incurred in the enforcement of rights granted to the Holder under this Warrant. ISSUED June 30, 1999. REVENGE MARINE, INC. By: ---------------------------------- Its: --------------------------------- Accepted and agreed to: PETE JOHNSON By: ---------------------------------- An Individual 3 4 Exhibit A NOTICE OF EXERCISE TO: REVENGE MARINE, INC. 1. The undersigned hereby elects to purchase ________________ common shares, of Revenge Marine, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price in full. 2. Please issue a certificate or certificates representing said common shares in the name of the undersigned or in such other name as is specified below: -------------------------------------- (Name) -------------------------------------- (Address) - -------------------------- -------------------------------------- (Date) (Name of Warrant Holder) By: ---------------------------------- Its: ---------------------------------- (name of purchaser, and title and signature of authorized person) 5 Exhibit B SUBSCRIPTION AGREEMENT EX-21.1 6 LIST OF SUBSIDIARIES 1 EXHIBIT 21.1 List of Subsidiaries Revenge Marine, Inc. a Delaware corporation Consolidated Marine, Inc. a Florida corporation Egret Boat Company, a Florida corporation EX-23.1 7 CONSENT OF CROSS AND ROBINSON INDEPENDENT AUDITORS 1 EXHIBIT 23.1 The Board of Directors and Stockholders of Revenge Marine, Inc. We hereby do consent to the inclusion of our independent auditor's report dated September 10, 1999 in the Revenge Marine, Inc. FORM 10-K, for the year ended June 30,1999. CROSS AND ROBINSON Certified Public Accountants October 29, 1999 EX-27.1 8 FINANCIAL DATA SCHEDULE DATED 06/30/98
5 YEAR JUN-30-1998 SEP-05-1997 JUN-30-1998 102,793 0 0 0 60,500 339,901 378,445 139,025 2,995,804 314,479 0 0 0 6,676 2,674,649 2,995,804 0 0 0 0 0 0 0 0 0 0 (318,932) 0 0 (318,932) 0 0
EX-27.2 9 FINANCIAL DATA SCHEDULE DATED 06/30/99
5 YEAR JUN-30-1999 JUL-01-1998 JUN-30-1999 0 1,000,000 2,200,000 0 0 2,260,000 2,764 968 3,263,496 3,458,741 0 0 108,720 10,899 (314,864) 3,263,496 0 0 0 0 0 0 0 0 0 0 (4,350,855) 0 0 (4,350,855) (0.61) (0.61)
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