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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934, as amended
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EDNET, INC.
(Name of Small Business Issuer in its charter)
Colorado 84-1273795
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Union Street, San Francisco, California 94111
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (415) 274-8800
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be registered: each class is to be registered:
NONE NOT APPLICABLE
Securities to be registered under Section 12(g) of the Act:
Common Stock ($.001 par value per share)
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(Title of Class)
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PART I
ALTERNATIVE 2
ITEM 6 (OF MODEL B OF FORM 1-A). DESCRIPTION OF BUSINESS
SUMMARY OF BUSINESS
EDnet, Inc., a Colorado corporation (the "Company"), develops and
markets integrated systems for the delivery, storage and management of
professional-quality digital communications for media-based applications,
including audio and video production for the U.S. advertising and entertainment
industry. The Company has established a private wide-area network through
strategic alliances with long distance carriers, regional telephone companies,
satellite operators and independent fiber optic telecommunications providers,
which enables the exchange of high quality audio, compressed video and
multimedia data communications. The Company provides engineering services,
application-specific technical advice, audio, video and networking hardware and
software as part of its business. Additionally, the Company provides Internet
web site development, hosting services and proprietary software to businesses
conducting Internet commerce.
INDUSTRY OVERVIEW
The digital communications industry originated in the 1970's based on
the ability of digital technology to support new and advanced communication
capabilities. Digital data can be compressed, enabling data-dense applications
such as the instantaneous exchange of large amounts of data and high-quality
concurrent (or "real-time") interactive communication over any distance. The
Company's primary expertise is in systems integration using digital networking
technology.
BUSINESS OF THE COMPANY
PRINCIPAL MARKETS. The Company sells its services to the advertising
and entertainment industry, including production and post-production companies,
advertisers, producers, directors and actors. The Company's networking
technology makes it possible for producers, directors and actors to interact in
real time, with less interruption of their schedules, despite being in separate
locations. The Company's management ("Management") believes that this is of
growing importance in the entertainment industry because while the production of
audio and video entertainment is inherently a creative process requiring the
collaboration of many parties, increasingly, the participants in this process
are in separate locations. Traditionally, this fact has accounted for frequent
travel and delay being a necessary element of the audio and video production
process. The Company's technology is designed to address this situation by
allowing the collaborative process to go forward despite physical separation.
Some of the world's most prominent recording companies, including A&M Records,
Arista, Capitol Records, EMI Records Group and Sony Music Entertainment use the
Company's technology. Every studio which uses the Company's audio and video
media equipment becomes an "affiliate studio" in the Company's
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network. Currently, the network is composed of over 300 studios across North
America, with major concentrations in California, Seattle, St. Louis, Chicago,
Minneapolis, Atlanta and on the East Coast from Washington, D.C. to New York and
Boston. By granting access to its network, the Company earns one-time fees from
customers for the sale and installation of its equipment and ongoing fees for
the use of the network.
AUDIO AND VIDEO NETWORK SYSTEM DEVELOPMENT PROCESS. The Company has
standardized its process for developing audio and video network communications
systems for its customers. At the time that the Company contracts with a new
audio or video network customer, the Company's personnel obtain and determine
technical information and specifications regarding the customer's existing
facility, equipment and communications requirements. Based on those
specifications, the Company determines the configuration of the new system,
selects the appropriate equipment components, makes necessary modifications to
the software and/or hardware and performs final quality control procedures. The
Company then packages and ships the system to the customer. Installation of the
system can usually be performed by affiliated technicians with telephonic
support from Company engineers. Upon installation of the system, the Company's
technical personnel typically perform a routine series of system checks and
diagnostics from its headquarters facilities via the remote network connection
to ensure that the newly-installed equipment functions properly.
TECHNICAL SUPPORT. As part of a customer's monthly network connection
fee, the Company maintains a staff of technical support personnel to respond to
customer inquiries during business hours. For emergency support during
non-business hours, domestic customers can contact Company personnel through a
toll-free 800 number, while a special direct-dial telephone number is available
for international customers. The Company generally can resolve the vast majority
of technical support issues directly through its network connection, which
enables Company personnel to perform remote diagnostics directly on a customer's
equipment. In the event that the Company is unable to diagnose and service a
hardware or software problem via the remote network connection, a customer can
ship equipment to the Company for on-site, or "bench," diagnostics and service.
KEY SUPPLIERS AND ALLIANCES. The Company functions as a systems
integrator by acquiring other companies' technologies and combining them into an
effective communications solution. The Company does not manufacture any of the
components used in its network, but rather purchases digital communications
equipment components directly from their manufacturers, including Dolby Labs,
Telos and APT, Inc. The Company performs installation services and further
equipment integration. Because the individual components used in the Company's
systems are available from more than one reliable source or manufacturer,
Management believes the risk of an adverse impact to the Company's business from
an interruption in supply from any single supplier is minimal. The Company also
maintains an ongoing inventory of all of the components of its various
communications products. Most of the Company's suppliers have offices and/or
distribution points near the Company's San Francisco headquarters. In the event
that the Company does not have sufficient inventory on-hand to fulfill a system
hardware order, the Company can usually order and receive additional
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inventory with turnaround times of as little as twenty-four hours and generally
no more than four weeks.
MARKETING. The Company markets its services through a combination of
employing a direct sales staff and by appearing at industry trade shows.
DESCRIPTION OF CURRENT AND DEVELOPING PRODUCTS
AUDIO MEDIA NETWORKING SERVICES. The Company develops integrated system
solutions (its "Audio Media Communications Service") which provide compression
and transmission of studio quality audio signals over fiber optic lines (i.e.,
telephone digital data lines) between separate studios. The audio data can also
be accompanied by time codes so that operators at the different studios can
synchronize the audio to film projectors or VCR machines in order to allow the
"real time" editing of movies and video. Upon installation of an audio media
communications system and the requisite sound equipment, a studio becomes an
"affiliate studio," equipped with a device to compress, send, receive and
decompress analog audio media (known as a "codec"). In addition, the studio
becomes a part of the Company's network of media production and post production
studios. Outside customers (non-affiliates) seeking to access media production
facilities or otherwise review or edit an audio clip with the assistance of a
person in a different location can do so through these affiliate studios. By
using the Company's Electronic Directory Software, the affiliate can determine
whether it, or another network studio, operates equipment that is compatible
with the needs of the customer. Once the appropriate network studio is chosen,
the customer can schedule an appointment to use the network. If nearby studios
do not have compatible equipment, the Company's personnel in San Francisco can
digitally "bridge" the studios together. The customer then pays a network access
fee to the Company. The purchase price of these audio media communications
systems ranges from $5,250 to $18,000. The Company pays local telephone service
providers telephone connection installation charges (depending upon bandwidth
requirements, from $250 to $1,000) and monthly recurring connection charges
(from $50 to $1,200), most of which is reimbursed to the Company by its
customers. The primary market for the Audio Media Communications Service are
radio and television advertisers, motion picture and television program
production companies and music recording companies.
The Company recently announced a network application which is designed
especially for the music recording industry. The Company's "ZeroC" (for zero
compression) technology provides fiber-optic transmission of real-time,
uncompressed digital audio, using the true CD standard of 44.1 kHz sampling at
16 bits. The system relays, in real playback time, the audio bits of an AES/EBU
digital audio datastream with no re-sampling or rate adaption.
VIDEO MEDIA NETWORKING SERVICES. The Company is currently developing a
video communications service (its "Fast Forward Delivery System") which is
similar to its Audio Media Communications Service. Through the use of similar
equipment located at network studios, the Company manages the transmission of
approval-quality video segments between studios. The Fast Forward Delivery
System transmits information on a 128 kilobit ("ISDN") data line, which has
dial-up capability, and operates on the same principle as the Audio Media
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Communications Service except that the transmission does not happen in "real
time." However, using this technology, video media producers and their customers
can efficiently and effectively transmit edits, approvals, or modifications to
video and other types of media, including special effects media and graphic
media (including prints and logos). Management believes its system is similar to
e.mail for video and, compared to conventional methods of transmitting video,
i.e., mail or physical travel, can significantly increase the speed and
efficiency of the video editing process, and anticipates making a significant
capital investment in the current year in developing the Fast Forward Delivery
System and installing the necessary equipment in network studios.
As with the Company's Audio Networking Services, outside customers
(non-affiliates) seeking to access media production facilities or otherwise
review or edit video with the assistance of a person in a different location can
do so by paying a fee to use a network studio. The customer also pays a network
access fee to the Company. The purchase price of the Fast Forward Delivery
System ranges from $15,000 to $50,000. The Company pays local telephone service
providers telephone connection installation charges (depending upon bandwidth
requirements, from $250 to $1,000) and monthly recurring connection charges
(from $50 to $1,200), most of which is reimbursed to the Company by its
customers. The primary market for the Fast Forward Delivery System are
television advertisers, motion picture and television series production
companies and other corporate video users.
INTERNET WEBSITE DEVELOPMENT AND HOSTING SERVICES. The Company is also
in the Internet services marketplace. In June 1996, in order to increase its
potential to deliver high-quality audio and other media over the Internet, the
Company consummated a transaction whereby Internet Worldwide Business Solutions,
a California corporation, dba Internet Business Solutions ("IBS"), an Internet
services provider specializing in the development and hosting of web sites for
companies doing business on the Internet, merged with and into a subsidiary of
the Company. The Company thus improved its ability to integrate numerous
technologies to yield cost-effective media communications solutions. IBS
provides interactive web site development services, specializing in complex
database access and professional graphic appearance for its corporate customers.
Web site development services are sought by businesses that wish to pursue
on-line commerce on the Internet. Management believes that a key feature of the
Company's web site service is the Company's ability to provide interactive,
graphically appealing web pages, while many of the web sites developed by
competitors are static and plain. In addition to web site development, the
Company offers the following Internet related services: catalog-based search
engines for custom or existing databases; electronic forms for customer and
query information capture; specialized on-line ordering systems; and
comprehensive Internet networking, integration and consulting. Internet services
for web site development range from $5,000 to $75,000 depending on the content
and complexity of the web site. Web site host fees collected by the Company this
year average approximately $249 per month. The primary market for these services
are large and small corporate businesses.
DESCRIPTION OF POSSIBLE PRODUCTS
The Company is also exploring the development of additional products
which are not yet in the production phase to enable the Company to participate
in the Internet services
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marketplace, which products could provide enhancements to the Company's Audio
Media Communications Service and Fast Forward Delivery System. Management
believes that there is a market for the products listed below, but there is no
assurance that such products will be successfully developed and produced, or if
developed and produced, that they will be profitable for the Company.
MEDIA ASSET MANAGEMENT SYSTEMS. The Company anticipates providing a new
service (its "Media Asset Management System") for the collection, indexing and
storage of media assets for corporate customers. Media assets include any audio,
video, special effects or print media that have been developed by, and are
considered the property of, the developing company. Examples include radio and
TV commercials and product or background still photography. Management believes
that the Media Asset Management System would enable customers to access their
media assets by fiber optic lines, which would allow them to easily save,
archive and retrieve previously produced media assets for reuse (or
"re-purposing") at a later time for a different application. For example, an
advertising agency may be able to retrieve a previously used photograph of the
Golden Gate Bridge or a product package and make minor changes to the image for
use in a new advertisement, saving both time and money. The Company has
established a strategic alliance with St. Louis-based Digital Dimensions, Inc.
to co-market and sell the Media Asset Management System, and anticipates that
the pricing for this service would include one-time and ongoing charges and be
based on the specific operational needs of each customer. The primary market for
the Media Asset Management System could be corporate advertisers and advertising
agencies.
INTERNET SOFTWARE DEVELOPMENT TOOLS. The Company's subsidiary IBS is
developing new web site development software which would allow businesses to
develop their own database-oriented web sites. With built-in interfaces to the
newest web programming languages, businesses would be able to develop
graphically appealing web sites that provide numerous functions including
database access and interactive information gathering. The primary market for
these services would be companies who manage and provide Internet access to
their primary databases.
INTERNET WEBSITE DEVELOPMENT AND HOSTING SERVICES. The Company is
exploring the expansion of its host/server site service for maintaining its
customers' web sites to develop an "Intranet" or closed access network for the
entertainment industry while using the Internet as the main "backbone" or
communications path.
COMPETITION
AUDIO AND VIDEO NETWORKING. Competition in the audio and video
networking business is based on the ability to provide systems compatibility and
proprietary off-the-shelf codecs. Due to the difficulty and expense of
developing and maintaining private digital networks, Management believes that
the number of competitors is, and will remain, small.
The Company's principal competitor in audio networking is the 3D2
("3D2") division of Keystone Communications, Inc. Until March 31, 1995, 3D2 had
the exclusive distribution
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rights in North America for apt-X codecs manufactured by Audio Processing
Technology, which were then in demand in the radio voice-over market. In April
1995, the Company became one of several distributors of Audio Processing
Technology and within six months became their largest worldwide distributor.
Management estimates that, between July 1995 and June 1996, the number of
affiliates in 3D2's network has fallen from approximately 140 to 70, while the
number of affiliates in the Company's network rose from 125 to over 250.
The Company's primary video networking competitors are VYVX, a division
of Williams Co., and Sprint through its DRUMS products. These companies offer
their video networking services utilizing higher-bandwidth fiber connections,
which, because they do not have dial-up capability, require scheduling and are
considerably more expensive. Because the Fast Forward Delivery System is
primarily ISDN-based, and has dial-up capability, it is generally less expensive
than sending video materials between studios by courier.
PATENTS & TRADEMARKS
The Company does not own any patents and relies instead on a
combination of statutory and common law copyright, trademark and trade secret
laws to protect its rights in its proprietary technologies. The Company has
registered "EDnet" and "Entertainment Digital Network" as trademarks with the
U.S. Patent and Trademark Office and has applied to register "ZeroC" as a
trademark with the U.S. Patent and Trademark Office.
RESEARCH AND DEVELOPMENT.
During the last two fiscal years, the Company spent a total of
approximately $42,000 on research and development. During each of the last two
fiscal years, the Company did not spend any funds on material customer-sponsored
research and development.
GOVERNMENTAL APPROVALS AND REGULATION
The Company's networking services are currently not subject to
regulation by any government agency or regulatory body.
HISTORY AND ORGANIZATION
BACKGROUND. Prior to founding the Company, most of Management was
employed by Skywalker Sound ("Skywalker"), the post production division of
LucasArts/Lucasfilm Ltd. ("LucasArts"). In 1991, while at Skywalker, they made a
breakthrough in the application of digital communications technology. They were
able to send four channels of compressed, professional-quality digital audio
over T-1 fiber-optic telephone lines (individual DSOs or channels over a single
line) from a Skywalker studio in Northern California to a Skywalker studio in
Southern California. The group thereafter sent the audio mix for the movie
Backdraft, then under production, between the two studios on a daily basis. The
result was that Backdraft was the first film in which the director reviewed
movie audio from a remote studio on the same day it was produced.
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Based upon this success (and with the acknowledgement of LucasArts),
the Company's management organized Entertainment Digital Network ("EDN")) as a
Nevada corporation on June 26, 1992, and set up a trial network of seven studios
and developed other proprietary technology to market T-1 digital communications
to the music, movie and television industries. On January 25, 1993, EDN was
re-incorporated in the State of California.
In 1993, EDN acquired the assets of Digital Patch Systems, which used
MPEG-based, audio-compression, switched-56 and ISDN data lines, which the
Company adopted as its primary technology. Management believed that ISDN, which
had become the standard in the telecommunications industry in Europe, Japan and
many parts of the Pacific Rim, would likewise become the standard in the U.S.
Currently, ISDN is common in most areas of the world.
MERGER WITH AP OFFICE EQUIPMENT. On or about September 20, 1995, EDN's
management determined that it was in EDN's best interests to effect a business
combination with a company whose shares were publicly-traded in order to access
the public capital markets. Toward this end, EDN, its seven largest shareholders
and AP Office Equipment, Inc. ("AP") entered into a Stock Purchase Agreement
pursuant to which such shareholders exchanged their EDN common and preferred
stock for 1,275,818 shares of AP common stock, par value $.001 per share (the
"Common Stock"). In addition, (a) outstanding non-qualified options to purchase
an aggregate of 263,420 shares of EDN common stock at an exercise price of $.10
per share were converted into options to purchase an aggregate of 230,479 shares
of Common Stock at an exercise price of $.11 per share, and (b) outstanding
warrants to purchase an aggregate of 347,343 shares of EDN common stock at
$2.625 per share, which terminate after October 31, 1996, were converted into
warrants to purchase an aggregate of 303,908 shares of Common Stock at an
exercise price of $3.00 per share. The closing of these transactions was
contingent upon the successful completion by AP of a sale of 1,500,000 shares of
Common Stock at a price of $0.665 per share.
By means of an Amendment of Articles of Incorporation which was filed
with the Colorado Secretary of State on September 29, 1995, AP changed its name
to "EDnet, Inc."
Finally, pursuant to a Stock Purchase Agreement executed by the Company
(formerly AP) and the remaining shareholders of EDN, dated as of October 18,
1995, such shareholders sold their EDN common stock to the Company in exchange
for 243,720 shares of Common Stock. The result was that EDN became, and remains,
a wholly-owned subsidiary of the Company.
IBS TRANSACTION. Pursuant to an Agreement and Plan of Reorganization
dated as of June 24, 1996 (the "IBS Agreement"), the Company acquired all of the
outstanding shares of common stock of IBS through a merger of IBS into a
subsidiary of the Company. As consideration for such merger, the Company
delivered the following to the two shareholders of IBS: (i) two promissory notes
in the aggregate amount of $250,000 (the "First IBS Notes"); (ii) two promissory
notes in the aggregate amount of $250,000 (the "Second IBS Notes"); and (iii)
311,284 shares of Common Stock. The First IBS Notes were due sixty (60) days
after the closing of the IBS Agreement and were repaid by the Company in August
1996. The Second IBS Notes provide for interest of
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eight percent (8%) and will mature on the earlier of one year from the closing
under the IBS Agreement or fifteen (15) days after the closing of a public
offering by the Company of its Common Stock. In addition, pursuant to an
earn-out plan, Trevor Stout, the President and Chief Technical Officer of IBS,
and Randall Schmitz, the Chief Executive Officer, Executive Vice President,
Sales and Marketing, of IBS, are entitled to receive up to an aggregate of
500,000 shares of Common Stock if IBS meets certain specified performance goals
during a period commencing on the effective date of the IBS Agreement and ending
120 days after June 30, 1999. Finally, the Company granted to three employees of
IBS options to purchase an aggregate of 50,000 shares of Common Stock under the
NSO Plan (as defined below), at $1.25 per share, which options vest over a three
year period. The merger was accounted for as a purchase.
POTENTIAL ACQUISITION OF CDE. On October 21, 1996, the Company signed a
letter of intent with Creative Data Express, Inc., a Colorado corporation
("CDE"), which provides that, subject to the execution of definitive
documentation, the Company would acquire all of the outstanding shares of stock
of CDE in consideration of the issuance of up to 450,000 shares of Common Stock.
EMPLOYEES
As of October 11, 1996, the Company employs 15 persons, and IBS employs
12 persons.
ITEM 7 (OF MODEL B OF FORM 1-A). DESCRIPTION OF PROPERTY
The Company operates from two offices located in San Francisco and Los
Angeles, California. The San Francisco office, located at One Union Street, San
Francisco, California, is a 5,000 square foot facility that operates as
administrative headquarters and provides the centralized network hub for
electronically bridging network studios, as well as overall network management.
The Company leases this facility. The Los Angeles office, located at 3000
Olympic Blvd., Suite 2121, Santa Monica, California, is a 4,000 square foot
facility that serves as a sales and demonstration facility and provides access
to many users of the Company's services from the entertainment industry located
in Southern California. The Company leases this facility.
The IBS subsidiary operates from an office located in Mountain View,
California. The Mountain View office, located at 2083 Landings Drive, Mountain
View, California, is a 2,000 square foot facility that operates as its
administrative and operations headquarters. IBS leases this facility.
ITEM 8 (OF MODEL B OF FORM 1-A). DIRECTORS, EXECUTIVE OFFICERS AND
SIGNIFICANT EMPLOYEES
The following sets forth the names, ages and current positions with the
Company held by Directors, Executive Officers and Significant Employees,
together with the year such positions were assumed. Tom Kobayashi, the Chairman
and Chief Executive Officer, and David Gustafson, the President and Chief
Operating Officer, are brothers-in law. Other than as described in the preceding
sentence, there is no immediate family relationship between or among any of the
Directors, Executive Officers or Significant Employees and the Company is not
aware of any arrangement or understanding between any Director or Executive
Officer and any other person pursuant to which he was elected to his current
position.
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TOM KOBAYASHI, age 67, has served as the Chairman and Chief Executive
Officer and a Director of the Company since 1992. From 1986 to 1993, he was Vice
President and General Manager of Skywalker. During his tenure at Skywalker, the
sending of digital audio over fiber optic telephone lines was developed and the
idea for an entertainment digital network was formulated. In 1992, with George
Lucas's approval, Mr. Kobayashi utilized the technology first developed at
Skywalker to found EDN. Previously, he was with Glen Glenn Sound, a major sound
recording studio in Hollywood. He began with Glen Glenn in 1964 as Vice
President of Finance, later served as Vice President of Business Affairs and
Executive Vice President and in 1983 was appointed President and Chief Operating
Officer. Mr. Kobayashi is a member of the American Engineering Society, the
Society of Motion Picture and Television Engineers, the Society of Professional
Audio Recording Studios (of which he has been a member of the Board of Governors
for over seven years), the Academy of Motion Picture Arts and Sciences and the
Academy of Television Arts and Sciences. Mr. Kobayashi earned a Bachelor of
Science degree at the University of Southern California.
DAVID GUSTAFSON, age 49, has served as the President and Chief
Operating Officer of the Company since March, 1996, and as Vice President,
Marketing and Sales, from July 1992 to March 1996. He has served as a Director
of the Company since 1992. Previously, he was President and Chief Operating
Officer of SLT, Inc., a private New York-based apparel manufacturer; Corporate
Vice President and Director of Wacoal America, Inc., a $35 million division of
the $1 billion Wacoal Corp., a multi-national consumer products company based in
Kyoto, Japan, where his responsibilities included Merchandising and Design,
Sales, Marketing and Advertising; Vice President of Marketing and Merchandising
for the Olga Company; Management Information Systems Consultant with Deloitte,
Haskins & Sells in Los Angeles; and a computer Systems Engineer and Manager at
EDS Corp., working in New York, Miami and Dallas. Mr. Gustafson received his
Bachelor's degree from Westmont College in Santa Barbara, California and further
training in Marketing and Executive Management from the graduate business
schools at both the University of California, Los Angeles and the University of
Southern California.
THOMAS SCOTT, age 53, has served as the Vice President-Chief Technology
Officer of the Company since 1992. From 1985 to 1992, he was Chief Engineer for
Skywalker Sound, the post production division of LucasArts/Lucasfilm Ltd.
Previously, he was Chief Engineer of The Record Plant and eventually worked in
film sound on the picture Apocalypse Now. Mr. Scott has been involved with
motion pictures since then, being employed at American Zoetrope, Dolby
Laboratories and LucasArts as Director of Engineering. During this period Mr.
Scott received two Oscar Academy Awards for Best Sound on the films The Right
Stuff and Amadeus. His last LucasArts project was the supervision of the
EditDroid and SoundDroid -- revolutionary computer-based picture and sound
editing equipment. Previously, he was Chief Engineer and Director of Remote
Operations at Wally Heider Recording, one of the first independent recording
studios, and an engineer with the Peace Corps in Venezuela. Mr. Scott is active
in numerous professional organizations and standards committees, including the
American Engineering Society, Society of Motion Picture and Television
Engineers, the Society of Professional Audio Recording Studios, the National
Academy of Recording Arts and Sciences
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and the Academy of Motion Picture Arts and Sciences. Mr. Scott earned his
Bachelor of Science degree from the Massachusetts Institute of Technology.
ALAN GEDDES, age 46, has served as the Vice President and Chief
Financial Officer of the Company since July, 1996. From 1986 to 1996, he was the
Chief Financial Officer of IMAR Corporation and Oncogenetics, Inc., both
emerging companies in medical technology, in addition to founding his own
company, California Pacific Leasing, Inc. Previously, he served in corporate
management at Bio-Rad Laboratories, as Corporate Controller at Fiberplastics,
Inc., was a Financial Analyst with Litton Industries and a Plant Controller with
Abbott Laboratories. Mr. Geddes has a Masters in Business Administration in
Finance from Utah State University.
RAY MUSSATO, age 53, has served as the Vice President, Marketing of the
Company since July 1996. From 1993 to 1996, he ran his own management consultant
company, specializing primarily in marketing and sales assignments to small
high-tech companies in the start-up stage. From 1992 to 1993, he was the
Executive Vice President and Chief Operating Officer at MicroSpeed. From 1990 to
1992, he was the Chief Executive Officer of Artificial Linguistics, a
Texas-based software start-up company whose technology was later acquired by
Oracle. Previously, he was the Executive Vice President, Chief Operating
Officer, Senior Vice President, International Sales and Operations and Executive
Director, Worldwide OEM Sales for Wordstar International Corporation.
TREVOR STOUT, age 26, has served as the President and Chief Technical
Officer of IBS since 1995 and a Director of the Company since 1996. Prior to
co-founding IBS, from 1989 to 1995, he was a project manager at IBM. He
pioneered the development of IBM's website and was the manager and lead
architect of IBMLink, IBM's web system for customer support and sales
information. Mr. Stout graduated magna cum laude from the University of
California, Los Angeles, in Computer Engineering.
RANDALL SCHMITZ, age 28, has served as the Chief Executive Officer,
Executive Vice President, Sales and Marketing, of IBS since 1995. Prior to
co-founding IBS, from 1993 to 1995, he was an account representative for AT&T,
eventually becoming a Manager, and from 1991 to 1993, he was an account
representative for Allnet. Mr. Schmitz graduated cum laude from the University
of California, Los Angeles.
ROBERT J. WUSSLER, age 59, has served as a Director of the Company
since 1995. From 1994 to the present, he has been the President and Chief
Executive Officer of Affiliate Enterprises, Inc., the company formed by ABC
Television affiliates to pursue new business opportunities, including emerging
technology applications. From 1990 to 1993, he was President and Chief Executive
Officer of COMSAT Video Enterprises, where he managed the acquisition of the NBA
Denver Nuggets. Previously, from 1980 to 1990, he was Senior Vice President of
Turner Broadcasting, where he oversaw the launch of CNN, Headline News and TNT,
in addition to serving as President of SuperStation TBS, and from 1974 to 1978,
he was the President of the CBS Television Network and CBS Sports.
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AVI A. FOGEL, age 42, has served as a Director of the Company since
1995. From 1995 to the present, he has been the Vice President of Global
Marketing for Digital Equipment Corporation in the Network Division. Mr. Fogel
recently initiated a $330 million acquisition of Lannet Data Communications by
Madge Networks. From 1987 to 1995, he served in various roles at Lannet Data
Communications, first as Sales and Marketing Manager, then as President and
Chief Executive Officer of Lannet North America and finally as Executive Vice
President - Global Marketing and Business Development, where he guided the
development of international and North American sales and marketing
organizations, and established customer and partnership relationships with
Wellfleet Communications, AT&T, Mitel, Data General, Fore Systems, Swiss Bank
Corp., Sprint and General Motors.
JACK KRAFT, age 54, has served as a Director of the Company since 1996.
He is a director of Ballas Engineering, Gameplan, Inc. and Argus Plastics, Inc.
and is currently retained as a consultant to several advertising and technology
firms. From 1993 to 1995, he was a senior executive with Young and Rubicam, Inc.
Prior to taking early retirement in 1993, he was the Chief Operating Officer and
Vice Chairman of Chicago-based Leo Burnett USA, one of the world's largest and
best known advertising agencies. During Mr. Kraft's tenure, he made significant
contributions to that agency's strategic direction and deployment as revenues
increased from $325 million to $4.3 billion.
CHRISTOPHER P. DESMOND, age 59, has served as a Director of the Company
since 1995. From 1993 to the present, he has been the President and Chief
Operating Officer of Command Entertainment, Inc., a company formed to pursue
business opportunities in the entertainment industry. From 1990 to 1992, he was
President/Chief Executive Officer of Lighthorse International, a publisher of
news media materials. Previously, he was President/Chief Executive Officer of
Pace Group International, a producer and publisher of television programs,
video, audio tape and books and Vice President and Chief Operating Officer of
Black Star Communications, a television station group. Prior to such time, he
was involved in the building and managing of television stations, including
working at CBS for the network's founder and former Chairman, William S. Paley,
in strategic planning and acquisitions, serving as Vice President and General
Manager of KCBS-TV in Los Angeles and KMOX-TV in St. Louis, and serving as Vice
President of Marketing and Operations for the CBS-owned and operated television
stations.
PHIL RAMONE, age 56, has served as a Director of the Company since
1995. Mr. Ramone is acknowledged as one of the top producers in the recording
industry. Mr. Ramone's career has embraced virtually every aspect of the music
industry. By 1961, he had acquired his own independent studio, A & R Recording,
in New York. He has produced award-winning albums for such legends as Barbra
Streisand and Frank Sinatra, as well as for Liza Minelli, Elton John and Paul
McCartney. The recording he made with Billy Joel, The Stranger, was the first
Compact Disc ever cut. He is also the moving force behind a group of relative
newcomers, such stars as Gloria Estefan, Jon Secada and Sinead O'Connor. On the
technical side, Phil Ramone is responsible for innovations that have changed the
very face of the recording industry. It was Ramone, for example, who was
responsible for the first use of the solid-state console for recording and
mastering for Solid State Records; of Dolby four-track discrete sound,
12.
<PAGE> 13
with the 1976 motion picture A Star is Born, of Dolby optical surround sound for
the motion picture One Trick Pony; and of digital remote recording for Songs in
the Attic, paving the way for the technology that led to the Compact Disc. Mr.
Ramone has received eight Grammy Awards, fifteen Grammy Nominations, one Emmy
Award, has served as President of the New York Chapter of the National Academy
of Recording Arts and Sciences (NARAS), was elected to the TBC Hall of Fame in
1992 and Hollywood's Rock Walk and is the recipient of the Platinum Music Award,
the 3M Visionary Award and the Eyes On New York Award.
BERT BERDIS, age 57, has served as a Director of the Company since
1993. In 1992, he founded Bert Berdis & Company. From 1965 to the present, he
has been the President and owner of Waves Sound Recorders in Hollywood. He also
founded his own commercial radio production company, Dick & Bert, with
voice-actor Dick Orkin. Their campaigns for Time Magazine earned them a
permanent place in the Museum of Television and Radio. Mr. Berdis has won over
100 awards from Clio, The London International, One Show, Addy's, International
Broadcasting Association and the $100,000 Mercury Awards. The Radio Advertising
Bureau recently issued its "Orson Welles Lifetime Achievement Award" to Mr.
Berdis. Previously, he was in the advertising business, including being Vice
President Creative Director of Grey Advertising in Detroit, Michigan, being with
DDB Needham Chicago, Ketchum in Pittsburgh, Pennsylvania and serving as a
writer/producer for the advertising agency McCann Erickson.
The directors named above have been elected for one-year terms at the
most recent annual shareholders' meeting.
ITEM 9 (OF MODEL B OF FORM 1-A). REMUNERATION OF DIRECTORS AND
OFFICERS
The following table sets forth information concerning all annual
compensation paid to each of the three highest paid persons who are officers or
directors of the Company for the fiscal year ended June 30, 1996:
<TABLE>
<CAPTION>
CAPACITIES IN
NAME OF INDIVIDUAL WHICH REMUNERA- AGGREGATE
OR IDENTITY OF GROUP TION WAS RECEIVED REMUNERATION
<S> <C> <C>
Tom Kobayashi Chairman and Chief $131,000(1)
Executive Officer and
Director
David Gustafson President and Chief $131,000(2)
Operating Officer and
Director
Tom Scott Vice President and $ 90,000
Chief Technical Officer
Total of above $352,000
</TABLE>
13.
<PAGE> 14
- -----------
(1) Mr. Kobayashi has an Employment Agreement with the Company which
provides for a five-year term expiring December 31, 2000, with a base
salary of $10,416 per month from September 1, 1995 to February 28,
1996, with an increase to "market rate" at March 1, 1996 and every year
thereafter.
(2) Mr. Gustafson has an Employment Agreement with the Company which
provides for a five-year term expiring December 31, 2000, with a base
salary of $10,416 per month from September 1, 1995 to February 28,
1996, with an increase to "market rate" at March 1, 1996 and every year
thereafter.
As more fully disclosed in ITEM 10 - SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN SECURITYHOLDERS below, the Company maintains the following option
plans: (i) an Incentive Stock Option Plan (the "ISO Plan"); and (ii) the
1995-1996 Nonstatutory Stock Option Plan (the "NSO Plan"). The ISO Plan is
administered by a committee appointed by the board of directors, consisting of
not less than two directors. The ISO Plan reserves a total of 500,000 shares of
Common Stock for option grants to officers and key executive employees
(including directors) of the Company and its subsidiaries and provides that the
option price may not be less than 100% of the fair market value of the Common
Stock on the grant date. In addition, the ISO Plan requires that no option vest
earlier than six (6) months, or later than ten (10) years, after the grant date,
as determined by the committee. Options issued pursuant to the ISO Plan
constitute qualified stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended. As of September 30, 1996, options to
purchase 500,000 shares of Common Stock had been issued under the ISO Plan. The
ISO Plan was approved by the Board of Directors on November 10, 1995 and must be
approved by the Company's shareholders by November 10, 1996. The NSO Plan is
administered by a committee appointed by the board of directors, consisting of
two members. The NSO Plan reserves a total of 565,000 shares of Common Stock for
option grants to key employees and consultants (including directors) of the
Company and its subsidiaries and provides that the option price may be equal to
or less than the fair market value of the Common Stock on the grant date,
provided, however, in the event that the option price is less than 85% of the
then current market value of the Common Stock, the Board of Directors must
approve such option grant. In addition, the NSO Plan provides that no option be
granted after December 31, 1996 and requires that no option period exceed five
(5) years after the grant date. As of September 30, 1996, options to purchase
372,000 shares of Common Stock had been issued under the NSO Plan. The NSO Plan
was approved by the Board of Directors on November 10, 1995. In addition, in
connection with the merger with AP, non-qualified options to purchase an
aggregate of 263,420 shares of EDN common stock at an exercise price of $.10 per
share issued under EDN's 1993 Flexible Stock Incentive Plan (the "EDN Option
Plan") were converted into options to purchase an aggregate of 230,479 shares of
Common Stock at an exercise price of $.11 per share, which options are fully
vested. Other than as discussed herein, the Company does not have any pension,
profit-sharing, stock bonus, or other benefit plans. In addition, the Company
makes available certain non-monetary benefits to its executive officers with a
view to acquiring and retaining qualified personnel and facilitating job
performance. The Company considers such benefits to be ordinary and incidental
business costs and expenses.
14.
<PAGE> 15
ITEM 10 (OF MODEL B OF FORM 1-A). SECURITY OWNERSHIP OF
MANAGEMENT AND CERTAIN SECURITYHOLDERS
The following table sets forth information, as of September 30, 1996,
regarding shares of Common Stock held of record by: (i) each of the three
highest paid persons who are officers or directors of the Company; (ii) all
officers and directors as a group; and (iii) each shareholder who owns more than
10% of any class of the Company's securities, including those shares subject to
outstanding options and warrants. Unless expressly indicated otherwise, each
shareholder exercises sole voting and investment power with respect to the
shares owned.
<TABLE>
<CAPTION>
TITLE NAME AND ADDRESS PERCENT
OF CLASS OF OWNER AMOUNT OWNED OF CLASS (1)
<S> <C> <C> <C>
Common Tom Kobayashi 425,048 15.42%
One Union Street
San Francisco, CA 94111
Common David Gustafson 135,761 9.68%
One Union Street
San Francisco, CA 94111
Common Tom Scott 164,885 4.37%
One Union Street
San Francisco, CA 94111
Common All officers and
directors as a group (2) 1,045,389 39.73%
</TABLE>
- -----------
(1) Assumes the exercise by the holder of his outstanding options and
warrants; based upon 4,658,322 shares of Common Stock issued and
outstanding on September 30, 1996.
(2) Includes the Common Stock owned by Kobayashi, Gustafson and Scott and
155,642 shares owned by Mr. Stout and 164,053 shares owned by Mr.
Berdis.
The following table sets forth information, as of September 30, 1996,
concerning outstanding options and warrants to purchase shares of Common Stock
held by: (i) each of the three highest paid persons who are officers or
directors of the Company; (ii) all officers and directors as a group; and (iii)
each shareholder who owns more than 10% of any class of the Company's
securities, including those shares subject to outstanding options and warrants.
Unless expressly indicated otherwise, each shareholder exercises sole voting and
investment power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
TITLE AND AMOUNT OF SECURITIES CALLED
NAME OF HOLDER FOR BY OPTIONS, WARRANTS OR RIGHTS EXERCISE PRICE DATE OF EXERCISE
<S> <C> <C> <C>
Tom Kobayashi (1) Options for 100,000 Shares of Common Stock $1.25 1/1/97
Options for 100,000 Shares of Common Stock $1.25 1/1/98
Options for 50,000 Shares of Common Stock $1.25 1/1/99
Options for 11,483 Shares of Common Stock $0.11 Fully Vested
</TABLE>
15.
<PAGE> 16
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Warrants for 85,009 Shares of Common Stock $3.00 Until 10/31/96
David Gustafson (2) Options for 100,000 Shares of Common Stock $1.25 1/1/97
Options for 100,000 Shares of Common Stock $1.25 1/1/98
Options for 50,000 Shares of Common Stock $1.25 1/1/99
Options for 72,005 Shares of Common Stock $0.11 Fully Vested
Warrants for 27,152 Shares of Common Stock $3.00 Until 10/31/96
Tom Scott (3) Options for 7,316 Shares of Common Stock $0.11 Fully Vested
Warrants for 32,977 Shares of Common Stock $3.00 Until 10/31/96
All officers and Options for 17,500 Shares of Common Stock $0.11 Fully Vested (4)
directors as a group Options for 200,000 Shares of Common Stock $1.25 (5)
Options for 100,000 Shares of Common Stock $1.25 (6)
Options for 500,000 Shares of Common Stock $1.25 (7)
Options for 90,804 Shares of Common Stock $0.11 (8)
Warrants for 177,949 Shares of Common Stock $3.00 (8)
Earnout for 250,000 Shares of Common Stock n/a (9)
</TABLE>
- -----------
(1) Pursuant to the terms of Mr. Kobayashi's employment agreement, he has been
granted the following options under the ISO Plan to purchase shares of
Common Stock at $1.25 per share: (a) options vesting January 1, 1997 and
exercisable for a five year period to purchase 100,000 shares if, for any
prior rolling 12-month period between September 1, 1995 and December 31,
1996, the Company has sales of at least $5,000,000 or pre-tax net income
of $500,000; (b) options vesting January 1, 1998 and exercisable for a
five year period to purchase 100,000 shares if, for any prior rolling
12-month period between September 1, 1995 and December 31, 1997, the
Company has sales of at least $8,500,000 or pre-tax net income of
$1,500,000; and (c) options vesting January 1, 1999 and exercisable for a
five year period to purchase 50,000 shares if, for any prior rolling
12-month period between September 1, 1995 and December 31, 1998, the
Company has sales of at least $15,000,000 or pre-tax net income of
$3,000,000. In addition, Mr. Kobayashi holds options issued under the EDN
Option Plan to purchase an aggregate of 11,483 shares of Common Stock at
an exercise price of $.11 per share, which are fully vested, and warrants
to purchase an aggregate of 85,009 shares of Common Stock at $3.00 per
share, which terminate after October 31, 1996 (see HISTORY AND
ORGANIZATION - MERGER WITH AP OFFICE EQUIPMENT).
(2) Pursuant to the terms of Mr. Gustafson's employment agreement, he has been
granted the following options under the ISO Plan to purchase shares of
Common Stock at $1.25 per share: (a) options vesting January 1, 1997 and
exercisable for a five year period to purchase 100,000 shares if, for any
prior rolling 12-month period between September 1, 1995 and December 31,
1996, the Company has sales of at least $5,000,000 or pre-tax net income
of $500,000; (b) options vesting January 1, 1998 and exercisable for a
five year period to purchase 100,000 shares if, for any prior rolling
12-month period between September 1, 1995 and December 31, 1997, the
Company has sales of at least $8,500,000 or pre-tax net income of
$1,500,000; and (c) options vesting January 1, 1999 and exercisable for a
five year period to purchase 50,000 shares if, for any prior rolling
12-month period between September 1, 1995 and December 31, 1998, the
Company has sales of at least $15,000,000 or pre-tax net income of
$3,000,000. In addition, Mr. Gustafson holds options issued under the EDN
Option Plan to purchase an aggregate of 72,005 shares of Common Stock at
an exercise price of $.11 per share, which are fully vested, and warrants
to purchase an aggregate of 27,152 shares of Common Stock at $3.00 per
share, which terminate after October 31, 1996 (see HISTORY AND
ORGANIZATION - MERGER WITH AP OFFICE EQUIPMENT).
(3) Mr. Scott holds options issued under the EDN Option Plan to purchase an
aggregate of 7,316 shares of Common Stock at an exercise price of $.11 per
share, which are fully vested, and warrants to purchase an aggregate of
32,977 shares of Common Stock at $3.00 per share, which terminate after
October 31, 1996 (see HISTORY AND ORGANIZATION - MERGER WITH AP OFFICE
EQUIPMENT).
(4) Granted to Phil Ramone, a Director of the Company, and issued under the
EDN Option Plan.
(5) Granted to Messrs. Wussler, Desmond, Fogel and Kraft, Directors of the
Company (for 50,000 shares each), and issued under the NSO Plan. 100,000
currently vested and 100,000 will vest December 31, 1997.
16.
<PAGE> 17
(6) Granted to Messrs. Geddes and Mussato, Executive Officers of the Company
(for 50,000 shares each), and issued under the NSO Plan. One-third will
vest December 31, 1996, one-third will vest December 31, 1997 and
one-third will vest December 31, 1998.
(7) Granted to Messrs. Kobayashi and Gustafson (see footnotes 1 and 2 above).
(8) Granted to Messrs. Kobayashi, Gustafson and Scott (see footnotes 1, 2 and
3 above), and Warrants to purchase 32,811 shares owned by Mr. Berdis, a
Director of the Company.
(9) Right to purchase shares granted pursuant to an earnout given to Mr.
Stout, the President and Chief Technical Officer of IBS and a Director of
the Company, as part of the Company's acquisition of IBS.
ITEM 11 (OF MODEL B OF FORM 1-A). INTEREST OF MANAGEMENT AND
OTHERS IN CERTAIN TRANSACTIONS
INVESTMENT BANKING AND BROKERAGE SERVICES
CENTURY FINANCIAL PARTNERS, INC. Pursuant to a Consulting Agreement, dated
July 31, 1995, between EDN and Century Financial Partners, Inc. ("Century"), EDN
hired Century to advise EDN with respect to a merger of EDN with an entity whose
securities were publicly traded. Such Consulting Agreement granted Century the
exclusive right to represent EDN, on a best efforts basis, to prospective
investors for financing and general corporate advisory services for a period of
three years, and a right of first refusal to provide investment banking services
for a period of three years. Century advised the Company with respect to the
transaction with AP (see ITEM 6. DESCRIPTION OF BUSINESS - HISTORY AND
ORGANIZATION MERGER WITH AP OFFICE EQUIPMENT). Century has verbally consented to
the Company's agreements with Morgan Fuller (described below). As payment for
Century's services, the Consulting Agreement provided that EDN would grant to
Mr. Irawan Onggara ("Mr. Onggara"), an investor in Century, and a shareholder of
the Company holding an aggregate of 100,000 shares of Common Stock, an option to
purchase 1,000,000 shares of the common stock of any publicly traded entity into
which EDN would merge, at $1.25 per share, which option shares would be
registered "immediately" by EDN with the SEC on Form S-8. Management does not
believe that such a registration is possible and plans to address this issue
more completely in the near future. The Company has had verbal discussions with
Mr. Onggara with respect to reducing the number of shares of Common Stock
subject to such option to 805,000 shares. When Mr. Onggara is granted options
and assuming the exercise of those options, he may become a shareholder holding
more than ten percent of the outstanding Common Stock.
LIVIAKIS FINANCIAL COMMUNICATIONS, INC. Pursuant to a Consulting
Agreement, dated as of January 12, 1996, between the Company and Liviakis
Financial Communications, Inc., a California corporation ("Liviakis"), Liviakis
agreed to provide consulting services to the Company for a term of one year
ending on January 11, 1997. As payment for its services, Liviakis received
390,000 unregistered shares of Common Stock from the Company. At the end of the
term of the Consulting Agreement, Liviakis may demand that the Company use its
best efforts to register such shares with the Securities and Exchange Commission
(the "SEC").
MORGAN FULLER CAPITAL GROUP L.L.C. Pursuant to four engagement letters
dated May 20, June 25, June 28, and June 28, 1996, the Company retained Morgan
Fuller Capital Group
17.
<PAGE> 18
L.L.C. ("Morgan Fuller") to assist the Company with a variety of financings. As
discussed more fully in PART II - ITEM 4. RECENT SALES OF UNREGISTERED
SECURITIES below, as of September 30, 1996, the Company has: (i) granted Morgan
Fuller 250,000 Warrants at an exercise price of $6.37 per share for general
investment advisory services; (ii) delivered the Senior Secured Notes (as
defined below) payable to Morgan Fuller in the aggregate principal amount of
$1,000,000; (iii) paid Morgan Fuller a loan fee of five percent (5%) of the
amount of the Senior Secured Notes; and (iv) granted Morgan Fuller 39,255
warrants to purchase Common Stock ("Warrants") at an exercise price of $4.25 and
45,205 Warrants at an exercise price of $3.69 in connection with the sale of
Participations (as defined below).
LBC CAPITAL RESOURCES, INC. Pursuant to an engagement letter dated
October 17, 1996 (the "LBC Letter Agreement") between the Company and LBC
Capital Resources, Inc. ("LBC"), the Company retained LBC to advise the Company
with regard to a broad range of transactions, including without limitation,
equity and debt financing and merger and acquisitions advice. LBC would be paid
fees only upon the successful closing of any such transaction. Such fees would
be comprised of (i) a cash fee in the amount of six percent (6%) of the gross
amount of such transaction (to be paid as such proceeds are received by the
Company) and (ii) warrants as described in the next sentence. Upon the
completion of one or more transactions, for each $1,000,000 of such transaction
amount, after transactions aggregating at least $1,000,000 have been closed, LBC
would be entitled to purchase from the Company for $2,500 a seven year warrant
to purchase one hundred twenty thousand (120,000) shares of Common Stock, at an
exercise price per share equal to one hundred twenty-five percent (125%) of the
average closing price for the five (5) trading days preceding the execution of
the LBC Letter Agreement. The term of the LBC Letter Agreement is sixty (60)
days and thereafter, will remain in effect until terminated by either party upon
ten (10) days written notice. Upon execution of the LBC Letter Agreement, the
Company also paid to LBC a $2,500 non-accountable expense allowance.
SHORT-TERM LOANS FROM OFFICERS, DIRECTORS AND SHAREHOLDERS; GUARANTY OF LEASE
Several of the officers and directors of the Company have made short term
loans to the Company pursuant to promissory notes each providing for maturity
ninety days after the date thereof and simple interest of 6% on unpaid
principal. Such promissory notes are overdue. Mr. Kobayashi, the Chairman and
Chief Executive Officer of the Company, made loans in the aggregate amount of
$36,000, as evidenced by promissory notes dated from June 11, 1993 to February
10, 1994. As of September 30, 1996, unpaid principal (excluding interest) of
$24,000 was due on Mr. Kobayashi's notes. Mr. Scott, the Vice President and
Chief Technical Officer of the Company, made loans in the aggregate amount of
$43,050, as evidenced by promissory notes dated from August 6, 1993 to June 12,
1995. As of September 30, 1996, unpaid principal (excluding interest) of $16,550
was due on Mr. Scott's notes. Albert Berdis, a director of the Company, made a
loan in the amount of $15,000, as evidenced by a promissory note dated January
12, 1994. As of September 30, 1996, unpaid principal (excluding interest) of
$15,000 was due on Mr. Berdis' note. Each of these individuals has agreed not to
declare a default under these notes for an indefinite period and to accept
repayment by the Company at a future date.
Mr. Onggara has made three loans to the Company in the aggregate amount of
$425,000, pursuant to: (a) a promissory note in the principal amount of $250,000
dated February 8, 1996 with a maturity date of August 8, 1996; (b) a promissory
note in the principal amount of $100,000 dated April 18, 1996 with a maturity
date of October 18, 1996; and (c) a promissory note in the principal amount of
$75,000 dated May 20, 1996 with a maturity date of November 20, 1996. All such
promissory notes provide for interest of 7% on unpaid principal and are secured
by a subordinate security interest in the accounts receivable, chattel paper,
accounts and certain other assets of the Company. On August 1, 1996, the Company
made a principal payment of $90,000 to Mr. Onggara on the first note. Mr.
Onggara has verbally agreed to extend the maturity date of such notes for an
indefinite period and to accept repayment by the Company at a future date. As of
September 30, 1996, unpaid principal (excluding interest) of $335,000 was due on
Mr. Onggara's notes.
Mr. Kobayashi, the Chairman and Chief Executive Officer of the Company,
executed a Guaranty of Lease in favor of Lantana Center, a California limited
partnership ("Lantana"), pursuant to which Mr. Kobayashi personally guaranteed
EDN's obligations under its lease for the Company's Los Angeles office premises.
Mr. Kobayashi's guaranty is limited to $48,225
18.
<PAGE> 19
for so long as he remains the chief executive officer, and maintains voting
control, of the Company. Because Mr. Kobayashi does not currently have voting
control of the Company, his guarantee is therefore unlimited. Mr. Kobayashi has
had verbal discussions with Lantana regarding amending the Guaranty of Lease to
eliminate the voting control condition.
ITEM 12 (OF MODEL B OF FORM 1-A). SECURITIES BEING OFFERED
No securities are being offered or registered by the Company pursuant to
this Form 10-SB. The Company's Articles of Incorporation authorize the issuance
of 50,000,000 shares of Common Stock, $.001 par value per share, and 5,000,000
shares of non-voting preferred stock, $.001 par value per share. Dividends in
cash, property or shares may be paid, as and when declared by the Board of
Directors, out of funds legally available therefor. Each outstanding share of
Common Stock is entitled to one vote, and each fractional share of Common Stock
is entitled to a corresponding fractional vote, on each matter submitted to a
vote of shareholders. Each share of Common Stock is entitled to participate in
distributions upon liquidation, dissolution or winding up of the Company, when,
as and if declared by the Board of Directors from funds legally available
therefor, subject to preferences, if any, granted to holders of preferred
shares. Holders of Common Stock have no preemptive rights to purchase, subscribe
for or otherwise acquire shares of the Company's stock, rights, warrants or
options to purchase stock or securities of any kind convertible into stock of
the Company. There are no conversion rights, redemption provisions or sinking
fund provisions relating to the Common Stock. All outstanding shares of Common
Stock are fully paid and nonassessable.
Section 7-106-203(2) of the Colorado Corporation Business Act provides
that unless provided otherwise in a corporation's articles of incorporation, a
shareholder is not personally liable for the acts or debts of the corporation,
except that such person may become personally liable by reason of such person's
own acts or conduct. The Company's Articles of Incorporation do not provide
otherwise. See also the description of the Warrants contained in PART II ITEM 4.
RECENT SALES OF UNREGISTERED SECURITIES below.
19.
<PAGE> 20
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
(A) MARKET INFORMATION
Since November 1995, the Common Stock has been trading on the National
Association of Securities Dealers Automated Quotation Bulletin Board (the
"Nasdaq Bulletin Board") under the symbol "DNET." Prior to November 1995, AP's
common stock was not traded on the Nasdaq Bulletin Board. The following table
shows the high and low bid and ask prices of the stock during the periods
indicated (which information has been obtained from the Trading and Market
Services at The Nasdaq Stock Market, Inc.):
<TABLE>
<CAPTION>
BID PRICES (1) ASK PRICES
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
Quarter ended September 30, 1996 $3.75 $3.00 $4.25 $3.25
Quarter ended June 30, 1996 $7.13 $4.63 $7.63 $5.00
Quarter ended March 31, 1996 $5.88 $2.00 $6.25 $2.56
Quarter ended December 31, 1995 $3.69 $2.00 $4.12 $2.88
</TABLE>
- -----------
(1) The bid prices reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
(B) HOLDERS
As of September 13, 1996 there were 496 holders of record of the Common
Stock.
(C) DIVIDENDS
The Company has never paid cash dividends on the Common Stock and
intends to utilize current resources to expand its operations. Moreover, the
Warrants restrict the ability of the Company to pay dividends. Therefore, the
Company anticipates that cash dividends will not be paid on the Common Stock in
the foreseeable future.
20.
<PAGE> 21
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings
other than ordinary litigation which, in the opinion of the Management, is
incidental to the business of the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
OFFERING OF UNITS. Commencing on or about June 26, 1996, the Company
began to offer up to a maximum of $3,000,000 of Units (each Unit consisting of
one share of Common Stock and one Warrant), for a price per Unit equal to the
lesser of: (i) $3.00; or (ii) the average closing bid price of the Common Stock
during a consecutive thirty (30) day period immediately preceding the
termination of the offering minus thirty percent (30%) (the "Stock Purchase
Price"). The purchase price for each Warrant is one-tenth of one cent ($0.001)
per Warrant. Each Warrant is exercisable until July 31, 1999, provided, however,
that in the event that the average closing bid price of the Common Stock exceeds
one hundred sixty percent (160%) of the Stock Purchase Price for thirty (30)
consecutive trading days, then the Company may, within three business days
following the end of such thirty (30) day period, give notice of its intent to
repurchase the Warrants at a purchase price of one-tenth of one cent ($0.001)
per Warrant, in which case Holders will have (30) days following the date of the
Company's notice to exercise the Warrants. Each Warrant entitles the holder to
purchase one share of Common Stock at an exercise price equal to the lesser of:
(i) $4.75; or (ii) the average closing bid price of the Common Stock during a
consecutive thirty (30) day period immediately preceding the termination of the
offering (subject to adjustment in certain circumstances). The Common Stock, the
Warrants and the shares purchasable pursuant to the Warrants have been offered
and sold only to "accredited investors" as defined in Regulation D promulgated
under the Securities Act of 1933, as amended (the "Securities Act"). The Company
has agreed to pay the following fees in connection with sales of Units: (i) to
Morgan Fuller (or any other broker selling Units) a brokerage fee of eight
percent (8%) of the value of Units sold; (ii) to Morgan Fuller a fee of five
percent (5%) of the value of Units sold by any other broker; and (iii) to Morgan
Fuller that number of Warrants equal to twenty percent (20%) of the value of
Units sold by Morgan Fuller divided by the market bid price of the Common Stock
on the day the Units are sold, at such price. As of September 30, 1996, the
Company has itself sold an aggregate of $570,000 of Units directly and has not
paid any brokerage fees or issued any Warrants to Morgan Fuller.
NOTE PARTICIPATIONS. Commencing on or about July 3, 1996, the Company
has delivered to Morgan Fuller $1,000,000 (and may deliver up at $1,250,000) of
Senior Secured Promissory Notes (the "Senior Secured Notes"), made by the
Company, as debtor, in favor of Morgan Fuller, as lender. The Senior Secured
Notes are secured by a broad lien on the Company's
21.
<PAGE> 22
assets and provide for interest at the rate of fourteen percent (14%) per annum
and are due on November 15, 1996, provided, however, that if the principal and
accrued interest is not repaid on such date, the loan represented by the Senior
Secured Notes will be converted into a term loan with monthly principal payments
of $100,000.00 commencing December 1, 1996 and interest at eighteen percent
(18%) per annum. Morgan Fuller offered participations ("Participations") in the
Senior Secured Notes. Investors purchasing Participations have also received
that number of Warrants equal to one-sixth (1/6) of the aggregate dollar amount
of Participations purchased divided by the exercise price (as discussed below).
Each Warrant is exercisable until July 31, 1999, provided, however, that in the
event that the average closing bid price of the Common Stock exceeds one hundred
sixty percent (160%) of the exercise price for thirty (30) consecutive trading
days, then the Company may, within three business days following the end of such
thirty (30) day period, give notice of its intent to repurchase the Warrants at
a purchase price of one-tenth of one cent ($0.001) per Warrant, in which case
Holders will have (30) days following the date of the Company's notice to
exercise the Warrants. Each Warrant entitles the holder to purchase one share of
Common Stock at an exercise price equal to the closing bid price of the Common
Stock on the date of the Note(s) in which the investor has purchased
Participations (subject to adjustment in certain circumstances). The purchase
price for each Warrant is one-tenth of one cent ($0.001) per Warrant. As of
September 19, 1996, Morgan Fuller has sold an aggregate of $1,000,000 of
Participations. The Participations, the Warrants and the shares purchasable
pursuant to the Warrants have been offered and sold only to "accredited
investors" as defined in Regulation D of the Securities Act. For Morgan Fuller's
services in connection with the Senior Secured Notes and selling the
Participations, the Company has: (i) paid Morgan Fuller a loan fee of five
percent (5%) of the amount of the Senior Secured Notes; and (ii) granted Morgan
Fuller 39,255 Warrants to purchase Common Stock at an exercise price of $4.25,
and 45,205 Warrants at an exercise price of $3.69.
FURTHER FINANCING. The Company plans on selling securities in a private
placement in the near future, the proceeds of which would be used to repay the
Senior Secured Notes. The Company would, as a part of such offering, pay to
Morgan Fuller a cash fee and deliver Warrants for its services in selling such
securities. In addition, in the event that the Company fails to proceed with
such subsequent financing, the Company is obligated to pay to Morgan Fuller a
cash fee of $140,000 and $200,000 in aggregate amount of Warrants at an exercise
price equal to the lesser of: (i) $3.00; or (ii) sixty percent (60%) of the
average closing bid price of the Common Stock during a consecutive ten (10) day
period immediately preceding the issuance date of the Warrants. See also
footnote 1 to the Company's financial statements attached as an exhibit to this
Form 10-SB.
ONGGARA OPTION. As discussed further in ITEM 10. SECURITY OWNERSHIP OF
MANAGEMENT AND CERTAIN SECURITYHOLDERS, the Company is obligated to grant Mr.
Onggara certain options.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
22.
<PAGE> 23
Section 7-108-402(1) of the Colorado Corporation Business Act provides
that a corporation may, if it so provides in its articles of incorporation,
eliminate or limit the personal liability of a director to the corporation or
its shareholders for monetary damages for breach of fiduciary duty as a
director; except that any such provision shall not eliminate or limit the
liability of a director to the corporation or to its shareholders for monetary
damages for any breach of the director's duty of loyalty to the corporation or
its shareholders, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, an unlawful distribution,
or any transaction from which the director directly or indirectly derived an
improper personal benefit. Article XIII of the Company's Articles of
Incorporation provides that the Board of Director of the Company shall have the
power to indemnify its directors and officers against expenses and liabilities
they incur to defend, settle or satisfy any civil or criminal action brought
against them on account of their being or having been company directors or
officers unless, in any such action, they are adjudged to have acted with
negligence or engaged in misconduct. Insofar as indemnification for liabilities
arising under the Securities Act and the Securities Exchange Act of 1934, as
amended, (collectively, the "Acts") may be permitted to directors, officers or
controlling persons pursuant to foregoing provisions, the Company has been
informed that, in the opinion of the SEC, such indemnification is against public
policy as expressed in the Acts and is, therefore, unenforceable.
23.
<PAGE> 24
PART F/S
FINANCIAL STATEMENTS
Attached are audited financial statements for EDnet, Inc. and Internet
Worldwide Business Solutions for the period ended June 30, 1996. The following
financial statements are attached to this report and filed as a part thereof.
See pages F-1 through F-32.
EDNET, INC.
1. Table of Contents
2. Report of Independent Accountants
3. Consolidated Balance Sheet
4. Consolidated Statements of Operations
5. Consolidated Statements of Stockholders' Equity
6. Consolidated Statements of Cash Flows
7. Notes to Consolidated Financial Statements
INTERNET WORLDWIDE BUSINESS SOLUTIONS
1. Table of Contents
2. Report of Independent Accountants
3. Balance Sheet
4. Statement of Operations
5. Statement of Changes in Stockholders' Equity
6. Statement of Cash Flows
7. Notes to Financial Statements
24.
<PAGE> 25
PART III
ITEM 1. INDEX TO EXHIBITS PAGE NUMBER
EXHIBIT NO. TYPE OF EXHIBIT
(2) (a) Articles of Incorporation, as amended
(b) Bylaws, as amended
(3) (a) Security Agreement dated as of July 5, 1996,
made by the Company, in favor of Morgan Fuller
Capital Group L.L.C.
(b) Amendment No. 1 to Security Agreement dated as of
August 1, 1996
(c) Form of Senior Secured Promissory Note in favor of
Morgan Fuller Capital Group L.L.C., executed on the
following dates for the following amounts:
1. dated July 5, 1996, in the amount of $500,000
2. dated July 22, 1996, in the amount of $200,000
3. dated July 22, 1996, in the amount of $300,000
(d) Promissory Note dated February 8, 1996 in favor of
Irawan Onggara, in the principal amount of $250,000
(e) Promissory Note dated April 18, 1996 in favor of
Irawan Onggara, in the principal amount of $100,000
(f) Promissory Note dated May 20, 1996 in favor of
Irawan Onggara, in the principal amount of $75,000
(g) Form of Promissory Note dated June 24, 1996 in the
principal amount of $125,000, payable to each of
Randall Schmitz and Trevor Stout
(6) Material Contracts
(a) Agreement and Plan of Reorganization by and among
EDnet, Inc., EDN Sub, Inc. and Internet Worldwide
Business Solutions, dated as of June 24, 1996
25.
<PAGE> 26
(b) Stock Purchase Agreement, dated September 22, 1995,
between AP Office Equipment, Inc., Entertainment
Digital Network, Inc. and certain shareholders of
Entertainment Digital Network, Inc.
(c) Stock Purchase Agreement, dated October 18, 1995,
between EDnet, Inc. and certain shareholders of
Entertainment Digital Network, Inc.
(d) Employment Agreement between the Company and Tom
Kobayashi dated September 1, 1995
(e) Employment Agreement between the Company and David
Gustafson dated September 1, 1995
(f) EDnet, Inc. Incentive Stock Option Plan
(g) EDnet, Inc. 1995-1996 Nonstatutory Stock Option Plan
(h) Entertainment Digital Network 1993 Flexible Stock
Incentive Plan
(i) Form of Entertainment Digital Network Nonqualified
Stock Option Agreement
(j) Form of Entertainment Digital Network Stock
Purchase Warrant
(k) Form of EDnet, Inc. Warrant
(l) Consulting Agreement, dated as of January 12, 1996,
between the Company and Liviakis Financial
Communications, Inc.
(m) Financial Advisory Agreement, dated as of July 31,
1995, between EDN and Century Financial Partners,
Inc.
(n) Engagement letter dated May 20, 1996 between the
Company and Morgan Fuller Capital Group L.L.C.
(o) Engagement letter dated June 25, 1996 between the
Company and Morgan Fuller Capital Group L.L.C.
(p) Engagement letter dated June 28, 1996 between the
Company and Morgan Fuller Capital Group L.L.C.
(q) Engagement letter dated June 28, 1996 between the
Company and Morgan Fuller Capital Group L.L.C.
(r) Engagement letter dated October 17, 1996 between the
Company and LBC Capital Resources, Inc.
26.
<PAGE> 27
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
EDNET, INC.
(Registrant)
Date: October 30, 1996 By: /s/ Tom Kobayashi
--------------------------------------
Tom Kobayashi,
Chairman and Chief Executive Officer
Date: October 30, 1996 By: /s/ David Gustafson
--------------------------------------
David Gustafson,
President and Chief Operating Officer
29.
<PAGE> 28
EDNET, INC.
REPORTS ON AUDITS OF FINANCIAL STATEMENTS
AS OF JUNE 30, 1996 AND FOR THE
YEARS ENDED JUNE 30, 1995 AND 1996
<PAGE> 29
EDNET, Inc.
C O N T E N T S
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants 1
Consolidated Balance Sheet 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-20
</TABLE>
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of EDnet, Inc.
We have audited the accompanying consolidated balance sheet of EDnet, Inc. and
subsidiaries as of June 30, 1996 and the related consolidated statements of
income, stockholders' equity, and cash flows for the years ended June 30, 1995
and 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of EDnet, Inc. and
subsidiaries as of June 30, 1996 and the consolidated results of their
operations and their cash flows for the years ended June 30, 1995 and 1996, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
San Francisco, California
October 21, 1996
<PAGE> 31
EDNET, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 186,875
Restricted cash 35,000
Accounts receivable, net of allowance for doubtful accounts of $33,936 478,076
Inventories 147,409
Other current assets 14,298
-----------
Total current assets 861,658
Property and equipment, net 488,943
Goodwill, net 1,088,568
Other assets 79,342
-----------
$ 2,518,511
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 659,709
Accrued expenses 390,002
Deferred revenue 69,623
Line of credit 16,638
Notes payable 990,991
Current portion of capital lease obligations 24,493
-----------
Total current liabilities 2,151,456
Capital lease obligations 43,622
-----------
Total liabilities 2,195,078
-----------
Stockholders' equity:
Common stock; $0.001 par value; 50,000,000 shares authorized; 4,468,322 shares
issued and outstanding 4,468
Additional paid-in capital 2,758,644
Accumulated deficit (2,439,679)
-----------
Total stockholders' equity 323,433
-----------
$ 2,518,511
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 32
EDNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Revenues:
Equipment sales $ 351,210 $ 1,308,646
Installation and monthly fees 340,603 404,976
Usage fees 471,962 637,262
Other fees 89,561 185,374
----------- -----------
1,253,336 2,536,258
Cost of sales 1,026,867 2,126,741
----------- -----------
Gross profit 226,469 409,517
Sales and marketing 320,803 995,917
Operating expenses 302,377 532,081
----------- -----------
Loss from operations (396,711) (1,118,481)
Other income (expenses):
Interest income - 238
Interest expense (28,898) (34,560)
Gain on sale of equipment 32,086 -
----------- -----------
Total other income (expense), net 3,188 (34,322)
Loss before provision for income taxes (393,523) (1,152,803)
Income taxes 800 1,600
----------- -----------
Net loss $ (394,323) $(1,154,403)
=========== ===========
Net loss per share $ (0.35) $ (0.36)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 33
EDNET, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Beginning balance, restated for APO merger,
July 1, 1994 1,124,310 $ 1,124 $ 672,268 $ (890,953) $ (217,561)
Net loss - - - (394,323) (394,323)
----------- ----------- ----------- ----------- -----------
Balance, June 30, 1995 1,124,310 1,124 672,268 (1,285,276) (611,884)
Shares issued in lieu of payroll 395,228 395 50,607 - 51,002
Shares issued for APO merger 747,500 748 3,527 - 4,275
Shares issued under Regulation D offering 1,500,000 1,500 996,000 - 997,500
Shares issued pursuant to consulting agreement 390,000 390 413,985 - 414,375
Shares issued for acquisition of IBS 311,284 311 622,257 - 622,568
Net loss - - - (1,154,403) (1,154,403)
----------- ----------- ----------- ----------- -----------
Ending balance, June 30, 1996 4,468,322 $ 4,468 $ 2,758,644 $(2,439,679) $ 323,433
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 34
EDNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (394,323) $(1,154,403)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 107,385 136,823
Gain on sale of fixed assets (32,086) -
Provision for doubtful accounts 9,383 6,142
Noncash expenses - 465,377
Increase (decrease) in assets, net of effects of IBS acquisition:
Accounts receivable (121,648) (163,237)
Inventories - (147,409)
Prepaid expenses (1,800) (10,301)
Other assets 5,128 (62,543)
Increase (decrease) in liabilities, net of effects of IBS acquisition:
Accounts payable 40,897 92,297
Accrued expenses 40,247 (14,504)
Deferred revenue 158,814 (161,078)
----------- -----------
Net cash used in operating activities (188,003) (1,012,836)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (32,640) (81,638)
Cash from the acquisition of IBS, net of cash paid - 113,814
Proceeds from the sale of assets 72,908 -
----------- -----------
Net cash provided by investing activities 40,268 32,176
----------- -----------
Cash flows from financing activities:
Principal payments on long-term debt (104,743) (277,825)
Payments on capital leases (297) (8,577)
Issuance of shares under Regulation D - 997,500
Proceeds from borrowings 253,305 400,001
Subscribed shares - 35,000
Restricted cash - (35,000)
----------- -----------
Net cash provided by financing activities 148,265 1,111,099
----------- -----------
Net increase in cash 530 130,439
Cash at beginning of year 55,906 56,436
----------- -----------
Cash at end of year $ 56,436 $ 186,875
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 24,050 $ 14,232
=========== ===========
Cash paid during the year for taxes 800 $ -
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 35
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY:
SUMMARY OF BUSINESS:
EDnet, Inc. (the Company), a Colorado corporation, and its subsidiaries
develop and market integrated systems for the delivery, storage, and
management of professional-quality digital communications for
media-based applications, including audio and video production for the
U. S. entertainment industry. The Company, through strategic alliances
with long-distance carriers, regional telephone companies, satellite
operators, and independent fiber optic telecommunications providers,
has established a worldwide network that enables the exchange of high
quality audio, video, multimedia, and data communications. The Company
provides engineering services and application-specific technical
advice, audio, video, and networking hardware and software as part of
its business. Additionally, through one of its wholly owned
subsidiaries, the Company provides Internet web site development and
hosting services, utilizing proprietary software, to businesses
conducting Internet commerce.
ORGANIZATION:
The Company's principal subsidiary, Entertainment Digital Network
(EDN), was originally incorporated in the state of Nevada in June 1992.
In January 1993, EDN was reincorporated in the state of California.
During September and October of 1995, EDN's stockholders exchanged 100%
of their shares of common stock for 1,519,538 shares of common stock of
AP Office Equipment (APO), a public company with no operations and no
significant assets or liabilities. At the time of the exchange, APO, a
Colorado corporation that was incorporated in May 1994, had 747,500
shares of common stock outstanding. Concurrently, APO sold 1,500,000
shares of common stock to a group of investors for $.665 per share. APO
then changed its name to EDnet, Inc. EDN became a subsidiary of the
Company as a result of this transaction. For accounting purposes, this
transaction has been treated as a recapitalization of EDN, recognizing
the issuance of shares of common stock for the net assets of the
Company. The historical financial statements prior to this transaction
are those of EDN.
Continued
6
<PAGE> 36
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY, continued:
ACQUISITION OF INTERNET WORLDWIDE BUSINESS SOLUTIONS:
On June 24, 1996, the Company acquired all the outstanding shares of
common stock of Internet Worldwide Business Solutions (IBS) in a
business combination accounted for as a purchase. IBS is primarily an
Internet service provider specializing in the development and hosting
of web sites. The results of operations of IBS are included in the
accompanying financial statements since the date of acquisition. The
purchase price of $1,162,568 included 311,284 shares of the Company's
common stock, notes payable in the aggregate amount of $500,000 (Note
5) and $40,000 of acquisition related costs. The purchase price
exceeded the estimated fair value of the net tangible assets of IBS by
$1,088,568. The excess is reflected as goodwill on the balance sheet
and is being amortized using the straight-line method over a five-year
period.
The assets and liabilities purchased in connection with the acquisition
were as follows:
<TABLE>
<S> <C>
Current assets $ 219,683
Property, plant and equipment, net 90,136
Other assets 2,767
Current liabilities (150,949)
Note payable to EDnet (25,000)
Deferred revenues (62,637)
---------
Net assets acquired $ 74,000
=========
</TABLE>
In addition, the Company entered into a stock bonus plan to issue up to
an aggregate of 500,000 shares of its common stock to the two former
owners of IBS, now employees of the Company. The plan sets certain
threshold levels for revenue and profit goals to be realized in order
for the stock to be issued. If a threshold for a given time period is
exceeded, the amount in excess shall not be added to the amount in the
next time period or used to determine whether that threshold has been
met or exceeded. This agreement represents an earn-out plan and the
fair market value of any additional shares issued will be added to
goodwill when and if the goals are met.
In conjunction with the acquisition, under the terms of its
nonstatutory stock option plan, options to purchase an aggregate of
50,000 shares of common stock of the Company were granted to certain
IBS employees at $1.25 per share (see Note 9).
Continued
7
<PAGE> 37
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY, continued:
ACQUISITION OF INTERNET WORLDWIDE BUSINESS SOLUTIONS, continued:
Had the acquisition occurred on October 1, 1995 (the commencement of
operations for IBS), the pro forma statement of operations for the
Company for the year ended June 30, 1996 would have been as follows:
<TABLE>
<CAPTION>
PRO FORMA
AS STATED ADJUSTMENTS PRO FORMA
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 2,536,258 $ 480,030 $ 3,016,288
Cost of sales 2,126,741 258,716 2,385,457
----------- ----------- -----------
Gross profit 409,517 221,314 630,831
Sales and marketing 995,917 64,679 1,060,596
General and administrative 532,081 107,798 639,879
----------- ----------- -----------
(Loss) income from operations (1,118,481) 48,837 (1,069,644)
Other expenses, net 34,322 832 35,154
----------- ----------- -----------
(Loss) income before income taxes (1,152,803) 48,005 (1,104,798)
Income taxes 1,600 10,335 11,935
----------- ----------- -----------
Net (loss) income $(1,154,403) $ 37,670 $(1,116,733)
=========== =========== ===========
Net (loss) per share $ (0.36) $ (0.35)
=========== ===========
</TABLE>
GOING CONCERN:
The Company and its subsidiaries have not been able to generate any
operating profit since inception. Through June 30, 1996, the Company
and its subsidiaries have aggregated losses of $2,439,679 and current
liabilities exceed current assets by $1,289,798. Subsequent to year
end, the Company obtained additional funding as described in Note 13.
The Company's management is attempting to raise additional funds to
fully develop its core business products. However, if the Company
cannot raise additional funds, it may not have the financial resources
to continue as a going concern. The financial statements do not contain
any adjustments that may be needed if the Company is unable to continue
as a going concern.
Continued
8
<PAGE> 38
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION:
The consolidated financial statements include the accounts of the
Company's wholly owned subsidiaries EDN and IBS. Material inter-company
transactions and balances have been eliminated.
REVENUE RECOGNITION:
A significant component of revenues relate to the sale of equipment
which is recognized when the equipment is installed. Installation fees
are recognized when the installation has been completed and usage fees
are recognized over the period the equipment is used based on the
relative usage level. Deferred revenues represent billings in excess of
revenue recognized.
RESTRICTED CASH:
Restricted cash represents the funds received by the Company in
conjunction with its Regulation D offering (see Note 13) prior to
reaching the minimum level of investment for usage of funds.
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Bad debts are provided on the allowance method based on historical
experience and management's evaluation of outstanding accounts
receivable.
INVENTORIES:
Inventories are valued at the lower of cost or market with cost being
determined on the first-in, first-out basis.
PROPERTY AND EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Property and equipment are carried at cost and are depreciated on the
straight-line basis over their estimated useful lives, which range from
five to seven years. The costs of leasehold improvements are amortized
over the lesser of the length of the related leases or the estimated
useful lives of the assets. Expenditures for improvement or expansion
of property and equipment are capitalized. Repairs and maintenance are
charged to expense as incurred. When the assets are sold or retired,
their cost and related accumulated depreciation are removed from the
accounts with the resulting gain or loss reflected in the statement of
operations.
Continued
9
<PAGE> 39
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
GOODWILL:
Goodwill is being amortized using the straight-line method over the
estimated useful life of five years. The Company evaluates the recovery
of its goodwill by comparing the aggregate estimated cash flows
generated by those assets with their carrying value. If the carrying
value exceeds the aggregate cash flow amount, goodwill would be reduced
accordingly.
INCOME TAXES:
The Company accounts for income taxes using the liability method.
Deferred income tax assets and liabilities are computed annually for
differences between the financial reporting and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets
to the amount expected to be realized.
LOSS PER SHARE:
Loss per share has been calculated using the weighted average number of
shares outstanding for the period, which were 1,124,310 for 1995 and
3,181,350 for 1996. Common stock equivalents (stock options and
warrants) have been excluded from the calculation because they are
anti-dilutive.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS:
During October 1995, the financial Accounting Standards Board issued
Statement No. 123 (SFAS No. 123), Accounting for Stock-Based
Compensation, which establishes a fair value based method of accounting
for stock-based compensation plans. The Company is currently following
the requirements of APB Opinion No. 25, Accounting for Stock Issued to
Employees. The Company plans to adopt SFAS No. 123 during fiscal year
1997 utilizing the disclosure alternative.
Continued
10
<PAGE> 40
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Accounts receivable at June 30, 1996 comprise the following:
<TABLE>
<S> <C>
Current trade $ 469,028
Employee 3,372
Rebillable charges 39,612
---------
512,012
Less allowance for doubtful accounts (33,936)
---------
Total $ 478,076
=========
</TABLE>
Allowances are made as a percentage of sales adjusted annually based upon
review of the individual accounts receivable. Accounts are written off
when deemed to be worthless. Total bad debt expense was $16,603 and $6,461
for the years ended June 30, 1995 and 1996, respectively.
4. PROPERTY AND EQUIPMENT:
Property and equipment are summarized by major category as follows as of
June 30, 1996:
<TABLE>
<S> <C>
Network and related equipment $ 831,635
Furniture and fixtures 15,421
Computer software 20,766
Leasehold improvements 15,108
---------
882,930
Depreciation and amortization (393,987)
---------
Net property and equipment $ 488,943
=========
</TABLE>
Depreciation and amortization included in the statements of operations
amounted to $107,385 and $136,823 for the years ended June 30, 1995 and
1996, respectively.
The Company leases some equipment to customers under terms which are
accounted for as operating leases. Under the operating method, rental
revenue from leases are recognized ratably over the life of the lease and
the related equipment is depreciated over its estimated useful life.
Continued
11
<PAGE> 41
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. NOTES PAYABLE:
<TABLE>
<CAPTION>
<S> <C>
Notes payable consist of the following as of June 30, 1996:
Notes payable to two stockholders of $125,000 each at 8% interest, principal and
interest due 60 days subsequent to the IBS purchase, collateralized by IBS shares
of common stock acquired by the Company (see Note 1). The note and accrued
interest was repaid in full in August, 1996. $250,000
Notes payable to two stockholders of $125,000 each at 8% interest, principal and
accrued interest due the earlier of 12 months subsequent to the IBS
purchase or 15 days after close of a public offering of common stock,
uncollateralized (see Note 1). 250,000
Notes payable to Mr. Irawan Onggara, a shareholder and financial advisor, with
original amounts of $250,000, $100,000, and $75,000 at 7% interest rate,
collateralized by assets of the Company subordinated to equipment covered
by individual capital leases, due August 8, 1996, October 18, 1996, and
November 20, 1996, respectively. The Company has repaid $90,000 and has
obtained verbal agreement to extend the due dates of the notes currently
due. 410,000
Note payable to Newjack, Inc., dba Waves Sound Recorders, Inc., interest at 13.09%,
monthly principal and interest payments of $1,475, collateralized by equipment,
final maturity May, 1997. 15,441
Notes payable to an officer, interest at 6% per annum, uncollateralized. 24,000
Notes payable to an officer, interest at 6% per annum, uncollateralized. 26,550
Note payable to a director, interest at 6% per annum, uncollateralized. 15,000
--------
$990,991
========
</TABLE>
The notes payable to officers and director are overdue as of October 21,
1996. Each of these individuals has agreed not to declare a default under
these notes for an indefinite period and to accept repayment by the
Company at a future date.
The carrying value of these financial instruments approximates fair value
due to the relatively short maturity.
6. LINE OF CREDIT:
The Company's wholly owned subsidiary, IBS, has a $25,000 line of credit
with a financial institution, of which $16,638 was outstanding as of June
30, 1996. The line of credit bears interest at the institutions reference
rate plus 5.06% (12.31% as of June 30, 1996) and is payable monthly. The
line of credit expires on March 8, 1997.
Continued
12
<PAGE> 42
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES:
The provision for income taxes consists of federal income taxes and
California franchise taxes payable and includes the following:
<TABLE>
<S> <C>
Currently payable $1,600
Deferred -
------
Total provision for income taxes $1,600
------
</TABLE>
A reconciliation of the expected and reported provision for income taxes
follows:
<TABLE>
<CAPTION>
For the Years Ended
June 30,
--------
1995 1996
<S> <C> <C>
Benefit expected based on federal statutory rate 34.0% 34.0%
State taxes, net of federal benefit 6.1 6.1
Nondeductible expenses 0.1 0.2
Valuation allowance, net (40.2) (40.2)
---- ----
Net income tax provision 0.0% 0.1%
==== ====
</TABLE>
The tax effects of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<S> <C>
Net operating loss carryforwards $ 879,000
Property and equipment 17,000
Other, net 3,000
Valuation allowance (899,000)
---------
Net deferred tax asset -
=========
</TABLE>
Due to the uncertainty of realization, a valuation allowance has been
provided to eliminate the net deferred tax assets. The increase in the
valuation allowance was $420,000 in fiscal 1996.
The Company has Federal and California loss carryforwards totaling
approximately $2.4 million and $1.2 million expiring through 2011 and
2001, respectively, that may be offset against future income taxes. The
utilization of these net operating loss carryforwards are limited due to a
change of ownership as defined in the Internal Revenue Code (see Note 1)
in November 1995.
Continued
13
<PAGE> 43
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LEASE COMMITMENTS:
As of June 30, 1996, the Company leases office space and certain equipment
under various noncancelable capital and operating leases. Future minimum
lease payments required under the noncancelable leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING JUNE 30, LEASES LEASES
-------------------- ------ ------
<S> <C> <C>
1997 $ 200,118 $ 32,498
1998 164,905 26,274
1999 119,961 13,824
2000 92,994 10,961
2001 92,994 -
Thereafter 185,988 -
----------- ----------
Total minimum lease payments $ 856,960 83,557
===========
Less amount representing interest 15,442
----------
Present value of net minimum lease payments 68,115
Less current portion 24,493
----------
Long-term portion $ 43,622
==========
</TABLE>
As of June 30, 1996, the Company has equipment purchased under
noncancelable capital leases with a cost of $76,990 and accumulated
amortization of $5,238.
Total rental expense for all operating leases for the years ended June 30,
1996 and 1995 amounted to $121,584 and $124,700, respectively.
The Company's obligations under its lease for its Los Angeles office
premises are guaranteed by its Chairman and Chief Executive Officer.
9. OPTIONS AND WARRANTS:
OPTIONS TO KEY EMPLOYEES AND DIRECTORS:
On September 19, 1995, EDN granted a total of 263,420 non-qualified
options to certain employees and directors to purchase shares in EDN at
$.10 per share. As a result of the recapitalization discussed in Note
1, the EDN options were converted into options to purchase the
Company's stock at a conversion of .87495 per share for each EDN share.
As a result, at June 30, 1996, there were 230,479 options outstanding
at a price of $.11 per share. These options expire on September 29,
2000. There were no options exercised during the period.
Continued
14
<PAGE> 44
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. OPTIONS AND WARRANTS, continued:
INCENTIVE STOCK OPTIONS:
On November 10, 1995, the Company adopted an Incentive Stock Option
Plan (the Plan) for certain officers and executive employees of the
Company. An aggregate of 500,000 shares may be issued under the terms
of the Plan. The option price shall be determined by the Board of
Directors and the Company's Compensation Committee and shall not be
less than 100% of the fair market value of the common stock on the date
of grant. The period of option may not exceed ten years.
During fiscal 1996, the Company entered into an employment agreement
with both its Chairman and President. Under the terms of the agreement,
each officer may purchase up to 250,000 shares at a price of $1.25
under the terms outlined below:
1) On January 1, 1997, the option shall become exercisable for a
total of 100,000 shares of the Company's common stock, exercisable
for a five-year period, if for any prior rolling 12-month period
during the period from September 1, 1995 through December 31, 1996,
the Company has sales of at least $5,000,000 or income before
income taxes of at least $500,000.
2) On January 1, 1998, the option shall become exercisable for a
total of 100,000 shares of the Company's common stock, exercisable
for a five-year period, if for any prior rolling 12-month period
during the period from September 1, 1995 through December 31, 1997,
the Company has sales of at least $8,500,000 or income before
income taxes of at least $1,500,000.
3) On January 1, 1999, the option shall become exercisable for a
total of 50,000 shares of the Company's common stock, exercisable
for a five-year period, if for any prior rolling 12-month period
during the period from September 1, 1995 through December 31, 1998,
the Company has sales of at least $15,000,000 or income before
income taxes of at least $3,000,000.
Each of the above installments may be exercised by the delivery by the
employee to the Company of a three-year promissory note payable to the
Company, with interest to be determined at date of issuance. No further
options may be issued under this Plan.
Continued
15
<PAGE> 45
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. OPTIONS AND WARRANTS, continued:
NONSTATUTORY STOCK OPTION PLAN:
On November 10, 1995, the Company adopted a nonstatutory stock option
plan whereby 565,000 shares of the Company's common stock was reserved
for issuance. Under the terms of the plan, the options must be granted
prior to December 31, 1996; the price shall be determined by the
Company's Compensation Committee (CC); the period of option shall not
exceed five years from the date of grant; and the option must be paid
in cash when exercised unless a payment plan is authorized by the CC.
As of June 30, 1996, 222,000 options had been granted with an exercise
price of $1.25 per share, of which 100,000 shares have to be exercised
by November 30, 1997 and 100,000 by November 30, 1998.
In addition, in connection with the IBS acquisition (see Note 1),
50,000 options were granted to IBS employees with an exercise price of
$1.25 and a three-year vesting term.
EDN STOCKHOLDERS' WARRANTS:
As a result of the recapitalization discussed in Note 1, outstanding
warrants to purchase an aggregate of 347,343 shares of EDN common stock
at $2.625 per share were converted to 303,908 warrants to purchase
shares of the Company's common stock at a price of $3.00 per share.
These warrants became exercisable on May 1, 1996 and expire on October
31, 1996.
INVESTMENT BANKING WARRANTS:
In May 1996, the Company entered into an investment banking
relationship with Morgan Fuller Capital Group (Morgan). Under the terms
of the agreement, Morgan will provide the Company with financial
advisor services as well as arranging for equity and debt funding. As
part of Morgan's compensation, they received 250,000 warrants to
purchase shares of the Company's common stock at a price of $6.37 per
share to be exercised prior to May 1999.
Continued
16
<PAGE> 46
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. OPTIONS AND WARRANTS, continued:
A recap of the options and warrants outstanding as of June 30, 1996 is as
follows:
<TABLE>
<CAPTION>
QUANTITY
PRICE RESERVED OUTSTANDING
----- -------- -----------
<S> <C> <C> <C>
Employee EDN options converted $0.11 230,479 230,479
Employee incentive options $1.25 500,000 500,000
Nonstatutory options $1.25 565,000 272,000
--------- ---------
Total options 1,295,479 1,002,479
========= =========
Employee warrants $3.00 303,908 303,908
Morgan warrants $6.37 250,000 250,000
--------- ---------
Total warrants 553,908 553,908
========= =========
</TABLE>
Subsequent to June 30, 1996, additional warrants were issued as described
in Note 13. On August 26, 1996, the Board of Directors issued, pursuant to
the nonstatutory stock option plan, 100,000 options to purchase shares of
common stock at a price of $1.25 per share vesting over three years.
Pursuant to a Consulting Agreement dated July 31, 1995, between EDN and
Century Financial Partners, Inc. (CFP), the Company was obligated to grant
an option to purchase 1,000,000 shares of common stock at $1.25 per share.
The Company has had verbal discussions with CFP with respect to reducing
the number of shares of common stock subject to such option to 805,000
shares.
10. EMPLOYMENT CONTRACTS:
The Company has entered into employment contracts with both its Chairman
and President whereby each will receive a minimum annual salary of
$125,000 until February 28, 1996 adjusted to market rates at March 1,
1996, and annually thereafter, and incentive stock options as described in
Note 9. These agreements cover the period through December 31, 2000.
IBS has entered into employment contracts with its President and Chief
Executive Officer that extend through June 30, 1999. The contracts provide
for a minimum annual salary, adjusted at the discretion of the
Compensation Committee of the Board of Directors. At June 30, 1996 the
commitment under each contract was $300,000.
Continued
17
<PAGE> 47
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. CONCENTRATION OF CREDIT RISK:
The Company and its subsidiaries maintain cash in bank deposit accounts at
accredited financial institutions. The balances in these accounts may, at
times, exceed federally insured limits.
12. SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The following noncash activity occurred during the periods under audit as
follows:
- The Company entered into capital leases for office and computer
equipment in the amount of $12,901 and $66,408, for the years ended
June 30, 1995 and 1996, respectively.
- During fiscal year 1996, the Company issued 395,228 shares of its
common stock to officers and employees of the Company in lieu of
payroll.
- In connection with the merger with APO (Note 1) in 1995, the Company
issued 747,500 shares of common stock in exchange for the net assets
of APO totaling $4,275.
- The Company issued 390,000 of its shares of common stock in
consideration for consulting services performed during fiscal year
1996. At the time of issuance these shares were valued at $414,375.
- In conjunction with the acquisition of IBS during fiscal year 1996
(Note 1), the Company issued notes payable totaling $500,000 (Note 5)
and 311,284 shares of common stock valued at $622,257.
13. SUBSEQUENT EVENTS:
SENIOR SECURED PROMISSORY NOTES:
Subsequent to June 30, 1996, the Company has borrowed a total of
$1,000,000 under three senior collateralized promissory notes, arranged
by its financial advisor, Morgan, as follows:
<TABLE>
<CAPTION>
DATE AMOUNT RATE DUE DATE
<S> <C> <C> <C>
July 5, 1996 $ 500,000 14% November 15, 1996
August 9, 1996 200,000 14% November 15, 1996
September 11, 1996 300,000 14% November 15, 1996
----------
$1,000,000
==========
</TABLE>
Interest on these notes is payable on a quarterly basis starting
September 30, 1996.
Continued
18
<PAGE> 48
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. SUBSEQUENT EVENTS, continued:
SENIOR SECURED PROMISSORY NOTES, continued:
Subsequent to November 15, 1996, the notes may be converted into term
notes with principal payments for each note of $100,000 per month
beginning December 1, 1996. In addition, the interest rate will be
increased from 14% to 18%. The notes are collateralized by the
Company's assets.
In connection with the senior secured notes and selling of the
participations, investors and Morgan received:
- 58,824 warrants (39,216 warrants to Morgan) at a price of $4.25
per share to be exercised prior to July 4, 1999.
- 67,806 warrants (45,205 warrants to Morgan) at a price of $3.687
per share to be exercised prior to August 8, 1999 and September 10,
1999, respectively, for debt placement services.
If the Company elects not to complete additional financing with Morgan,
a cash fee of $140,000 and $200,000 in warrants at an exercise price
equal to the lesser of (i) $3.00; or (ii) sixty percent of the average
closing bid price of the common stock during a consecutive ten (10) day
period immediately preceding the issuance date of the warrants, will
become due and payable to Morgan.
REGULATION D EQUITY PLACEMENT:
The Company has offered up to a maximum of $3,000,000 in units (each
unit consists of one share of its common stock and one warrant) at a
price per unit of the lesser of $3.00 or the average closing bid price
of its common stock during a consecutive 30-day period immediately
preceding the termination date less 30%. The original termination date
of the offering was in August, 1996 but it has been extended and is
currently ongoing as of October 21, 1996. Each share of stock comes
with a warrant to purchase common stock through July 31, 1999 at a
price of the lesser of $4.75 or the average closing bid price during a
consecutive- 30-day period immediately preceding the termination date
as explained above. As of October 21, 1996 the Company had sold 190,000
units at a price of $3.00, with attached warrants at a price of $4.75
per share. The unit purchase price and the related warrant price may be
adjusted at the time of the closing depending on the average trading
price in the period described above.
Continued
19
<PAGE> 49
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. SUBSEQUENT EVENTS, continued:
POTENTIAL ACQUISITION OF CREATIVE DATA EXPRESS, INC.:
On October 21, 1996, the Company signed a letter of intent with
Creative Data Express, Inc. (CDE), a Colorado corporation, such that,
subject to final terms of the Agreement, EDnet shall acquire all of the
shares of CDE in consideration of the issuance of up to 450,000 shares
of the Company's common stock.
20
<PAGE> 50
INTERNET WORLDWIDE BUSINESS SOLUTIONS
REPORT ON AUDIT OF FINANCIAL STATEMENTS
AS OF JUNE 24, 1996 AND FOR THE
PERIOD FROM OCTOBER 1, 1995 TO JUNE 24, 1996
<PAGE> 51
INTERNET WORLDWIDE BUSINESS SOLUTIONS
C O N T E N T S
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants 1
Balance Sheet 2
Statement of Operations 3
Statement of Changes in Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6-8
</TABLE>
<PAGE> 52
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of EDnet, Inc.
We have audited the accompanying balance sheet of Internet Worldwide Business
Solutions as of June 24, 1996, and the related statements of income, changes in
stockholders' equity, and cash flows for the period from October 1, 1995 to June
24, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 the 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.
As discussed in Note 1 to the financial statements, on June 24, 1996, the
Company was acquired by EDnet, Inc.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Internet Worldwide Business
Solutions as of June 24, 1996, and the results of its operations and its cash
flows for the period from October 1, 1995 to June 24, 1996, in conformity with
generally accepted accounting principles.
San Francisco, California
September 27, 1996
<PAGE> 53
INTERNET WORLDWIDE BUSINESS SOLUTIONS
BALANCE SHEET
JUNE 24, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $153,814
Accounts receivable, net of allowance for doubtful accounts of $13,911 51,640
Other current assets 14,229
--------
Total current assets 219,683
Property and equipment, net 90,136
Other assets 2,767
--------
$312,856
========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current liabilities:
Accounts payable $ 47,777
Accrued expenses 86,534
Line of credit 16,638
Note payable to EDnet, Inc. 25,000
Deferred revenue 62,637
--------
Total liabilities 238,536
--------
Stockholders' equity:
Common stock; no par value; 100,000 shares authorized; 50,000 shares issued and outstanding 36,330
Retained earnings 37,670
--------
Total stockholders' equity 74,000
--------
$312,586
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 54
INTERNET WORLDWIDE BUSINESS SOLUTIONS
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 1, 1995 THROUGH JUNE 24, 1996
<TABLE>
<S> <C>
Revenues $480,030
Cost of revenues 258,716
--------
Gross profit 221,314
--------
Sales and marketing 64,679
General and administrative 107,798
--------
Income from operations 48,837
Interest expense 832
--------
Income before provision for income taxes 48,005
Provision for income taxes 10,335
--------
Net income $ 37,670
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 55
INTERNET WORLDWIDE BUSINESS SOLUTIONS
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM OCTOBER 1, 1995 THROUGH JUNE 24, 1996
<TABLE>
<CAPTION>
TOTAL
STOCK-
COMMON RETAINED HOLDERS'
STOCK EARNINGS EQUITY
----- -------- ------
<S> <C> <C> <C>
Balance, October 1, 1995 -- -- --
Issuance of common stock (50,000 shares) $36,330 -- $36,330
Net income for the period from October 1, 1995 through
June 24, 1996 -- $37,670 37,670
------- ------- -------
Balance, June 24, 1996 $36,330 $37,670 $74,000
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 56
INTERNET WORLDWIDE BUSINESS SOLUTIONS
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM OCTOBER 1, 1995 THROUGH JUNE 24, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 37,670
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 11,509
Bad debt expense 13,911
(Increase) decrease in assets:
Accounts receivable (55,205)
Other current assets (14,229)
Other assets (2,767)
Increase (decrease) in liabilities:
Accounts payable 47,777
Accrued expenses 80,296
Deferred revenue 62,637
---------
Net cash provided by operating activities 181,599
---------
Cash flows from investing activities - purchase of property and equipment (85,900)
---------
Cash flows from financing activities:
Borrowings under line of credit 16,638
Proceeds from note payable 25,000
Proceeds from issuance of common stock 16,477
---------
Net cash provided by financing activities 58,115
---------
Net increase in cash 153,814
Cash at beginning of period --
---------
Cash at end of period $ 153,814
=========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 832
=========
Cash paid during the period for taxes $ 23,047
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 57
INTERNET WORLDWIDE BUSINESS SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY:
Internet Worldwide Business Solutions (the Company), a California
corporation, is primarily an Internet service provider specializing in the
development and hosting of web sites.
The Company was incorporated on August 4, 1995 in California; however,
operations were not begun until October 1, 1995. On October 1, 1995, certain
assets and liabilities were transferred from a partnership to the corporation
in exchange for 50,000 shares of common stock as follows:
<TABLE>
<S> <C>
Cash $ 16,477
Accounts receivable 10,346
Fixed assets 15,745
Accrued liabilities (6,238)
</TABLE>
On June 24, 1996, the Company was acquired by EDnet, Inc. (EDnet) in a
business combination accounted for as a purchase.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION:
Revenues are generated from the design and development of web sites and for
services for hosting web sites. Revenue for design and development contracts
is recognized on the percentage of completion method and service revenue are
recognized ratably over the service period. Deferred revenues represent
billings in excess of revenue recognized.
PROPERTY AND EQUIPMENT:
Property and equipment are carried at cost and are depreciated on the
straight-line basis over their estimated useful lives, which is five to seven
years. Expenditures for improvement or expansion of electronic equipment are
capitalized. Repairs and maintenance are charged to expense as incurred. When
the assets are sold or retired, their cost and related accumulated
depreciation are removed from the accounts with the resulting gain or loss
reflected in the income statement.
INCOME TAXES:
The Company accounts for income taxes using the liability method. Deferred
income tax assets and liabilities are computed annually for differences
between the financial reporting and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized.
Continued
7
<PAGE> 58
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment are summarized by major category as follows as of June
24, 1996:
<TABLE>
<S> <C>
Network equipment $ 80,977
Furniture and fixtures 6,314
Computer software 14,354
--------
101,645
Depreciation and amortization (11,509)
--------
Net property and equipment $ 90,136
========
</TABLE>
Depreciation and amortization included in the statement of operations
amounted to $11,509 for the period from October 1, 1995 through June 24,
1996.
4. RELATED PARTY TRANSACTIONS:
At June 24, 1996, the Company had a note payable to EDnet in the amount of
$25,000 bearing interest at 8%, maturing on August 6, 1996. Subsequent to the
acquisition of the Company by EDnet (Note 1), the note was converted to an
advance with no repayment terms or interest being due.
5. INCOME TAXES:
The provision for income taxes consists of current taxes of $12,094 and
deferred taxes of $(1,759).
A reconciliation of the expected and reported provision for income taxes
follows:
<TABLE>
<S> <C>
Taxes using U.S. federal statutory rate $ 6,025
State taxes, net of federal benefit 3,173
Impact of nondeductible expenses 1,137
-------
Net income tax provision $10,335
-------
</TABLE>
Continued
8
<PAGE> 59
INTERNET WORLDWIDE BUSINESS SOLUTIONS
NOTES TO FINANCIAL STATEMENTS
5. INCOME TAXES, continued:
The tax effects of significant temporary differences representing deferred
tax assets and liabilities are as follows:
<TABLE>
<S> <C>
Bad debt allowance $ 3,380
Depreciation (1,009)
State income taxes (612)
-------
Net deferred tax asset $ 1,759
=======
</TABLE>
6. LEASE COMMITMENTS:
The Company leases office space under a noncancelable operating lease,
expiring March 3, 1997. Future minimum lease payments under this lease for
the year ending June 30, 1997 are $35,213.
Rental expense for the period from October 1, 1995 to June 24, 1996 amounted
to $25,301.
7. CONCENTRATION OF CREDIT RISK:
The Company maintains its cash in a bank deposit account at a financial
institution. The balance at times may exceed federally insured limits. At
June 30, 1996, the Company exceeded the insured limit by approximately
$53,000.
8. MAJOR CUSTOMER:
The Company had one customer representing approximately 18% of its overall
revenue for the period from October 1, 1995 through June 24, 1996. All other
customers represented less than 10% of its overall revenue during the same
period.
9. LINE OF CREDIT:
The Company has a $25,000 line of credit with a financial institution, of
which $16,638 was outstanding as of June 24, 1996. The line of credit bears
interest at the institution's reference rate plus 5.06% (12.31% as of June
24, 1996) and is payable monthly. The line of credit expires on March 8,
1997. The carrying value approximates fair value due to the relatively short
maturity of this financial instrument.
9
<PAGE> 60
PART III
ITEM 1. INDEX TO EXHIBITS
Page
Exhibit No. Type of Exhibit Number
(3) (i) Articles of Incorporation, as amended
(ii) Bylaws, as amended
(4) (a) Security Agreement dated as of July 5, 1996,
made by the Company, in favor of Morgan
Fuller Capital Group L.L.C.
(b) Amendment No. 1 to Security Agreement dated as of
August 1, 1996
(c) Form of Senior Secured Promissory Note in favor
of Morgan Fuller Capital Group L.L.C., executed
on the following dates for the following amounts:
1. dated July 5, 1996, in the amount of $500,000
2. dated July 22, 1996, in the amount of $200,000
3. dated July 22, 1996, in the amount of $300,000
(d) Promissory Note dated February 8, 1996 in favor
of Irawan Onggara, in the principal amount of
$250,000
(e) Promissory Note dated April 18, 1996 in favor
of Irawan Onggara, in the principal amount of
$100,000
(f) Promissory Note dated May 20, 1996 in favor of
Irawan Onggara, in the principal amount of $75,000
(g) Form of Promissory Note dated June 24, 1996 in the
principal amount of $125,000, payable to each of
Randall Schmitz and Trevor Stout
(10) Material Contracts
(a) Agreement and Plan of Reorganization by and among
EDnet, Inc., EDN Sub, Inc. and Internet Worldwide
Business Solutions, dated as of June 24, 1996
(b) Stock Purchase Agreement, dated September 22, 1995,
between AP Office Equipment, Inc., Entertainment
Digital
<PAGE> 61
Network, Inc. and certain shareholders of Entertainment Digital
Network, Inc.
(c) Stock Purchase Agreement, dated October 18, 1995, between EDnet,
Inc. and certain shareholders of Entertainment Digital Network,
Inc.
(d) Employment Agreement between the Company and Tom Kobayashi dated
September 1, 1995
(e) Employment Agreement between the Company and David Gustafson
dated September 1, 1995
(f) EDnet, Inc. Incentive Stock Option Plan
(g) EDnet, Inc. 1995-1996 Nonstatutory Stock Option Plan
(h) Entertainment Digital Network 1993 Flexible Stock Incentive Plan
(i) Form of Entertainment Digital Network Nonqualified Stock Option
Agreement
(j) Form of Entertainment Digital Network Stock Purchase Warrant
(k) Form of EDnet, Inc. Warrant
(l) Consulting Agreement, dated as of January 12, 1996, between the
Company and Liviakis Financial Communications, Inc.
(m) Financial Advisory Agreement dated as of July 31, 1995, between
EDN and Century Financial Partners Inc.
(n) Engagement letter dated May 20, 1996 between the Company and
Morgan Fuller Capital Group L.L.C.
(o) Engagement letter dated June 25, 1996 between the Company and
Morgan Fuller Capital Group L.L.C.
(p) Engagement letter dated June 28, 1996 between the Company and
Morgan Fuller Capital Group L.L.C.
(q) Engagement letter dated June 28, 1996 between the Company and
Morgan Fuller Capital Group L.L.C.
(r) Engagement letter dated October 17, 1996 between the Company and
LBC Capital Resources, Inc.
<PAGE> 1
EX-3.(i)
ARTICLES OF INCORPORATION
OF
AP OFFICE EQUIPMENT, INC.
KNOW ALL MEN BY THESE PRESENTS that the undersigned Incorporator being
a natural person of the age or eighteen years of age or older and desiring to
form a body corporate under the laws of the State of Colorado does hereby sign,
verify and deliver in duplicate to the Secretary of State of the State of
Colorado these Articles of Incorporation:
ARTICLE I
NAME
The name of the Corporation is AP OFFICE EQUIPMENT, INC.
ARTICLE II
PERIOD OF DURATION
This Corporation shall exist in perpetuity, from and after the date of
filing these Articles of Incorporation with the Secretary of State of Colorado
unless and until dissolved according to the laws of the State of Colorado.
ARTICLE III
PURPOSES
SECTION 1. SPECIFIC PURPOSES.
A. To engage in the business of wholesale office equipment
brokering and resale.
B. To engage in the business of acquiring office equipment
manufacturing.
SECTION 2. GENERAL PURPOSES.
1.
<PAGE> 2
A. To own, operate and maintain such real or personal property
as may be necessary to conduct such business and to do all of the things in
connection with the real or personal property which might be done by an
individual.
B. To hire and employ agents and employees, and to enter into
agreements of employment and collective bargaining agreements for the purpose of
advancement and performance of the purposes of this Corporation.
C. To carry on any other business, whether or not related to
the foregoing, including the transaction of all lawful business for which
corporations may be organized pursuant to the Colorado Corporation Code, to have
and exercise all powers, privileges and immunities now or hereafter conferred
upon or permitted to corporations by the laws of the State of Colorado, and to
do any and all things herein set forth to the same extent as natural persons
could do insofar as permitted by the laws of the State of Colorado.
D. To do those things which are authorized and permitted by
the Colorado Corporations Code.
E. To do all things authorized by law or incidental thereto.
ARTICLE IV
POWERS
The powers of the Corporation shall be those powers granted by
Article Two of the Colorado Corporations Code under which this Corporation is
formed. In addition, the Corporation shall have the following specific powers:
SECTION 1. OFFICERS. The Corporation shall have the power to elect or
appoint officers and agents of the Corporation and to fix their compensation.
SECTION 2. CAPACITY. The Corporation shall have the power to act as an
agent for any individual, association, partnership, corporation or other legal
entity, and to act as general partner for any limited partnership.
SECTION 3. ACQUISITIONS. The Corporation shall have the power to
receive, acquire, hold, exercise rights arising out of the ownership or
possession thereof, sell, or otherwise dispose of, shares or other interests in,
or obligations of, individuals, associations, partnerships, corporations or
governments.
SECTION 4. EARNED SURPLUS. The Corporation shall have the power to
receive, acquire, hold, pledge, transfer, or otherwise dispose of shares of the
Corporation, but such shares may only be purchased, directly or indirectly, out
of earned surplus.
2.
<PAGE> 3
SECTION 5. GIFTS. The Corporation shall have the power to make gifts or
contributions for the public welfare or for charitable, scientific or
educational purposes.
ARTICLE V
CAPITAL STRUCTURE
SECTION 1. AUTHORIZED CAPITAL. The aggregate number of shares and the
amount of the total authorized capital of said Corporation shall consist of
50,000,000 shares of common stock. $0.001 par value per share, and 5,000,000
shares of non-voting preferred stock, $0.001 par value per share.
SECTION 2. SHARE STATUS. All common shares will be equal to each other,
and when issued, shall be fully paid and nonassessable, and the private property
of shareholders shall not be liable for corporate debts. Preferred shares shall
have such preferences as the Directors may assign to them prior to issuance.
Each holder of a common share of record shall have one vote for each share of
stock outstanding in his name on the books of the Corporation and shall be
entitled to vote said stock.
SECTION 3. CONSIDERATION FOR SHARES. The common stock of the
Corporation shall be issued for such consideration as shall be fixed from time
to time by the Board of Directors. In the absence of fraud, the judgment of the
Directors as to the value of any property or services received in full or
partial payment for shares shall be conclusive. When shares are issued upon
payment of the consideration fixed by the Board of Directors, such shares shall
be taken to be fully paid stock and shall be nonassessable.
SECTION 4. PREEMPTIVE RIGHTS. Except as may otherwise be provided by
the Board of Directors, holders of shares of stock of the Corporation shall have
no preemptive right to purchase, subscribe for or otherwise acquire shares of
stock of the Corporation, rights, warrants or options to purchase stocks or
securities of any kind convertible into stock of the Corporation.
SECTION 5. DIVIDENDS. Dividends in cash, property or shares of the
Corporation may be paid, as and when declared by the Board of Directors, out of
funds of the Corporation to the extent and in the manner permitted by law.
SECTION 6. DISTRIBUTION IN LIQUIDATION. Upon any liquidation,
dissolution or winding up of the Corporation, and after paying or adequately
providing for the payment of all its obligations, the remainder of the assets of
the Corporation shall be distributed, either in cash or in kind, pro rata to the
holders of the common stock, subject to preferences, if any, granted to holders
of the preferred shares. The Board of Directors may, from time to time,
distribute to the shareholders in partial liquidation from stated capital of the
Corporation, in cash or properly, without the vote of the shareholders, in the
manner permitted and upon compliance with limitations imposed by law.
3.
<PAGE> 4
ARTICLE VI
VOTING BY SHAREHOLDERS
SECTION 1. VOTING RIGHTS, CUMULATIVE VOTING. Each outstanding share of
common stock is entitled to one vote and each fractional share of common stock
is entitled to a corresponding fractional vote on each matter submitted to a
vote of shareholders. Cumulative voting shall not be allowed in the election of
Directors of the Corporation and every shareholder entitled to vote at such
election shall have the right to vote the number of shares owned by him for as
many persons as there are Directors to be elected, and for whose election he has
a right to vote. Preferred shares have no voting rights unless granted by
amendment to these Articles of Incorporation.
SECTION 2. MAJORITY VOTE. When, with respect to any action to be taken
by the Shareholders of the Corporation, the Colorado Corporation Code requires
the vote or concurrence of the holders of two-thirds of the outstanding shares
entitled to vote thereon, or of any class or series, any and every such action
shall be taken, notwithstanding such requirements of the Colorado Corporation
Code, by the vote or concurrence of the holders of a majority of the outstanding
shares entitled to vote thereon, or of any class or series.
ARTICLE VII
REGISTERED OFFICE AND REGISTERED AGENT
The registered office of the Corporation is located at 3079 S. Quince
Way, Denver, Colorado 80231, and the name of the registered agent of the
Corporation at such address is David R. Reitsema.
ARTICLE VIII
INCORPORATOR
The name and address of the Incorporator is David R. Reitsema, 3079 S.
Quince Way, Denver, Colorado 80231.
ARTICLE IX
BOARD OF DIRECTORS
SECTION 1. The corporate powers shall be exercised by a majority of the
Board of Directors. The number of individuals to serve on the Board of Directors
shall be set forth in the Bylaws of the Corporation, provided, however,
that the initial Board of Directors shall
4.
<PAGE> 5
consist of one person below-named to manage the affairs of the Corporation until
such time as he resigns or his successor is elected by a majority vote of the
Shareholders:
NAME ADDRESS
David R. Reitsema 3079 S. Quince Way
Denver, CO 80231
SECTION 2. If in the interval between the annual meetings of
shareholders of the Corporation, the Board of Directors of the Corporation deems
it desirable that the number of Directors be increased, additional Directors may
be elected by a unanimous vote of the Board of Directors of the Corporation then
in office, or as otherwise set forth in the Bylaws of the Corporation.
SECTION 3. The number of Directors comprising the whole Board of
Directors may be increased or decreased from time to time within such foregoing
limit as set forth in the Bylaws of the Corporation.
ARTICLE X
POWERS OF THE BOARD OF DIRECTORS
In furtherance and not in limitation of the powers conferred by the
State of Colorado, the Board of Directors is expressly authorized and empowered:
SECTION 1. BYLAWS. To make, alter, amend and repeal the Bylaws, subject
to the power of the shareholders to alter or repeal the Bylaws made by the Board
of Directors.
SECTION 2. BOOKS AND RECORDS. Subject to the applicable provisions of
the Bylaws then in effect, to determine, from time to time, whether and to what
extent, and at what times and places, and under what conditions and regulations,
the accounts and books of the Corporation or any of them, shall be open to
shareholder inspection. No shareholder shall have any right to inspect any of
the accounts, books, or documents of the Corporation, except as permitted by
law, unless and until authorized to do so by resolution of the Board of
Directors or of the shareholders of the Corporation.
SECTION 3. POWER TO BORROW. To authorize and issue, without shareholder
consent, obligations of the Corporation, secured and unsecured, under such terms
and conditions as the Board, in its sole discretion, may determine, and to
pledge, or mortgage, as security therefor, any real or personal property of the
Corporation, including after-acquired property.
SECTION 4. DIVIDENDS. To determine whether any and, if so, what part,
of the earned surplus of the Corporation shall be paid in dividends to the
shareholders, and to direct and determine other use and disposition of any such
earned surplus.
5.
<PAGE> 6
SECTION 5. PROFITS. To fix, from time to time, the amount of the
profits of the Corporation to be reserved as working capital or for any other
lawful purposes.
SECTION 6. EMPLOYEES' PLANS. From time to time to provide and carry out
and to recall, abolish, revise, amend, alter, or change a plan or plans for the
participation by all or any of the employees, including Directors and officers
of this Corporation or of any corporation in which or in the welfare of which
the Corporation has any interest, and those actively engaged in the conduct of
this Corporation's business, in the profits of this Corporation or of any branch
or division thereof as a part of this Corporation's legitimate expenses, and for
the furnishing to such employees and persons, or any of them, at this
Corporation's expense, of medical services, insurance against accident,
sickness, or death, pensions during old age, disability, or unemployment,
education, housing, social services, recreation, or other similar aids for their
relief or general welfare, in such manner and upon such terms and conditions as
may be determined by the Board of Directors.
SECTION 7. WARRANTS AND OPTIONS. The Corporation, by resolution or
resolutions of its Board of Directors, shall have power to create and issue,
whether or not in connection with the issue and sale of any shares of any other
securities of the Corporation, warrants, rights, or options entitling the
holders thereof to purchase from the Corporation any shares of any class or
classes of any other securities of the Corporation, such warrants, rights or
options to be evidenced by or in such instrument or instruments as shall be
approved by the Board of Directors. The terms upon which, the time or times
(which may be limited or unlimited in duration), and the price or prices (not
less than the minimum amount prescribed by law, if any) at which any such
warrants, rights, or options may be issued and any such shares or other
securities may be purchased from the Corporation upon the exercise of such
warrant right, or option shall be such as shall be fixed and stated in the
resolution or resolutions of the Board of Directors providing for the creation
and issue of such warrants, rights or options. The Board of Directors is hereby
authorized to create and issue any such warrants, rights or options from time to
time for such consideration, and to such persons, firms, or corporations, as the
Board of Directors may determine.
SECTION 8. COMPENSATION. To provide for the reasonable compensation of
its own members, and to fix the terms and conditions upon which such
compensation will be paid.
SECTION 9. NOT IN LIMITATION. In addition to the powers and authority
hereinabove, or by statute expressly conferred upon it, the Board of Directors
may exercise all such powers and do all such acts and things as may be exercised
or done by the Corporation, subject, nevertheless, to the provisions of the laws
of the State of Colorado, of these Articles of Incorporation and of the Bylaws
of the Corporation.
6.
<PAGE> 7
ARTICLE XI
RIGHT OF DIRECTORS TO CONTRACT WITH CORPORATION
No contract or other transaction between this Corporation and one or
more of its Directors or any other corporation, firm, association, or entity in
which one or more of its Directors are directors or officers or are financially
interested shall be either void or voidable solely because of such relationship
or interest or solely because such directors are present at the meeting of the
Board of Directors or a committee thereof which authorizes, approves, or
ratifies such contract or transaction or solely because their votes are counted
for such purpose if:
A. The fact of such relationship or interest is disclosed or known to
the Board of Directors or committee which authorizes, approves, or ratifies the
contract or transaction by a vote or consent sufficient for the purpose without
counting the votes of consents of such interested Directors; or
B. The fact of such relationship or interest is disclosed or known to
the shareholders entitled to vote and they authorize, approve, or ratify such
contract or transaction by vote or written consent; or
C. The contract or transaction is fair and reasonable to the
Corporation.
ARTICLE XII
CORPORATE OPPORTUNITY
The officers, Directors and other members of management of this
Corporation shall be subject to the doctrine of "corporate opportunities" only
insofar as it applies to business opportunities in which this Corporation has
expressed an interest as determined from time to time by this Corporation's
Board of Directors as evidenced by resolutions appearing in the Corporation's
minutes. Once such areas of interest are delineated, all such business
opportunities within such areas of interest which come to the attention of the
officers, Directors, and other members of management of this Corporation shall
be disclosed promptly to this Corporation and made available to it. The Board of
Directors may reject any business opportunity presented to it and thereafter any
officer, Director or other member of management may avail himself of such
opportunity. Until such time as this Corporation, through its Board of
Directors, has designated an area of interest, the officers, Directors and other
members of management of this Corporation shall be free to engage in such areas
of interest on their own and this doctrine shall not limit the right of any
officer, Director or other member of management of this Corporation to continue
a business existing prior to the time that such area of interest is designated
by the Corporation. This provision shall not be construed to release any
employee of this Corporation (other than an officer, Director or member of
management) from any duties which he may have to this Corporation.
7.
<PAGE> 8
ARTICLE XIII
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
The Board of Directors of the Corporation shall have the power to:
A. Indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation), by reason of the fact that he is or was
a director, officer, employee or agent of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in the best interests of the Corporation and, with
respect to any criminal action or proceedings, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement or conviction or upon a plea of nolo
contendere or its equivalent shall not of itself create a presumption that the
person did not act in good faith and in a manner which he reasonably believed to
be in the best interests of the Corporation and, with respect to any criminal
action or proceeding had reasonable cause to believe that his conduct was
unlawful.
B. Indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of the Corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorney's fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
the best interests of the Corporation; but no indemnification shall be made in
respect of any claim, issue or matter as to which such person has been adjudged
to be liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the court in which such action or
suit was brought determines upon application that, despite the adjudication of
liability, but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnification for such expenses which such court
deems proper.
C. Indemnify a Director, officer, employee or agent of the Corporation
to the extent that such person has been successful on the merits in defense of
any action, suit or proceeding referred to in Subparagraph A or B of this
Article or in defense of any claim, issue, or matter therein, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
D. Authorize indemnification under Subparagraph A or B of this Article
(unless ordered by a court) in the specific case upon a determination that
indemnification of the
8.
<PAGE> 9
Director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in said Subparagraph A or
B. Such determination shall be made by the Board of Directors by a majority vote
of a quorum consisting of directors who were not parties to such action, suit or
proceeding, or, if such a quorum is not obtainable or even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or by the shareholders.
E. Authorize payment of expenses (including attorneys' fees) incurred
in defending a civil or criminal action, suit or proceeding in advance of the
final disposition of such action, suit or proceeding as authorized in
Subparagraph D of this Article upon receipt of an undertaking by or on behalf of
the Director, officer, employee or agent to repay such mount unless it is
ultimately determined that he is entitled to be indemnified by the Corporation
as authorized in this Article.
F. Purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the Corporation or who is or was
serving at the request of the Corporation as a Director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provision of this Article.
The indemnification provided by this Article shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
these Articles of Incorporation, and the Bylaws, agreement, vote of shareholders
or disinterested directors or otherwise, and any procedure provided for by any
of the foregoing, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of heirs, executors and administrators of such a person.
ARTICLE XIV
RIGHT TO AMEND
The right is expressly reserved to amend, alter, change, or repeal any
provision or provisions contained in these Article of Incorporation or any
Article herein by a majority vote of the members of the Board of Directors, and
a majority vote of the shareholders of the Corporation.
9.
<PAGE> 10
IN WITNESS WHEREOF, the undersigned has set his hand and seal this
11th day of May, 1994.
/s/ David R. Reitsema
-----------------------------
David R. Reitsema
Incorporator
10.
<PAGE> 11
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
DAVID R. REITSEMA, who being by me first duly sworn, declared that he
is the person who signed the foregoing Articles of Incorporation as
Incorporator, and that the statements therein contained are true, on this 11th
day of May, 1994.
WITNESS MY HAND AND OFFICIAL SEAL
/s/ Bernita C. Bearinger
----------------------------
Notary Public
My commission expires 10/01/97
11.
<PAGE> 12
CONSENT OF AGENT
The undersigned hereby consents to the appointment as agent for AP
Office Equipment, Inc.
Date: June 27, 1994
/s/ David R. Reitsema
----------------------------
David R. Reitsema
12.
<PAGE> 13
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AP OFFICE EQUIPMENT, INC.
*********************************************************
AP Office Equipment, Inc., a corporation organized and existing under
and by virtue of the Corporation Law of the State of Colorado (the
"Corporation"), does hereby certify:
FIRST: The amendment to the Corporation's Certificate of Incorporation
set forth in the following resolution approved by the Corporation's Board of
Directors and shareholders was duly at respective meetings of the Board of
Directors and shareholders both held on September 25, 1995 and were adopted in
accordance with Section 7-110-101 of the Colorado Business Corporation Act (as
amended) of the State of Colorado:
RESOLVED: that the Certificate of Incorporation of AP Office
Equipment, Inc. is amended by restating the First Article
thereof so that, as restated, the Article shall be and read as
follows:
"The name of the corporation is EDnet, Inc."
SECOND: that the amendment was duly adopted in accordance with
the provisions of Section 7-110-103 of the Colorado Business Corporation Act (as
amended) of the State of Colorado.
13.
<PAGE> 1
EX-3.(ii)
BYLAWS
OF
AP OFFICE EQUIPMENT, INC.
ARTICLE I
OFFICES
The principal office of the Corporation in Colorado shall initially be
located in Denver, Colorado. The Corporation may have such other offices, either
within or outside the State of Colorado, as the Board of Directors may
designate, or as the business of the Corporation may require from time to time.
The registered office of the Corporation required by the Colorado
Business Corporation Act to be maintained in the State of Colorado may be, but
need not be, identical with the principal office, and the address of the
registered office may be changed from time to time by the Board of Directors.
ARTICLE II
SHAREHOLDERS
SECTION 1. ANNUAL MEETING.
The annual meeting of the shareholders shall be held pursuant to notice
given by the Board of Directors for the purpose of electing directors and for
the transaction of such other business as may come before the meeting.
SECTION 2. SPECIAL MEETINGS.
Special meetings of the shareholders, for any purpose, unless otherwise
prescribed by statute, may be called by the President or by the Board of
Directors, and shall be called by the President at the request of the holders of
not less than ten (10%) percent of all the outstanding shares of the Corporation
entitled to vote at the meeting. Such request shall state the purposes of the
proposed meeting.
SECTION 3. ADJOURNMENT.
a. When the annual meeting is convened, or when any special meeting is
convened, the presiding officer may adjourn it for such period of time as may be
reasonably necessary to reconvene the meeting at another place and another time.
1.
<PAGE> 2
b. The presiding officer shall have the power to adjourn any meeting of
the shareholders for any proper purpose, including, but not limited to, lack of
a quorum, to secure a more adequate meeting place, to elect officials to count
and tabulate votes, to review any shareholder proposals or to pass upon any
challenge which may properly come before the meeting.
c. When a meeting is adjourned to another time or place, it shall not
be necessary to give any notice of the adjourned meeting if the time and place
to which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and any business may be transacted at the adjourned
meeting that might have been transacted on the original date of the meeting. If,
however, after the adjournment the Board fixes a new record date for the
adjourned meeting, a notice of the adjourned meeting shall be given in
compliance with Subsection (4)(a) of this Article II to each shareholder of
record on the new record date entitled to vote at such meeting.
SECTION 4. NOTICE OF MEETING; PURPOSE OF MEETING; WAIVER.
a. Each shareholder of record entitled to vote at any meeting shall be
given in person, or by first class mail, postage prepaid, written notice of such
meeting which, in the case of a special meeting, shall set forth the purpose(s)
for which the meeting is called, not less than ten (10) or more then fifty (50)
days before the date of such meeting. If mailed, such notice is to be sent to
the shareholder's address as it appears on the stock transfer books of the
Corporation unless the shareholder shall have requested of the Secretary in
writing at least fifteen (15) days prior to the distribution of any required
notice that any notice intended for him to be sent to some other address, in
which case the notice may be sent to the address so designated. Notwithstanding
any such request by a shareholder, notice sent to a shareholder's address as it
appears on the stock transfer books of this Corporation as of the record date
shall be deemed properly given. Any notice of a meeting sent by the United
States mail shall be deemed delivered when deposited with proper postage thereon
with the United States Postal Service or in any mail receptacle under its
control.
b. A shareholder waives notice of any meeting by attendance, either in
person or by proxy, at such meeting or by waiving notice in writing either
before, during or after such meeting. Attendance at a meeting for the express
purpose of objecting that the meeting was not lawfully called or convened,
however, will not constitute a waiver of notice by a shareholder stating at the
beginning of the meeting, his objection that the meeting is not lawfully called
or convened.
c. Whenever the holders of at least eighty (80%) percent of the capital
stock of the Corporation having the right to vote shall be present at any annual
or special meeting of shareholders, however called or notified, and shall sign a
written consent thereto on the minutes of such meeting, the meeting shall be
valid for all purposes.
d. A Waiver of Notice signed by all shareholders entitled to vote at a
meeting of shareholders may also be used for any other proper purpose including,
but not limited to,
2.
<PAGE> 3
designating any place within or without the State of Colorado as the place for
holding such a meeting.
e. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of shareholders need be specified in any written
Waiver of Notice.
SECTION 5. CLOSING OF TRANSFER BOOKS; RECORD DATE; SHAREHOLDERS' LIST.
a. In order to determine the holders of record of the capital stock of
the Corporation who are entitled to notice of meetings, to vote at a meeting or
adjournment thereof, or to receive payment of any dividend, or for any other
purpose, the Board of Directors may fix a date not more than fifty (50) days
prior to the date set for any of the above-mentioned activities for such
determination of shareholders.
b. If the stock transfer books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten (10) days immediately
preceding such meeting.
c. In lieu of closing the stock transfer books, the Board of Directors
may fix in advance a date as the date for such determination of shareholders,
such date in any case to be not more than fifty (50) days and, in case of a
meeting of shareholders, not less than ten (10) days prior to the date on which
the particular action, requiring such determination of shareholders, is to be
taken.
d. If the stock transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice or to vote at a
meeting of shareholders, or to receive payment of a dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the Board
of Directors declaring such dividend is adopted, as the case may be, shall be
the record date for such determination of shareholders.
e. When a determination of shareholders entitled to vote at any meeting
of shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof; unless the Board of Directors fixes a
new record date under this section for the adjourned meeting.
f. The officer or agent having charge of the stock transfer books of
the Corporation shall make, as of a date at least ten (10) days before each
meeting of shareholders, a complete list of the shareholders entitled to vote at
such meeting or any adjournment thereof; with the address of each shareholder
and the number and class and series, if any, of shares held by each shareholder.
Such list shall be kept on file at the registered office of the Corporation or
at the office of the transfer agent or registrar of the Corporation for a period
often (10) days prior to such meeting and shall be available for inspection by
any shareholder at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of any meeting of shareholders and
shall be subject to inspection by any shareholder at any time during the
meeting.
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g. The original stock transfer books shall be prima fade evidence as to
the shareholders entitled to examine such list or stock transfer books or to
vote at any meeting of shareholders.
h. If the requirements of Subsection 5(f) of this Article II have not
been substantially complied with then, on the demand of any shareholder in
person or by proxy, the meeting shall be adjourned until such requirements are
complied with.
i. If no demand pursuant to Section 5(h) is made, failure to comply
with the requirements of this Section shall not affect the validity of any
action taken at such meeting.
j. Subsection 5(g) of this Article II shall be operative only, at such
time(s) as the Corporation shall have six (6) or more shareholders.
SECTION 6. QUORUM.
a. At any meeting of the shareholders of the Corporation, the presence,
in person or by proxy, of shareholder owning a majority of the issued and
outstanding shares of the capital stock of the Corporation entitled to vote
thereat shall be necessary to constitute a quorum for the transaction of any
business. If a quorum is present the affirmative vote of a majority of the
shares represented at such meeting and entitled to vote on the subject matter
shall be the act of the shareholders. If there shall not be a quorum at any
meeting of the shareholders of the Corporation, then the holders of a majority
of the shares of the capital stock of the Corporation who shall be present at
such meeting, in person or by proxy, may adjourn such meeting from time to time
until holders of a majority of the shares of the capital stock shall attend. At
any such adjourned meeting at which a quorum shall be present, any business may
be transacted which might have been transacted at the meeting as originally
scheduled.
b. The shareholders at a duly organized meeting having a quorum may
continue to transact business until adjournment notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
SECTION 7. PRESIDING OFFICER; ORDER OF BUSINESS.
a. Meetings of the shareholders shall be presided over by the Chairman
of the Board, or, if he is not present, by the President or, if he is not
present, by a Vice President or, if none of the Chairman of the Board, the
President, or a Vice President is present, the meeting shall be presided over by
a Chairman to be chosen by a plurality of the shareholders entitled to vote at
the meeting who are present, in person or by proxy. The presiding officer of any
meeting of the shareholders may delegate the duties and obligations of the
presiding officer of the meeting as he sees fit.
b. The Secretary of the Corporation, or, in his absence, an Assistant
Secretary shall act as Secretary of every meeting of shareholders, but if
neither the Secretary nor an Assistant
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Secretary is present, the presiding officer of the meeting shall choose any
person present to act as Secretary of the meeting.
c. The order of business shall be as follows:
1. Call of meeting to order.
2. Proof of notice of meeting.
3. Reading of minutes of last previous shareholders
meeting or a Waiver thereof.
4. Reports of officers.
5. Reports of committees.
6. Election of directors.
7. Regular and miscellaneous business.
8. Special matters.
9. Adjournment.
d. Notwithstanding the provisions of Article II, Section 7, Subsection
c, the order and topics of business to be transacted at any meeting shall be
determined by the presiding officer of the meeting in his sole discretion. In no
event shall any variation in the order of business or additions and deletions
from the order of business as specified in Article II, Section 7, Subsection c,
invalidate any actions properly taken at any meeting.
SECTION 8. VOTING.
a. Unless otherwise provided for in the Certificate of Incorporation,
each shareholder shall be entitled, at each meeting and upon each proposal to be
voted upon, to one vote for each share of voting stock recorded in his name on
the books of the Corporation on the record date fixed as provided for in Article
II, Section 5.
b. The presiding officer at any meeting of the shareholders shall have
the power to determine the method and means of voting when any matter is to be
voted upon. The method and means of voting may include, but shall not be limited
to, vote by ballot, vote by hand or vote by voice. However, no method of voting
may be adopted which fails to take amount of any shareholder's right to vote by
proxy as provided for in Section 10 of this Article II. In no event may any
method of voting be adopted which would prejudice the outcome of the vote.
SECTION 9. ACTION WITHOUT MEETING.
a. Any action required to be taken at any annual or special meeting of
shareholders of the Corporation, or any action which may be taken at any annual
or special meeting of such shareholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were
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present and voted. If any class of shares is entitled to vote thereon as a
class, such written consent shall be required of the holders of a majority of
the shares of each class of shares entitled to vote thereon.
b. Within ten (10) days after obtaining such authorization by written
consent, notice must be given to those shareholders who have not consented in
writing. The notice shall fairly summarize the material features of the
authorized action and, if the action be a merger, consolidation or sale or
exchange of assets for which dissenters' rights are provided under the Colorado
Business Corporation Act, the notice shall contain a clear statement of the
right of the shareholders dissenting therefrom to be paid the fair value of
their shares upon compliance with further provisions of the Colorado Business
Corporation Act regarding the rights of dissenting shareholders.
c. In the event that the action to which the shareholders' consent is
such as would have required the filing of a certificate under the Colorado
Business Corporation Act if such action had been voted on by shareholders at a
meeting thereof, the certificate filed under such other section shall state that
written consent has been given in accordance with the provisions of this Article
II, Section 9.
SECTION 10. PROXIES.
a. Every shareholder entitled to vote at a meeting of shareholders or
to express consent or dissent without a meeting, or his duly authorized
attorney-in-fact may authorize another person or persons to act for him by
proxy.
b. Every proxy must be signed by the shareholder or his
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the shareholder executing it, except as
otherwise provided in this Article II, Section 10.
c. The authority of the holder of a proxy to act shall not be revoked
by the incompetence or death of the shareholder who executed the proxy unless,
before the authority is exercised, written notice of an adjudication of such
incompetence or of such death is received by the corporate officer responsible
for maintaining the list of shareholders.
d. Except when other provisions shall have been made by written
agreement between the parties, the record holder of shares held as pledges or
otherwise as security or which belong to another, shall issue to the pledgor or
to such owner of such shares, upon demand therefor and payment of necessary
expenses thereof, a proxy to vote or take other action thereon.
e. A proxy which states that it is irrevocable is irrevocable when it
is held by any of the following or a nominee of any of the following: (i) a
pledgee; (ii) a person who has purchased or agreed to purchase the shares; (iii)
a creditor or creditors of the Corporation who extend or continue to extend
credit to the Corporation in consideration of the proxy, if the proxy states
that it was given in consideration of such extension or continuation of credit,
the amount
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thereof, and the name of the person extending or continuing credit; (iv) a
person who has contracted to perform services as an officer of the Corporation,
if a proxy is required by the contract of employment, if the proxy states that
it was given in consideration of such contract of employment and states the name
of the employee and the period of employment contracted for, and (v) a person
designated by or under an agreement as provided in Article XI hereof
f. Notwithstanding a provision in a proxy stating that it is
irrevocable, the proxy becomes revocable after the pledge is redeemed, or the
debt of the Corporation is paid, or the period of employment provided for in the
contract of employment has terminated, or the agreement under Article XII hereof
has terminated and, in a case provided for in Subsection 10(e)(iii) or
Subsection 10(e)(iv) of this Article II becomes irrevocable three years after
the date of the proxy or at the end of the period, if any, specified therein,
whichever period is less, unless the period of irrevocability is renewed from
time to time by the execution of a new irrevocable proxy as provided in this
Article II, Section 10. This Subsection 10(f) does not affect the duration of a
proxy under Subsection 10(b) of this Article II.
g. A proxy may be revoked, notwithstanding a provision making it
irrevocable, by a purchaser of shares without knowledge of the existence of the
provision unless the existence of the proxy and its irrevocability is noted
conspicuously on the face or back of the certificate representing such shares.
h. If a proxy for the same shares confers authority upon two (2) or
more persons and does not otherwise provide a majority of such persons present
at the meeting, or if only one is present, then that one may exercise all the
powers conferred by the proxy. If the proxy holders present at the meeting are
equally divided as to the right and manner of voting in any particular case, the
voting of such shares shall be prorated.
i. If a proxy expressly so provides, any proxy holder may appoint in
writing a substitute to act in his place.
SECTION 11. VOTING OF SHARES BY SHAREHOLDERS.
a. Shares standing in the name of another corporation, domestic or
foreign, may be voted by the officer, agent, or proxy designated by the Bylaws
of the corporate shareholder, or, in the absence of any applicable Bylaw, by
such person as the Board of Directors of the corporate shareholder may
designate. Proof of such designation may be made by presentation of a certified
copy of the Bylaws or other instrument of the corporate shareholder. In the
absence of any such designation, or in case of conflicting designation by the
corporate shareholder, the Chairman of the Board, President, any vice president,
secretary and treasurer of the corporate shareholder, in that order shall be
presumed to possess authority to vote such shares.
b. Shares held by an administrator, executor, guardian or conservator
may be voted by him, either in person or by proxy, without a transfer of such
shares into his name. Shares standing in the name of a trustee may be voted by
him, either in person or by proxy, but no
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trustee shall be entitled to vote shares held by him without a transfer of such
shares into his name.
c. Shares standing in the name of a receiver may be voted by such
receiver. Shares held by or under the control of a receiver but not standing in
the name of such receiver, may be voted by such receiver without the transfer
thereof into his name if authority to do so is contained in an appropriate order
of the court by which such receiver was appointed.
d. A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the pledge.
e. Shares of the capital stock of the Corporation belonging to the
Corporation or held by it in a fiduciary capacity shall not be voted, directly
or indirectly, at any meeting, and shall not be counted in determining the total
number of outstanding shares.
ARTICLE III
DIRECTORS
SECTION 1. BOARD OF DIRECTORS; EXERCISE OF CORPORATE POWERS.
a. All corporate powers shall be exercised by or under the authority
of, and the business and affairs of the Corporation shall be managed under the
direction of the Board of Directors except as may be otherwise provided in the
Articles of Incorporation. If any such provision is made in the Articles of
Incorporation, the powers and duties conferred or imposed upon the Board of
Directors shall be exercised or performed to such extent and by such person or
persons as shall be provided in the Articles of Incorporation.
b. Directors need not be residents of the state of incorporation unless
the Articles of Incorporation so require.
c. The Board of Directors shall have authority to fix the compensation
of Directors unless otherwise provided in the Articles of Incorporation.
d. A Director shall perform his duties as a Director, including his
duties as a member of any committee of the Board upon which he may serve, in
good faith, in a manner he reasonably believes to be in the best interests of
the Corporation, and with such care as an ordinarily prudent person in a like
position would use under similar circumstances.
e. In performing his duties, a Director shall be entitled to rely on
information, opinions, reports or statements, including financial data, in each
case prepared or presented by: (i) one or more officers or employees of the
Corporation whom the Director reasonably believes to be reliable and competent
in the matters presented; (ii) counsel, public accountants or other persons as
to matters which the Director reasonably believes to be within such persons'
professional or expert competence; or (iii) a committee of the Board upon which
he does not
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serve, duly designated in accordance with a provision of the Articles of
Incorporation or the Bylaws, as to matters within its designated authority,
which committee the Director reasonably believes to merit confidence.
f. A Director shall not be considered to be acting in good faith if he
has knowledge concerning the matter in question that would cause such reliance
described in Subsection l(e) of this Article III to be unwarranted.
g. A person who performs his duties in compliance with this Article
III, Section 1 shall have no liability by reason of being or having been a
Director of the Corporation.
h. A Director of the Corporation who is present at a meeting of the
Board of Directors at which action on any corporate matter is taken consents
thereto unless he votes against such action or abstains from voting in respect
thereto because of an asserted conflict of interest.
SECTION 2. NUMBER; ELECTION; CLASSIFICATION OF DIRECTORS; VACANCIES.
a. The Board of Directors of this Corporation shall consist of not less
than three (3) nor more than seven (7) members, unless the number of
shareholders is less than three, in which the Corporation shall have as many
directors as there are shareholders. The number of directors shall be fixed by
the initial Board of Directors. The number of directors constituting the initial
Board of Directors shall be fixed by the Articles of Incorporation. The number
of directors may be increased from time to time by the Board of directors, but
no decrease shall have the effect of shortening the term of any incumbent
director.
b. Each person named in the Articles of Incorporation as a member of
the initial Board of Directors, shall hold office until the first annual meeting
of shareholders, and until his successor shall have been elected and qualified
or until his earlier resignation, removal from office or death.
c. At the first annual meeting of shareholders and at each annual
meeting thereafter the shareholders shall elect directors to hold office until
the next succeeding annual meeting, except in case of the classification of
directors as permitted by the Colorado Business Corporation Act. Each director
shaft hold office for the term for which he is elected and until his successor
shall have been elected and qualified or until his earlier resignation, removal
from office or death.
d. The shareholders, by amendment to these Bylaws, may provide that the
directors be divided into not more than four classes, as nearly equal in number
as possible, whose terms of office shall respectively expire at different times,
but no such term shall continue longer than four (4) years, and at least
one-fifth (1/5) in number of the directors shall be elected annually.
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e. If directors are classified and the number of directors is
thereafter changed, any increase or decrease in directorships shall be so
apportioned among the classes as to make all classes as nearly equal in number
as possible.
f. Any vacancy occurring in the Board of Directors including any
vacancy created by reason of an increase in the number of directors, may be
filled by the affirmative vote of a majority of the remaining directors though
less than a quorum of the Board of Directors. A director elected to fill a
vacancy shall hold office only until the next election of directors by the
shareholders.
SECTION 3. REMOVAL OF DIRECTORS.
a. At a meeting of shareholders called expressly for that purpose,
directors may be removed in the manner provided in this Article III, Section 3.
Any director or the entire Board of Directors may be removed, with or without
cause, by a vote of the holders of a majority of the shares then entitled to
vote at an election of directors.
b. If the Corporation has cumulative voting, if less than the entire
Board is to be removed, no one of the directors may be removed if the votes cast
against his removal would be sufficient to elect him if then cumulatively voted
at an election of the entire Board of Directors, or, if there be classes of
directors, at an election of the class of directors of which he is a member.
SECTION 4. DIRECTOR QUORUM AND VOTING.
a. A majority of the number of directors fixed in the manner provided
in these Bylaws shall constitute a quorum for the transaction of business unless
a greater number if required elsewhere in these Bylaws.
b. A majority of the members of an Executive Committee or other
committee shall constitute a quorum for the transaction of business at any
meeting of such Executive Committee or other committee.
c. The act of the majority of the directors present at a Board meeting
at which a quorum is present shall be the act of the Board of Directors.
d. The act of a majority of the members of an Executive Committee
present at an Executive Committee meeting at which a quorum is present shall be
the act of the Executive Committee.
e. The act of a majority, of the members of any other committee present
at a committee meeting at which a quorum is present shall be the act of the
committee.
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SECTION 5. DIRECTOR CONFLICTS OF INTEREST.
a. No contract or other transaction between this Corporation and one or
more of its directors or any other Corporation, firm, association or entity in
which one or more of its directors are directors or officers or are financially
interested, shall be either void or voidable because of a relationship or
interest or because such director or directors are present at the meeting of the
Board of Directors or a committee thereof which authorizes, approves or ratifies
such contract or transaction or because his or their votes are counted for such
purpose, if:
(i) The fact of such relationship or interest is disclosed or
known to the Board of Directors or committee which authorizes, approves or
ratifies the contract or transaction by a vote or consent sufficient for the
purpose without counting the votes or consents of such interested directors; or
(ii) The fact of such relationship or interest is disclosed or
known to the shareholders entitled to vote and they authorize, approve or ratify
such contract or transaction by vote or written consent; or
(iii) The contract or transaction is fair and reasonable as to the
Corporation at the time it is authorized by the Board, a committee, or the
shareholders.
b. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
SECTION 6. EXECUTIVE AND OTHER COMMITTEES; DESIGNATION; AUTHORITY.
a. The Board of Directors, by resolution adopted by a majority of the
full Board of Directors, may designate from among its members an Executive
Committee and one or more other committees each of which, to the extent provided
in such resolution or in the Articles of Incorporation or these Bylaws, shall
have and may exercise all the authority of the Board of Directors, except that
no such committee shall have the authority to: (i) approve or recommend to
shareholders actions or proposals required by the Colorado Business Corporation
Act to be approved by shareholders; (ii) designate candidates for the office of
director for purposes of proxy solicitation or otherwise; (iii) fill vacancies
on the Board of Directors or any committee thereof; (iv) amend the Bylaws; or
(v) authorize or approve the issuance or sale of, or any contract to issue or
sell, shares or designate the terms of a series of class of shares, unless the
Board of Directors, having acted regarding general authorization for the
issuance or sale of shares, or any contract therefor, and, in the case of a
series, the designation thereof, has specified a general formula or method by
resolution or by adoption of a stock option or other plan, authorized a
committee to fix the terms upon which such shares may be issued or sold,
including without limitation, the price, the rate or manner of payment of
dividends, provisions for redemption, sinking fund, conversion, and voting
preferential rights, and provisions for other features of a class of shares, or
a series of class of shares, with full power in such committee to adopt any
final resolution setting forth all the terms thereof and to authorize the
statement of
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the terms of a series for filing with the Secretary of State under the Colorado
Business Corporation Act.
b. The Board, by resolution adopted in accordance with Article 12,
Subsection 6(a) may designate one or more directors as alternate members of any
such committee, who may act in the place and stead of any absent member or
members at any meeting of such committee.
c. Neither the designation of any such committee, the delegation
thereto of authority, nor action by such committee pursuant to such authority
shall alone constitute compliance by any member of the Board of Directors, not a
member of the committee in question, with his responsibility, to act in good
faith, in a manner he reasonably believes to be in the best interests of the
Corporation, and with such care as an ordinarily prudent person in a like
position would use under similar circumstances.
SECTION 7. PLACE, TIME, NOTICE AND CALL OF DIRECTORS' MEETINGS.
a. Meetings of the Board of Directors, regular or special, may be held
either within or without this state.
b. A regular meeting of the Board of Directors of the Corporation shall
be held for the election of officers of the Corporation and for the transaction
of such other business as may come before such meeting as promptly as
practicable after the annual meeting of the shareholders of this Corporation
without the necessity of other notice than this Bylaw. Other regular meetings of
the Board of Directors of the Corporation may be held at such times and at such
places as the Board of Directors of the Corporation may from time to time
resolve without other notice than such resolution. Special meetings of the Board
of Directors may be held at any time upon call of the Chairman of the Board or
the President or a majority of the Directors of the Corporation, at such time
and at such place as shall be specified in the call thereof Notice of any
special meeting of the Board of Directors must be given at least two (2) days
prior thereto, if by written notice delivered personally; or at least five (5)
days prior thereto, if mailed; or at least two (2) days prior thereto, if by
telegram; or at least two (2) days prior thereto, if by telephone. If such
notice is given by mail, such notice shall be deemed to have been delivered when
deposited with the United States Postal Service addressed to the business
address of such director with postage thereon prepaid. If notice be given by
telegram, such notice shall be deemed delivered when the telegram is delivered
to the telegraph company. If notice is given by telephone, such notice shall be
deemed delivered when the call is completed.
c. Notice of a meeting of the Board of Directors need not be given to
any director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and waiver of any and all objections to the place of the meeting
the time of the meeting or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting any objection to
the transaction of business because the meeting is not lawfully called or
convened.
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d. Neither the business to be transacted at, nor the purpose of any,
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
e. A majority of the directors present, whether or not a quorum exists,
may adjourn any meeting of the Board of Directors to another time and place.
Notice of any such adjourned meeting shall be given to the directors who were
not present at the time of the adjournment and, unless the time and place of the
adjourned meeting are announced at the time of the adjournment, to the other
directors.
f. Members of the Board of Directors may participate in a meeting of
such Board by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
SECTION 8. ACTION BY DIRECTORS WITHOUT A MEETING.
Any action required by the Colorado Business Corporation Act to be
taken at a meeting of the directors of the Corporation, or a committee thereof,
may be taken without a meeting if a consent in writing, setting forth the action
so to be taken, signed by all of the directors, or all of the members of the
committee, as the case may be, is filed in the minutes of the proceedings of the
Board or of the committee. Such consent shall have the same effect as a
unanimous vote.
SECTION 9. COMPENSATION.
The directors and members of the Executive and any other committee of
the Board of Directors shall be entitled to such reasonable compensation for
their services and on such basis as shall be fixed from time to time by
resolution of the Board of Directors. The Board of Directors and members of any
committee of the Board of Directors shall be entitled to reimbursement for any
reasonable expenses incurred in attending any Board or committee meeting. Any
director receiving compensation under this section shall not be prevented from
serving the Corporation in any other capacity and shall not be prohibited from
receiving reasonable compensation for such other services.
SECTION 10. RESIGNATION.
Any Director of the Corporation may resign at any time without
acceptance by the Corporation. Such resignation shall be in writing and may
provide that such resignation shall take effect immediately or on any future
date stated in such notice.
SECTION 11. REMOVAL.
Any Director of the Corporation may be removed for cause by a majority
vote of the other members of the Board of Directors as then constituted or with
or without cause by the vote
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of the holders of a majority of the outstanding shares of capital stock
shareholders of the Corporation called for such purpose.
SECTION 12. VACANCIES.
In the event that a vacancy shall occur on the Board of Directors of
the Corporation whether because of death, resignation, removal, an increase in
the number of directors or any other reason, such vacancy may be filled by the
vote of a majority of the remaining directors of the Corporation even though
such remaining directors represent less than a quorum. An increase in the number
of directors shall create vacancies for the purpose of this section. A director
of the Corporation elected to fill a vacancy shall hold office for the unexpired
term of his predecessor, or in the case of an increase in the number of
directors, until the election and qualification of directors at the next annual
meeting of the shareholders.
ARTICLE IV
OFFICERS
SECTION 1. ELECTION; NUMBER; TERMS OF OFFICE.
a. The officers of the Corporation shall consist of a Chairman of the
Board, a President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors at such time and in such manner as may be prescribed
by these Bylaws. Such other officers and assistant officers and agents as may be
deemed necessary may be elected or appointed by the Board of Directors.
b. All officers and agents, as between themselves and the Corporation,
shall have such authority and perform such duties in the management of the
Corporation as are provided in these Bylaws, or as may be determined by
resolution of the Board of Directors not inconsistent with these Bylaws.
c. Any two (2) or more offices may be held by the same person except
the offices of the President and Secretary.
d. A failure to elect a Chairman of the Board, President, a Secretary
and a Treasurer shall not affect the existence of the Corporation.
SECTION 2. REMOVAL.
An officer of the Corporation shall hold office until the election and
qualification of his successor, however, any officer of the Corporation may be
removed from office by the Board of Directors whenever in its judgment the best
interests of the Corporation will be served thereby. Such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of any officer shall not of itself create any contract
right to employment or compensation.
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SECTION 3. VACANCIES.
Any vacancy in any office from any cause may be filled for the
unexpired portion of the term of such office by the Board of Directors.
SECTION 4. POWERS AND DUTIES.
a. The Chairman of the Board shall be the Chief Executive Officer of
the Corporation. The Chairman of the Board shall preside at all meetings of the
shareholders and of the Board of Directors. Except where by law the signature of
the President is required or unless the Board of Directors shall rule otherwise,
the Chairman of the Board shall possess the same power as the President to sign
all certificates, contracts and other instruments of the Corporation which may
be authorized by the Board of Directors. Unless a Chairman of the Board is
specifically elected, the President shall be deemed to be the Chairman of the
Board.
b. The President shall be the Chief Operating Officer of the
Corporation. He shall be responsible for the general day-to-day supervision of
the business and affairs of the Corporation. He shall sign or countersign all
certificates, contracts or other instruments of the Corporation as authorized by
the Board of Directors. He may, but need not, be a member of the Board of
Directors. In the absence of the Chairman of the Board, the President shall be
the Chief Executive Officer of the Corporation and shall preside at all meetings
of the shareholders and the Board of Directors. He shall make reports to the
Board of Directors and shareholders. He shall perform such other duties as are
incident to his office or are properly required of him by the Board of
Directors. The Board of Directors will at all times retain the power to
expressly delegate the duties of the President to any other officer of the
Corporation.
c. The Vice-President(s), if any, in the order designated by the Board
of Directors, shall exercise the functions of the President during the absence,
disability, death, or refusal to act of the President. During the time that any
Vice-President is properly exercising the functions of the President, such
Vice-President shall have all the powers of and be subject to all the
restrictions upon the President. Each Vice-President shall have such other
duties as are assigned to him from time to time by the Board of Directors or by
the President of the Corporation.
d. The Secretary of the Corporation shall keep the minutes of the
meetings of the shareholders of the Corporation and, if so requested, the
Secretary shall keep the minutes of the meetings of the Board of Directors of
the Corporation. The Secretary shall be the custodian of the minute books of the
Corporation and such other books and records of the Corporation as the Board of
Directors of the Corporation may direct. The Secretary shall make or cause to be
made all proper entries in all corporate books that the Board of Directors of
the Corporation may direct. The Secretary shall have the general responsibility
for maintaining the stock transfer books of the Corporation, or of supervising
the maintenance of the stock transfer books of the Corporation by the transfer
agent, if any, of the Corporation. The Secretary shall be the custodian of the
corporate seal of the Corporation and shall affix the corporate seal of the
Corporation on contracts and other instruments as the Board of Directors of the
Corporation may
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direct. The Secretary shall perform such other duties as are assigned to him
from time to time by the Board of Directors or the President of the Corporation.
e. The Treasurer of the Corporation shall have custody of all funds and
securities owned by the Corporation. The Treasurer shall cause to be entered
regularly in the proper books of account of the Corporation full and accurate
accounts of the receipts and disbursements of the Corporation. The Treasurer of
the Corporation shall render a statement of cash, financial and other accounts
of the Corporation whenever he is directed to render such a statement by the
Board of Directors or by the President of the Corporation. The Treasurer shall
at all reasonable times make available the Corporation's books and financial
accounts to any Director of the Corporation during normal business hours. The
Treasurer shall perform all other acts incident to the office of the Treasurer
of the Corporation, and he shall have such other duties as are assigned to him
from time to time by the Board of Directors or the President of the Corporation.
f. Other subordinate or assistant officers appointed by the Board of
Directors or by the President, if such authority is delegated to him by the
Board of Directors, shall exercise such powers and perform such duties as may be
delegated to them by the Board of Directors or by the President, as the case may
be.
g. In case of the absence or disability of any officer of the
Corporation and of any person authorized to act in his place during such period
of absence or disability, the Board of Directors may from time to time delegate
the powers and duties of such officer to any other officer or any director or
any other person whom it may select.
SECTION 5. SALARIES.
The salaries of all Officers of the Corporation shall be fixed by the
Board of Directors. No officer shall be ineligible to receive such salary by
reason of the fact that he is also a Director of the Corporation and receiving
compensation therefor.
ARTICLE V
LOANS TO EMPLOYEES AND OFFICERS:
GUARANTY OF OBLIGATIONS OF EMPLOYEES AND OFFICERS
This Corporation may lend money to, guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of a
subsidiary, including any officer or employee who is a Director of the
Corporation or of a subsidiary, whenever, in the judgment of the Directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
Corporation. The loan, guaranty or other assistance may be with or without
interest, and may be unsecured, or secured in such manner as the Board of
Directors shall approve including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Article shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of this Corporation at common law
or under any statute.
16.
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ARTICLE VI
STOCK CERTIFICATES; VOTING TRUSTS; TRANSFERS
SECTION 1. CERTIFICATES REPRESENTING SHARES.
a. Every holder of shares in this Corporation shall be entitled to one
or more certificates, representing all shares to which he is entitled and such
certificates shall be signed by the President or a Vice President and the
Secretary or an Assistant Secretary of the Corporation and may be sealed with
the seal of the Corporation or a facsimile thereof. The signatures of the
President or Vice President and the Secretary or Assistant Secretary may be
facsimiles if the certificate is manually signed on behalf of a transfer agent
or a registrar, other than the Corporation itself or an employee of the
Corporation. In case any officer who signed or whose facsimile signature has
been placed upon such certificate shall have ceased to be such officer before
such certificate is issued, it may be used by the Corporation with the same
effect as if he were such officer at the date of its issuance.
b. Each certificate representing shares shall state upon the face
thereof: (i) the name of the Corporation; (ii) that the Corporation is organized
under the laws of this state; (iii) the name of the person or persons to whom
issued; (iv) the number and class of shares, and the designation of the series,
if any, which such certificate represents; and (v) the par value of each share
represented by such certificate, or a statement that the shares are without par
value.
c. No certificate shall be issued for any shares until such shares are
fully paid.
SECTION 2. TRANSFER BOOK.
The Corporation shall keep at its registered office or principal place
of business or in the office of its transfer agent or registrar, a book (or
books where more than one kind, class, or series of stock is outstanding) to be
known as the Stock Book, containing the names, alphabetically arranged,
addresses and Social Security numbers of every shareholder, and the number of
shares of each kind, class or series of stock held of record. Where the Stock
Book is kept in the office of the transfer agent, the Corporation shall keep at
its office in the State of Colorado copies of the stock lists prepared from said
Stock Book and sent to it from time to time by said transfer agent. The Stock
Book or stock lists shall show the current status of the ownership of shares of
the Corporation provided, if the transfer agent of the Corporation be located
elsewhere, a reasonable time shall be allowed for transit or mail.
SECTION 3. TRANSFER OF SHARES.
a. The name(s) and address(s) of the person(s) to whom shares of stock
of this Corporation are issued, shall be entered on the Stock Transfer Books of
the Corporation, with the number of shares and date of issuance.
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b. Transfer of shares of the Corporation shall be made on the Stock
Transfer Books of the Corporation by the Secretary or the transfer agent, only
when the holder of record thereof or the legal representative of such holder of
record or the attorney-in-fact of such holder of record, authorized by power of
attorney duly executed and filed with the Secretary or transfer agent of the
Corporation, shall surrender the Certificate representing such shares for
cancellation. Lost, destroyed or stolen Stock Certificates shall be replaced
pursuant to Section 5 of this Article VI.
c. The person or persons in whose names shares stand on the books of
the Corporation shall be deemed by the Corporation to be the owner of such
shares for all purposes, except as otherwise provided pursuant to Sections 10
and 11 of Article II, or Section 4 of this Article VI.
SECTION 4. VOTING TRUSTS.
a. Any number of shareholders of the Corporation may create a voting
trust for the purpose of conferring upon a trustee or trustees the right to vote
or otherwise represent their shares, for a period not to exceed ten (10) years,
by: (i) entering into a written voting trust; (ii) depositing a counterpart of
the agreement with the Corporation at its registered office; and (iii)
transferring their shares to such trustee or trustees for the purposes of this
Agreement. Prior to the recording of the Agreement, the shareholder concerned
shall tender the stock certificate(s) described therein to the corporate
secretary who shall note on each certificate:
"This Certificate is subject to the provisions of a voting trust
agreement dated ____________________, recorded in Minute Book ,
of the Corporation.
-----------------
Secretary"
b. Upon the transfer of such shares, voting trust certificates shall be
issued by the trustee or trustees to the shareholders who transfer their share
in trust. Such trustee or trustees shall keep a record of the holders of the
voting trust certificates evidencing a beneficial interest in the voting trust,
giving the names and addresses of all such holders and the number and class of
the shares in respect of which the voting trust certificates held by each are
issued, and shall deposit a copy of such record with the Corporation at its
registered office.
b. Upon the transfer of such shares, voting trust certificates shall be
issued by the trustee or trustees to the shareholders who transfer their shares
in trust. Such trustee or trustees shall keep a record of the holders of the
voting trust certificates evidencing a beneficial interest in the voting trust,
giving the names and addresses of all such holders and the number and class of
the shares in respect of which the voting trust certificates held by each are
issued, and shall deposit a copy of such record with the Corporation at its
registered office.
c. The counterpart of the voting trust agreement and the copy of such
record so deposited with the Corporation shall be subject to the same right of
examination by a shareholder
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of the Corporation, in person or by agent or attorney, as are the books and
records of the Corporation, and such counterpart and such copy of such record
shall be subject to examination by any holder of record of voting trust
certificates either in person or by agent or attorney, at any reasonable time
for any proper purpose.
d. At any time before the expiration of a voting trust agreement as
originally fixed or as extended one or more times under this Article VI,
Subsection 4(d) one or more holders of voting trust certificates may, by
agreement in writing extend the duration of such voting trust agreement,
nominating the same or substitute trustee or trustees, for an additional period
not exceeding ten (10) years. Such extension agreement shall not affect the
rights or obligations of persons not parties to the agreement, and such persons
shall be entitled to remove their shares from the trust and promptly to have
their stock certificates reissued upon the expiration date of the original term
of the voting trust agreement. The extension agreement shall in every respect
comply with and be subject to all the provisions of this Article VI, Section 4
applicable to the original voting trust agreement except that the ten (10) year
maximum period of duration shall commence on the date of adoption of the
extension agreement.
e. The trustees under the terms of the agreements entered into under
the provisions of this Article VI, Section 4 shall not acquire the legal title
to the shares but shall be vested only with the legal right and title to the
voting power which is incident to the ownership of the shares.
SECTION 5. LOST, DESTROYED, OR STOLEN CERTIFICATES.
No certificate representing shares of the stock in the Corporation
shall be issued in place of any Certificate alleged to have been lost,
destroyed, or stolen except on production of evidence, satisfactory to the Board
of Directors, of such loss, destruction or theft, and, if the Board of Directors
so requires, upon the furnishing of an indemnity bond in such amount (but not to
exceed twice the fair market value of the shares represented by the Certificate)
and with such terms and with such surety as the Board of Directors may, in its
discretion, require.
ARTICLE VII
BOOKS AND RECORDS
a. The Corporation shall keep correct and complete books and records of
account and shall keep minutes of the proceedings of its shareholders, Board of
Directors and committees of Directors.
b. Any books, records and minutes may be in written form or in any
other form capable of being converted into written form within a reasonable
time.
c. Any person who shall have been a holder of record of one quarter of
one percent of all shares or of voting trust certificates therefor at least six
months immediately preceding his demand or shall be the holder of record of, or
the holder of record of voting trust certificates for, at least five (5%)
percent of the outstanding shares of any class or series of the Corporation,
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<PAGE> 20
upon written demand stating the purpose thereof, shall have the right to
examine, in person or by agent or attorney, at any reasonable time or times, for
any proper purpose, its relevant books and records of account, minutes and
record of shareholders and to make extracts therefrom.
d. No shareholder who within two (2) years has sold or offered for sale
any list of shareholders or of holders of voting trust certificates for shares
of this Corporation or any other Corporation; has aided or abetted any person in
procuring any list of shareholders or of holders of voting trust certificates
for any such purpose; or has improperly used any information secured through any
prior examination of the books and records of account, minutes, or record of
shareholders or of holders of voting trust certificates for shares of the
Corporation or any other Corporation; shall be entitled to examine the documents
and records of the Corporation as provided in Subsection (c) of this Article
VII. No shareholder who does not act in good faith or for a proper purpose in
making his demand shall be entitled to examine the documents and records of the
Corporation as provided in Subsection (c) of this Article VII.
e. Unless modified by resolution of the shareholders, this Corporation
shall prepare not later than four (4) months after the close of each fiscal
year.
(i) A balance sheet showing in reasonable detail the financial
conditions of the Corporation as of the date of its fiscal year.
(ii) A profit and loss statement showing the results of its
operation during its fiscal year.
f. Upon the written request of any shareholder or holder of voting
trust certificates for shares of the Corporation, the Corporation shall mail to
such shareholder or holder of voting trust certificates a copy of its most
recent balance sheet and profit and loss statement.
g. Such balance sheets and profit and loss statements shall be filed
and kept for at least five (5) years in the registered office of the Corporation
in this state and shall be subject to inspection during business hours by any
shareholder or holder of voting trust certificates.
ARTICLE VIII
DIVIDENDS
The Board of Directors of the Corporation may, from time to time,
declare and the Corporation may pay dividends on its shares in cash, property or
its own shares, except when the Corporation is insolvent or when the payment
thereof would render the Corporation insolvent subject to the following
provisions:
a. Dividends in cash or property may be declared and paid, except as
otherwise provided in this Article VII, only out of the unreserved and
unrestricted earned surplus of the Corporation or out of capital surplus,
however arising but each dividend paid out of capital surplus shall be
identified as a distribution of capital surplus, and the amount per share paid
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<PAGE> 21
from such capital surplus shall be disclosed to the shareholders receiving the
same concurrently with the distribution.
b. Dividends may be declared and paid in the Corporation's treasury
shares.
c. Dividends may be declared and paid in the Corporation's authorized
but unissued shares out of any unreserved and unrestricted surplus of the
Corporation upon the following conditions:
(i) If a dividend is payable in the Corporation's own shares
having a par value, such shares shall be issued at not less than the par value
thereof and there shall be transferred to stated capital at the time such
dividend is paid an amount of surplus equal to the aggregate par value of the
shares to be issued as a dividend.
(ii) If a dividend is payable in the Corporation's own shares
without par value, such shares shall be issued at such stated value as shall be
fixed by the Board of Directors by resolution adopted at the time such dividend
is declared, and there shall be transferred to stated capital at the time such
dividend is paid an amount of surplus equal to the aggregate stated value so
fixed in respect of such shares; and the amount per share so transferred to
stated capital shall be disclosed to the shareholders receiving such dividend
concurrently with the payment thereof.
d. No dividend payable in shares of any class shall be paid to the
holders of shares of any other class unless the Articles of Incorporation so
provide or such payment is authorized by the affirmative vote or written consent
of the holders of at least a majority of the outstanding shares of the class in
which the payment is to be made.
e. A split up or division of the issued shares of any class into a
greater number of shares of the same class without increasing the stated capital
of the Corporation shall not be construed to be a stock dividend within the
meaning of this Article VIII.
ARTICLE IX
INDEMNIFICATION
SECTION 1. ACTION, ETC. OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding or investigation, whether civil, criminal or administrative,
and whether external or internal to the Corporation, (other than a judicial
action or suit brought by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or that, being or having been such a director, officer, employee or
agent, he is or was serving at the request of the Corporation as a director,
officer, employee, or trustee or agent of another corporation, partnership,
joint venture, trust or other enterprise (all such persons being referred to
hereafter as an "Agent"), against expenses (including attorneys' fees),
judgments, fines and amounts paid
21.
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in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, or any appeal therein, if such person acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and with respect to any criminal action or
proceeding had no reasonable cause to believe such conduct was unlawful. The
termination of any action, suit or proceeding - whether by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent -
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding that such person had reasonable cause to believe that his conduct
was unlawful.
SECTION 2. ACTION, ETC. BY OR IN THE RIGHT OF THE CORPORATION.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed judicial
action or suit brought by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was an Agent (as
defined above) against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense, settlement or appeal
of such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for gross
negligence or willful misconduct in the performance of his or her duty to the
Corporation unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
SECTION 3. DETERMINATION OF RIGHT OF INDEMNIFICATION.
Any indemnification under Section 1 or 2 (unless ordered by a court)
shall be made by the Corporation unless a determination is reasonably and
promptly made (i) by the Board by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (ii) if
such a quorum is not obtainable, or, even if obtainable, if a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders, that such person acted in bad faith and
in a manner that such person did not believe to be in or not opposed to the best
interests of the Corporation, or, with respect to any criminal proceeding, that
such person believed or had reasonable cause to believe that his conduct was
unlawful.
SECTION 4. INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article, to the extent
that an Agent has been successful on the merits or otherwise, including without
limitation, the dismissal of an action without prejudice or the settlement of an
action without admission of liability, in defense of any proceeding or in
defense of any claim, issue or matter therein, or on appeal from any such
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<PAGE> 23
proceeding, action, claim or matter, such Agent shall be indemnified against all
expenses incurred in connection therewith.
SECTION 5. ADVANCES OF EXPENSES.
Except as limited by Section 6 of this Article, costs, charges and
expenses (including attorneys' fees) incurred in any action, suit, proceeding or
investigation or any appeal therefrom shall be paid by the Corporation in
advance of the final disposition of such matter, if the Agent shall undertake to
repay such amount in the event that it is ultimately determined, as provided
herein, that such person is not entitled to indemnification. Notwithstanding the
foregoing, no advance shall be made by the Corporation if a determination is
reasonably and promptly made by the Board of Directors or if a majority vote of
a quorum of disinterested directors cannot be obtained, then by independent
legal counsel in a written opinion, that, based upon the facts known to the
Board or counsel at the time such determination is made, such person acted in
bad faith and in a manner that such person did not believe to be in or not
opposed to the best interest of the Corporation, or, with respect to any
criminal proceeding, that such person believed or had reasonable cause to
believe his conduct was unlawful. In no event shall any advance be made in
instances where the Board or independent legal counsel reasonably determines
that such person deliberately breached his duty to the Corporation or its
shareholders.
SECTION 6. RIGHT OF AGENT TO INDEMNIFICATION UPON APPLICATION; PROCEDURE
UPON APPLICATION.
Any indemnification under Sections 1, 2 and 4 or advance under Section
5 of this Article, shall be made promptly, and in any event within ninety (90)
days, upon the written request of the Agent, unless with respect to applications
under Sections 1, 2 or 5, a determination is reasonably and promptly made by the
Board of Directors by a majority vote of a quorum of disinterested directors
that such Agent acted in a manner set forth in such Sections as to justify the
Corporation's not indemnifying or making an advance to the Agent. In the event
no quorum of disinterested directors is obtainable, the Board of Directors shall
promptly direct that independent legal counsel shall decide whether the Agent
acted in the manner set forth in such Sections as to justify the Corporation's
not indemnifying or making an advance to the Agent. The right to indemnification
or advances as granted by this Article shall be enforceable by the Agent in any
court of competent jurisdiction, if the Board or independent legal counsel
denies the claim, in whole or in part, or if no disposition of such claim is
made within ninety (90) days. The Agent's costs and expenses incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such proceeding shall also be indemnified by the Corporation.
SECTION 7. CONTRIBUTION.
In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Article is held
by a court of competent jurisdiction to be unavailable to an indemnitee in whole
or part, the Corporation shall, in such an event, after taking into account,
among other things, contributions by other directors and officers of the
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Corporation pursuant to indemnification agreements or otherwise, and, in the
absence of personal enrichment, acts of intentional fraud or dishonesty or
criminal conduct on the part of the Agent, contribute to the payment of Agent's
losses to the extent that, after other contributions are taken into account,
such losses exceed: (i) in the case of a director of the Corporation or any of
its subsidiaries who is not an officer of the Corporation or any of such
subsidiaries, the amount of fees paid to him for serving as a director during
the 12 months preceding the commencement of the suit, proceeding or
investigation:, or (ii) in the case of a director of the Corporation or any of
its subsidiaries who is also an officer of the Corporation or any of such
subsidiaries, the amount set forth in clause (i) plus 5% of the aggregate cash
compensation paid to said director for service in such office(s) during the 12
months preceding the commencement of the suit, proceeding or investigation, or
(iii) in the case of an officer of the Corporation or any of its subsidiaries,
5% of the aggregate cash compensation paid to such officer of service in such
office(s) during the 12 months preceding the commencement of such suit,
proceeding or investigation.
SECTION 8. OTHER RIGHTS AND REMEDIES.
The indemnification provided by this Article shall not be deemed
exclusive of, and shall not affect, any other rights to which an Agent seeking
indemnification may be entitled under any law, Bylaw, or charter provision,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be an
Agent and shall inure to the benefit of the heirs, executors and administrators
of such a person. All rights to indemnification under this Article shall be
deemed to be provided by a contract between the Corporation and the Agent who
serves in such capacity at any time while these Bylaws and other relevant
provisions of the general corporation law and other applicable law, if any are
in effect. Any repeal or modification thereof shall not affect any rights or
obligations then existing.
SECTION 9. INSURANCE.
Upon resolution passed by the Board, the Corporation may purchase and
maintain insurance on behalf of any person who is or was an Agent against any
liability asserted against such person and incurred by him in any such capacity,
or arising out of his status as such, whether or not the Corporation would have
the power to indemnify such person against such liability under the provisions
of this Article. The Corporation may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of credit)
to ensure the payment of such sums as may become necessary to effect
indemnification as provided herein.
SECTION 10. CONSTITUENT CORPORATION.
For the purposes of this Article, references to the "Corporation"
include all constituent corporations absorbed in a consolidation or merger as
well as the resulting or surviving corporation, so that any person who is or was
a director, officer, employee, agent or trustee of such a constituent
corporation or who, being or having been such a director, officer, employee or
trustee, is or was serving at the request of such constituent corporation as a
director, officer,
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employee, agent or trustee of another corporation, partnership, joint venture,
trust or other enterprise shall stand in the same position under the provisions
of this Article with respect to the resulting or surviving corporation as such
person would if he had served the resulting or surviving corporation in the same
capacity.
SECTION 11. OTHER ENTERPRISES, FINES AND SERVING AT CORPORATION'S REQUEST.
For purposes of this Article, references to "other enterprise" in
Sections 1 and 10 shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service by Agent as director, officer, employee, trustee or
agent of the Corporation which imposes duties on, or involves services by, such
Agent with respect to any employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article.
SECTION 12. SAVINGS CLAUSE.
If this Article or any portion thereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each Agent as to expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement with respect to any action,
suit, appeal, proceeding or investigation, whether civil, criminal or
administrative, and whether internal or external, including a grand jury
proceeding and an action or suit brought by or in the right of the Corporation,
to the full extent pertained by any applicable portion of this Article that
shall not have been invalidated, or by any other applicable law.
ARTICLE X
AMENDMENT OF BYLAWS
a. The Board of Directors shall have the power to amend, alter, or
repeal these Bylaws, and to adopt new Bylaws, from time to time.
b. The shareholders of the Corporation, may, at any annual meeting of
the shareholders of the Corporation or at any special meeting of the
shareholders of the Corporation called for the purpose of amending these Bylaws,
amend, alter, or repeal these Bylaws, and adopt new Bylaws, from time to time.
c. The Board of Directors shall not have the authority to adopt or
amend any Bylaw if such new Bylaw of such amendment would be inconsistent with
any Bylaw previously adopted by the shareholders of the Corporation. The
shareholders may prescribe in any Bylaw made by them that such Bylaw shall not
be altered, amended or repealed by the Board of Directors.
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ARTICLE XI
SHAREHOLDER AGREEMENTS
Unless the shares of this Corporation are listed on a national
securities exchange or are regularly quoted by licensed securities dealers and
brokers, all the shareholders of this Corporation may enter into agreements
relating to any phase of business and affairs of the Corporation and which may
provide for, among other things, the election of directors of the Corporation in
a manner determined without reference to the number of shares of capital stock
of the Corporation owned by its shareholders, the determination of management
policy, and division of profits. Such agreement may restrict the discretion of
the Board of Directors and its management of the business of the Corporation or
may treat the Corporation as if it were a partnership or may arrange the
relationships of the shareholders in a manner that would be appropriate only
among partners. In the event such agreement shall be inconsistent in whole or in
part with the Articles of Incorporation and/or Bylaws of the Corporation, the
terms of such agreement shall govern. Such agreement shall be binding upon any
transferee of shares of this corporation provided such transferee has actual
notice thereof or a legend referring to such agreement is noted on the face or
back of the certificate or certificates representing the shares transferred to
such transferee.
ARTICLE XII
FISCAL YEAR
The Fiscal Year of this Corporation shall be determined by the Board of
Directors.
Date: 7/08/94
---------------------------------
/s/ Edna H. Huber
-------------------------------
Secretary
[SEAL]
26.
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EX-4.(a)
SECURITY AGREEMENT
THIS SECURITY AGREEMENT dated as of July 5, 1996, is made by EDNET,
INC., a Colorado corporation ("Grantor"), in favor of MORGAN FULLER CAPITAL
GROUP L.L.C.
("Lender").
RECITALS
A. Pursuant to and as evidenced by that certain Senior Secured
Promissory Note, dated July __ 1996, in the amount of $500,000, Senior Secured
Promissory Note, dated July 22, 1996, in the amount of $500,000 and Senior
Secured Promissory Note, dated August 15, 1996, in the amount of $250,000 (as
the same from time to time may be amended, modified, supplemented or restated,
the "Notes") by Grantor, Lender has agreed to make certain extensions or credit
to Grantor in the amount and manner set forth in the Notes (the "Loan").
B. Lender is willing to make the Loan to Grantor, but only upon the
condition, among others, that Grantor shall have executed and delivered to
Lender this Security Agreement.
AGREEMENT
NOW, THEREFORE, in order to induce Lender to enter into the Notes and
to make the Loans available thereunder, and for other good and valuable
consideration, and intending to be legally bound, Grantor hereby represents,
warrants, covenants and agrees as follows:
Section 1. Defined Terms. Unless otherwise defined herein, (a) the
capitalized terms defined in the Notes are used herein as therein defined and
(b) the following capitalized terms shall have the following meanings (such
meanings being equally applicable to both the singular and plural forms of the
terms defined):
"Account Debtor" means any "account debtor," as such term is defined in
Section 9105(1)(a) of the UCC.
"Account" means any "account," as such term is defined in Section 9106
of the UCC, now owned or hereafter acquired by Grantor or in which Grantor now
holds or hereafter acquires any interest and, in any event, shall include,
without limitation, all accounts receivable, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments) now owned or hereafter received or acquired by or
belonging or owing to Grantor (including, without limitation, under any trade
name, style or division thereof) whether arising out of goods sold or services
rendered by Grantor or from any other transaction, whether or not the same
involves the sale of goods or services by Grantor (including, without
limitation, any such obligation which may be characterized as an account or
contract right under the UCC) and all of Grantor's rights in, to and under all
purchase orders or receipts now owned or hereafter acquired by it for goods or
services, and all of Grantor's rights to any goods represented by any of the
foregoing (including, without limitation, unpaid
1.
<PAGE> 2
seller's rights of rescission, replevin, reclamation and stoppage in transit and
rights to returned, reclaimed or repossessed goods), and all monies due or to
become due to Grantor under all purchase orders and contracts for the sale of
goods or the performance of services or both by Grantor (whether or not yet
earned by performance on the part of Grantor or in connection with any other
transaction), now in existence or hereafter occurring, including, without
limitation, the right to receive the proceeds of said purchase orders and
contracts, and all collateral security and guarantees of any kind given by any
Person with respect to any of the foregoing.
"Charges" means all federal, state, county, city, municipal, local,
foreign or other governmental taxes, levies, assessments, charges or claims, in
each case then due and payable, upon or relating to (a) the Loan, (b) Grantor's
employees, payroll, income or gross receipts, (c) Grantor's ownership or use of
any of its Properties or assets, or (d) any other aspect of Grantor's business.
"Chattel Paper" means any "chattel paper," as such term is defined in
Section 9105(1)(b) of the UCC, now owned or hereafter acquired by Grantor or in
which Grantor now holds or hereafter acquires any interest.
"Collateral" shall have the meaning assigned to such term in Section 2
hereof.
"Contracts" means all contracts, undertakings, franchise agreements or
other agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Grantor may now or hereafter have any right,
title or interest, and with respect to an Account, any agreement relating to the
terms of payment or the terms of performance thereof.
"Copyrights" means all of the following now owned or hereafter acquired
by Grantor or in which Grantor now holds or hereafter acquires any interest: (i)
all copyrights, whether registered or unregistered, held pursuant to the laws of
the United States, any State thereof or of any other country; (ii)
registrations, applications and recordings in the United States Copyright Office
or in any similar office or agency of the United States, any state thereof or
any other country; (iii) any continuations, renewals or extensions thereof; and
(iv) any registrations to be issued in any pending applications.
"Copyright License" means any written agreement granting any right to
use any Copyright or Copyright registration now owned or hereafter acquired by
Grantor or in which Grantor now holds or hereafter acquires any interest.
"Documents" means any "documents," as such term is defined in Section
9105(1)(f) of the UCC, now owned or hereafter acquired by Grantor or in which
Grantor now holds or hereafter acquires any interest.
"Equipment" means any "equipment," as such term is defined in Section
9109(2) of the UCC, now or hereafter owned or acquired by Grantor or in which
Grantor now holds or hereafter acquires any interest and, in any event, shall
include, without limitation, all machinery, equipment, furnishings, vehicles
(whether or not registerable), mainframe, personal and other
2.
<PAGE> 3
computers, terminals and printers and related components and accessories, all
copiers, telephonic, video, electronic data-processing and data storage
equipment and all printing, sorting, inserting, packaging, mailing and other
office, production or warehouse equipment of any nature whatsoever, and any and
all additions, substitutions and replacements of any of the foregoing, wherever
located, together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto.
"Fixtures" means "fixtures," as such term is defined in Section
9313(1)(a) of the UCC, now or hereafter owned or acquired by Grantor or in which
Grantor now holds or hereafter acquires any interest and, in any event, shall
include, without limitation, regardless of where located, all of the fixtures,
systems, machinery, apparatus, equipment and fittings of every kind and nature
whatsoever and all appurtenances and additions thereto and substitutions or
replacements thereof, now or hereafter attached or affixed to or constituting a
part of, or located in or upon, real property wherever located, including,
without limitation, all heating, electrical, mechanical, lighting, lifting,
plumbing, ventilating, air-conditioning and air cooling, refrigerating, food
preparation, incinerating and power, loading and unloading, signs, escalators,
elevators, boilers, communication, switchboards, sprinkler and other fire
prevention and extinguishing fixtures, systems, machinery, apparatus and
equipment, and all engines, motors, dynamos, machinery, pipes, pumps, tanks,
conduits and ducts constituting a part of any of the foregoing, together with
all right, title and interest of Grantor in and to all extensions, improvements,
betterments, renewals, substitutes, and replacements of, and all additions and
appurtenances to any of the foregoing property, and all conversions of the
security constituted thereby, immediately upon any acquisition or release
thereof or any such conversion, as the case may be.
"General Intangibles" means any "general intangibles," as such term is
defined in Section 9106 of the UCC, now owned or hereafter acquired by Grantor
or in which Grantor now holds or hereafter acquires any interest and, in any
event, shall include, without limitation, all right, title and interest which
Grantor may now or hereafter have in or under any Contract, all customer lists,
Copyrights, Trademarks, Patents and other Intellectual Property of any kind or
nature, including any rights to Intellectual Property, including under or
pursuant to any License, all proprietary or confidential information, inventions
(whether or not patented or patentable), permits, books and records, goodwill
(including, without limitation, the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark License),
claims in or under insurance policies, including unearned premiums,
uncertificated securities, cash and other forms of money or currency, deposit
accounts (including as defined in Section 9105(e) of the UCC), rights to sue for
past, present and future infringement of Copyrights, Trademarks and Patents,
rights to receive tax refunds, other payments and rights of indemnification, and
interests in partnerships, joint ventures and other business associations,
including, without limitation, Grantor's interests in partnerships, joint
ventures and other business associations.
"Instruments" means any "instrument," as such term is defined in
Section 9105(1)(i) of the UCC now owned or hereafter acquired by Grantor or in
which Grantor now holds or hereafter acquires any interest, including, without
limitation, all notes, certificated securities,
3.
<PAGE> 4
and other evidences of indebtedness, other than instruments that constitute, or
are a part of a group of writings that constitute, Chattel Paper.
"Intellectual Property" means all intellectual property of any kind or
nature, including, without limitation, all Copyrights, Trademarks, Patents,
trade secrets, mask works, source codes, customer lists, proprietary or
confidential information, inventions (whether or not patented or patentable),
technical information, procedures, designs, knowledge, know-how, software, data
bases, data, skill, expertise, recipes, experience, processes, models, drawings,
materials and records.
"Inventory" means any "inventory," as such term is defined in Section
9109(4) of the UCC, wherever located, now or hereafter owned or acquired by
Grantor or in which Grantor now holds or hereafter acquires any interest, and,
in any event, shall include, without limitation, all inventory, goods and other
personal property which are held by or on behalf of Grantor for sale or lease or
are furnished or are to be furnished under a contract of service or which
constitute raw materials, work in process or materials used or consumed or to be
used or consumed in Grantor's business, or the processing, packaging, promotion,
delivery or shipping of the same, and all furnished goods whether or not such
inventory is listed on any schedules, assignments or reports furnished to Lender
from time to time and whether or not the same is in transit or in the
constructive, actual or exclusive occupancy or possession of Grantor or is held
by Grantor or by others for Grantor's account, including, without limitation,
all goods covered by purchase orders and contracts with suppliers and all goods
billed and held by suppliers and all inventory which may be located on premises
of Grantor or of any carriers, forwarding agents, truckers, warehousemen,
vendors, selling agents or other persons.
"License" means any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by Grantor or in which Grantor now holds or hereafter acquires any interest and
any renewals or extensions thereof.
"Lien" means any mortgage, pledge, hypothecation, assignment for
security, security interest, encumbrance, levy, lien or charge of any kind,
whether voluntarily incurred or arising by operation of law or otherwise,
affecting any Property, including any agreement to grant any of the foregoing,
any conditional sale or other title retention agreement, any lease in the nature
of a security interest, and the filing of or agreement to file or deliver any
financing statement (other than a precautionary financing statement with respect
to a lease that is not in the nature of a security interest) under the UCC or
comparable law of any jurisdiction.
"Loan Document" when used in the singular and "Loan Documents" when
used in the plural means any and all of this Security Agreement and the Notes
and any and all other agreements, documents and instruments executed and
delivered by or on behalf or support of Grantor to Lender evidencing or
otherwise relating to the Loan, as the same may from time to time be amended,
modified, supplemented or renewed.
"Material Adverse Effect" means any set of circumstances or events
which (a) has or could reasonably be expected to have any material adverse
effect whatsoever upon the validity
4.
<PAGE> 5
or enforceability of any Loan Document, (b) is or could reasonably be expected
to be material and adverse to the condition (financial or otherwise) or business
operations of Grantor, (c) materially impairs or could reasonably be expected to
materially impair the ability of Grantor to perform its Obligations, or (d)
materially impairs or could reasonably be expected to materially impair the
ability of Lender to enforce any of its legal remedies pursuant to the Loan
Documents.
"Patent License" means any written agreement granting any right with
respect to any invention on which a Patent is in existence now owned or
hereafter acquired by Grantor or in which Grantor now holds or hereafter
acquires any interest.
"Patents" means all of the following now owned or hereafter acquired by
Grantor or in which Grantor now holds or hereafter acquires any interest: (a)
letters patent of, or rights corresponding thereto in, the United States or any
other county, all registrations and recordings thereof, and all applications for
letters patent of, or rights corresponding thereto in, the United States or any
other country, including, without limitation, registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any State thereof or any other country;
(b) all reissues, continuations, continuations-in-part or extensions thereof;
(c) all petty patents, divisionals, and patents of addition; and (d) all patents
to issue in any such applications.
"Permitted Liens" means (a) Liens granted in favor of Lender under this
Security Agreement; (b) Liens for Charges if payment shall not at the time be
required to be made in accordance with Section 5.4; and (c) Liens in respect of
pledges, obligations or deposits (i) under workers' compensation laws,
unemployment insurance and other types of social security or similar
legislation, (ii) in connection with surety, appeal and similar bonds incidental
to the conduct of litigation, (iii) in connection with bid, performance or
similar bonds and mechanics', laborers' and materialmen's and similar statutory
Liens not then delinquent, or (iv) incidental to the conduct of the business of
Grantor and which were not incurred in connection with the borrowing of money or
the obtaining of advances or credit.
"Proceeds" means "proceeds," as such term is defined in Section 9306(1)
of the UCC and, in any event, shall include, without limitation, (a) any and all
Accounts, Chattel Paper, Instruments, cash or other forms of money or currency
or other proceeds payable to Grantor from time to time in respect of the
Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to Grantor from time to time with respect to any of the
Collateral, (c) any and all payments (in any form whatsoever) made or due and
payable to Grantor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any Governmental Authority (or any Person acting under color of
Governmental Authority), (d) any claim of Grantor against third parties (i) for
past, present or future infringement of any Copyright, Patent or Patent License
or (ii) for past, present or future infringement or dilution of any Trademark or
Trademark License or for injury to the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark License and (e)
any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.
5.
<PAGE> 6
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, whether tangible or intangible.
"Secured Obligations" means all loans, advances, debts, liabilities and
other obligations for monetary amounts owed by Grantor to Lender, whether due or
to become due, matured or unmatured, liquidated or unliquidated, contingent or
non-contingent, and all covenants and duties regarding such amounts, of any kind
or nature, present or future, arising under the Note or any of the other Loan
Documents, whether or not evidenced by any note, agreement or other instrument.
This term includes, without limitation, all principal, interest (including
interest that accrues after the commencement of a case against Grantor or any
Affiliate of Grantor under the Bankruptcy Code), fees, including, without
limitation, any and all closing fees, prepayment fees, commitment fees, loan
fees, attorneys' fees and costs and any and all other fees, expenses, costs or
other sums chargeable to Grantor under any of the Loan Documents.
"Security Agreement" means this Security Agreement and all Schedules
hereto, as the same may from time to time be amended, modified, supplemented or
restated.
"Trademark License" means any written agreement granting any right to
use any Trademark or Trademark registration now owned or hereafter acquired by
Grantor or in which Grantor now holds or hereafter acquires any interest.
"Trademarks" means any of the following now owned or hereafter acquired
by Grantor or in which Grantor now holds or hereafter acquires any interest: (a)
any and all trademarks, tradenames, corporate names, business names, trade
styles, service marks, logos, other source or business identifiers, prints and
labels on which any of the foregoing have appeared or appear, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and any applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof and (b) any reissues, extensions or
renewals thereof.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of California; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Lender's security interest in any collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of California, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection of priority and for purposes of
definitions related to such provisions.
Section 2. Grant of Security Interest. As security for the prompt,
complete and indefeasible payment when due (whether at stated maturity, by
acceleration or otherwise) of all the Secured Obligations, and in order to
induce Lender to make the Loan available to and for the benefit of Grantor upon
the terms and subject to the conditions thereof, Grantor hereby
6.
<PAGE> 7
assigns, conveys, mortgages, pledges, hypothecates and transfers to Lender for
security purposes only, and hereby grants to Lender a security interest in and
to all of Grantor's right, title and interest in, to and under each of the
following (all of which being hereinafter collectively called the "Collateral"):
(a) All Accounts;
(b) All Chattel Paper;
(c) All Contracts;
(d) All Documents;
(e) All Equipment;
(f) All Fixtures;
(g) All General Intangibles;
(h) All Instruments;
(i) All Inventory;
(j) All Licenses;
(k) All other goods and personal property of Grantor whether
tangible or intangible and whether now or hereafter owned or existing, leased,
consigned by or to, or acquired by, Grantor and wherever located; and
(l) To the extent not otherwise included, all Proceeds of each
of the foregoing and all accessions to, substitutions and replacements for, and
rents, profits and products of each of the foregoing.
Section 3. Rights of Lender; Collection of Accounts.
(a) Notwithstanding anything contained in this Security
Agreement to the contrary, Grantor expressly agrees that it shall remain liable
under each of its Contracts and each of its Licenses to observe and perform all
the conditions and obligations to be observed and performed by it thereunder and
that it shall perform all of its duties and obligations thereunder, all in
accordance with and pursuant to the terms and provisions of each such Contract
or License. Lender shall not have any obligation or liability under any Contract
or License by reason of or arising out of this Security Agreement or the
granting to Lender of a security interest therein or the receipt by Lender of
any payment relating to any Contract or License pursuant hereto, nor shall
Lender be required or obligated in any manner to perform or fulfill any of the
obligations of Grantor under or pursuant to any Contract or License, or to make
any
7.
<PAGE> 8
payment, or to make any inquiry as to the nature or the sufficiency of any
payment received by it or the sufficiency of any performance by any party under
any Contract or License, or to present or file any claim, or to take any action
to collect or enforce any performance or the payment of any amounts which may
have been assigned to it or to which it may be entitled at any time or times.
(b) Lender authorizes Grantor to collect its Accounts,
provided that Lender may, upon the occurrence and during the continuation of any
Event of Default and without notice, limit or terminate said authority at any
time. If required by Lender at any time during the continuation of any Event of
Default, any Proceeds, when first collected by Grantor, received in payment of
any such Account or in payment for any of its Inventory or on account of any of
its Contracts or Licenses shall be promptly deposited by Grantor in precisely
the form received (with all necessary endorsements) in a special bank account
maintained by Lender subject to withdrawal by Lender only, as hereinafter
provided, and until so turned over shall be deemed to be held in trust by
Grantor for and as Lender's property, on behalf and for the benefit of Lender,
and shall not be commingled with Grantor's other funds or properties. Such
Proceeds, when deposited, shall continue to be collateral security for all of
the Secured Obligations and shall not constitute payment thereof until applied
as hereinafter provided. Upon the occurrence and during the continuation of any
Event of Default, Lender may, in its sole discretion, apply all or a part of the
funds on deposit in said special account to the principal of or interest on, or
both, in respect of any of the Secured Obligations in accordance with the
provisions of Subsection 7(d), below, and any part of such funds which Lender
elects not so to apply and deem not required as collateral security for the
Secured Obligations shall be paid over from time to time by Lender to Grantor.
If an Event of Default has occurred and is continuing, at the request of Lender,
Grantor shall deliver to Lender all original and other documents evidencing, and
relating to, the sale and delivery of such Inventory and Grantor shall deliver
all original and other documents evidencing and relating to, the performance of
labor or service which created such Accounts, including, without limitation, all
original orders, invoices and shipping receipts.
(c) Lender may at any time, upon the occurrence and during the
continuation of any Event of Default, after first notifying Grantor of its
intention to do so, notify Account Debtors of Grantor, parties to the Contracts
of Grantor, obligors in respect of Instruments of Grantor and obligors in
respect of Chattel Paper of Grantor that the Accounts and the right, title and
interest of Grantor in and under such Contracts, Instruments and Chattel Paper
have been assigned to Lender, and that payments shall be made directly to
Lender. Upon the request of Lender, Grantor shall so notify such Account
Debtors, parties to such Contracts, obligors in respect of such Instruments and
obligors in respect of such Chattel Paper. Upon the occurrence and during the
continuation of an Event of Default, Lender may, in its name, or in the name of
others communicate with such Account Debtors, parties to such Contracts,
obligors in respect of such Instruments and obligors in respect of such Chattel
Paper to verify with such parties, to Lender's satisfaction, the existence,
amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper.
8.
<PAGE> 9
Section 4. Representations and Warranties. Grantor hereby represents
and warrants to Lender that:
4.1 Grantor is the sole legal and equitable owner or, as to
Intellectual Property licensed from other Persons, licensee of each item of the
Collateral in which it purports to grant a security interest hereunder, having
good and marketable title or rights thereto free and clear of any and all Liens,
except for Permitted Liens.
4.2 No effective security agreement, financing statement,
equivalent security or lien instrument or continuation statement covering all or
any part of the Collateral exists, except such as may have been filed by Grantor
in favor of Lender pursuant to this Security Agreement or such as relate to
other Permitted Liens.
Section 5. Covenants. Grantor covenants and agrees with Lender that
from and after the date of this Security Agreement and until the Secured
Obligations have been completely and indefeasibly paid and performed in full:
5.1 Further Assurances; Pledge of Instruments. At any time and
from time to time, upon the written request of Lender, and at the sole expense
of Grantor, Grantor shall promptly and duly execute and deliver any and all such
further instruments and documents and take such further action as Lender may
reasonably deem desirable to obtain the full benefits of this Security Agreement
and of the rights and powers herein granted, including, without limitation, (a)
using its best efforts to secure all consents and approvals necessary or
appropriate for the grant of a security interest to Lender in any Contract or
License held by Grantor or in which Grantor has any rights not heretofore
assigned, (b) filing any financing or continuation statements under the UCC with
respect to the security interests granted hereby, (c) filing or cooperating with
Lender in filing any forms or other documents required to be filed with the
United States Patent and Trademark Office, United States Copyright Office, or
any filings in any foreign jurisdiction or under any international treaty,
required to secure or protect Lender's interest in the Collateral, (d)
transferring Collateral to Lender's possession (if a security interest in such
Collateral can be perfected by possession), (e) placing the interest of Lender
as lienholder on the certificate of title (or other evidence of ownership) of
any vehicle owned by Grantor or in or with respect to which Grantor holds a
beneficial interest, and (f) using its best efforts to obtain waivers of liens
from landlords and mortgagees. Grantor also hereby authorizes Lender to file any
such financing or continuation statement without the signature of Grantor. If
any amount payable under or in connection with any of the Collateral is or shall
become evidenced by any Instrument, such Instrument, other than checks and notes
received in the ordinary course of business, shall be duly endorsed in a manner
satisfactory to Lender and delivered to Lender promptly upon Grantor's receipt
thereof.
5.2 Maintenance of Records. Grantor shall keep and maintain at
its own cost and expense satisfactory and complete records of the Collateral,
including, without limitation, a record of all payments received and all credits
granted with respect to the Collateral and all other dealings with the
Collateral.
9.
<PAGE> 10
5.3 Notices. Grantor shall advise Lender promptly, in
reasonable detail, of (a) any material Lien, other than Permitted Liens,
attaching to or asserted against any of the Collateral, (b) any material change
in the composition or location of the Collateral, and (c) the occurrence of any
other event which might have or result in a Material Adverse Effect with respect
to the Collateral or on the security interest created hereunder.
5.4 Taxes, Assessments, Etc. Grantor shall pay promptly when
due all property and other taxes, assessments and government charges or levies
imposed upon, and all claims (including claims for labor, materials and
supplies) against, the Equipment, Fixtures or Inventory, except to the extent
the validity thereof is being contested in good faith and adequate reserves are
being maintained in connection therewith.
5.5 Maintenance of Insurance. Grantor shall maintain, with
financially sound and reputable companies, casualty and public liability
insurance of the types and in amounts then customarily carried in lines of
business similar to that of Grantor.
5.6 Compliance with Laws. Grantor shall conduct its operations
and keep and maintain its Property in material compliance with all state and
federal laws and regulations.
5.7 Financial Statements. Grantor shall deliver to Lender as
soon as practicable and in any event within twenty (20) days after the end of
each month, financial statements of Grantor as at the end of such period, which
shall include an analysis of any event which has resulted in a Material Adverse
Effect with respect to the Collateral or on the security interest created
hereunder.
Section 6. Lender's Appointment as Attorney-in-Fact.
(a) Subject to Section 6(b) below, Grantor hereby irrevocably
constitutes and appoints Lender, and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Grantor and in the
name of Grantor or in its own name, from time to time at Lender's discretion,
for the purpose of carrying out the terms of this Security Agreement, to take
any and all appropriate action and to execute and deliver any and all documents
and instruments which may be necessary or desirable to accomplish the purposes
of this Security Agreement and, without limiting the generality of the
foregoing, hereby gives Lender the power and right, on behalf of Grantor,
without notice to or assent by Grantor to do the following:
(i) to ask, demand, collect, receive and give
acquittances and receipts for any and all monies due or to become due under any
Collateral and, in the name of Grantor in its own name or otherwise to take
possession of, endorse and collect any checks, drafts, note, acceptances or
other Instruments for the payment of monies due under any Collateral and to file
any claim or to take or commence any other action or proceeding in any court of
law or equity or otherwise deemed appropriate by Lender for the purpose of
collecting any and all such monies due under any Collateral whenever payable;
10.
<PAGE> 11
(ii) to pay or discharge any Liens, including,
without limitation, any tax lien, levied or placed on or threatened against the
Collateral, to effect any repairs or any insurance called for by the terms of
this Security Agreement and to pay all or any part of the premiums therefor and
the costs thereof, which actions shall be for the benefit of Lender and not
Grantor; and
(iii) to (1) direct any person liable for any
payment under or in respect of any of the Collateral to make payment of any and
all monies due or to become due thereunder directly to Lender or as Lender shall
direct, (2) receive payment of any and all monies, claims and other amounts due
or to become due at any time arising out of or in respect of any Collateral, (3)
sign and endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts and other Instruments and
Documents constituting of or relating to the Collateral, (4) commence and
prosecute any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral, (5) defend any suit,
action or proceeding brought against Grantor with respect to any Collateral, (6)
settle, compromise or adjust any suit, action or proceeding described above and,
in connection therewith, give such discharges or releases as Lender may deem
appropriate, (7) license or, to the extent permitted by an applicable license,
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis, any Patent or Trademark throughout the world for such
term or terms, on such conditions and in such manner as Lender shall in its
discretion determine, and (8) sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully and completely
as though Lender were the absolute owner thereof for all purposes, and to do, at
Lender's option and Grantor's expense, at any time, or from time to time, all
acts and things which Lender may reasonably deem necessary to protect, preserve
or realize upon the Collateral and Lender's security interest therein in order
to effect the intent of this Security Agreement, all as fully and effectively as
Grantor might do.
(b) Lender agrees that, except upon the occurrence and during
the continuation of an Event of Default, it shall not exercise the power of
attorney or any rights granted to Lender pursuant to this Section 6. Grantor
hereby ratifies, to the extent permitted by law, all that said attorney shall
lawfully do or cause to be done by virtue hereof. The power of attorney granted
pursuant to this Section 6 is a power coupled with an interest and shall be
irrevocable until the Secured Obligations are completely and indefeasibly paid
and performed in full.
(c) The powers conferred on Lender hereunder are solely to
protect Lender's interests in the Collateral and shall not impose any duty upon
Lender to exercise any such powers. Lender shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers and neither
it nor any of its officers, directors, employees, agents or representatives
shall be responsible to Grantor for any act or failure to act, except for its
own gross negligence or willful misconduct.
(d) Grantor also authorizes Lender, at any time and from time
to time upon the occurrence and during the continuation of any Event of Default,
to (i) communicate in its
11.
<PAGE> 12
own name with any party to any Contract with regard to the assignment of the
right, title and interest of Grantor in and under the Contracts hereunder and
other matters relating thereto and (ii) execute, in connection with the sale of
Collateral provided for in Section 7 below, any endorsements, assignments or
other instruments of conveyance or transfer with respect to the Collateral.
(e) If Grantor fails to perform or comply with any of its
agreements contained herein and Lender, as provided for by the terms of this
Security Agreement, shall perform or comply, or otherwise cause performance or
compliance, with such agreement, the reasonable expenses, including attorneys'
fees and costs, of Lender incurred in connection with such performance or
compliance, together with interest thereon at the rate of interest set forth in
the Note, shall be payable by Grantor to Lender within (3) three days of demand
and shall constitute Secured Obligations secured hereby.
Section 7. Rights and Remedies Upon Default.
(a) If any Event of Default shall occur and be continuing,
Lender may exercise in addition to all other rights and remedies granted to it
under this Security Agreement, the Note, the other Loan Documents and under any
other instrument or agreement securing, evidencing or relating to the Secured
Obligations, all rights and remedies of a secured party under the UCC. Without
limiting the generality of the foregoing, Grantor expressly agrees that in any
such event Lender, without demand of performance or other demand, advertisement
or notice of any kind (except the notice specified below of time and place of
public or private sale) to or upon Grantor or any other person (all and each of
which demands, advertisements and notices are hereby expressly waived to the
maximum extent permitted by the UCC and other applicable law), may forthwith
collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and may forthwith sell, lease, assign, give an option or options to
purchase or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange or broker's board or at any of Lender's
offices or elsewhere at such prices as it may deem best, for cash or on credit
or for future delivery without assumption of any credit risk. Lender shall have
the right upon any such public sale or sales, and, to the extent permitted by
law, upon any such private sale or sales, to purchase the whole or any part of
said Collateral so sold, free of any right or equity of redemption, which equity
of redemption Grantor hereby releases. Grantor further agrees, at Lender's
request, to assemble the Collateral and make it available to Lender at places
which Lender shall reasonably select, whether at Grantor's premises or
elsewhere. Lender shall apply the net proceeds of any such collection, recovery,
receipt, appropriation, realization or sale as provided in Subsection 7(d),
below, Grantor remaining liable for any deficiency remaining unpaid after such
application, and only after so paying over such net proceeds and after the
payment by Lender of any other amount required by any provision of law,
including Section 9504(1)(c) of the UCC, need Lender account for the surplus, if
any, to Grantor. To the maximum extent permitted by applicable law, Grantor
waives all claims, damages, and demands against Lender arising out of the
repossession, retention or sale of the Collateral except such as arise out of
the gross negligence or willful misconduct of Lender. Grantor agrees that Lender
need not give more than ten (10) days' notice (which notification
12.
<PAGE> 13
shall be deemed given in accordance with the Notes of the time and place of any
public sale or of the time after which a private sale may take place and that
such notice is reasonable notification of such matters. Grantor shall remain
liable for any deficiency if the proceeds of any sale or disposition of the
Collateral are insufficient to pay all amounts to which Lender is entitled,
Grantor also being liable for the attorneys' fees and costs of any attorneys
employed by Lender to collect such deficiency.
(b) Upon Lender's request, Grantor agrees to promptly execute
assignments of Grantor's entire right, title and interest in and to each of the
Patents, Trademarks, Copyrights and Licenses. Such assignments shall be in form
and content which is recordable in the U.S. Patent and Trademark Office or
Copyright Office, as applicable, and otherwise reasonable acceptable to Lender.
(c) Grantor hereby waives presentment, demand, protest or any
notice (to the maximum extent permitted by applicable law) of any kind in
connection with this Security Agreement or any Collateral.
(d) The Proceeds of any sale, disposition or other realization
upon all or any part of the Collateral shall be distributed by Lender in the
following order of priorities:
First, to Lender in an amount sufficient to pay in
full the reasonable costs of Lender in connection with such
sale, disposition or other realization, including all fees,
costs, expenses, liabilities and advances incurred or made by
Lender in connection therewith, including, without limitation,
attorneys' fees and costs;
Second, to Lender in an amount equal to the then
unpaid principal of and accrued interest and prepayment
premiums, if any, on the Secured Obligations;
Third, to Lender in an amount equal to any other
Secured Obligations which are then unpaid; and
Finally, upon payment in full of all of the Secured
Obligations, to Grantor or its representatives or as a court
of competent jurisdiction may direct.
Section 8. Limitation on Lender's Duty in Respect of Collateral. Lender
shall be deemed to have acted reasonably in the custody, preservation and
disposition of any of the Collateral if it complies with the obligations of a
secured party under Section 9207 of the UCC.
Section 9. Reinstatement. This Security Agreement shall remain in full
force and effect and continue to be effective should any petition be filed by or
against Grantor for liquidation or reorganization, should Grantor become
insolvent or make an assignment for the benefit of creditors or should a
receiver or trustee be appointed for all or any significant part
13.
<PAGE> 14
of Grantor's property and assets, and shall continue to be effective or be
reinstated, as the case may be, if at any time payment and performance of the
Secured Obligations, or any part thereof, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or returned by any
obligee of the Secured Obligations, whether as a "voidable preference,"
"fraudulent conveyance," or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Secured Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
Section 10. Miscellaneous.
10.1 Notices. Any notice or other communication hereunder to
any party shall be addressed and delivered (and shall be deemed given) in
accordance with the Note.
10.2 Severability. Any provision of this Security Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
10.3 Headings. The various headings in this Security Agreement
are inserted for convenience only and shall not affect the meaning or
interpretation of this agreement or any provisions hereof.
10.4 No Waiver; Cumulative Remedies.
(a) Lender shall not by any act, delay, omission or
otherwise be deemed to have waived any of its respective rights or remedies
hereunder, nor shall any single or partial exercise of any right or remedy
hereunder on any one occasion preclude the further exercise thereof or the
exercise of any other right or remedy.
(b) The rights and remedies hereunder provided are
cumulative and may be exercised singly or concurrently, and are not exclusive of
any rights and remedies provided by law.
(c) None of the terms or provisions of this Security
Agreement may be waived, altered, modified or amended except by an instrument in
writing, duly executed by Grantor and Lender.
10.5 Time Is of the Essence. Time is of the essence for the
performance of each of the terms and provisions of this Security Agreement.
10.6 Termination of this Security Agreement. Subject to
Section 9 above, this Security Agreement shall terminate upon and the complete
and indefeasible payment and performance in full of the Secured Obligations.
14.
<PAGE> 15
10.7 Successor and Assigns. This Security Agreement and all
obligations of Grantor hereunder shall be binding upon the successors and
assigns of Grantor, and shall, together with the rights and remedies of Lender
hereunder, inure to the benefit of Lender, any future holder of any Note and
their respective successors and assigns. No sales of participations, other
sales, assignments, transfers or other dispositions of any agreement governing
or instrument evidencing the Secured Obligations or any portion thereof or
interest therein shall in any manner affect the security interest created herein
and granted to Lender hereunder.
10.8 Governing Law. This Security Agreement shall be governed
by and construed in accordance with the laws of the State of California, as
applied to contracts entered into by California residents and to be performed
entirely within California, except to the extent that the validity or perfection
of the security interest hereunder or remedies hereunder in respect of any
particular Collateral are governed by the laws of a jurisdiction other than the
State of California, including federal law.
10.9 Counterparts. This Security Agreement may be executed in
any number of counterparts, each of which when so delivered shall be deemed an
original, but all such counterparts shall constitute but one and the same
instrument. Each such agreement shall become effective upon the execution of a
counterpart hereof or thereof by each of the parties hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this Security
Agreement to be executed and delivered by its duly authorized officer on the
date first set forth above.
"Grantor"
EDNET, INC.
a Colorado corporation
By /s/ Tom Kobayashi
--------------------------------
Tom Kobayashi
Chief Executive Officer
Accepted and acknowledged by:
Morgan Fuller Capital Group L.L.C.,
as Lender
By /s/ Gordon R. Taubenheim
-----------------------------------
Gordon R. Taubenheim
Managing Director
15.
<PAGE> 1
EX-4.(b)
AMENDMENT NO. 1 TO SECURITY AGREEMENT
THIS AMENDMENT NO. 1 TO SECURITY AGREEMENT ("Amendment") dated as of
August 1, 1996, is made by EDNET, INC., a Colorado corporation ("Grantor"), and
MORGAN FULLER CAPITAL GROUP L.L.C. ("Lender").
RECITALS
A. Grantor previously executed that certain Security Agreement, dated
as of July 5, 1996 (the "Security Agreement"), in favor of Lender.
B. Grantor and Lender now desire to amend the Security Agreement as
provided for in this Amendment.
AGREEMENT
ACCORDINGLY, for good and valuable consideration, the parties hereby
agree as follows:
Section 1. Amendment of Security Agreement. The Security Agreement is
hereby amended as follows:
(a) Recital A of the Security Agreement is amended in its
entirety to read as follows:
"A. Pursuant to and as evidenced by that
certain Senior Secured Promissory Note dated July 5,
1996 in the amount of $500,000; Senior Secured
Promissory Note dated on or about August 7, 1996 in
the amount of $300,000; Senior Secured Promissory
Note dated on or about August 7, 1996 in the amount
of $200,000; and Senior Secured Promissory Note dated
on or about August 15, 1996 in the amount of $250,000
(as the same from time to time may be amended,
modified, supplemented or restated, the "Notes") by
Grantor, Lender has agreed to make certain extensions
or credit to Grantor in the amount and manner set
forth in the Notes (the "Loan")."
Section 2. Miscellaneous. This Amendment shall be governed by and
construed in accordance with the laws of the State of California, as applied to
contracts entered into by California residents and to be performed entirely
within California. This Amendment may be executed in any number of counterparts,
each of which when so delivered shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument. Each such
agreement shall become effective upon the execution of a counterpart hereof or
thereof by each of the parties hereto.
1.
<PAGE> 2
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be executed and delivered by its duly authorized officer on the
date first set forth above.
"Grantor"
EDNET, INC.
a Colorado corporation
By /s/Tom Kobayashi
----------------------------------
Tom Kobayashi
Chief Executive Officer
Morgan Fuller Capital Group L.L.C.,
By /s/Gordon R. Taubenheim
----------------------------------
Gordon R. Taubenheim
Managing Director
2.
<PAGE> 1
EX-4.(c)
SENIOR SECURED PROMISSORY NOTE
$___________.00 San Francisco, California
Date: __________, 1996
EDNET, INC., a Colorado corporation ("Borrower"), FOR VALUE RECEIVED,
hereby unconditionally promises to pay to the order of MORGAN FULLER CAPITAL
GROUP L.L.C. (such entity, together with its successors and assigns being
referred to herein as "Lender"), in lawful money of the United States of
America, the aggregate principal amount of _______________________ and No/100
Dollars ($__________.00) (the "Loan"), together with accrued and unpaid interest
thereon, payable in the amounts, on the dates and in the manner set forth below.
1. Principal Payments. The entire principal amount of and all accrued
interest on this Senior Secured Promissory Note (the "Note") shall be due and
payable on November 15, 1996 (the "Maturity Date"), provided, however, that if
the entire principal amount of and all accrued interest on this Note is not
repaid on the Maturity Date, the Loan shall be converted into a term loan and
Borrower shall pay to Lender on the first day of each calendar month, commencing
on December 1, 1996 (the "Conversion Date"), principal in the amount of
$100,000.00, and all accrued interest thereon, until the entire principal amount
of and all accrued interest on this Note is repaid in full.
2. Interest. Borrower further promises to pay interest on the
outstanding principal balance of this Note on March 31, June 30, September 31
and December 31 of each year, calculated pro rata for any partial quarter, from
the date hereof until the Conversion Date, at the rate of fourteen percent (14%)
per annum, and thereafter until payment in full, at the rate of eighteen percent
(18%) per annum.
3. Place of Payment. All amounts payable hereunder shall be payable to
Lender, at the office of Morgan Fuller Capital Group L.L.C., 595 Market Street,
Suite 2100 San Francisco, California 94105, Attention: Gordon R. Taubenheim, or
such other place of payment as may be specified by Lender in writing.
4. Application of Payments. Payments on this Note shall be applied:
first, to any late fees, charges and costs, second, to accrued interest, and
thereafter, to the outstanding principal balance hereof.
5. Prepayment; Late Charges; Loan Fee. This Note may be prepaid by
Borrower without penalty. In the event that any principal or interest due
hereunder is not timely paid and until the occurrence of an Event of Default (as
defined below), Borrower shall pay Lender a late charge of five percent (5%) of
such overdue principal or interest payment. On the date of this Note, Borrower
shall pay Lender a loan fee of five percent (5%) of the Loan.
1.
<PAGE> 2
6. Secured Note. The full amount of this Note is secured by the
collateral identified and described as security therefor in that certain
Security Agreement dated as of even date herewith, executed and delivered by
Borrower (the "Security Agreement"). This Note, the Security Agreement and any
of other documents executed in connection herewith or therewith are referred to
herein collectively as the "Loan Documents."
7. Representations and Warranties. Borrower hereby warrants and
represents to Lender as follows, and agrees that each of said warranties and
representations shall be deemed to continue until full, complete and
indefeasible payment and performance of this Note:
a. Borrower is a corporation, duly organized, validly existing
and in good standing under the laws of the State of Colorado and has the
corporate power and authority, rights and franchises to own its property and
assets and to carry on its business as now conducted.
b. Borrower has the corporate power and authority to execute,
deliver and perform the terms of the Loan Documents and all other instruments
and documents contemplated hereby or thereby.
8. BORROWER'S NEGATIVE COVENANTS. Until full, complete and indefeasible
payment and performance of the Obligations, unless Lender shall otherwise
consent in writing, Borrower covenants and agrees that it shall not create,
incur, assume or suffer to exist any Lien of any nature upon or with respect to
any of its Property, whether now or hereafter owned, leased or acquired, unless
such Lien is subordinate to the Lien created by the Security Agreement.
9. Default. Each of the following events shall be an "Event of Default"
hereunder:
a. Borrower fails to pay timely any of the principal amount
due under this Note on the date the same becomes due and payable or any accrued
interest or other amounts due under this Note on the date the same becomes due
and payable, whether upon demand, at stated maturity, by acceleration or
otherwise, and such failure shall not have been cured to Lender's satisfaction
within five (5) calendar days; or
b. Any representation or warranty made by or on behalf of
Borrower in this Note or any of the other Loan Documents or any statement or
certificate at any time given in writing pursuant hereto or in connection
herewith shall be false, misleading or incomplete in any material respect when
made.
Upon the occurrence of an Event of Default hereunder, all unpaid principal shall
bear interest at the rate specified in Section 2 of this Note plus five percent
(5%), and all unpaid principal, accrued interest and other amounts owing
hereunder shall be immediately collectible by Lender pursuant to applicable law.
2.
<PAGE> 3
10. Waivers. Borrower waives presentment and demand for payment, notice
of dishonor, protest and notice of protest of this Note, and shall pay all costs
of collection when incurred by or on behalf of Lender, including, without
limitation, reasonable attorneys' fees, costs and other expenses.
11. Expenses. Each party shall bear its own costs and expenses incurred
in connection with the negotiation, amendment, modification, or its performance
or compliance with the terms of this Note, including any litigation, contest,
dispute, suit, proceeding or action seeking to enforce any Obligations of, or
collecting any payments due from, Borrower under this Note).
12. No Waiver by Lender. No failure or delay on the part of Lender in
the exercise of any power, right or privilege under this Note or any of the
other Loan Documents shall impair such power, right or privilege or be construed
to be a waiver of any default or acquiescence therein, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
13. Notices. Except as otherwise provided in this Note, any notice or
other communication herein required or permitted to be given shall be in writing
and may be delivered in person, with receipt acknowledged, or sent by telex,
facsimile, telecopy, computer transmission or by United States mail, registered
or certified, return receipt requested, or by Federal Express or other
nationally recognized overnight courier service, postage prepaid and
confirmation of receipt requested, and addressed as set forth on the signature
pages to this Note or at such other address as may be substituted by notice
given as herein provided. The giving of any notice required hereunder may be
waived in writing by the party entitled to receive such notice. Every notice,
demand, request, consent, approval, declaration or other communication hereunder
shall be deemed to have been duly given or served on the date on which the same
shall have been personally delivered, with receipt acknowledged, or sent by
telex, facsimile, telecopy or computer transmission (with appropriate
answerback), three (3) Business Days after the same shall have been deposited in
the United States mail or on the next succeeding Business Day if the same has
been sent by Federal Express or other nationally recognized overnight courier
service. Failure or delay in delivering copies of any notice, demand, request,
consent, approval, declaration or other communication to the persons designated
above to receive copies shall in no way adversely affect the effectiveness of
such notice, demand, request, consent, approval, declaration or other
communication.
14. Headings. Section and subsection headings in this Note are included
herein for convenience of reference only and shall not constitute a part of this
Note for any other purpose or be given any substantive effect.
15. Severability. Whenever possible, each provision of this Note and
each of the other Loan Documents shall be interpreted in such a manner as to be
valid, legal and enforceable under the applicable law of any jurisdiction.
Without limiting the generality of the foregoing sentence, in case any provision
of this Note or any of the other Loan Documents shall be invalid, illegal or
unenforceable under the applicable law of any jurisdiction, the validity,
3.
<PAGE> 4
legality and enforceability of the remaining provisions, or of such provision in
any other jurisdiction, shall not in any way be affected or impaired thereby.
16. Entire Agreement; Construction; Amendments and Waivers.
a. This Note and each of the other Loan Documents, taken
together, constitute and contain the entire agreement among Borrower and Lender
and supersede any and all prior agreements, negotiations, correspondence,
understandings and communications between the parties, whether written or oral,
respecting the subject matter hereof. Borrower and Lender agree that they intend
the literal words of this Note and the other Loan Documents and that no parol
evidence shall be necessary or appropriate to establish Borrower's or Lender's
actual intentions.
b. Any and all other amendments, modifications, discharges or
waivers of, or consents to any departures from any provision of this Note or of
any of the other Loan Documents shall not be effective without the written
consent of Lender. Any waiver or consent with respect to any provision of the
Loan Documents shall be effective only in the specific instance and for the
specific purpose for which it was given. No notice to or demand on Borrower in
any case shall entitle Borrower to any other or further notice or demand in
similar or other circumstances. Any amendment, modification, waiver or consent
effected in accordance with this Section 16 shall be binding upon Lender and on
Borrower.
17. Reliance by Lender. All covenants, agreements, representations and
warranties made herein by Borrower shall, notwithstanding any investigation by
Lender be deemed to be material to and to have been relied upon by Lender.
18. Marshalling; Payments Set Aside. Lender shall be under no
obligation to marshall any assets in favor of Borrower or any other Person or
against or in payment of any or all of the Obligations. To the extent that
Borrower makes a payment or payments to Lender, or Lender enforces its Liens or
exercises its rights of set-off, and such payment or payments or the proceeds of
such enforcement or set-off or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, receiver or any other party under the Bankruptcy Code or under any
other similar federal or state law, common law or equitable cause, then to the
extent of such recovery the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or set-off had not occurred.
19. No Set-Offs by Borrower. All sums payable by Borrower under this
Note or pursuant to any of the other Loan Documents shall be payable without
notice or demand and shall be payable in United States Dollars without set-off
or reduction of any manner whatsoever.
20. Binding Effect, Assignment. This Note and the other Loan Documents
shall be binding upon and shall inure to the benefit of the parties hereto and
thereto and their respective successors and assigns, except that Borrower may
not assign its rights hereunder or thereunder or any interest herein or therein
without the prior written consent of Lender. Subject to the
4.
<PAGE> 5
limitations of this Section 20, Lender may also grant, from time to time,
participation interests in the interests of Lender under this Note and the other
Loan Documents without notice to, or approval of, Borrower. The grant of such a
participation interest shall be on such terms as Lender determines are
appropriate, provided only that (i) the holder of such participation interest
shall not have any of the rights of a Lender under this Agreement and (ii) the
consent of the holder of such a participation interest shall not be required for
amendments or waivers of provisions of the Loan Documents.
21. Equitable Relief. Borrower recognizes that, in the event Borrower
fails to perform, observe or discharge any of its obligations or liabilities
under this Note or any of the other Loan Documents, any remedy at law may prove
to be inadequate relief to Lender; therefore, Borrower agrees that Lender, if
Lender so requests, shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages.
22. Governing Law. Except as otherwise expressly provided in any of the
Loan Documents, in all respects, including all matters of construction, validity
and performance, this Note and the Obligations arising hereunder shall be
governed by, and construed and enforced in accordance with, the laws of the
State of California applicable to contracts made and performed in such state.
23. Defined Terms. As used herein, the following terms have the
following meanings:
"Bankruptcy Code" means the Bankruptcy Code of 1978, as
amended, as codified under Title 11 of the United States Code, and the
Bankruptcy Rules promulgated thereunder, as the same may be in effect from time
to time.
"Business Day" means any day which is not a Saturday, Sunday
or a legal holiday under the laws of the State of California or is not a day on
which banking institutions located in the State of California are authorized or
permitted by law or other governmental action to close.
"Governmental Authority" means (a) any federal, state, county,
municipal or foreign government, or political subdivision thereof, (b) any
governmental or quasi-governmental agency, authority, board, bureau, commission,
department, instrumentality or public body, (c) any court or administrative
tribunal or (d) with respect to any Person, any arbitration tribunal or other
non-governmental authority to whose jurisdiction that Person has consented.
"Lien" means any mortgage, pledge, hypothecation, assignment
for security, security interest, encumbrance, levy, lien or charge of any kind,
whether voluntarily incurred or arising by operation of law or otherwise,
affecting any Property, including any agreement to grant any of the foregoing,
any conditional sale or other title retention agreement, any lease in the nature
of a security interest, and the filing of or agreement to file or deliver any
financing statement (other than a precautionary financing statement with respect
to a lease that is not in the nature of a security interest) under the UCC or
comparable law of any jurisdiction.
5.
<PAGE> 6
"Obligations" means all loans, advances, liabilities and
obligations for monetary amounts owing by Borrower to Lender, whether due or to
become due, matured or unmatured, liquidated or unliquidated, contingent or
non-contingent, and all covenants and duties regarding such amounts, of any kind
or nature, arising under any of the Loan Documents. This term includes, without
limitation, all principal, interest (including interest that accrues after the
commencement of a case or proceeding against Borrower under the Bankruptcy
Code), fees, including, without limitation, any and all prepayment fees,
facility fees, commitment fees, arrangement fees, agent fees and attorneys' fees
and any and all other fees, expenses, costs or other sums chargeable to Borrower
under any of the Loan Documents.
"Person" means any individual, sole proprietorship,
partnership, joint venture, limited liability company, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or Governmental Authority.
"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, whether tangible or intangible.
"UCC" means the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of California, as the same may be
amended, modified or restated.
"Borrower"
EDNET, INC.
a Colorado corporation
By: __________________________________
Tom Kobayashi
Chief Executive Officer
Notices to be sent to Borrower at:
Ednet, Inc.
One Union Street
San Francisco, California 94111
Attention: Tom Kobayashi,
Chairman and Chief Executive
Officer
Telephone: (415) 274-8800
Facsimile: (415) 274-8801
6.
<PAGE> 7
Notices to be sent to Lender at:
Morgan Fuller Capital Group L.L.C.
595 Market Street, Suite 2100
San Francisco, California 94105
Attention: Gordon R. Taubenheim
Managing Director
Telephone: (415) 977-1500
Facsimile: (415) 977-1510
7.
<PAGE> 1
EX-4.(d)
$250,000.00 FEBRUARY 8, 1996
PROMISSORY NOTE
For good and valuable consideration, Entertainment Digital Network,
Inc. ("EDnet"), hereinafter referred to as the "Maker", of One Union Street, San
Francisco, California 94111, promises to pay to the order of Irawan Onggara,
hereinafter referred to as the "Holder", of Kalisari III/8, Surabaya, Indonesia,
the sum of Two Hundred Fifty Thousand Dollars ($250,000.00), together with
interest at the rate of Seven Percent (7%) per annum, on demand.
The term of this note is for a period of six (6) months and will become
due, together with interest, on August 8, 1996.
This promissory note is secured by the assets described in Exhibit "A"
attached hereto.
Presentment, demand, protest, notice of dishonor and extension of time
without notice are hereby waived by Maker.
In the event payment is not received within fifteen (15) days after
demand for payment, Maker agrees to pay all costs of collection, including
attorney's fees and court costs, incurred by Holder.
In the event of default, Maker agrees to forfeit all claims of
ownership of the assets described in Exhibit "A" to the "Holder" and agrees
further that this instrument shall be governed by the laws of the State of
California.
Dated this 8th day of February, 1996.
Entertainment Digital Network, Inc. ("EDnet")
By: /s/Tom Kobayashi
-----------------------------
Tom Kobayashi
President/CEO
1.
<PAGE> 2
EXHIBIT A
COLLATERAL:
As collateral for the Secured Indebtedness, Debtor hereby assigns and
grants to secured party, a lien and security interest in all of the Debtor's
following property, wherever located, and whether now owned or hereafter
acquired or created, subordinated to the security interest of LDDS WorldCom
(formerly Wiltel, Inc.) with offices and place of business at One Williams
Center, Tulsa, Oklahoma. WorldCom has a note in the amount of $179,316.50, dated
May 25, 1995, of which there is a balance due of $62,166.36, which is to be paid
in full by May 25, 1996.
(a) Accounts, accounts receivable, reimbursements, notes,
contracts, chattel paper, cash, checks, drafts, documents, instruments, all
rights of Debtor to receive payment in money or kind, and other evidence of
indebtedness owed to Debtor, from whatever source arising;
(b) Goods, inventory, furniture, fixtures, vehicles, office
equipment, trade fixtures, equipment together with parts, fittings, accessories
and special tools. (The furniture is under lease with Wunar Leasing
Corporation.)
2.
<PAGE> 1
EX-4.(e)
$100,000.00 APRIL 18, 1996
PROMISSORY NOTE
For good and valuable consideration, Entertainment Digital Network,
Inc. ("EDnet"), hereinafter referred to as the "Maker", of One Union Street, San
Francisco, California 94111, promises to pay to the order of Irawan Onggara,
hereinafter referred to as the "Holder", of Kalisari III/8, Surabaya, Indonesia,
the sum of One Hundred Thousand Dollars ($100,000.00), together with interest at
the rate of Seven Percent (7%) per annum, on demand.
The term of this note is for a period of six (6) months and will become
due, together with interest, on October 18, 1996.
This promissory note is secured by the same assets described in Exhibit
"A" of the February 8, 1996 Promissory Note as attached as Exhibit "A".
Presentment, demand, protest, notice of dishonor and extension of time
without notice are hereby waived by Maker.
In the event payment is not received within fifteen (15) days after
demand for payment, Maker agrees to pay all costs of collection, including
attorney's fees and court costs, incurred by Holder.
In the event of default, Maker agrees to forfeit all claims of
ownership of the assets described in Exhibit "A" to the "Holder" and agrees
further that this instrument shall be governed by the laws of the State of
California.
Dated this 18th day of April, 1996.
Entertainment Digital Network, Inc. ("EDnet")
By:/s/Tom Kobayashi
-------------------------------
Tom Kobayashi
President/CEO
1.
<PAGE> 2
EXHIBIT A
COLLATERAL:
As collateral for the Secured Indebtedness, Debtor hereby assigns and
grants to secured party, a lien and security interest in all of the Debtor's
following property, wherever located, and whether now owned or hereafter
acquired or created, subordinated to the security interest of LDDS WorldCom
(formerly Wiltel, Inc.) with offices and place of business at One Williams
Center, Tulsa, Oklahoma. WorldCom has a note in the amount of $179,316.50, dated
May 25, 1995, of which there is a balance due of $62,166.36, which is to be paid
in full by May 25, 1996.
(a) Accounts, accounts receivable, reimbursements, notes,
contracts, chattel paper, cash, checks, drafts, documents, instruments, all
rights of Debtor to receive payment in money or kind, and other evidence of
indebtedness owed to Debtor, from whatever source arising;
(b) Goods, inventory, furniture, fixtures, vehicles, office
equipment, trade fixtures, equipment together with parts, fittings, accessories
and special tools. (The furniture is under lease with Wunar Leasing
Corporation.)
2.
<PAGE> 1
EX-4.(f)
$75,000.00 MAY 20, 1996
PROMISSORY NOTE
For good and valuable consideration, Entertainment Digital Network,
Inc. ("EDnet"), hereinafter referred to as the "Maker", of One Union Street, San
Francisco, California 94111, promises to pay to the order of Irawan Onggara,
hereinafter referred to as the "Holder", of Kalisari III/8, Surabaya, Indonesia,
the sum of Seventy-Five Thousand Dollars ($75,000.00), together with interest at
the rate of Seven Percent (7%) per annum, on demand.
The term of this note is for a period of six (6) months and will become
due, together with interest, on November 20, 1996.
This promissory note is secured by the same assets described in Exhibit
"A" of the February 8, 1996 Promissory Note as attached as Exhibit "A".
Presentment, demand, protest, notice of dishonor and extension of time
without notice are hereby waived by Maker.
In the event payment is not received within fifteen (15) days after
demand for payment, Maker agrees to pay all costs of collection, including
attorney's fees and court costs, incurred by Holder.
In the event of default, Maker agrees to forfeit all claims of
ownership of the assets described in Exhibit "A" to the "Holder" and agrees
further that this instrument shall be governed by the laws of the State of
California.
Dated this 20th day of May, 1996.
Entertainment Digital Network, Inc. ("EDnet")
By:/s/Tom Kobayashi
-------------------------
Tom Kobayashi
President/CEO
1.
<PAGE> 2
EXHIBIT A
COLLATERAL:
As collateral for the Secured Indebtedness, Debtor hereby assigns and
grants to secured party, a lien and security interest in all of the Debtor's
following property, wherever located, and whether now owned or hereafter
acquired or created, subordinated to the security interest of LDDS WorldCom
(formerly Wiltel, Inc.) with offices and place of business at One Williams
Center, Tulsa, Oklahoma. WorldCom has a note in the amount of $179,316.50, dated
May 25, 1995, of which there is a balance due of $62,166.36, which is to be paid
in full by May 25, 1996.
(a) Accounts, accounts receivable, reimbursements, notes,
contracts, chattel paper, cash, checks, drafts, documents, instruments, all
rights of Debtor to receive payment in money or kind, and other evidence of
indebtedness owed to Debtor, from whatever source arising;
(b) Goods, inventory, furniture, fixtures, vehicles, office
equipment, trade fixtures, equipment together with parts, fittings, accessories
and special tools. (The furniture is under lease with Wunar Leasing
Corporation.)
2.
<PAGE> 1
EX-4.(g)
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A
VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF. THE SECURITIES
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND
QUALIFICATION WITHOUT, EXCEPT UNDER CERTAIN SPECIFIC LIMITED CIRCUMSTANCES, AN
OPINION OF COUNSEL FOR THE HOLDER, CONCURRED IN BY COUNSEL FOR THE COMPANY THAT
SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
EDNET, INC.
PROMISSORY NOTE
$125,000 Palo Alto, California
June 24, 1996
1. PRINCIPAL INTEREST. EDNET, INC. (the "Company"), a Colorado
corporation, for value received, hereby promises to pay to the order of
________________ or holder ("Payee") in lawful money of the United States of
America at the address of Payee set forth below, the principal amount set forth
above together with interest as set forth below.
The Company promises to pay interest on the unpaid principal amount of
this Note at the rate of eight percent (8.0%) per annum from the date of this
Note until such principal amount is paid in full. Accrued interest shall be
payable at the time the Company pays the entire unpaid principal amount.
All unpaid principal and unpaid accrued interest of this Note is due
and payable upon the earlier of (i) twelve months from the closing of the
Agreement and Plan of Reorganization by and among Ednet, Inc., EDN Sub, Inc.,
and Internet Worldwide Business Solutions (the "Agreement and Plan of
Reorganization") or (ii) fifteen (15) days after the closing of a public
offering of Company Common Stock. The closing shall be deemed to have occurred
when the underwriters purchase from the Company a majority of the shares offered
to the public and pay for such shares.
All unpaid principal and unpaid accrued interest of this Note may be
prepaid without penalty, in whole or in part, at any time. Any prepayment of
this Note shall be made only at the same time as the Company prepays all other
unsecured Notes issued pursuant to the Agreement and Plan of Reorganization,
with such prepayments to be made pro-rata in proportion to the then outstanding
principal amounts of such unsecured Notes. Any prepayment of this Note will be
credited first against accrued interest then principal.
1.
<PAGE> 2
Upon payment in full of the entire principal amount of the Note and
interest payable hereunder, this Note shall be surrendered to the Company for
cancellation.
2. ATTORNEYS' FEES. If the indebtedness represented by this Note or any
part thereof is collected in bankruptcy, receivership or other judicial
proceedings or if this Note is placed in the hands of attorneys for collection
after default, the Company agrees to pay, in addition to the principal and
interest payable hereunder, reasonable attorneys' fees and costs incurred by
Payee.
3. NOTICES. Any notice, other communication or payment required or
permitted hereunder shall be in writing and shall be deemed to have been given
upon delivery if personally delivered or three business days after deposit if
deposited in the United States mail for mailing by certified mail, postage
prepaid, and addressed as follows:
<TABLE>
<S> <C>
(a) if to the Company: EDnet, Inc.
Attn: Tom Kobayashi, Chairman & CEO
One Union Street
San Francisco, CA 94111
Telephone: (415) 274-8800
Facsimile: (415) 274-8801
with a copy to: Klenda, Gordon & Getchell, P.C.
Attn: Phillip L. Allbritten and G. David
Gordon
610 ONEOK Plaza
100 West Fifth Street
Tulsa, Oklahoma 74103
Telephone: (918) 587-9191
Facsimile: (918) 587-0054
(b) if to Payee: Internet Business Solutions
Attn: Randall H. Schmitz and Trevor R.
Stout
2081 Landings Drive
Mountain View, CA 94043
Telephone: (415) 967-3700
Facsimile: (415) 967-3701
with a copy to: Wilson, Sonsini, Goodrich & Rosati, P.C.
Attn: Robert D. Brownell
650 Page Mill Road
Palo Alto, CA 94304-1050
Telephone: (415) 493-9300
Facsimile: (415) 493-6811
</TABLE>
2.
<PAGE> 3
Each of the above addressees may change its address for purposes of this
paragraph by giving to the other addressee notice of such new address in
conformance with this paragraph.
4. ACCELERATION. This Note shall become immediately due and payable if
(i) the Company commences any proceeding or bankruptcy or for dissolution,
liquidation, winding-up, composition or other relief under state or federal
bankruptcy laws; or (ii) such proceedings are commenced against the Company, or
a receiver or trustee is appointed for the Company or a substantial part of its
property.
5. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
Articles of Incorporation or Bylaws or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Note, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holder of this
Note against dilution or other impairment.
6. WAIVERS. The Company hereby waives presentment, demand for
performance, notice of non-performance, protest, notice of protest and notice of
dishonor. No delay on the part of Payee in exercising any right hereunder shall
operate as a waiver of such right or any other right. This Note is being
delivered in and shall be construed in accordance with the laws of the State of
California, without regard to the conflicts of laws provisions thereof.
EDNET, INC.
By:_____________________________________
Tom Kobayashi, Chairman and CEO
3.
<PAGE> 1
EX-10.(a)
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
EDNET, INC.,
A COLORADO CORPORATION
EDN SUB, INC.,
A CALIFORNIA CORPORATION
AND
INTERNET WORLDWIDE BUSINESS SOLUTIONS,
A CALIFORNIA CORPORATION
DATED AS OF JUNE 24, 1996
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I
THE MERGER...................................................................................................2
1.1 The Merger..........................................................................................2
1.2 Effective Time......................................................................................2
1.3 Effect of the Merger................................................................................2
1.4 Articles of Incorporation; Bylaws...................................................................2
1.5 Directors and Officers..............................................................................2
1.6 Merger Consideration; Effect on Capital Stock.......................................................3
1.7 Surrender of Certificates; Payment of Merger Consideration..........................................4
1.8 No Further Ownership Rights in Company Common Stock.................................................4
1.9 Lost, Stolen or Destroyed Certificates..............................................................5
1.10 Tax Consequences....................................................................................5
1.11 Taking of Necessary Action; Further Action..........................................................5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................................5
2.1 Organization........................................................................................5
2.2 Authorized Capitalization...........................................................................5
2.3 Authority...........................................................................................6
2.4 Company Financial Statements........................................................................6
2.5 No Undisclosed Liabilities..........................................................................6
2.6 Taxes...............................................................................................6
2.7 Properties..........................................................................................6
2.8 Books and Records...................................................................................6
2.9 Insurance...........................................................................................7
2.10 Transactions with Certain Persons...................................................................7
2.11 Material Contracts..................................................................................7
2.12 Employment Matters..................................................................................7
2.13 Authorizations......................................................................................7
2.14 No Powers of Attorney...............................................................................8
2.15 Compliance with Laws................................................................................8
2.16 Compliance with Environmental Laws..................................................................8
2.17 No Litigation.......................................................................................8
2.18 Validity............................................................................................8
2.19 No Adverse Changes..................................................................................8
2.20 Fees................................................................................................8
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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2.21 Full Disclosure.....................................................................................8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB......................................................9
3.1 Organization, Standing and Power....................................................................9
3.2 Authority...........................................................................................9
3.3 Cash Consideration..................................................................................9
3.4 Parent Financial Statements.........................................................................9
3.5 Parent Common Stock.................................................................................9
3.6 Continuity of Business Enterprise..................................................................10
3.7 Authorized Capitalization..........................................................................10
3.8 Full Disclosure....................................................................................10
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME.........................................................................10
4.1 Conduct of Business of the Company.................................................................10
4.2 No Solicitation....................................................................................12
ARTICLE V
ADDITIONAL AGREEMENTS.......................................................................................13
5.1 Access to Information..............................................................................13
5.2 Confidentiality....................................................................................13
5.3 Expenses...........................................................................................13
5.4 Public Disclosure..................................................................................13
5.5 Consents...........................................................................................13
5.6 Legal Requirements.................................................................................14
5.7 Notification of Certain Matters....................................................................14
5.8 Additional Documents and Further Assurances........................................................14
5.9 Certain Benefit Plans..............................................................................14
5.10 Blue Sky Laws......................................................................................14
5.11 Employment Agreements..............................................................................14
5.12 Earn-Out Plan......................................................................................14
5.13 Parent Stock Options...............................................................................15
5.14 Board of Directors of Parent.......................................................................15
5.15 Restrictions on Sale...............................................................................15
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
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ARTICLE VI
CONDITIONS TO THE MERGER....................................................................................15
6.1 Conditions to Obligations of Each Party to Effect the Merger.......................................15
6.2 Additional Conditions to Obligations of Company....................................................15
6.3 Additional Conditions to the Obligations of Parent and Merger Sub..................................16
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER...........................................................................17
7.1 Termination........................................................................................17
7.2 Effect of Termination..............................................................................18
7.3 Amendment..........................................................................................18
7.4 Extension; Waiver..................................................................................18
7.5 Notice of Termination..............................................................................18
ARTICLE III
GENERAL PROVISIONS..........................................................................................18
8.1 Notices............................................................................................18
8.2 Interpretation.....................................................................................19
8.3 Counterparts.......................................................................................19
8.4 Entire Agreement; Assignment.......................................................................20
8.5 Severability.......................................................................................20
8.6 Other Remedies.....................................................................................20
8.7 Governing Law......................................................................................20
8.8 Rules of Construction..............................................................................20
</TABLE>
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<PAGE> 5
INDEX OF EXHIBITS
Exhibit Description
Exhibit A Form of First Note
Exhibit B Form of Second Note
Exhibit C Earn-Out Plan
Exhibit D Company Schedule of Exceptions
Exhibit E Parent and Merger Sub Schedule of Exceptions
Exhibit F-1 Form of Employment Agreement (Stout)
Exhibit F-2 Form of Employment Agreement (Schmitz)
Exhibit G Schedule of Employee Stock Options
Exhibit H Continuity of Interest Certificate
Exhibit I-1 Ownership Certificate (Stout)
Exhibit I-2 Ownership Certificate (Schmitz)
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<PAGE> 6
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of June 24, 1996 by and among EDNET, INC., a Colorado
corporation ("Parent"), EDN SUB, INC., a California corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and INTERNET WORLDWIDE
BUSINESS SOLUTIONS, a California corporation d.b.a. Internet Business Solutions
(the "Company").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger
Sub believe it is in the best interests of each company and their respective
stockholders that Parent acquire the Company through the statutory merger of the
Company with and into Merger Sub (the "Merger") and, in furtherance thereof,
have approved the Merger.
B. All of the stockholders of the Company and Merger Sub believe that
the Merger is in the best interests of each company and their respective
stockholders and, in furtherance thereof, have approved the Merger.
C. Pursuant to the Merger, among other things, all of the issued and
outstanding shares of common stock, no par value, of the Company (the "Company
Common Stock") shall be converted into a promissory note from Parent, shares of
common stock of Parent (the "Parent Common Stock") and a Plan to issue
additional shares of Parent Common Stock in the event certain milestones are
met, all in accordance with the terms and subject to the conditions set forth in
this Agreement.
D. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
<PAGE> 7
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the California Corporations Code and the Colorado
Corporations Code, the Company shall be merged with and into Merger Sub, the
separate corporate existence of the Company shall cease and Merger Sub shall
continue as the surviving corporation and as a wholly-owned subsidiary of
Parent. Merger Sub as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated
pursuant to Section 7.1, the closing of the Merger (the "Closing") will take
place at the offices of Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road,
Palo Alto, California at such time and date as Parent and the Company may
mutually select. The date upon which the Closing actually occurs is herein
referred to as the "Closing Date." On the Closing Date, the parties hereto shall
cause the Merger to be consummated by filing a Certificate of Merger (or like
instrument) with the Secretary of State of the State of California (the
"Certificate of Merger"), in accordance with the relevant provisions of
applicable law (the time of acceptance by the Secretary of State of California
of such filing being referred to herein as the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of California law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities, obligations and duties of the Company and Merger Sub shall
become the debts, liabilities, obligations and duties of the Surviving
Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the
Effective Time, at the Effective Time, the Articles of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the Articles
of Incorporation of the Surviving Corporation until thereafter amended as
provided by law.
(b) The Bylaws of Merger Sub, as in effect immediately prior
to the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. The directors of Merger Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
-2-
<PAGE> 8
1.6 Merger Consideration; Effect on Capital Stock. The consideration to
be paid by Parent in exchange for the acquisition of all outstanding Company
Common Stock shall be (i) secured promissory notes payable for an aggregate
principal amount of $250,000 in the form of Exhibit A hereto (the "First
Notes"), (ii) promissory notes payable for an aggregate principal amount of
$250,000 in the form of Exhibit B hereto (the "Second Notes"), (iii) 311,284
shares of Parent Common Stock, and (iv) the contractual obligation to issue up
to 500,000 additional shares of Parent Common Stock in the event that certain
milestones are reached as evidenced by the Earn-Out Plan attached hereto as
Exhibit C.
(a) Payment of Merger Consideration. Subject to the terms and
conditions of this Agreement, as of the Effective Time, by virtue of the Merger
and without any action on the part of Merger Sub, the Company or the holders of
any shares of Company Common Stock, each share of Company Common Stock issued
and outstanding as of immediately prior to the Effective Time will be canceled
and extinguished at the Effective Time and will be converted at such time into
the right to receive, upon surrender of the certificate representing such share
of Company Common Stock in the manner provided in Section 1.8, a First Note, a
Second Note, a number of shares of Parent Common Stock, a right to receive
shares of Parent Common Stock pursuant to the terms of the Earn-Out Plan such
amount of notes, stock and rights to receive stock (collectively, the "Merger
Consideration") on the terms and conditions set forth in this Agreement as
follows:
(A) Stock. Each share of Company Common Stock shall
be entitled to receive a number of shares of Parent Common Stock equal to the
quotient of (i) 311,284, divided by (ii) the number of shares of Company Common
Stock outstanding as of the Closing, provided that no fractional shares of
Parent Common Stock shall be issued, and in lieu thereof, any fractional shares
issuable to any holder after aggregating all shares of Company Common Stock
owned by such holder shall be rounded up to a whole share;
(B) Notes. In addition, each holder of Company Common
Stock shall be entitled to receive a First Note and a Second Note each in the
principal amount of $250,000 multiplied by the quotient of (i) the number of
shares of Company Common Stock owned by the holder, divided by (ii) the total
outstanding shares of Company Common Stock; and
(C) Earn-Out Plan. In addition, each holder of
Company Common Stock shall be entitled to receive additional Parent Common Stock
pursuant to the Earn Out Plan in the form of Exhibit C.
(b) Cancellation of Parent-Owned and Company-Owned Stock.
Each share of Company Common Stock owned by Merger Sub, Parent, the Company or
any direct or indirect wholly owned subsidiary of Parent or of the Company
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
-3-
<PAGE> 9
(c) Capital Stock of Merger Sub. Each share of common stock,
par value $0.001 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall, following the Effective Time, represent one
validly issued, fully paid and nonassessable share of common stock, par value
$0.001 per share, of the Surviving Corporation. Each stock certificate of Merger
Sub evidencing ownership of any such shares shall continue to evidence ownership
of such shares of capital stock of the Surviving Corporation. Following the
Effective Time, all of such shares of capital stock of the Surviving Corporation
shall be held by the former shareholders of the Company as security for Parent's
debts owed under the First Notes.
1.7 Surrender of Certificates; Payment of Merger Consideration.
(a) Exchange Agent. Prior to the Effective Time, Parent and
the Company shall designate a mutually acceptable third party to act as exchange
agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock. Promptly after the
Effective Time, Parent shall make available to the Exchange Agent for exchange
in accordance with this Article I, the aggregate Merger Consideration payable
pursuant to Section 1.6 in exchange for outstanding shares of Company Common
Stock.
(c) Exchange Procedures. Promptly after the Effective Time,
the Parent shall deliver the Merger consideration in exchange for certificates
representing all outstanding shares of Company Common Stock (the
"Certificates"). Until so surrendered, each outstanding Certificate that, prior
to the Effective Time, represented shares of Company Common Stock, will be
deemed from and after the Effective Time, to evidence only the right to receive
the Merger Consideration in respect of each such share.
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made with a record date after the
Effective Time with respect to Parent Common Stock will be paid to the holder of
any unsurrendered Certificate with respect to the shares of Parent Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock.
1.8 No Further Ownership Rights in Company Common Stock. All amounts
paid upon the surrender for exchange of shares of Company Common Stock in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Parent or the Surviving
-4-
<PAGE> 10
Corporation for any reason, they shall be canceled and the Merger Consideration
shall be delivered to the person entitled thereto.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Parent shall make
payment in exchange for such lost, stolen or destroyed certificates, upon the
making of an affidavit of that fact by the holder thereof and an agreement to
indemnify Parent against any claim that may be made against Parent with respect
to the certificates alleged to have been lost, stolen or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368(a) of
the Code.
1.11 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub or to vest Parent with a 100%
ownership interest in the Surviving Corporation, the officers and directors of
the Surviving Corporation are fully authorized in the name of the Company and
the Surviving Corporation or otherwise to take, and will take, all such lawful
and necessary and/or desirable action so long as such action is consistent with
this Agreement and the security interest in all of the outstanding shares of the
Surviving Corporation granted pursuant to this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub, subject
to the Company Schedule of Exceptions attached hereto as Exhibit D, as follows:
2.1 Organization. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of California.
The Company has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business. The Company is duly
qualified and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have a material adverse effect on the
business or property of the Company (a "Material Adverse Effect").
2.2 Authorized Capitalization. The authorized capitalization of the
Company consists of one hundred thousand (100,000) shares of no par value Common
Stock, of which fifty thousand (50,000) shares have been issued and are
outstanding. The shares have been duly authorized, validly issued, are fully
paid and nonassessable with no personal liability attaching to the ownership
thereof and were offered, issued, sold and delivered by the Company in
compliance with all applicable state and federal laws. The Company does not have
any outstanding rights, options, warrants, calls, commitments, conversion or any
other agreements of any character, whether oral or written, obligating it to
issue any shares of its capital stock, whether authorized or not. The Company is
not a party to and is not bound
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by any agreement, contract, arrangement or understanding, whether oral or
written, giving any person or entity any interest in, or any right to share,
participate in or receive any portion of, the Company's income, profits or
assets, or obligating the Company to distribute any portion of its income,
profits or assets.
2.3 Authority. The Company has full power and lawful authority to
execute and deliver this Agreement and to consummate and perform the
transactions contemplated hereby. This Agreement constitutes (or shall, upon
execution, constitute) a valid and legally binding obligation upon the Company,
enforceable in accordance with its terms. Neither the execution and delivery of
the Agreement by the Company, nor the consummation and performance of the
transactions contemplated hereby, conflicts with, requires the consent, waiver
or approval of, results in a breach of or default under, or gives to others any
interest or right of termination, cancellation or acceleration in or with
respect to, any material agreement by which the Company is a party or by which
the Company or any of its material properties or assets are bound or affected.
2.4 Company Financial Statements. The Company's unaudited financial
statements for the period ended April 30, 1996 are complete, were prepared in
accordance with generally accepted accounting principles (except for the
omission of footnotes) applied on a basis consistent with prior periods and
fairly present the financial position of the Company as of April 30, 1996.
2.5 No Undisclosed Liabilities. Except as set forth in the Company's
financial statements previously delivered to Parent and Merger Sub, the Company
is not aware of any material liabilities for which the Company is liable or will
become liable in the future.
2.6 Taxes. The Company has filed all federal, state, local tax and
other returns and reports which were required to be filed with respect to all
taxes, levies, imposts, duties, licenses and registration fees, charges or
withholdings of every nature whatsoever ("Taxes"), and there exists a
substantial basis in law and fact for all positions taken in such reports. No
waivers of periods of limitation are in effect with respect to any taxes arising
from and attributable to the ownership of properties or operations of the
business of the Company.
2.7 Properties. The Company has good and marketable title to all its
material personal property, equipment, processes, patents, copyrights,
trademarks, franchises, licenses and other material properties and assets
(except for items leased or licensed to the Company), including all property
reflected in the Company's financial statements (except for assets reflected
therein which have been sold in the normal course of its business where the
proceeds from such sale or other disposition have been properly accounted for in
the financial statements of the Company), in each case free and clear of all
material liens, claims and encumbrances of every kind and character. The Company
does not own any real property. The assets and properties owned, operated or
leased by the Company and used in its business are in good operating condition,
reasonable wear and tear excepted, and suitable for the uses for which intended.
2.8 Books and Records. The books and records of the Company are
complete and correct in all material respects, have been maintained in
accordance with good business practices and accurately
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<PAGE> 12
reflect in all material respects the business, financial condition and results
of operations of the Company as set forth in the Company's financial statements.
2.9 Insurance. The Company Schedule of Exceptions contains an accurate
and complete list and brief description of all performance bonds and policies of
insurance, including fire and extended coverage, general liability, workers
compensation, products liability, property, and other forms of insurance or
indemnity bonds held by the Company. The Company is not in default with respect
to any provisions of any such policy or indemnity bond and has not failed to
give any notice or present any claim thereunder in due and timely fashion. All
policies of insurance and bonds are: (1) in full force and effect; (2) are
sufficient for compliance by the Company with all requirements of law and of all
agreements and instruments to which the Company is a party; (3) are valid,
outstanding and enforceable; (4) will remain in full force and effect through
the Closing; and (5) will not be affected by, and will not terminate or lapse by
reason of, the transactions contemplated by this Agreement.
2.10 Transactions with Certain Persons. Except as disclosed in the
Company Schedule of Exceptions, the Company has no outstanding material
agreement, understanding, contract, lease, commitment, loan or other material
arrangement with any officer, director or shareholder of the Company or any
relative of any such person, or any corporation or other entity in which such
person owns a material beneficial interest.
2.11 Material Contracts. Except as set forth in the Company Schedule of
Exceptions, the Company has no purchase, sale, commitment, or other contract,
the breach or termination of which would have a materially adverse effect on the
business, financial condition, results of operations, assets, liabilities, or
prospects of the Company.
2.12 Employment Matters. The Company Schedule of Exceptions contains a
list of all officers, their base salaries, accrued vacation pay, sick pay, and
severance pay through April 30, 1996. Except as set forth in the Company
Schedule of Exceptions, the Company is not a party to any employment agreement,
or any pension, profit sharing, retirement or other deferred compensation plan
or agreement. The Company has not incurred any unfunded deficiency or liability
within the meaning of the Employee Retirement Income Security Act of 1974
("ERISA"), has not incurred any liability to the Pension Benefit Guaranty
Corporation established under ERISA in connection with any employee benefit plan
and has no outstanding obligations or liabilities under any employee benefit
plan. The Company has not been a party to a "prohibited transaction," which
would subject the Company to any tax or penalty. There is no collective
bargaining agreement or negotiations therefor, labor grievance or arbitration
proceeding against the Company pending or threatened, and to the knowledge of
the Company, there are no union organizing activities currently pending or
threatened against or involving the Company.
2.13 Authorizations. The Company has no licenses, permits, approvals
and other authorizations from any governmental agencies and any other entities
that are materially necessary for the conduct of its business, except as set
forth in the Company Schedule of Exceptions which contains a list of all
material licenses, permits, approvals, and other material authorizations, as
well as a list of all material copyrights, patents, trademarks, trade names,
service marks, franchises, licenses and other material permits, each of which is
valid and in full force and effect.
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2.14 No Powers of Attorney. The Company has no powers of attorney or
similar authorizations outstanding.
2.15 Compliance with Laws. The Company is not in violation of any
federal, state, local or other law, ordinance, rule or regulation applicable to
its business, and has not received any actual or threatened complaint, citation
or notice of violation or investigation from any governmental authority, in each
case where such violation would have a material adverse effect on the Company.
2.16 Compliance with Environmental Laws. The Company is in compliance
with all applicable pollution control and environmental laws, rules and
regulations in all material respects. The Company has no environmental licenses,
permits and other authorizations held by the Company relative to compliance with
environmental laws, rules and regulations.
2.17 No Litigation. There are no actions, suits, claims, complaints or
proceedings pending or threatened against the Company, at law or in equity, or
before or by any governmental department, commission, court, board, bureau,
agency or instrumentality; and there are no facts which would provide a valid
basis for any such action, suit or proceeding, which, if determined adversely to
the Company, would have a material adverse effect on the Company. There are no
orders, judgments or decrees of any governmental authority outstanding which
specifically apply to the Company or any of its assets.
2.18 Validity. All material contracts, agreements, leases and licenses
to which the Company is a party or by which it or any of its material properties
or assets are bound or affected, are valid and in full force and effect; and no
breach or default exists, or upon the giving of notice or lapse of time, or
both, would exist, on the part of the Company or by any other party thereto.
2.19 No Adverse Changes. Since April 30, 1996, there have been no
actual or threatened developments of a nature that is materially adverse to or
involves any materially adverse effect upon the business, financial condition,
results of operations, assets, liabilities, or prospects of the Company.
2.20 Fees. All negotiations relating to this Agreement and the
transactions contemplated hereby have been conducted by the Company in such a
manner as not to give rise to any valid claim for any finder's fees, brokerage
commission, financial advisory fee or related expense or other like payment for
which the Company has obligated itself, Parent or Merger Sub.
2.21 Full Disclosure. All statements of the Company contained in this
Agreement and in any other written documents delivered by or on behalf of the
Company to Parent or Merger Sub, when taken as a whole, are true and correct in
all material respects and do not omit any material fact necessary to make the
statements contained therein not misleading in light of the circumstances under
which they were made. There are no facts known to the Company which have a
material adverse affect upon the business, financial condition, results of
operations, assets, liabilities, or prospects of the Company, which have not
been disclosed to Parent or Merger Sub in this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company, subject to
the Parent and Merger Sub Schedule of Exceptions attached hereto as Exhibit E,
as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. Each of Parent and
Merger Sub has the corporate power to own its properties and to carry on its
business as now being conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on the business, assets, financial condition, or
results of operations of Parent or the ability of Parent and Merger Sub to
consummate the transactions contemplated hereby.
3.2 Authority. Parent and Merger Sub have full power and lawful
authority to execute and deliver this Agreement and to consummate and perform
the transactions contemplated hereby. This Agreement constitutes (or shall, upon
execution, constitute) a valid and legally binding obligation upon Parent and
Merger Sub, enforceable in accordance with its terms. Neither the execution and
delivery of the Agreement by Parent or Merger Sub, nor the consummation and
performance of the transactions contemplated hereby, conflicts with, requires
the consent, waiver or approval of, results in a breach of or default under, or
gives to others any interest or right of termination, cancellation or
acceleration in or with respect to, any material agreement to which Parent or
Merger is a party or by which Parent or Merger Sub or any of their material
properties or assets are bound or affected. No consent, approval, order or
authorization of, or registration, declaration or filing with, any governmental
entity, is required by or with respect to Parent and Merger Sub in connection
with the execution and delivery of this Agreement by Parent and Merger Sub or
the consummation by Parent and Merger Sub of the transactions contemplated
hereby, except for the filing of the Certificate of Merger with the California
Secretary of State.
3.3 Cash Consideration. Parent currently has available, and at the
Effective Time of the Merger will continue to have available, sufficient stock
and cash to enable it to perform its obligations under this Agreement, except as
indicated in the Parent and Merger Sub Schedule of Exceptions.
3.4 Parent Financial Statements. Parent's unaudited financial
statements for the period ended April 30, 1996 are complete, were prepared in
accordance with generally accepted accounting principles (except for the
omission of footnotes) applied on a basis consistent with prior periods and
fairly present the financial position of Parent as of April 30, 1996.
3.5 Parent Common Stock. The shares of Parent Common Stock, when issued
in the Merger in compliance with this Agreement, will be (i) validly issued,
fully paid and nonassessable, (ii) issued in compliance with applicable state
and federal securities laws and (iii) shall constitute an exempt security under
Section 3(a)10 of the Securities Act of 1933.
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<PAGE> 15
3.6 Continuity of Business Enterprise. After the Effective Time, Parent
and Merger Sub will continue a significant historic business line of the Company
or use a significant portion of the Company's historic business assets in a
business, in each case within the meaning of Treasury Regulation Section 1.368-
1(d).
3.7 Authorized Capitalization. The authorized capitalization of Parent
consists of Fifty Million (50,000,000) shares of .001 par value Common Stock, of
which Four Million One Hundred Fifty Seven Thousand Thirty Eight (4,157,038)
shares have been issued and are outstanding as of May 31, 1996, and Five Million
(5,000,000) shares of $.001 par value non-voting Preferred Stock with none
outstanding at May 31, 1996. Parent's Shares have been duly authorized, validly
issued, are fully paid and nonassessable with no personal liability attaching to
the ownership thereof and were offered, issued, sold and delivered by Parent in
compliance with all applicable state and federal laws. Parent does not have any
outstanding rights, options, warrants, calls, commitments, conversion or any
other agreements of any character, whether oral or written, obligating it to
issue any shares of its capital stock whether authorized or not. Parent is not a
party to and is not bound by any agreement, contract, arrangement or
understanding, whether oral or written, giving any person or entity any interest
in, or any right to share, participate in or receive any portion of Parent's
income, profits or assets, or obligating Parent to distribute any portion of its
income, profits or assets.
3.8 Full Disclosure. All statements of Parent or Merger Sub contained
in this Agreement and in any other written documents delivered by or on behalf
of Parent or Merger Sub to the Company, when taken as a whole, are true and
correct in all material respects and do not omit any material fact necessary in
order to make the statements contained therein not misleading in light of the
circumstances under which they were made. There are no facts known to Parent or
Merger Sub which have a material adverse affect upon the business, financial
condition, results of operations, assets, liabilities or prospects of Parent
that have not been disclosed to the Company in this Agreement.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent), to carry on its business in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted, to
pay its debts and Taxes when due unless validly withheld, to pay or perform
other obligations when due, and, to the extent consistent with such business and
except as agreed to by Parent and the Company, use all reasonable efforts
consistent with past practice and policies to preserve intact the Company's
present business organization, keep available the services of its present
officers and key employees and preserve their relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it, all with the goal of preserving unimpaired the Company's
goodwill and ongoing businesses at the Effective Time. The Company shall
promptly notify Parent of any event or occurrence or emergency not in the
ordinary course of business of the Company, and any material event involving
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<PAGE> 16
the Company. Except as expressly contemplated by this Agreement, the Company
shall not, without the prior written consent of Parent:
(a) Enter into any commitment or transaction not in the
ordinary course of business;
(b) Transfer to any person or entity any rights to the
Company's intellectual property (other than pursuant to end user or existing
licenses in the ordinary course of business);
(c) Enter into or make any material amendments to any
agreements pursuant to which any other party is granted marketing, distribution
or similar rights of any type or scope with respect to any products of the
Company;
(d) Make any material amendments to, terminate or violate any
distribution agreement or material contract, agreement or license to which the
Company is a party or by which it is bound other than termination by the Company
pursuant to the terms thereof in the ordinary course of business and without
financial penalty to the Company;
(e) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any of
its capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of its capital
stock (or options, warrants or other rights exercisable therefor);
(f) Issue, deliver or sell or authorize or propose the
issuance, delivery or sale of, or purchase or propose the purchase of, any
shares of its capital stock or securities convertible into, or subscriptions,
rights, warrants or options to acquire, or other agreements or commitments of
any character obligating it to issue any such shares or other convertible
securities;
(g) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(h) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any of the assets or equity securities of, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to the
business of the Company;
(i) Incur any indebtedness for borrowed money (except with
respect to indebtedness incurred by the Company in the ordinary course of
business and under existing term loans or revolving credit lines or an extension
thereof) or guarantee any such indebtedness or issue or sell any debt securities
of the Company or guarantee any debt securities of others;
(j) Grant any severance or termination pay (i) to any director
or officer or (ii) to any other employee except payments made pursuant to
standard written agreements outstanding on the date hereof;
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<PAGE> 17
(k) Adopt or amend any employee benefit plan, or enter into
any employment contract, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
of its employees;
(l) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(m) Pay, discharge or satisfy, in an amount in excess of
$5,000 (in any one case) or $10,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction of liabilities in the ordinary
course of business or liabilities reflected or reserved against in the Company's
financial statements (or the notes thereto);
(n) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(o) Enter into any strategic alliance or joint marketing
arrangement or agreement;
or
(p) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (p) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time or the
date of termination of this Agreement pursuant to the provisions of Section 7.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, agents, stockholders, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: (a) solicit third parties relating to the
possible acquisition of the Company (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or a material portion of its
capital stock or assets, (b) enter into an agreement providing for the
acquisition of the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) or a material portion of its capital stock or
assets or (c) make or authorize any statement, recommendation or solicitation in
support of any possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any material
portion of its capital stock or assets.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Access to Information. Each party shall afford the other party and
its accountants, counsel and other representatives, reasonable access during
normal business hours upon reasonable notice during the period prior to the
Effective Time to (a) all of such party's properties, books, contracts,
commitments and records, and (b) all other information concerning the business,
properties and personnel (subject to restrictions imposed by applicable law) of
such party as the other party may reasonably request, including without
limitation access upon reasonable request to employees, customers and vendors
for due diligence inquiry. Each party shall provide the other party and its
accountants, counsel and other representatives copies of internal financial
statements, business plans and projections promptly upon request. No information
or knowledge obtained in any investigation pursuant to this Section 5.1 shall
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Merger.
5.2 Confidentiality. Each of the parties hereto hereby agrees to keep
such information or knowledge obtained in any investigation pursuant to Section
5.1, or pursuant to the negotiation and execution of this Agreement or the
effectuation of the transactions contemplated hereby, confidential in accordance
with the terms of the confidentiality agreement executed by the Parent and the
Company (the "Confidentiality Agreement").
5.3 Expenses. If the Merger is not consummated, all fees and expenses
incurred in connection with the Merger including, without limitation, all legal,
accounting, financial advisory, consulting and all other fees and expenses of
third parties ("Third Party Expenses") incurred by a party or its stockholders
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, shall be the
obligation of the respective party incurring such fees and expenses. If the
Merger is consummated, all Third Party Expenses incurred by the Company and its
shareholders up to $40,000 shall be paid by the Parent.
5.4 Public Disclosure. Unless otherwise required by law, prior to the
Effective Time, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Parent and the Company prior to release, provided that such approval
shall not be unreasonably withheld, subject, in the case of Parent, to Parent's
obligation to comply with applicable securities laws.
5.5 Consents. Each of Parent and the Company shall promptly apply for
or otherwise seek, and use its best efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the Merger, and
the Company shall use its best efforts to obtain all consents, waivers and
approvals under any of the Company's agreements, contracts, licenses and leases
in order to preserve the benefits thereunder for the Surviving Corporation and
otherwise in connection with the Merger; provided, however, that the parties
agree that the Merger will not be conditioned upon, or delayed in order to seek,
the receipt of a favorable ruling from the Internal Revenue Service with respect
to the tax treatment of the Merger.
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5.6 Legal Requirements. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable best efforts
to take promptly, or cause to be taken, all reasonable actions, and to do
promptly, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated hereby to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings and to remove
any injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement.
5.7 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which may cause any representation or warranty of the Company or Parent,
respectively, contained in this Agreement to be untrue or inaccurate at the
Effective Time and (ii) any failure of the Company or Parent, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.7 shall not limit or otherwise affect
any remedies available to the party receiving such notice and will not limit the
Company's ability to correct or resolve such inaccuracy or to cure such failure
by the Effective Time.
5.8 Additional Documents and Further Assurances. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.9 Certain Benefit Plans. Following the Effective Time, Parent shall
take such reasonable actions as are necessary to allow eligible employees of the
Company to participate in the benefit programs of Parent, or alternative benefit
programs substantially comparable to those applicable to employees of Parent on
similar terms, as soon as practicable after the Effective Time.
5.10 Blue Sky Laws. Parent shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of Parent Common Stock pursuant hereto. The Company
shall use its best efforts to assist Parent as may be necessary to comply with
the securities and blue sky laws of all jurisdictions which are applicable in
connection with the issuance of Parent Common Stock pursuant hereto.
5.11 Employment Agreements. Contemporaneously with the execution of
this Agreement, the Company and Randall H. Schmitz are entering into an
employment agreement and, the Company and Trevor R. Stout are entering into an
employment agreement (collectively, with Mr. Stout's agreement, the "Employment
Agreements") which shall become effective as of the Effective Time. Mr. Stout's
Employment Agreement is substantially in the form of Exhibit F-1 hereto and Mr.
Schmitz' Employment Agreement is substantially in the form of Exhibit F-2
hereto.
5.12 Earn-Out Plan. Upon the Effective Time, Parent shall provide an
Earn-Out Plan for Mr. Schmitz and Mr. Stout.
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5.13 Parent Stock Options. A pool of nonstatutory stock options to
purchase an aggregate of 60,000 shares of Parent Common Stock shall be issued to
certain Company employees who will become employees of Parent or Surviving
Corporation following the Effective Time. These options shall have an exercise
price of $1.25 and shall have terms and provisions comparable to other employee
stock option grants. These options shall be granted promptly after the Effective
Time to the individuals and in the amounts set forth on Exhibit G.
5.14 Board of Directors of Parent. Following the Closing of the Merger,
(i) both Mr. Schmitz and Mr. Stout shall be appointed to the Board of Directors'
of the Surviving Corporation, and (ii) Mr. Trevor shall be appointed to the
Board of Directors of Parent. This Section 5.14 shall terminate as to Mr.
Schmitz or Mr. Stout, when either Mr. Schmitz or Mr. Stout, respectively, ceases
to own at least 50,000 shares of Parent Common Stock.
5.15 Restrictions on Sale. None of the 311,284 shares of Parent Common
Stock to be received by the shareholders of the Company may be sold prior to
January 1, 1997. Parent may issue stop transfer instructions to its transfer
agent in order to enforce the foregoing restriction.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal.
(b) Employment Agreements. The Employment Agreements shall
have been duly executed and delivered and shall be in full force and effect.
(c) Issuance of Permit. The California Department of
Corporations shall have issued a Permit under Section 25121 of the California
Corporate Securities Law of 1968, as amended (the "California Securities Law"),
covering the issuance of the Parent Common Stock following a hearing as to the
fairness of the Merger conducted pursuant to Section 25142 of the California
Securities Law.
6.2 Additional Conditions to Obligations of Company. The obligations of
the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the
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satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:
(a) Representations, Warranties and Covenants. The
representations and warranties of Parent and Merger Sub in this Agreement shall
be true and correct on and as of the Effective Time as though such
representations and warranties were made on and as of such time and each of
Parent and Merger Sub shall have performed and complied with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by it as of the Effective Time.
(b) Certificate of Parent. The Company shall have been
provided with a certificate executed on behalf of Parent by its President and
its Chief Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by Parent
and Merger Sub under this Agreement are true and complete; and
(ii) all covenants, obligations and conditions of
this Agreement to be performed by Parent and Merger Sub on or before such date
have been so performed.
(c) No Material Adverse Changes. There shall not have occurred
any material adverse change in the business, assets or financial condition of
Parent.
(d) Continuity of Interest Certificate. Parent shall have
delivered a Continuity of Interest Certificate in the form of Exhibit H hereto.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate and effect this Agreement
and the transactions contemplated hereby shall be subject to the satisfaction at
or prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent:
(a) Representations, Warranties and Covenants. The
representations and warranties of the Company in this Agreement shall be true
and correct in all material respects on and as of the Effective Time as though
such representations and warranties were made on and as of such time, and the
Company shall have performed and complied in all material respects with all
covenants, obligations and conditions of this Agreement required to be performed
and complied with by it as of the Effective Time.
(b) Certificate of the Company. Parent shall have been
provided with a certificate executed on behalf of the Company by its Chief
Executive Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by the
Company in this Agreement are true and correct; and
-16-
<PAGE> 22
(ii) all covenants, obligations and conditions of
this Agreement to be performed by the Company on or before such date have been
so performed.
(c) No Material Adverse Changes. There shall not have occurred
any material adverse change in the business, assets or financial condition of
the Company.
(d) Securities Law Compliance. Parent shall be able to issue
the Parent Common Stock that comprises part of the Merger Consideration in
compliance with the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
(e) Ownership Certification. Trevor Stout and Randall Schmitz
shall have delivered an Ownership Certificate in the form of Exhibit I-1 and
Exhibit I-2, respectively.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. Except as provided in Section 7.2 below, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if the Closing has not occurred
within seventy-five (75) days following the date of this Agreement, other than
due to the failure of the party seeking to terminate this Agreement to perform
its obligations under this Agreement which are required to be performed at or
prior to the Effective Time;
(c) by Parent or the Company if there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity which would make the consummation of the
Merger illegal;
(d) by Parent if it is not in breach of its obligations under
this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company, provided that, if such breach is curable by the Company through the
exercise of its reasonable best efforts within forty-five (45) days of the
notice by Parent of such breach, then for so long as the Company continues to
exercise such reasonable best efforts Parent may not terminate this Agreement
under this Section 7.1(d) unless such breach is not cured within such forty-five
(45) day period; or,
(e) by the Company if it is not in material breach of its
obligations under this Agree ment and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Parent or Merger Sub, provided that, if such breach is curable by
Parent through the exercise of its reasonable best efforts within 45 days of the
notice by the Company
-17-
<PAGE> 23
of such breach, then for so long as Parent continues to exercise such reasonable
best efforts the Company may not terminate this Agreement under this Section
7.1(e) unless such breach is not cured within such forty-five (45) day period.
Where action is taken to terminate this Agreement pursuant to this
Section 7.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Parent, Merger Sub
or the Company, or their respective officers, directors or stockholders,
provided that each party shall remain liable for any breaches of this Agreement
prior to its termination; and provided further that, the provisions of Sections
5.2, 5.3, 5.4, Article VII and Article VIII of this Agreement shall remain in
full force and effect and survive any termination of this Agreement.
7.3 Amendment. Except as is otherwise required by applicable law, this
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto.
7.4 Extension; Waiver. At any time prior to the Effective Time, Parent
and Merger Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
7.5 Notice of Termination. Any termination of this Agreement under
Section 7.1 above will be effective immediately upon the delivery of written
notice of the terminating party to the other parties hereto.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
-18-
<PAGE> 24
(a) if to Parent or EDnet, Inc.
Merger Sub,to: ATTN: Tom Kobayashi, Chairman & CEO
One Union Street
San Francisco, CA 94111
Telephone: (415) 274-8800
Facsimile: (415) 274-8801
with a copy to: Klenda, Gordon & Getchell, P.C.
ATTN: Phillip L. Allbritten and G. David
Gordon
610 ONEOK Plaza
100 West Fifth Street
Tulsa, Oklahoma 74103
Telephone: (918) 587-9191
Facsimile: (918) 587-0054
(b) if to the Company, to: Internet Business Solutions
ATTN: Randall H. Schmitz and
Trevor R. Stout
2081 Landings Drive
Mountain View, CA 94043
Telephone: (415) 967-3700
Facsimile: (415) 967-3701
with a copy to: Wilson, Sonsini, Goodrich & Rosati, P.C.
ATTN: Robert D. Brownell
650 Page Mill Road
Palo Alto, CA 94304-1050
Telephone: (415) 493-9300
Facsimile: (415) 493-6811
8.2 Interpretation. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
8.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
-19-
<PAGE> 25
8.4 Entire Agreement; Assignment. This Agreement, the schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof except for the Confidentiality Agreement,
which shall remain in full force and effect in accordance with their respective
terms; (b) are not intended to confer upon any other person any rights or
remedies hereunder; and (c) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided, except that Parent and
Merger Sub may assign their respective rights and delegate their respective
obligations hereunder to their respective affiliates.
8.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
8.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of any court within San Mateo County, State of California, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of California for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction, venue and such process.
8.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
-20-
<PAGE> 26
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by their duly authorized respective officers, all as of
the date first written above.
INTERNET WORLDWIDE BUSINESS EDNET, INC.
SOLUTIONS
By /s/ Randall H. Schmitz By /s/ Tom Kobayashi
--------------------------------- ----------------------------
Randall H. Schmitz, Tom Kobayashi,
Chief Executive Officer Chairman and CEO
EDN SUB, INC.
By /s/ Trevor Stout
----------------------------
Trevor R. Stout
President and CFO
-21-
<PAGE> 27
EXHIBIT A
FORM OF FIRST NOTE
-22-
<PAGE> 28
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A
VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF. THE SECURITIES
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND
QUALIFICATION WITHOUT, EXCEPT UNDER CERTAIN SPECIFIC LIMITED CIRCUMSTANCES, AN
OPINION OF COUNSEL FOR THE HOLDER, CONCURRED IN BY COUNSEL FOR THE COMPANY THAT
SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
EDNET, INC.
SECURED PROMISSORY NOTE
Palo Alto, California
$125,000.00 June 24, 1996
1. Principal and Interest. EDNET, INC. (the "Company"), a Colorado
corporation, for value received, hereby promises to pay to the order of
or holder ("Payee") in lawful money of the United States of
America at the address of Payee set forth below, the principal amount set
forth above, together with interest as set forth below.
The Company promises to pay interest on the unpaid principal
amount of this Note at the rate of eight percent (8.0%) per annum from the date
of this Note until such principal amount is paid in full. Accrued interest shall
be payable at the time the Company pays the entire unpaid principal amount.
All unpaid principal and unpaid accrued interest of this Note
is due and payable on or before the sixtieth (60th) day following the closing of
the Agreement and Plan of Reorganization by and among EDnet, Inc., EDN Sub, Inc.
and Internet Worldwide Business Solutions (the "Agreement and Plan of
Reorganization").
All unpaid principal and unpaid accrued interest of this Note
may be prepaid without penalty, in whole or in part, at any time. Any prepayment
of this Note shall be made only at the same time as the Company prepays all
other secured Notes issued pursuant to the Agreement and Plan of Reorganization,
with such prepayments to be made pro-rata in proportion to the then outstanding
principal amount of such secured Notes. Any prepayment of this Note will be
credited first against accrued interest then principal.
-23-
<PAGE> 29
Upon payment in full of the entire principal amount of this
Note and interest payable hereunder, this Note shall be surrendered to the
Company for cancellation.
2. Security Interest.
(a) As security for payment of the entire principal
amount of this Note and interest payable hereunder,
the Company grants to the holder of this Note and all
other secured Notes issued pursuant to the Agreement
and Plan of Reorganization (the "Holders") a
continuing security interest in, and a continuing
lien upon, all outstanding shares of the Surviving
Corporation (as defined in the Agreement and Plan of
Reorganization). Such shares are referred to as the
"Collateral."
(b) The Company agrees that the security interest in the
Collateral granted to the Holders hereunder shall be
and remain the sole lien upon the Collateral prior to
all other interests.
3. Maintenance of Collateral Security. The Company shall continually
take such steps as are necessary and prudent to protect the security interest in
the Collateral, including without limitation the following:
(a) Execute and deliver to the Holders such other and
further documents, instruments or writings as they
may deem necessary or advisable in order to evidence,
effectuate, perfect, maintain or properly foreclose
upon the security interest in the Collateral;
(b) Keep the Collateral free of all liens and
encumbrances, other than the security interest or the
Holders created hereby, until all of the obligations
secured by the Collateral are paid in full; and
(c) Deliver the certificates representing the Collateral
to the Holders together with assignments separate
from certificate in the form of Exhibit A to this
Note.
4. Attorney's Fees. If the indebtedness represented by this Note or any
part thereof is collected in bankruptcy, receivership or other judicial
proceedings or if this Note is placed in the hands of attorneys for collection
after default, the Company agrees to pay, in addition to the principal and
interest payable hereunder, reasonable attorneys' fees and costs incurred by the
Holders.
5. Notices. Any notice, other communication or payment required or
permitted hereunder shall be in writing and shall be deemed to have been given
upon delivery if personally delivered or three business days after deposit if
deposited in the United States mail for mailing by certified mail, postage
prepaid, and addressed as follows:
-24-
<PAGE> 30
(1) if to the Company: EDnet, Inc.
ATTN: Tom Kobayashi, Chairman & CEO
One Union Street
San Francisco, CA 94111
Telephone: (415) 274-8800
Facsimile: (415) 274-8801
with a copy to: Klenda, Gordon & Getchell, P.C.
ATTN: Phillip L. Allbritten and G. David
Gordon
610 ONEOK Plaza
100 West Fifth Street
Tulsa, Oklahoma 74103
Telephone: (918) 587-9191
Facsimile: (918) 587-0054
(2) if to Payee: Internet Business Solutions
ATTN: Randall H. Schmitz and
Trevor R. Stout
2081 Landings Drive
Mountain View, CA 94043
Telephone: (415) 967-3700
Facsimile: (415) 967-3701
with a copy to: Wilson, Sonsini, Goodrich & Rosati, P.C.
ATTN: Robert D. Brownell
650 Page Mill Road
Palo Alto, CA 94304-1050
Telephone: (415) 493-9300
Facsimile: (415) 493-6811
Each of the above addresses may change its address for purposes of this
paragraph by giving to the other addressee notice of such new address in
conformance with this paragraph.
6. Acceleration. This Note shall become immediately due and payable if
(i) the Company commences any proceeding in bankruptcy or for dissolution,
liquidation, winding-up, composition or other relief under state or federal
bankruptcy laws; or (ii) such proceedings are commenced against the Company, or
a receiver or trustee is appointed for the Company or a substantial part of its
property.
7. Rights Upon Default. In the event that the entire principal amount
of this Note and interest payable hereunder is not paid when due, then the
Holders may transfer the Collateral to their ownership in satisfaction of the
Company's obligations under the secured Notes issued pursuant to the Agreement
and Plan of Reorganization. The Collateral shall be transferred to the Holders
in proportion to the principal amounts due to the Holders under such secured
Notes. This shall be accomplished by
-25-
<PAGE> 31
appending the executed assignments with instructions to transfer the Collateral
to the Holders and delivering such assignments and certificates to the transfer
agent of the Surviving Corporation. The transfer agent shall promptly transfer
such shares to the names of the Holders or their designees.
8. No Dilution or Impairment. The Company will not, by amendment of its
Articles of Incorporation or Bylaws or those of the Surviving Corporation
through any reorganization, transfer assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Note, but will
at all times in good faith assist in the carrying out of all such terms and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder of this Note against dilution or other
impairment.
9. Waivers. The Company hereby waives presentment, demand for
performance, notice of non-performance, protest, notice of protest and notice of
dishonor. No delay on the part of Payee in exercising any right hereunder shall
operate as a waiver of such right or any other right. This Note is being
delivered in and shall be construed in accordance with the laws of the State of
California, without regard to the conflicts of laws provisions thereof.
EDNET, INC.
By: /s/ Tom Kobayashi
-------------------------------
Tom Kobayashi, Chairman and CEO
-26-
<PAGE> 32
EXHIBIT B
FORM OF SECOND NOTE
-27-
<PAGE> 33
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A
VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION THEREOF. THE SECURITIES
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND
QUALIFICATION WITHOUT, EXCEPT UNDER CERTAIN SPECIFIC LIMITED CIRCUMSTANCES, AN
OPINION OF COUNSEL FOR THE HOLDER, CONCURRED IN BY COUNSEL FOR THE COMPANY THAT
SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
EDNET, INC.
PROMISSORY NOTE
Palo Alto, California
$125,000 June 24, 1996
1. Principal Interest. EDNET, INC. (the "Company"), a Colorado
corporation, for value received, hereby promises to pay to the order of
______________________ or holder ("Payee") in lawful money of the United States
of America at the address of Payee set forth below, the principal amount set
forth above together with interest as set forth below.
The Company promises to pay interest on the unpaid principal
amount of this Note at the rate of eight percent (8.0%) per annum from the date
of this Note until such principal amount is paid in full. Accrued interest shall
be payable at the time the Company pays the entire unpaid principal amount.
All unpaid principal and unpaid accrued interest of this Note
is due and payable upon the earlier of (i) twelve months from the closing of the
Agreement and Plan of Reorganization by and among EDnet, Inc., EDN Sub, Inc.,
and Internet Worldwide Business Solutions (the "Agreement and Plan of
Reorganization") or (ii) fifteen (15) days after the closing of a public
offering of Company Common Stock. The closing shall be deemed to have occurred
when the underwriters purchase from the Company a majority of the shares offered
to the public and pay for such shares.
All unpaid principal and unpaid accrued interest of this Note
may be prepaid without penalty, in whole or in part, at any time. Any prepayment
of this Note shall be made only at the same time as the Company prepays all
other unsecured Notes issued pursuant to the Agreement and Plan of
Reorganization, with such prepayments to be made pro-rata in proportion to the
then outstanding principal amounts of such unsecured Notes. Any prepayment of
this Note will be credited first against accrued interest then principal.
-28-
<PAGE> 34
Upon payment in full of the entire principal amount of the
Note and interest payable hereunder, this Note shall be surrendered to the
Company for cancellation.
2. Attorneys' Fees. If the indebtedness represented by this Note or any
part thereof is collected in bankruptcy, receivership or other judicial
proceedings or if this Note is placed in the hands of attorneys for collection
after default, the Company agrees to pay, in addition to the principal and
interest payable hereunder, reasonable attorneys' fees and costs incurred by
Payee.
3. Notices. Any notice, other communication or payment required or
permitted hereunder shall be in writing and shall be deemed to have been given
upon delivery if personally delivered or three business days after deposit if
deposited in the United States mail for mailing by certified mail, postage
prepaid, and addressed as follows:
(1) if to the Company: EDnet, Inc.
ATTN: Tom Kobayashi, Chairman & CEO
One Union Street
San Francisco, CA 94111
Telephone: (415) 274-8800
Facsimile: (415) 274-8801
with a copy to: Klenda, Gordon & Getchell, P.C.
ATTN: Phillip L. Allbritten and G. David
Gordon
610 ONEOK Plaza
100 West Fifth Street
Tulsa, Oklahoma 74103
Telephone: (918) 587-9191
Facsimile: (918) 587-0054
(2) if to Payee: Internet Business Solutions
ATTN: Randall H. Schmitz and
Trevor R. Stout
2081 Landings Drive
Mountain View, CA 94043
Telephone: (415) 967-3700
Facsimile: (415) 967-3701
with a copy to: Wilson, Sonsini, Goodrich & Rosati, P.C.
ATTN: Robert D. Brownell
650 Page Mill Road
Palo Alto, CA 94304-1050
Telephone: (415) 493-9300
Facsimile: (415) 493-6811
-29-
<PAGE> 35
Each of the above addressees may change its address for purposes of this
paragraph by giving to the other addressee notice of such new address in
conformance with this paragraph.
4. Acceleration. This Note shall become immediately due and payable if
(i) the Company commences any proceeding or bankruptcy or for dissolution,
liquidation, winding-up, composition or other relief under state or federal
bankruptcy laws; or (ii) such proceedings are commenced against the Company, or
a receiver or trustee is appointed for the Company or a substantial part of its
property.
5. No Dilution or Impairment. The Company will not, by amendment of its
Articles of Incorporation or Bylaws or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Note, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holder of this
Note against dilution or other impairment.
6. Waivers. The Company hereby waives presentment, demand for
performance, notice of non-performance, protest, notice of protest and notice of
dishonor. No delay on the part of Payee in exercising any right hereunder shall
operate as a waiver of such right or any other right. This Note is being
delivered in and shall be construed in accordance with the laws of the State of
California, without regard to the conflicts of laws provisions thereof.
EDNET, INC.
By: /s/ Tom Kobayashi
--------------------------------
Tom Kobayashi, Chairman and CEO
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<PAGE> 36
EXHIBIT C
EARN-OUT PLAN
<PAGE> 37
EXHIBIT C
EDNET, INC.
EARN-OUT PLAN
I. Purposes of the Plan.
Pursuant to the Agreement and Plan of Reorganization by and among
EDnet, Inc., EDN Sub, Inc., and Internet Worldwide Business Solutions dated as
of June 24, 1996 (the "Reorganization Agreement") , EDnet, Inc. (the "Company")
is hereby establishing an Earn-Out Plan (the "Plan") to issue up to an aggregate
of 500,000 shares of the Company Common Stock to certain persons identified
herein over a period provided herein provided that the revenues or profits of
Internet Worldwide Business Solutions or of the Surviving Corporation (as that
term is defined in the Reorganization Agreement) ("IBS") reach certain levels
provided herein.
II. Definitions.
A. "Board" means the Board of Directors of the Company.
B. "GAAP" means generally accepted accounting principles,
consistently applied.
C. "Profits" means IBS' net income before income taxes,
determined in accordance with GAAP except without regard to allocations of
corporate overhead from the Company or any of its affiliates to IBS.
D. "Revenues" means IBS' gross revenue, determined in
accordance with GAAP.
III. Administration of the Plan.
The Plan shall be administered by the Board or such person or committee
as is designated by the Board (the "Administrator"). Subject to Section VIII
herein, the Administrator shall construe and interpret the terms of the Plan.
IV. Term of Plan.
The Plan shall become effective upon the "Effective Time," as such term
is defined in the Reorganization Agreement, and shall terminate one hundred
twenty (120) days after June 30, 1999, unless a determination is being disputed
pursuant to Section VIII.
<PAGE> 38
V. Eligibility.
The persons eligible to receive the Company Common stock pursuant to
the Plan shall be the individuals listed on Exhibit A hereto (individually a
"Plan Participant" and collectively the "Plan Participants").
VI. Company Common Stock Allocation.
Plan Participants shall be eligible to receive up to an aggregate of
166,500 shares of Company Common Stock in each applicable time period ("Stock
Allocation"). The Stock Allocation shall be distributed among the Plan
Participants according to the percentages stated next to each Plan Participant's
name on Exhibit A. The Stock Allocation shall be issued to Plan Participants
within one hundred twenty (120) days following the end of the applicable time
period, unless a determination is being disputed pursuant to Section VIII.
VII. Stock Allocation Formula.
Set forth below are the time periods during which a measurement IBS'
Revenues and IBS' Profits will be made and the Stock Allocation that will be
distributed if either threshold set forth for such period is met or exceeded. If
a threshold for a given time period is exceeded, the amount in excess shall not
be added to the amount in the next time period or used to determine whether that
threshold has been met or exceeded.
<TABLE>
<CAPTION>
Jan. 1, 1996 to Jan. 1, 1997 to July 1, 1997 to July 1, 1998 to
Time Period Dec. 31, 1996 June 30, 1997 June 30, 1998 June 30, 1999
- -----------
<C> <C> <C> <C> <C>
(1) IBS' Revenues $ 675,000 $ 1,650,000 $ 5,025,000 $ 9,375,000
IBS' Profits $ 90,000 $ 385,000 $ 1,340,000 $ 2,500,000
Stock Allocation 93,750 31,500 124,875 124,875
(2) IBS' Revenues $ 900,000 $ 2,200,000 $ 6,700,000 $12,500,000
IBS' Profits $ 90,000 $ 385,000 $ 1,340,000 $ 2,500,000
Stock Allocation 125,000 42,000 166,500 166,500
</TABLE>
VIII. Disputes Regarding Profits or Revenues.
All determinations of Profits or Revenues shall be made in good faith
by the Company within ninety (90) days of the end of the applicable time period.
The Plan Participants shall have a period of twenty (20) days after receiving
the Profits or Revenues determinations (the "Objection Period") to present in
writing to the Company any objections the Plan Participants may have to any of
the matters set forth therein, which objections (and the basis therefor) shall
be set forth in reasonable detail. If no objections are received by the Company
from the Plan Participants within the Objection Period, the calculation of
Profits or Revenues shall be final and binding upon the Plan Participants and
the Company. If the Plan Participants raise any objections to any determination
of Profits or Revenues furnished by the Company within the Objection Period and
in the manner provided in this Section VIII, the Company shall
-2-
<PAGE> 39
negotiate in good faith to resolve any such objections. If they, for any
reason, are unable to resolve any such dispute within ten (10) days following
the expiration of such Objection Period, then the specific matters in dispute
shall be submitted to a "Big Six" nationally recognized certified public
accounting firm as may be mutually selected by the Company and the Plan
Participants, which firm shall make such calculation of Profits or Revenues,
and which calculation shall be final and binding upon all of the parties. The
Company and the Plan Participants shall bear the cost of the services of such
accounting firm equally.
IX. Amendment of the Plan.
The Plan may be amended only by a writing signed by each of the
Company, IBS and the Plan Participants.
X. Governing Law.
The Plan shall be governed by the laws of the State of California.
-3-
<PAGE> 40
EXHIBIT A
<TABLE>
<CAPTION>
Percentage of
Name Stock Allocation
- -------------------------------------------------- ------------------
<S> <C>
Randall H. Schmitz 50%
Trevor R. Stout 50%
</TABLE>
<PAGE> 41
EXHIBIT D
COMPANY SCHEDULE OF EXCEPTIONS
This Schedule of Exceptions, dated as of June __, 1996, is made and
given pursuant to Article II of the Agreement and Plan of Reorganization by and
among EDnet, Inc., EDN Sub, Inc. and Internet Worldwide Business Solutions (the
"Agreement and Plan of Reorganization"). The Section numbers in this Schedule of
Exceptions correspond to the Section numbers in the Agreement and Plan of
Reorganization; however, any information disclosed herein shall be deemed to be
disclosed and incorporated into any other Section number under the Agreement and
Plan of Reorganization where such disclosure would be appropriate. Any terms
defined in the Agreement and Plan of Reorganization shall have the same meaning
when used in this Schedule of Exceptions as when used in the Agreement and Plan
of Reorganization unless the context otherwise requires.
2.7 In September 1995, in accordance with the terms of the sale of the
Music Connection System, the Company sold a trademark (registered in May, 1996)
called Music Connection to Alliance Entertainment Corp.
2.11 The Company is in the process of negotiating the purchase of two
Oracle databases for less than Ten Thousand Dollars ($10,000) for existing
clients.
1.
<PAGE> 42
EXHIBIT E
PARENT AND MERGER SUB SCHEDULE OF EXCEPTIONS
This Schedule of Exceptions, dated as of June 21, 1996, is made and
given pursuant to Article III of the Agreement and Plan of Reorganization by and
among EDnet, Inc., EDN Sub, Inc. and Internet Worldwide Business Solutions (the
"Agreement and Plan of Reorganization"). The Section numbers in this Schedule of
Exceptions correspond to the Section numbers in the Agreement and Plan of
Reorganization; however, any information disclosed herein shall be deemed to be
disclosed and incorporated into any other Section number under the Agreement and
Plan of Reorganization where such disclosure would be appropriate. Any terms
defined in the Agreement and Plan of Reorganization shall have the same meaning
when used in this Schedule of Exceptions as when used in the Agreement and Plan
of Reorganization unless the context otherwise requires.
3.3 CASH CONSIDERATION. EDnet has less than $500,000 cash on-hand as of
6/21/96. However, as evidenced by attached commitments from its Investment
Bankers and their supporting Investors, EDnet anticipates that it will have well
in excess of this amount within the next few weeks. EDnet is also willing to
pledge via its "use of funds" or "cash flow projections" attached hereto, that
it will be able to meet the commitment of the first $250,000 cash payment as
anticipated within the 60 day period referred to in this Agreement.
3.4 PARENT FINANCIAL STATEMENTS. April statements have not yet been
completed, since audit of all EDnet records for 3 years has been absorbing
primary Finance Dept. priorities. March 31, 1996 statements have been provided
as a substitute.
2.
<PAGE> 43
EXHIBIT F-1
FORM OF EMPLOYMENT AGREEMENT (STOUT)
3.
<PAGE> 44
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated the 24th day of June, 1996 (the
"Employment Agreement") by and among EDNET, INC., a Colorado corporation,
formerly AP OFFICE EQUIPMENT, INC. ("EDnet"), INTERNET WORLDWIDE BUSINESS
SOLUTIONS, a California corporation, and a wholly-owned subsidiary of EDnet
("Employer" or the "Corporation"), and Trevor Stout, of 170 East Creek Dr., #14,
Menlo Park, California 94025 ("Employee").
In consideration of the premises and mutual promises contained herein,
and of the provisions of that certain Agreement and Plan of Reorganization,
EDnet, the Corporation and the Employee hereby agree as follows:
1. TERM OF EMPLOYMENT. This Agreement shall remain in force from the
date hereof until the 30th day of June, 1999 (the "Expiration Date") unless
sooner terminated in accordance with Section 5 (the "Term"). In consideration
for Employee's provision of services specified in Section 2 hereof for the Term,
it is understood and agreed that Employer shall pay the monthly compensation
specified in Section 3 hereof for the Term.
2. EMPLOYMENT DUTIES. Employee shall serve as President and Chief
Technical Officer of the Corporation for the term of employment of Employee
under this Employment Agreement. In his capacity as an officer, Employee shall
have such authority as is delegated to him by the Board of Directors of the
Corporation. During the Term, Employee shall faithfully perform the duties
assigned to him and shall devote his full time and attention to, and use his
best efforts in the furtherance of, the business of the Corporation. The
foregoing authority and duties shall be consistent with Employee's authority and
duties as an officer of the Corporation. Employee shall also serve on the Board
of Directors of both the Corporation and EDnet.
3. COMPENSATION. In consideration of the services to be rendered by
Employee under this Employment Agreement, the Corporation agrees to pay, and
Employee agrees to accept, the following compensation:
A. BASE SALARY. The Corporation shall pay Employee a base
salary at the annual rate of One Hundred Thousand Dollars ($100,000) for the
first twelve months of employment, to be increased thereafter at the discretion
of the Compensation Committee of the Board of Directors of EDnet. The base
salary shall be payable in equal semi-monthly installments, subject only to
applicable withholding requirements. No overtime pay will be paid to Employee by
the Corporation.
B. BONUSES. In addition to Employee's base salary hereunder,
as additional compensation, the Corporation shall pay bonuses to Employee at the
discretion of the Compensation Committee of the Board of Directors of EDnet.
4.
<PAGE> 45
C. REIMBURSEMENT OF EXPENSES. The Corporation shall promptly
reimburse Employee for reasonable out-of-pocket expenses that the Employee may
incur in connection with his services for the Corporation. Employee shall
provide to the Corporation supporting documentation sufficient to satisfy
reporting requirements of the Internal Revenue Service and in such form as is
reasonably satisfactory to the Corporation.
D. EMPLOYEE BENEFITS. Employee shall be entitled to
participate in such employee benefit plans, including group pension, life and
health insurance and other medical benefits, and shall receive all other fringe
benefits, as EDnet and the Corporation may make available to employees during
the term of employment of Employee. In addition, the Corporation shall continue
to maintain and provide disability insurance at the levels currently in effect.
4. VACATION. Employee shall be entitled to accrue vacation leave equal
to one and one-quarter (1 1/4) days at full pay for each one (1) month period of
completed service during the Term (with unused days being carried forward
indefinitely), and may take such accrued vacation days at such times as he may
wish, subject to Employee's arranging such vacations so as not materially to
affect adversely the ability of the Corporation to transact its necessary
business and provided, further, that Employee shall not take vacations totalling
more than twenty-five (25) business days during any calendar year and shall take
no single vacation of more than fifteen (15) consecutive business days.
5. TERMINATION. The employment of Employee under this Employment
Agreement shall terminate on the first to occur of the following:
A. On the Expiration Date as provided in Section 1.
B. Upon the death of Employee or in the event of permanent
disability of Employee, at the option of the Corporation, upon ninety (90) days
written notice by the Corporation. For the purposes of this Employment
Agreement, Employee will be deemed to be permanently disabled in the event that
competent medical authority, acceptable to the Corporation, opines that it is
improbable that Employee will ever be able to resume his usual or ordinary
duties for and on behalf of the Corporation.
C. This Agreement may be terminated by the Board of Directors
of the Corporation for Employee's willful misconduct, habitual neglect of duties
or breach of a material provision of this Agreement. In the case of termination
for willful misconduct or habitual neglect of duties, Employee shall be given at
least one (1) written notice describing in reasonable detail the perceived
deficiencies in Employee's performance, and Employee shall be given at least
thirty (30) days' opportunity to correct such perceived deficiencies prior to
any termination. In the case of termination for breach of this Agreement,
Employee shall be given written notice describing in reasonable detail the
alleged breach, and Employee shall have thirty (30) days in which to cure such
breach.
5.
<PAGE> 46
D. At the election of Employee, in the event of the sale or
transfer of substantially all of the business or assets of the Corporation or
EDnet, or control thereof, provided that Employee shall provide 30 days' prior
written notice of termination.
E. At the election of either party upon thirty (30) days prior
written notice to the other.
6. PAYMENT UPON TERMINATION.
A. If the employment of Employee is terminated by death, or
because of disability, pursuant to Section 5(b) hereof, the Corporation shall
pay to the estate of Employee or to Employee, as the case may be, the
compensation which would otherwise be payable to Employee at the end of the
month in which his death or the termination of his employment because of
disability occurs, compensation for accrued vacation days and reimbursement for
unreimbursed expenses. The Estate or Employee shall not be entitled to severance
pay or future Employer insurance contributions for Employee benefits.
B. In the event that the employment of Employee is terminated
at the election of the Corporation pursuant to Sections 5(c) or 5(e) hereof, or
at the election of Employee pursuant to Sections 5(c) or 5(e) hereof, or at the
election of Employee pursuant to Section 5(e) hereof, Employee shall be entitled
to continuation of his base salary then in effect and Employer insurance
contributions for Employee benefits for six (6) months from the last day of
actual employment or the date of termination, whichever is earlier. Employee
shall also be entitled to compensation for accrued vacation days and
reimbursement for unreimbursed expenses.
C. If the employment of Employee is terminated on the
Expiration Date pursuant to Section 5(a), or in the event Employee elects to
terminate his employment pursuant to the provisions of Section 5(e) hereof,
Employee shall be entitled to compensation for accrued vacation days and
reimbursement for unreimbursed expenses.
7. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Employee agrees both
during and after employment by the Corporation, not to use (except in the course
of employment) or disclose to others, except with the Corporation's prior
written consent, any Confidential Information. Confidential Information shall
include, but not be limited to, trade secrets, technical data including computer
programs, financial data, future plans, business strategy and information
received from third parties under disclosure restrictions, which Employee has
acquired by reason of his employment by the Corporation, or which Employee had
developed in the course of such employment. Confidential Information does not
include: (i) information that at the time of disclosure is in the public domain
through no fault of Employee; (ii) information received from a third party
outside of the Corporation that was disclosed without a breach of any
confidentiality obligation; (iii) information approved for release by written
authorization of the Corporation; (iv) information that may be required by law
or by order of any court, agency or proceeding to be disclosed; or (v)
information which subsequently becomes part of the public domain without any
breach by Employee.
6.
<PAGE> 47
8. POSSESSION AND SURRENDER OF CONFIDENTIAL INFORMATION AND DOCUMENTS.
Employee hereby acknowledges the Corporation's right to possession and title in
and to all Confidential Information and all papers, documents, tapes, drawings,
computer programs, computer software or other records prepared by Employee
during his employment, or provided by the Corporation, or which otherwise come
into Employee's possession by reason of his employment by the Corporation, or
which Employee may have written or created while employed by the Corporation.
Employee agrees not to make or permit to be made, except in pursuance of
Employee's duties hereunder, any copies of such materials. Employee further
agrees to deliver to the Corporation, upon request, all such materials in
Employee's possession.
9. INTELLECTUAL PROPERTY RIGHTS.
A. All right, title, and interest of every kind and nature,
whether now known or unknown, in and to any intellectual property, including,
but not limited to, any invention, patents, trademarks, service marks,
copyrights, films, scripts, ideas, creations, computer software and properties
invented, created, written, developed, furnished, produced, or disclosed by
employee, in the course of rendering services to Employer under and pursuant to
this agreement shall, as between Employer and Employee, be and remain the sole
and exclusive property of Employer for any and all purposes and uses, and
Employee shall have no right, title, or interest of any kind or nature in or to
such property, or in or to any results and/or proceeds from such property.
B. The provisions of this Agreement requiring the assignment
of inventions to Employer do not apply to any invention which qualifies under
the provisions of California Labor Code Section 2870 (attached hereto as Exhibit
A).
10. NON-COMPETITION.
A. For a period of one (1) year following the date of the
termination of this Agreement, Employee agrees that he shall not at any time,
directly or indirectly, within any county, city or part thereof and other areas
in the United States of America (collectively, the "Locations"), so long as the
Corporation continues to be engaged in the same or similar business or activity
(the "Business") in such Location.
I. own, manage, operate, control, or be connected in
any manner with the ownership, management, operation or control of any person or
entity that engages in the same type of business as the Business or engages in a
business competitive with the Business (a "Competitive Business"), which
includes but is not limited to, acting as a director, officer, agent, employee,
consultant, partner or stockholder of a Competitive Business;
II. engage in any activity which is the same as or in
competition with the Business;
III. interfere with, disrupt or attempt to disrupt
the business relationship, contractual, employment or otherwise, between the
Corporation and any customer
7.
<PAGE> 48
or prospective customer, supplier, lessee or employee of the Corporation,
including without limitation the customers and suppliers of the Business prior
to the date hereof,
IV. solicit employment for or of employees of the
Corporation or induce any employee to leave the employ of the Corporation,
V. lend or allow his name or reputation to be used by
or in connection with any Competitive Business; or
VI. otherwise allow his skill, knowledge or
experience to be used in or by any Competitive Business.
B. Notwithstanding anything in this Agreement to the contrary,
nothing in this Agreement shall limit the right of Employee as an investor to
hold or make investments not in excess of 5% of the outstanding securities of
any corporation.
C. The parties hereto intend that the covenants set forth in
Sections 10(a) shall be construed as a series of separate covenants, each
consisting of the covenants set forth in Section 10(a) for each of the
Locations. Except for such Locations, all such separate covenants shall be
deemed identical.
D. In the event that this Agreement is terminated pursuant to
Section 5 hereof, other than the termination by Employee pursuant to Section
5(d) or by the Corporation pursuant to Section 5(e), the provisions of Sections
10 shall survive such termination. Section 10(a) shall terminate and be of no
force or effect in the event the Corporation breaches this Agreement and fails
to cure such breach within thirty (30) days of receipt of written notice
thereof.
11. REMEDIES. The Corporation and Employee agree that the services of
Employee are of a personal, special, unique, and extraordinary character, and
cannot be replaced by the Corporation without great difficulty, and that the
violation of Employee of any of his agreements under Section 9 would damage the
goodwill of the Corporation and cause the Corporation irreparable harm which
could not reasonably or adequately be compensated in damages in an action at
law, and that the agreements of Employee under Section 9 may be enforced by the
Corporation in equity by an injunction or restraining order in addition to being
enforced by the Corporation at law.
12. NOTICE. All notices under this Employment Agreement shall be in
writing. Notice intended for the Corporation shall be sent by registered or
certified mail, postage prepaid, return receipt requested, to the address of the
Corporation set forth above or such other address as the Corporation may
hereafter designate in writing. Notice intended for Employee shall be delivered
to Employee by hand or sent by registered or certified mail, postage prepaid,
return receipt requested, to the address of Employee set forth above or such
other address as Employee may hereafter designate in writing.
8.
<PAGE> 49
13. ASSIGNMENT. The rights and obligations of the Corporation under
this Employment Agreement shall inure to the benefit of, and shall be binding
upon, the successors and assigns of the Corporation. The rights and obligations
of Employee under this Employment Agreement shall inure to the benefit of, and
shall be binding upon, the heirs, executors, and legal representatives of
Employee.
14. ENTIRE AGREEMENT. This Employment Agreement supersedes any and all
other agreements, either oral or in writing, between the parties hereto with
respect to the employment of Employee by the Corporation and contains all of the
covenants and agreements between the parties with respect to such employment.
Each party to this Employment Agreement acknowledges that no representations,
inducements, promises, or agreements, oral or otherwise, have been made by any
party, or any one acting on behalf of any party, which are not embodied herein,
and that no other agreement, statement, or promise not contained in this
Employment Agreement shall be valid and binding. Any modification of this
Employment Agreement will be effective only if it is in writing signed by both
parties to this Employment Agreement.
15. SEVERABILITY. If any provision in this Employment Agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.
16. ATTORNEYS' FEES. In the event that any action is filed in relation
to this Agreement, the unsuccessful party in the action shall pay to the
successful party, in addition to all the sums that either party may be called on
to pay, a reasonable sum for the successful party's attorney's fees.
17. GOVERNING LAW. This Employment Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
9.
<PAGE> 50
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day, month and year first above written.
EDNET, INC.
By /s/ Tom Kobayashi
------------------------------------------
Tom Kobayashi, Chairman and CEO
INTERNET WORLDWIDE BUSINESS SOLUTIONS
By /s/Randall Schmitz
------------------------------------------
Randall Schmitz, Chief Executive Officer
EMPLOYEE
/s/Trevor Stout
---------------------------------------------
Trevor Stout
10.
<PAGE> 51
EXHIBIT A
CALIFORNIA LABOR CODE SECTION 2870
EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
"(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice
of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer.
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable."
11.
<PAGE> 52
EXHIBIT F-2
FORM OF EMPLOYMENT AGREEMENT (SCHMITZ)
12.
<PAGE> 53
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated the 24th day of June, 1996 (the
"Employment Agreement") by and among EDNET, INC., a Colorado corporation,
formerly AP OFFICE EQUIPMENT, INC. ("EDnet"), INTERNET WORLDWIDE BUSINESS
SOLUTIONS, a California corporation, and a wholly-owned subsidiary of EDnet
("Employer" or the "Corporation"), and Trevor Stout, of 170 East Creek Dr., #14,
Menlo Park, California 94025 ("Employee").
In consideration of the premises and mutual promises contained herein,
and of the provisions of that certain Agreement and Plan of Reorganization,
EDNet, the Corporation and the Employee hereby agree as follows:
1. TERM OF EMPLOYMENT. This Agreement shall remain in force from the
date hereof until the 30th day of June, 1999 (the "Expiration Date") unless
sooner terminated in accordance with Section 5 (the "Term"). In consideration
for Employee's provision of services specified in Section 2 hereof for the Term,
it is understood and agreed that Employer shall pay the monthly compensation
specified in Section 3 hereof for the Term.
2. EMPLOYMENT DUTIES. Employee shall serve as President and Chief
Technical Officer of the Corporation for the term of employment of Employee
under this Employment Agreement. In his capacity as an officer, Employee shall
have such authority as is delegated to him by the Board of Directors of the
Corporation. During the Term, Employee shall faithfully perform the duties
assigned to him and shall devote his full time and attention to, and use his
best efforts in the furtherance of, the business of the Corporation. The
foregoing authority and duties shall be consistent with Employee's authority and
duties as an officer of the Corporation. Employee shall also serve on the Board
of Directors of both the Corporation and EDnet.
3. COMPENSATION. In consideration of the services to be rendered by
Employee under this Employment Agreement, the Corporation agrees to pay, and
Employee agrees to accept, the following compensation:
A. BASE SALARY. The Corporation shall pay Employee a base
salary at the annual rate of One Hundred Thousand Dollars ($100,000) for the
first twelve months of employment, to be increased thereafter at the discretion
of the Compensation Committee of the Board of Directors of EDnet. The base
salary shall be payable in equal semi-monthly installments, subject only to
applicable withholding requirements. No overtime pay will be paid to Employee by
the Corporation.
B. BONUSES. In addition to Employee's base salary hereunder,
as additional compensation, the Corporation shall pay bonuses to Employee at the
discretion of the Compensation Committee of the Board of Directors of EDnet.
13.
<PAGE> 54
C. REIMBURSEMENT OF EXPENSES. The Corporation shall promptly
reimburse Employee for reasonable out-of-pocket expenses that the Employee may
incur in connection with his services for the Corporation. Employee shall
provide to the Corporation supporting documentation sufficient to satisfy
reporting requirements of the Internal Revenue Service and in such form as is
reasonably satisfactory to the Corporation.
D. EMPLOYEE BENEFITS. Employee shall be entitled to
participate in such employee benefit plans, including group pension, life and
health insurance and other medical benefits, and shall receive all other fringe
benefits, as EDnet and the Corporation may make available to employees during
the term of employment of Employee. In addition, the Corporation shall continue
to maintain and provide disability insurance at the levels currently in effect.
4. VACATION. Employee shall be entitled to accrue vacation leave equal
to one and one-quarter (1 1/4) days at full pay for each one (1) month period of
completed service during the Term (with unused days being carried forward
indefinitely), and may take such accrued vacation days at such times as he may
wish, subject to Employee's arranging such vacations so as not materially to
affect adversely the ability of the Corporation to transact its necessary
business and provided, further, that Employee shall not take vacations totalling
more than twenty-five (25) business days during any calendar year and shall take
no single vacation of more than fifteen (15) consecutive business days.
5. TERMINATION. The employment of Employee under this Employment
Agreement shall terminate on the first to occur of the following:
A. On the Expiration Date as provided in Section 1.
B. Upon the death of Employee or in the event of permanent
disability of Employee, at the option of the Corporation, upon ninety (90) days
written notice by the Corporation. For the purposes of this Employment
Agreement, Employee will be deemed to be permanently disabled in the event that
competent medical authority, acceptable to the Corporation, opines that it is
improbable that Employee will ever be able to resume his usual or ordinary
duties for and on behalf of the Corporation.
C. This Agreement may be terminated by the Board of Directors
of the Corporation for Employee's willful misconduct, habitual neglect of duties
or breach of a material provision of this Agreement. In the case of termination
for willful misconduct or habitual neglect of duties, Employee shall be given at
least one (1) written notice describing in reasonable detail the perceived
deficiencies in Employee's performance, and Employee shall be given at least
thirty (30) days' opportunity to correct such perceived deficiencies prior to
any termination. In the case of termination for breach of this Agreement,
Employee shall be given written notice describing in reasonable detail the
alleged breach, and Employee shall have thirty (30) days in which to cure such
breach.
14.
<PAGE> 55
D. At the election of Employee, in the event of the sale or
transfer of substantially all of the business or assets of the Corporation or
EDnet, or control thereof, provided that Employee shall provide 30 days' prior
written notice of termination.
E. At the election of either party upon thirty (30) days prior
written notice to the other.
6. PAYMENT UPON TERMINATION.
A. If the employment of Employee is terminated by death, or
because of disability, pursuant to Section 5(b) hereof, the Corporation shall
pay to the estate of Employee or to Employee, as the case may be, the
compensation which would otherwise be payable to Employee at the end of the
month in which his death or the termination of his employment because of
disability occurs, compensation for accrued vacation days and reimbursement for
unreimbursed expenses. The Estate or Employee shall not be entitled to severance
pay or future Employer insurance contributions for Employee benefits.
B. In the event that the employment of Employee is terminated
at the election of the Corporation pursuant to Sections 5(c) or 5(e) hereof, or
at the election of Employee pursuant to Sections 5(c) or 5(e) hereof, or at the
election of Employee pursuant to Section 5(e) hereof, Employee shall be entitled
to continuation of his base salary then in effect and Employer insurance
contributions for Employee benefits for six (6) months from the last day of
actual employment or the date of termination, whichever is earlier. Employee
shall also be entitled to compensation for accrued vacation days and
reimbursement for unreimbursed expenses.
C. If the employment of Employee is terminated on the
Expiration Date pursuant to Section 5(a), or in the event Employee elects to
terminate his employment pursuant to the provisions of Section 5(e) hereof,
Employee shall be entitled to compensation for accrued vacation days and
reimbursement for unreimbursed expenses.
7. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Employee agrees both
during and after employment by the Corporation, not to use (except in the course
of employment) or disclose to others, except with the Corporation's prior
written consent, any Confidential Information. Confidential Information shall
include, but not be limited to, trade secrets, technical data including computer
programs, financial data, future plans, business strategy and information
received from third parties under disclosure restrictions, which Employee has
acquired by reason of his employment by the Corporation, or which Employee had
developed in the course of such employment. Confidential Information does not
include: (i) information that at the time of disclosure is in the public domain
through no fault of Employee; (ii) information received from a third party
outside of the Corporation that was disclosed without a breach of any
confidentiality obligation; (iii) information approved for release by written
authorization of the Corporation; (iv) information that may be required by law
or by order of any court, agency or proceeding to be disclosed; or (v)
information which subsequently becomes part of the public domain without any
breach by Employee.
15.
<PAGE> 56
8. POSSESSION AND SURRENDER OF CONFIDENTIAL INFORMATION AND DOCUMENTS.
Employee hereby acknowledges the Corporation's right to possession and title in
and to all Confidential Information and all papers, documents, tapes, drawings,
computer programs, computer software or other records prepared by Employee
during his employment, or provided by the Corporation, or which otherwise come
into Employee's possession by reason of his employment by the Corporation, or
which Employee may have written or created while employed by the Corporation.
Employee agrees not to make or permit to be made, except in pursuance of
Employee's duties hereunder, any copies of such materials. Employee further
agrees to deliver to the Corporation, upon request, all such materials in
Employee's possession.
9. INTELLECTUAL PROPERTY RIGHTS.
A. All right, title, and interest of every kind and nature,
whether now known or unknown, in and to any intellectual property, including,
but not limited to, any invention, patents, trademarks, service marks,
copyrights, films, scripts, ideas, creations, computer software and properties
invented, created, written, developed, furnished, produced, or disclosed by
employee, in the course of rendering services to Employer under and pursuant to
this agreement shall, as between Employer and Employee, be and remain the sole
and exclusive property of Employer for any and all purposes and uses, and
Employee shall have no right, title, or interest of any kind or nature in or to
such property, or in or to any results and/or proceeds from such property.
B. The provisions of this Agreement requiring the assignment
of inventions to Employer do not apply to any invention which qualifies under
the provisions of California Labor Code Section 2870 (attached hereto as Exhibit
A).
10. NON-COMPETITION.
A. For a period of one (1) year following the date of the
termination of this Agreement, Employee agrees that he shall not at any time,
directly or indirectly, within any county, city or part thereof and other areas
in the United States of America (collectively, the "Locations"), so long as the
Corporation continues to be engaged in the same or similar business or activity
(the "Business") in such Location.
I. own, manage, operate, control, or be connected in
any manner with the ownership, management, operation or control of any person or
entity that engages in the same type of business as the Business or engages in a
business competitive with the Business (a "Competitive Business"), which
includes but is not limited to, acting as a director, officer, agent, employee,
consultant, partner or stockholder of a Competitive Business;
II. engage in any activity which is the same as or in
competition with the Business;
III. interfere with, disrupt or attempt to disrupt
the business relationship, contractual, employment or otherwise, between the
Corporation and any customer
16.
<PAGE> 57
or prospective customer, supplier, lessee or employee of the Corporation,
including without limitation the customers and suppliers of the Business prior
to the date hereof;
IV. solicit employment for or of employees of the
Corporation or induce any employee to leave the employ of the Corporation;
V. lend or allow his name or reputation to be used by
or in connection with any Competitive Business; or
VI. otherwise allow his skill, knowledge or
experience to be used in or by any Competitive Business.
B. Notwithstanding anything in this Agreement to the contrary,
nothing in this Agreement shall limit the right of Employee as an investor to
hold or make investments not in excess of 5% of the outstanding securities of
any corporation.
C. The parties hereto intend that the covenants set forth in
Sections 10(a) shall be construed as a series of separate covenants, each
consisting of the covenants set forth in Section 10(a) for each of the
Locations. Except for such Locations, all such separate covenants shall be
deemed identical.
D. In the event that this Agreement is terminated pursuant to
Section 5 hereof, other than the termination by Employee pursuant to Section
5(d) or by the Corporation pursuant to Section 5(e), the provisions of Sections
10 shall survive such termination. Section 10(a) shall terminate and be of no
force or effect in the event the Corporation breaches this Agreement and fails
to cure such breach within thirty (30) days of receipt of written notice
thereof.
11. REMEDIES. The Corporation and Employee agree that the services of
Employee are of a personal, special, unique, and extraordinary character, and
cannot be replaced by the Corporation without great difficulty, and that the
violation of Employee of any of his agreements under Section 9 would damage the
goodwill of the Corporation and cause the Corporation irreparable harm which
could not reasonably or adequately be compensated in damages in an action at
law, and that the agreements of Employee under Section 9 may be enforced by the
Corporation in equity by an injunction or restraining order in addition to being
enforced by the Corporation at law.
12. NOTICE. All notices under this Employment Agreement shall be in
writing. Notice intended for the Corporation shall be sent by registered or
certified mail, postage prepaid, return receipt requested, to the address of the
Corporation set forth above or such other address as the Corporation may
hereafter designate in writing. Notice intended for Employee shall be delivered
to Employee by hand or sent by registered or certified mail, postage prepaid,
return receipt requested, to the address of Employee set forth above or such
other address as Employee may hereafter designate in writing.
17.
<PAGE> 58
13. ASSIGNMENT. The rights and obligations of the Corporation under
this Employment Agreement shall inure to the benefit of, and shall be binding
upon, the successors and assigns of the Corporation. The rights and obligations
of Employee under this Employment Agreement shall inure to the benefit of, and
shall be binding upon, the heirs, executors, and legal representatives of
Employee.
14. ENTIRE AGREEMENT. This Employment Agreement supersedes any and all
other agreements, either oral or in writing, between the parties hereto with
respect to the employment of Employee by the Corporation and contains all of the
covenants and agreements between the parties with respect to such employment.
Each party to this Employment Agreement acknowledges that no representations,
inducements, promises, or agreements, oral or otherwise, have been made by any
party, or any one acting on behalf of any party, which are not embodied herein,
and that no other agreement, statement, or promise not contained in this
Employment Agreement shall be valid and binding. Any modification of this
Employment Agreement will be effective only if it is in writing singed by both
parties to this Employment Agreement.
15. SEVERABILITY. If any provision in this Employment Agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.
16. ATTORNEYS' FEES. In the event that any action is filed in relation
to this Agreement, the unsuccessful party in the action shall pay to the
successful party, in addition to all the sums that either party may be called on
to pay, a reasonable sum for the successful party's attorney's fees.
17. GOVERNING LAW. This Employment Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
18.
<PAGE> 59
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day, month and year first above written.
EDNET, INC.
By/s/Tom Kobayashi
------------------------------------------
Tom Kobayashi, Chairman and CEO
INTERNET WORLDWIDE BUSINESS SOLUTIONS
By/s/Trevor Stout
------------------------------------------
Trevor Stout, President and Chief
Technical Officer
EMPLOYEE
/s/Randall Schmitz
---------------------------------------------
Randall Schmitz
19.
<PAGE> 60
EXHIBIT G
SCHEDULE OF EMPLOYEE STOCK OPTIONS
<TABLE>
<CAPTION>
NUMBER OF
EMPLOYEE OPTION SHARES
<S> <C>
William Atchison 30,000
One or more future hires in programming resources 30,000
------
Total: 60,000
</TABLE>
20.
<PAGE> 61
EXHIBIT H
CONTINUITY OF INTEREST CERTIFICATE
21.
<PAGE> 62
EDNET, INC.
CONTINUITY OF INTEREST CERTIFICATE
June 24, 1996
THE UNDERSIGNED, in accordance with Section 6.2(e) of the Agreement and
Plan of Reorganization (the "Agreement") dated as of June 24, 1996, by and among
EDNET, INC. ("EDNET"), its wholly-owned subsidiary, EDN SUB, INC. ("Merger Sub")
and INTERNET WORLDWIDE BUSINESS SOLUTIONS ("IBS") hereby certifies and
represents that the following facts are now true and will continue to be true as
of the Closings(1):
1. The fair market value of the EDNET stock and other consideration
received by each IBS stockholder will be approximately equal to the fair market
value of the IBS stock surrendered in the exchange.
2. Merger Sub will acquire at least 90 percent of the fair market value
of the net assets and at least 70 percent of the fair market value of the gross
assets held by IBS immediately prior to the transaction. For purposes of this
representation, amounts paid by IBS to dissenters, amounts paid by IBS to
stockholders who receive cash or other property, IBS assets used to pay its
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by IBS during the period beginning with the
commencement of negotiations (formal or informal) between representatives IBS
and EDNET and ending on the Closing Date (the "Pre-Merger Period"), will be
included as assets of IBS held immediately prior to the transaction.
3. Prior to the transaction, EDNET will be in control of Merger Sub
within the meaning of Section 368(c) of the Code.
4. Following the transaction, Merger Sub will not issue additional
shares of its stock that would result in EDNET losing control of Merger Sub
within the meaning of Section 368(c) of the Code.
5. EDNET has no plan or intention to reacquire any of its stock issued
in the transaction.
6. EDNET has no plan or intention to liquidate Merger Sub; to merge
Merger Sub with and into another corporation; to sell or otherwise dispose of
the stock of Merger Sub; or to cause Merger Sub to sell or otherwise dispose of
any of the assets of IBS acquired in the transaction, except for dispositions
made in the ordinary course of business or transfers described in Section
368(a)(2)(C) of the Code.
- --------
(1) Unless otherwise indicated, capitalized terms not defined herein have
the meanings set forth in the Agreement.
22.
<PAGE> 63
7. Following the transaction, Merger Sub will continue the historic
business of IBS or use a significant portion of IBS's business assets in a
business.
8. There is no intercorporate indebtedness existing between EDNET and
IBS or between Merger Sub and IBS that was issued, acquired, or will be settled
at a discount.
9. Neither EDNET nor Merger Sub is an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
10. No stock of Merger Sub will be issued in the transaction.
11. Following the transactions contemplated by the Agreement, EDNET and
Merger Sub will file their tax returns and reports in a manner consistent with
the treatment of the transactions contemplated by the Agreement as a tax-free
reorganization under Section 368(a) of the Code.
EDNET, INC. EDN SUB, INC.
By: /s/Tom Kobayashi By:/s/Tom Kobayashi
-------------------------------- ------------------------
Tom Kobayashi Tom Kobayashi
Chairman and CEO Chairman and CEO
23.
<PAGE> 64
EXHIBIT I-1
OWNERSHIP CERTIFICATE (STOUT)
24.
<PAGE> 65
OWNERSHIP CERTIFICATE
The undersigned, Trevor Stout, immediately prior to the closing of the
Agreement and Plan of Reorganization by and among EDnet, Inc., EDN Sub, Inc.,
and Internet Worldwide Business Solutions (the Agreement and Plan of
Reorganization) hereby certifies that:
1. He owns, of record and beneficially, 25,000 shares of Common Stock
of Internet Worldwide Business Solutions (the "Company") free and clear of all
liens, encumbrances, pledges, claims, options, changes and assessments of any
nature whatsoever, with full right and lawful authority to transfer such shares
pursuant to the terms of the Agreement and Plan of Reorganization. There exists
no voting agreement, voting trust, or outstanding proxy with respect to any of
such shares. There are no outstanding rights, options, warrants, calls,
commitments, or any other agreements of any character, whether oral or written
with respect to such shares.
2. The only other outstanding securities of the Company are 25,000
shares of Common Stock held by Randall Schmitz.
3. He is acquiring the Merger Consideration (as defined in the
Agreement and Plan of Reorganization) for his own account, for investment
purposes only, and not with a view to the sale or distribution of any part
thereof, and he has no present intention of selling, granting participation in
or otherwise distributing the same. Seller understands the specific risks
related to the Merger Consideration, especially as it relates to the financial
performance of EDnet, Inc.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Ownership as of June 24, 1996.
/s/Trevor Stout
-----------------------------------
Trevor Stout
25.
<PAGE> 66
EXHIBIT I-2
OWNERSHIP CERTIFICATE (SCHMITZ)
26.
<PAGE> 67
OWNERSHIP CERTIFICATE
The undersigned, Randall Schmitz, immediately prior to the closing of
the Agreement and Plan of Reorganization by and among EDnet, Inc., EDN Sub,
Inc., and Internet Worldwide Business Solutions (the Agreement and Plan of
Reorganization) hereby certifies that:
1. He owns, of record and beneficially, 25,000 shares of Common Stock
of Internet Worldwide Business Solutions (the "Company") free and clear of all
liens, encumbrances, pledges, claims, options, changes and assessments of any
nature whatsoever, with full right and lawful authority to transfer such shares
pursuant to the terms of the Agreement and Plan of Reorganization. There exists
no voting agreement, voting trust, or outstanding proxy with respect to any of
such shares. There are no outstanding rights, options, warrants, calls,
commitments, or any other agreements of any character, whether oral or written
with respect to such shares.
2. The only other outstanding securities of the Company are 25,000
shares of Common Stock held by Randall Schmitz.
3. He is acquiring the Merger Consideration (as defined in the
Agreement and Plan of Reorganization) for his own account, for investment
purposes only, and not with a view to the sale or distribution of any part
thereof, and he has no present intention of selling, granting participation in
or otherwise distributing the same. Seller understands the specific risks
related to the Merger Consideration, especially as it relates to the financial
performance of EDnet, Inc.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Ownership as of June 24, 1996.
/s/Randall Schmit
-----------------------------------
Randall Schmitz
27.
<PAGE> 1
EX-10.(b)
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is entered into this 22nd
of September, 1995, by and among AP OFFICE EQUIPMENT, INC., a Colorado
corporation (hereinafter referred to as "Buyer"); and ENTERTAINMENT DIGITAL
NETWORK, INC., a California corporation (hereinafter referred to as the
"Company"), Tom Kobayashi, David Gustafson, Tom Scott, Stewart Sloke, Bert
Berdis, Morgan Davis and Gary Black (hereinafter collectively referred to as
"Seller"), being the primary shareholders of the Company.
WHEREAS, Seller is the owner of record and beneficially owns One
Million Sixty-Four Thousand Four Hundred Eleven (1,064,411) shares of the issued
and outstanding shares of Common Stock of the Company and Three Hundred
Ninety-Three Thousand Seven Hundred Fifty (393,750) shares of Series A Preferred
Stock of the Company (the "Shares"); and
WHEREAS, Seller desires to sell all of the Shares to Buyer, and Buyer
desires to purchase the Shares, upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
I.
SALE AND PURCHASE OF THE SHARES
1.1 SALE AND PURCHASE. Subject to the terms and conditions hereof, at
the Closing (as defined in paragraph 1.2 below), Seller agrees to sell, assign,
transfer, convey and deliver to Buyer, and Buyer agrees to purchase from Seller,
the Shares listed in Exhibit "A", attached hereto.
1.2 CLOSING. The purchase shall be consummated at a closing ("Closing")
to take place at 11:00 o'clock a.m., at the offices of Buyer's counsel on
September __, 1995 ("Closing Date").
1.3 PURCHASE PRICE. The aggregate purchase price ("Purchase Price") for
the Shares shall be 1,275,818 shares of Common Stock of the Buyer ("Buyer's
Shares"). This portion of the Purchase Price shall be paid at Closing, by
issuance and delivery of Buyer's Shares to Seller against receipt of
certificates representing the Shares, duty endorsed for transfer to Buyer.
1.4 ALLOCATION OF SHARES. All shares of stock of Buyer to be issued to
Seller pursuant to this Agreement shall be issued to the respective Sellers in
proportion to their respective ownership of stock of the Company as described in
Exhibit "A" hereto.
<PAGE> 2
1.5 OTHER AGREEMENTS. At the Closing, the indicated parties shall
execute and deliver the following additional agreements in substantially the
form attached hereto:
(a) Employment Agreements between Buyer and Tom Kobayashi
and David Gustafson attached hereto as Exhibits "B" and "C".
(B) Stock certificates representing all of the Shares,
duly endorsed to Buyer and in blank or assignments separate from the
certificates, transferring the Shares from Seller to Buyer, copies of which are
attached hereto as Exhibit "P".
(c) Stock option agreement between Tom Kobayashi and
David Gustafson and Buyer attached hereto as Exhibit "D".
1.6 BASIC AGREEMENTS AND TRANSACTIONS DEFINED. This Agreement and other
agreements listed in paragraph 1.5, are sometimes referred to as the "Basic
Agreements". The transactions contemplated by the Basic Agreements are sometimes
referred to as the "Transactions".
II.
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Buyer as follows:
(a) ORGANIZATION. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of California. The Company has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business. The Company
is duly qualified and in good standing as a foreign corporation in each
jurisdiction where its ownership of property or operation of its business
requires qualification, except where the failure to be qualified would not have
a material adverse effect on the Company.
(b) AUTHORIZED CAPITALIZATION. The authorized
capitalization of the Company consists of Five Million (5,000,000) shares of
Common Stock, of which One Million Two Hundred Eleven Thousand Seven Hundred
Fifteen (1,211,715) shares have been issued and are outstanding and Two Million
(2,000,000) shares of Preferred Stock, 545,000 shares of which have been
designated Series A Preferred Stock, of which Five Hundred Twenty-Five Thousand
(525,000) shares are outstanding. The Shares have been duly authorized, validly
issued, are fully paid and nonassessable with no personal liability attaching to
the ownership thereof and were offered, issued, sold and delivered by the
Company in compliance with all applicable state and federal laws. Except as set
forth in Exhibit "F" attached hereto, the Company does not have any outstanding
fights, options, warrants, calls, commitments, conversion or any other
agreements of any character, whether oral or written, obligating it to issue any
shares of its
2.
<PAGE> 3
capital stock, whether authorized or not. Except as set forth in Exhibit "E"
attached hereto, the Company is not a party to and is not bound by any
agreement, contract, arrangement or understanding, whether oral or written,
giving any person or entity any interest in, or any right to share, participate
in or receive any portion of, the Company's income, profits or assets, or
obligating the Company to distribute any portion of its income, profits or
assets.
(c) AUTHORITY. The Company has full power and lawful
authority to execute and deliver the Basic Agreements and to consummate and
perform the Transactions contemplated thereby. The Basic Agreements constitute
(or shall, upon execution, constitute) valid and legally binding obligations
upon the Company, enforceable in accordance with their terms. Neither the
execution and delivery of the Basic Agreements by the Company, nor the
consummation and performance of the Transactions contemplated thereby, conflicts
with, requires the consent, waiver or approval of, results in a breach of or
default under, or gives to others any interest or right of termination,
cancellation or acceleration in or with respect to, any material agreement by
which the Company is a party or by which the Company or any of its material
properties or assets are bound or affected.
(d) COMPANY FINANCIAL STATEMENTS. The Company's Financial
Statements are complete, were prepared in accordance with generally accepted
accounting principles applied on a basis consistent with prior periods and
fairly present the financial position of the Company as of June 30, 1995.
(e) NO UNDISCLOSED LIABILITIES. Except as set forth in
the Company Financial Statements previously delivered to Buyer and as set forth
on Exhibit "G", the Company is not aware of any material liabilities for which
the Company is liable or will become liable in the future.
(f) TAXES. The Company has filed all federal, state,
local tax and other returns and reports which were required to be filed with
respect to all taxes, levies, imposts, duties, licenses and registration fees,
charges or withholdings of every nature whatsoever ("Taxes"), and their exists a
substantial basis in law and fact for all positions taken in such reports. No
waivers of periods of limitation are in effect with respect to any taxes arising
from and attributable to the ownership of properties or operations of the
business of the Company.
(g) PROPERTIES. The Company has good and marketable title
to all its material personal property, equipment, processes, patents,
copyrights, trademarks, franchises, licenses and other material properties and
assets (except for items leased or licensed to the Company), including all
property reflected in the Company Financial Statements (except for assets
reflected therein which have been sold in the normal course of its business
where the proceeds from such sale or other disposition have been properly
accounted for in the financial statements of the Company), in each case free and
clear of all material liens, claims and encumbrances of every kind and
character, except as set forth in Exhibit "H". The Company has no ownership
interest in any real property. The assets and properties owned, operated or
leased by the Company and used in its business are in good operating condition,
reasonable wear and tear excepted, and suitable for the uses for which intended.
3.
<PAGE> 4
(h) BOOKS AND RECORDS. The books and records of the
Company are complete and correct in all material respects, have been maintained
in accordance with good business practices and accurately reflect in all
material respects the business, financial condition and results of operations of
the Company as set forth in the Company Financial Statements.
(i) INSURANCE. Exhibit "I" contains an accurate and
complete list and brief description of all performance bonds and policies of
insurance, including fire and extended coverage, general liability, workers
compensation, products liability, property, and other forms of insurance or
indemnity bonds held by the Company. The Company is not in default with respect
to any provisions of any such policy or indemnity bond and has not failed to
give any notice or present any claim thereunder in due and timely fashion. All
policies of insurance and bonds are: (1) in full force and effect: (2) are
sufficient for compliance by the Company with all requirements of law and of all
agreements and instruments to which the Company is a party; (3) are valid,
outstanding and enforceable: (4) provide adequate insurance coverage for the
assets, business and operations of the Company in amounts at least equal to
customary coverage in the Company's industry: (5) will remain in full force and
effect through the Closing; and (6) will not be affected by, and will not
terminate or lapse by reason of, the transactions contemplated by this
Agreement.
(j) TRANSACTIONS WITH CERTAIN PERSONS. Except as
disclosed in Exhibit "J", the Company has no outstanding material agreement,
understanding, contract, lease, commitment, loan or other material arrangement
with any officer, director or shareholder of the Company or any relative of any
such person, or any corporation or other entity in which such person owns a
beneficial interest.
(k) MATERIAL CONTRACTS. Except as set forth in Exhibit
"K", the Company has no purchase, sale, commitment, or other contract, the
breach or termination of which would have a materially adverse effect on the
business, financial condition, results of operations, assets, liabilities, or
prospects of the Company.
(l) EMPLOYMENT MATTERS. Exhibit "L" contains a list of
all officers, their base salaries, accrued vacation pay, sick pay, and severance
pay through August 31, 1995. Except as set forth in Exhibit "K", the Company is
not a party to any employment agreement, or any pension, profit sharing,
retirement or other deferred compensation plan or agreement. The Company has not
incurred any unfunded deficiency or liability within the meaning of the Employee
Retirement Income Security Act of 1974 ("ERISA"), has not incurred any liability
to the Pension Benefit Guaranty Corporation established under ERISA in
connection with any employee benefit plan and has no outstanding obligations or
liabilities under any employee benefit plan. The Company has not been a party to
a "prohibited transaction," which would subject the Company to any tax or
penalty. There is no collective bargaining agreement or negotiations therefor,
labor grievance or arbitration proceeding against the Company pending or
threatened, and to the knowledge of the Company, there are no union organizing
activities currently pending or threatened against or involving the Company.
4.
<PAGE> 5
(m) AUTHORIZATIONS. The Company has no licenses, permits,
approvals and other authorizations from any governmental agencies and any other
entities that are materially necessary for the conduct of its business, except
as set forth in Exhibit "M" which contains a list of all material licenses,
permits, approvals, and other material authorizations, as well as a list of all
material copyrights, patents, trademarks, trade names, service marks,
franchises, licenses and other material permits, each of which is valid and in
full force and effect.
(n) NO POWERS OF ATTORNEY. The Company has no powers of
attorney or similar authorizations outstanding.
(o) COMPLIANCE WITH LAWS. The Company is not in violation
of any federal, state, local or other law, ordinance, role or regulation
applicable to its business, and has not received any actual or threatened
complaint, citation or notice of violation or investigation from any
governmental authority, in each case where such violation would have a material
adverse effect on the Company.
(p) COMPLIANCE WITH ENVIRONMENTAL LAWS. The Company is in
compliance with all applicable pollution control and environmental laws, rules
and regulations in all material respects. The Company has no environmental
licenses, permits and other authorizations held by the Company relative to
compliance with environmental laws, rules and regulations.
(q) NO LITIGATION. There are no actions, suits, claims,
complaints or proceedings pending or threatened against the Company, at law or
in equity, or before or by any governmental department, commission, court,
board, bureau, agency or instrumentality; and there are no facts which would
provide a valid basis for any such action, suit or proceeding, which, if
determined adversely to the Company, would have a material adverse effect on the
Company. There are no orders, judgments or decrees of any governmental authority
outstanding which specifically apply to the Company or any of its assets.
(r) VALIDITY. All material contracts, agreements, leases
and licenses to which the Company is a party or by which it or any of its
material properties or assets are bound or affected, are valid and in full force
and effect; and no breach or default exists, or upon the giving of notice or
lapse of time, or both, would exist, on the part of the Company or by any other
party thereto.
(s) NO ADVERSE CHANGES. Since August 1, 1995, there have
been no actual or threatened developments of a nature that is materially adverse
to or involves any materially adverse effect upon the business, financial
condition, results of operations, assets, liabilities, or prospects of the
Company.
(t) FEES. All negotiations relating to the Basic
Agreements and the Transactions have been conducted by the Company in such a
manner as not to give rise to any valid claim for any finder's fees, brokerage
commission, financial advisory fee or related expense or other like payment for
which the Company or Buyer are or may be liable.
5.
<PAGE> 6
(u) FULL DISCLOSURE. All statements of the Company
contained in the Basic Agreements and in any other written documents delivered
by or on behalf of the Company or Seller to Buyer are true and correct in all
material respects and do not omit any material fact necessary to make the
statements contained therein not misleading in light of the circumstances under
which they were made. There are no facts known to the Company which could have a
materially adversely affect upon the business, financial condition, results of
operations, assets, liabilities, or prospects of the Company, which have not
been disclosed to Buyer in the Basic Agreements.
2.2 REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and
warrants to Buyer, with respect to the Shares owned by Seller, as follows:
(a) TITLE TO THE SHARES. At Closing, Seller shall own of
record and beneficially the number of the Shares listed in Exhibit "A", of the
Company, free and clear of all liens, encumbrances, pledges, claims, options,
charges and assessments of any nature whatsoever, with full fight and lawful
authority to transfer the Shares to Buyer. No person has any preemptive rights
or rights of first refusal with respect to any of the Shares. There exists no
voting agreement, voting trust, or outstanding proxy with respect to any of the
Shares. There are no outstanding rights, options, warrants, calls, commitments,
or any other agreements of any character, whether oral or written, with respect
to the Shares.
(b) INVESTMENT INTENT. Seller is acquiring the shares of
Buyer for his or her own account, for investment purposes only, and not with a
view to the sale or distribution of any part thereof, and Seller has no present
intention of selling, granting participation in, or otherwise distributing the
same. Seller understands the specific risks related to an investment in the
shares of Buyer, especially as it relates to the financial performance of Buyer.
2.3 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Seller as follows:
(a) ORGANIZATION. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of Colorado. Buyer has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business. Buyer is duly qualified
and in good standing as a foreign corporation in each jurisdiction where its
ownership of property or operation of its business requires qualification,
except where the failure to be qualified would not have a material adverse
effect on the Company. The Certificate of Incorporation and the Bylaws of Buyer
presently provide that the number of members of the Board of Directors shall be
five (5).
(b) AUTHORIZED CAPITALIZATION. The authorized
capitalization of Buyer consists of 25,000,000 shares of .001 par value Common
Stock, of which Seven Hundred Forty Seven Thousand Five Hundred (747,500) shares
have been issued and are outstanding (after giving effect to a one for three
reverse stock split). Buyer's Shares have been duly authorized, validly issued,
are fully paid and nonassessable with no personal liability attaching to the
ownership thereof and were offered, issued, sold and delivered by Buyer in
compliance with all
6.
<PAGE> 7
applicable state and federal laws. Except as set forth in Exhibit "N" attached
hereto, Buyer does not have any outstanding fights, options, warrants, calls,
commitments, conversion or any other agreements of any character, whether oral
or written, obligating it to issue any shares of its capital stock, whether
authorized or not. Except as set forth in Exhibit "O" attached hereto, Buyer is
not a party to and is not bound by any agreement, contract, arrangement or
understanding, whether oral or written, giving any person or entity any interest
in, or any right to share, participate in or receive any portion of, Buyer's
income, profits or assets, or obligating Buyer to distribute any portion of its
income, profits or assets.
(c) AUTHORITY. Buyer has full power and lawful authority
to execute and deliver the Basic Agreements and to consummate and perform the
Transactions contemplated thereby. The Basic Agreements constitute (or shall,
upon execution, constitute) valid and legally binding obligations upon Buyer,
enforceable in accordance with their terms. Neither the execution and delivery
of the Basic Agreements by Buyer, nor the consummation and performance of the
Transactions contemplated thereby, conflicts with, requires the consent, waiver
or approval of, results in a breach of or default under, or gives to others any
interest or right of termination, cancellation or acceleration in or with
respect to, any material agreement by which Buyer is a party or by which Buyer
or any of its material properties or assets are bound or affected.
(d) INVESTMENT INTENT. Buyer is acquiring the Shares for
its own account, for investment purposes only, and not with a view to the sale
or distribution of any part thereof, and Buyer has no present intention of
selling, granting participation in, or otherwise distributing the same. Buyer
understands the specific risks related to an investment in the Shares,
especially as it relates to the financial performance of the Company.
(e) BUYER'S FINANCIAL STATEMENTS. Buyer's Financial
Statements are complete, were prepared in accordance with generally accepted
accounting principles applied on a basis consistent with prior periods and
fairly present the financial position of Buyer as of June 30, 1995.
(f) NO UNDISCLOSED LIABILITIES. Except as set forth in
Buyer's Financial Statements previously delivered to the Company, Buyer is not
aware of any material liabilities for which it is liable or will become liable
in the future.
(g) MATERIAL CONTRACTS. Buyer has no purchase, sale,
commitment, or other contract, the breach or termination of which would have a
materially adverse effect on the business, financial condition, results of
operations, assets, liabilities, or prospects of Buyer.
(h) NO LITIGATION. There are no actions, suits, claims,
complaints or proceedings pending or threatened against Buyer, at law or in
equity, or before or by any governmental department, commission, court, board,
bureau, agency or instrumentality; and there are no facts which would provide a
valid basis for any such action, suit or proceeding, which, if determined
adversely to the Company, would have a material adverse effect on the
7.
<PAGE> 8
Company. There are no orders, judgments or decrees of any governmental authority
outstanding which specifically apply to Buyer or any of its assets.
(i) DISCLOSURE STATEMENT. The information in the
Disclosure Statement being provided to the current shareholders of Buyer and to
the members of Seller is true and correct in all material respects and contains
no misstatements or omissions of material fact.
(j) NO OPERATIONS. Buyer does not currently have any
business operations or material assets.
III.
COVENANTS
3.1 COVENANTS OF THE COMPANY. The Company covenants and agrees that
from the date hereof to the Closing without the prior written consent of Buyer:
(a) ORDINARY COURSE OF BUSINESS. The Company will operate
its business only in the ordinary course and will use its best efforts to
preserve the Company's business, organization, goodwill and relationships with
persons having business dealings with the Company.
(b) MAINTAIN PROPERTIES. The Company will maintain all of
its properties in good working order, repair and condition (reasonable wear and
use excepted) and will take all steps reasonably necessary to maintain in full
force and effect its patents, trademarks, service marks, trade names, brand
names, copyrights and other intangible assets.
(c) COMPENSATION. The Company will not (1) enter into or
alter any employment agreements: (2) grant any increase in compensation other
than normal merit increases consistent with the Company's general prevailing
practices to any officer or employee: or (3) enter into or alter any labor or
collective bargaining agreement or any bonus or other employee fringe benefit.
(d) NO INDEBTEDNESS. The Company will not create, incur,
assume, guarantee or otherwise become liable with respect to any obligation for
borrowed money, indebtedness, capitalized lease or similar obligation, except in
the ordinary course of business consistent with past practices, where the entire
net proceeds thereof are deposited with and used by and in connection with the
business of the Company.
(e) MAINTAIN BOOKS. The Company will maintain its books,
accounts and records in the usual, regular ordinary and sound business manner
and in accordance with generally accepted accounting principles applied on a
basis consistent with past practices.
8.
<PAGE> 9
(f) NO AMENDMENTS. The Company will not amend its
corporate charter or bylaws (or similar documents) without prior consent of
Buyer and the Company will maintain its corporate existence, licenses, permits,
powers and rights in full force and effect.
(g) TAXES AND ACCOUNTING MATTERS. The Company will file
when due all federal, state and local tax returns and reports which shall be
accurate and complete, including but not limited to income, franchise, excise,
ad valorem, and other taxes with respect to its business and properties, and to
pay as they become due all taxes or assessments, except for taxes for which
adequate reserves are established and which are being contested in good faith by
appropriate proceedings. The Company will not change its accounting methods or
practices or any depreciation, amortization or inventory valuation policies or
practices.
(h) NO DISPOSITION OR ENCUMBRANCE. Except in the ordinary
course of business consistent with past practice, the Company will not (1)
dispose of or encumber any of its properties and assets, (2) discharge or
satisfy any lien or encumbrance or pay any obligation or liability (fixed or
contingent) except for previously scheduled repayment of debt, (3) cancel or
compromise any debt or claim, (4) transfer or grant any rights under any
concessions, leases, licenses, agreements, patents, inventions, proprietary
technology or process, trademarks, service marks or copyrights, or with respect
to any know-how, or (5) enter into or modify in any material respect or
terminate any existing license, lease, or contract.
(i) INSURANCE. The Company will maintain in effect all
its current insurance policies.
(j) NO SECURITIES ISSUANCES. The Company will not issue
any shares of any class of capital stock, or enter into any contract, option,
warrant or right calling for the issuance of any such shares of capital stock,
or create or issue any securities convertible into any securities of the Company
except for (1) the transactions contemplated herein: (2) issuances of Common
Stock upon the cancellation of salary accruals as previously disclosed to Buyer;
and (3) issuances of options and warrants to purchase Common Stock as previously
disclosed to Buyer.
(k) DIVIDENDS. The Company will not declare, set aside or
pay any dividends or other distributions of any nature whatsoever.
(l) CONTRACTS. The Company will not enter into or assume
any contract, agreement, obligation, lease, license, or commitment except in the
ordinary course of business consistent with past practice or as contemplated by
this Agreement.
(m) NO BREACH. The Company will not do any act or omit to
do any act which would cause a breach of any of its material contracts,
commitments or obligations.
(n) DUE COMPLIANCE. The Company will comply with all
laws, regulations, rules and ordinances applicable to it and to the conduct or
its business, the violation of which would have a material adverse effect on
the Company.
9.
<PAGE> 10
(o) NO WAIVERS OF RIGHTS. The Company will not amend,
terminate or waive any material right whether or not in the ordinary course of
business.
(p) CAPITAL COMMITMENTS. The Company will not make or
commit to make any material capital expenditure, capital addition or capital
improvement.
(q) NO RELATED PARTY TRANSACTIONS. The Company will not
make any loans to, or enter into any transaction, agreement, arrangement or
understanding of any material nature with any of its officers, directors or
employees.
(r) NOTICE OF CHANGE. The Company will promptly advise
Buyer in writing of any material adverse change, or the occurrence of any event
which involves any substantial possibility of a material adverse change, in its
business, financial condition, results of operations, assets, liabilities or
prospects.
(s) CONSENTS. The Company will use its best good faith
efforts to obtain the consent or approval of each person or entity whose consent
or approval is required for the consummation of the Transactions contemplated
hereby and to do all things necessary to consummate the Transactions
contemplated by the Basic Agreements.
3.2 COVENANTS OF BUYER. Buyer covenants and agrees to perform the
following acts:
(a) OFFER TO PURCHASE. Within 60 days of the Closing,
Buyer will make an offer to purchase all remaining outstanding shares of Common
Stock of the Company from all remaining holders of such shares on substantially
the same terms and conditions as are contained in this Agreement.
(b) NO INDEBTEDNESS. Buyer will not create, incur,
assume, guarantee or otherwise become liable with respect to any obligation for
borrowed money, indebtedness, capitalized lease or similar obligation, except in
the ordinary course of business consistent with past practices, where the entire
net proceeds thereof are deposited with and used by and in connection with the
business of Buyer.
(c) NO AMENDMENTS. Buyer will not amend its corporate
charter or bylaws (or similar documents) without prior consent of the Company
and Buyer will maintain its corporate existence, licenses, permits, powers and
rights in full force and effect.
(d) NO SECURITIES ISSUANCES. Buyer will not issue any
shares of any class of capital stock, or enter into any contract, option,
warrant or right calling for the issuance of any such shares of capital stock,
or create or issue any securities convertible into any securities of Buyer
except for the transactions contemplated herein.
(e) NO DIVIDENDS. Buyer will not declare, set aside or
pay any dividends or other distributions of any nature whatsoever.
10.
<PAGE> 11
(f) CONTRACTS. Buyer will not enter into or assume any
contract, agreement, obligation, lease, license, or commitment except in the
ordinary, course of business consistent with past practice or as contemplated by
this Agreement.
(g) CAPITAL COMMITMENTS. Buyer will not make or commit to
make any material capital expenditure, capital addition or capital improvement.
(h) NOTICE OF CHANGE. Buyer will promptly advise the
Company in writing of any material adverse change, or the occurrence of any
event which involves any substantial possibility of a material adverse change,
in its business, financial condition, results of operations, assets, liabilities
or prospects.
(i) CONSENTS. Buyer will use its best good faith efforts
to obtain the consent or approval of each person or entity whose consent or
approval is required for the consummation of the Transactions contemplated
hereby and to do all things necessary to consummate the Transactions
contemplated by the Basic Agreements.
IV.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER TO CLOSE
The obligation of Buyer to close the Transactions contemplated hereby
is subject to the fulfillment by the Company and Seller prior to Closing of each
of the following conditions, which may be waived in whole or in part by Buyer:
4.1 COMPLIANCE WITH REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of the Company and Seller contained in this
Agreement shall have been true and correct when made and shall be true and
correct as of the Closing with the same force and effect as if made at the
Closing. The Company and Seller shall have performed all agreements, covenants
and conditions required to be performed by the Company and Seller prior to the
Closing.
4.2 NO ADVERSE CHANGE. Subsequent to the date hereof and prior to the
Closing, there shall have been no event which has had or may have a material
adverse effect upon the business, financial condition, results of operation,
assets, liabilities or prospects of the Company.
4.3 NO LEGAL PROCEEDINGS. No suit, action or other legal or
administrative proceeding before any court or other governmental agency shall be
pending or threatened seeking to enjoin the consummation of the Transactions
contemplated hereby.
11.
<PAGE> 12
4.4 DOCUMENTS TO BE DELIVERED BY THE COMPANY AND SELLER. The Company
and Seller shall have delivered the following documents:
(a) Stock certificates representing all of the Shares,
duly endorsed to Buyer and in blank or accompanied by duly executed stock
powers, copies of which are attached as Exhibit "P".
(b) A copy of (i) the Restated Articles of Incorporation
of the Company, as amended to date, certified as correct by the Company; and
(ii) the Bylaws of the Company certified as correct by the Company; and (iii) a
certificate from the California Franchise Tax Board (Certificate No. 1850604),
to the effect that the Company is in good standing and has paid all franchise
taxes in such state, all as attached hereto as Exhibit "Q";
(c) All agreements referred to in paragraph 1.5 above,
executed by all parties thereto other than Buyer.
(d) All corporate and other records of or applicable to
the Company included but not limited to, current and up-to-date minute books,
stock transfer books and registers, books of accounts, leases and material
contracts.
(e) Such other documents or certificates as shall be
reasonably required by Buyer or its counsel in order to close and consummate
this Agreement.
V.
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF THE COMPANY AND SELLER TO CLOSE
The obligation of the Company and Seller to close the Transactions is
subject to the fulfillment prior to Closing of each of the following conditions,
any of which may be waived in whole or in part by the Company and Seller:
5.1 COMPLIANCE WITH REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties made by Buyer in this Agreement shall have been
true and correct when made and shall be true and correct in all material
respects at the Closing with the same force and effect as if made at the
Closing, and Buyer shall have performed all agreements, covenants and conditions
required to be performed by Buyer prior to the Closing.
5.2 NO LEGAL PROCEEDINGS. No suit, action or other legal or
administrative proceedings before any court or other governmental agency shall
be pending or threatened seeking to enjoin the consummation of the Transactions
contemplated hereby.
5.3 OTHER AGREEMENTS. All parties other than Seller and the Company
shall have executed and delivered the Basic Agreements.
12.
<PAGE> 13
5.4 PAYMENTS. Seller shall have received from Buyer all Common Stock to
be issued at the Closing by Buyer pursuant to all the Basic Agreements.
5.5 OUTSIDE FINANCING. The Company shall have received all proceeds
from the issuance of its Common Stock under a one million dollar ($1,000,000)
exempt offering pursuant to Regulation D.
5.6 GOOD STANDING. Buyer shall have delivered certificates of the
Secretary of State of the State of Colorado as to its corporate existence and
good standing including the payment of all corporate franchise taxes.
VI.
MODIFICATION, WAIVERS, TERMINATION
AND EXPENSES
6.1 MODIFICATION. Buyer, the Company and Seller may amend, modify or
supplement this Agreement in any manner as they may mutually agree in writing.
6.2 WAIVERS. Buyer, the Company and Seller may in writing extend the
time for or waive compliance by the other with any of the covenants or
conditions of the other contained herein.
6.3 TERMINATION AND ABANDONMENT. This Agreement may be terminated and
the purchase of the Shares may be abandoned before the Closing:
(a) By the mutual consent of Seller, the Company and
Buyer:
(b) By Buyer, if the representations and warranties of
the Company or Seller set forth herein shall not be accurate, or the conditions
precedent set forth in Article V shall have not have been satisfied, in all
material respects; or
(c) By the Company or Seller, if the representations and
warranties of Buyer set forth herein shall not be accurate, or the conditions
precedent set forth in Article V shall not have been satisfied in all material
respects.
Termination shall be effective on the date of receipt of written notice
specifying the reasons therefor.
13.
<PAGE> 14
VII.
MISCELLANEOUS
7.1 REPRESENTATIONS AND WARRANTIES TO SURVIVE. Unless otherwise
provided, all of the representations and warranties contained in this Agreement
and in any certificate, exhibit or other document delivered pursuant to this
Agreement shall survive the Closing for a period of two (2) years. No
investigation made by any party hereto or their representatives shall constitute
a waiver of any representation or warranty, and no such representation or
warranty shall be merged into the Closing.
7.2 BINDING EFFECT OF THE BASIC AGREEMENTS. The Basic Agreements and
the certificates and other instruments delivered by or on behalf of the parties
pursuant thereto, constitute the entire agreement between the parties. The terms
and conditions of the Basic Agreements shall inure to the benefit of and be
binding upon the respective heirs, legal representatives, successor and assigns
of the parties hereto. Nothing in the Basic Agreements, expressed or implied,
coffers any rights or remedies upon any party other than the parties hereto and
their respective heirs, legal representatives and assigns. Whenever Seller is
authorized to act hereunder, any action authorized by members of Seller holding
a majority of the Shares shall be deemed the act of and binding on all members
of Seller.
7.3 APPLICABLE LAW. The Basic Agreements are made pursuant to, and will
be construed under, the laws of the State of Oklahoma.
7.4 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and will be deemed to have been duly given when
delivered or mailed, first class postage prepaid:
(a) If to Seller, to:
Entertainment Digital Network, Inc.
ATTN: Tom Kobayashi, President & CEO
One Union Street
San Francisco, CA 94111
Telephone: (415) 274-8800
Fax: (415) 274-8801
14.
<PAGE> 15
(b) If to Buyer, to:
Klenda, Gordon & Getchell, P.C.
ATTN: David Gordon
610 Oneok Plaza
100 West Fifth Street
Tulsa, Oklahoma 74103
Telephone: (918) 587-9191
Fax: (918) 587-0054
These addresses may be changed from time to time by written notice to
the other parties.
7.5 HEADINGS. The headings contained in this Agreement are for
reference only and will not affect in any way the meaning or interpretation of
this Agreement.
7.6 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which will be deemed an original and all of which together will constitute
one instrument.
7.7 SEVERABILITY. If any one or more of the provisions of this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
under applicable law this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein. The
remaining provisions of this Agreement shall be given effect to the maximum
extent then permitted by law.
7.8 FORBEARANCE; WAIVER. Failure to pursue any legal or equitable
remedy or right available to a party shall not constitute a waiver of such
right, nor shall any such forbearance, failure or actual waiver imply or
constitute waiver of subsequent default or breach.
7.9 ATTORNEYS' FEES AND EXPENSES. The prevailing party in any legal
proceeding based upon this Agreement shall be entitled to reasonable attorneys'
fees and expenses and court costs.
7.10 EXPENSES. Each party shall pay all fees and expenses incurred by
it incident to this Agreement and in connection with the consummation of all
transactions contemplated by this Agreement.
7.11 EXHIBITS. All of the following Exhibits to this Agreement are
incorporated herein in the places referenced in this Agreement as if fully set
forth herein:
<TABLE>
<CAPTION>
EXHIBIT REFERENCE ITEM
<S> <C> <C>
A 1.1 Shares of Common Stock of the Company
B 1.5(a) Employment Agreement between Buyer and Tom Kobayashi
C 1.5(a) Employment Agreement between Buyer and David Gustafson
D 1.5(c) Stock Option Agreement
</TABLE>
15.
<PAGE> 16
<TABLE>
<S> <C> <C>
E 2.1(b) List of Existing Agreements Obligating the Company to Distribute
Assets, Income or Profits
F 2.1(b) List of Existing Agreements Obligating the Company to Issue
Common Stock
G 2.1(e) Undisclosed Liabilities of Company
H 2.1(g) Liens, Claims and Encumbrances on Property of Company
I 2.1(i) Insurance of Company
J 2.1(j) Transactions of Company with Officers
K 2.1(k) Material Contracts of Company
L 2.1(1) Employees, Salaries and Benefits of Company
M 2.1(m) Licenses, Permits, etc. of Company
N 2.3(b) List of Existing Agreements Obligating Buyer to Distribute Assets,
Income or Profits
O 2.3(b) List of Existing Agreements Obligating Buyer to Issue Common
Stock
P 4.4(a) Stock Certificates and Stock Powers
Q 4.4(b) Certificate of Company and Bylaws: California Franchise Tax
Certificate
</TABLE>
7.12 INTEGRATION. This Agreement and all documents and instruments
executed pursuant hereto merge and integrate all prior agreements and
representations respecting the Transactions, whether written or oral, and
constitute the sole agreement of the parties in connection therewith. This
Agreement has been negotiated by and submitted to the scrutiny of both Seller
and Buyer and their counsel and shall be given a fair and reasonable
interpretation in accordance with the words hereof, without consideration or
weight being given to its having been drafted by either party hereto or its
counsel.
16.
<PAGE> 17
IN WITNESS WHEREOF, the undersigned parties hereto have duly executed
this Agreement on the date first written above.
"BUYER"
AP OFFICE EQUIPMENT, INC.
By: /s/ Jesse Clayton
-------------------------------
Jesse Clayton, President
"THE COMPANY"
ENTERTAINMENT DIGITAL NETWORK, INC.
By: /s/ Tom Kobayashi
-------------------------------
Tom Kobayashi, President
"SELLER"
/s/Tom Kobayashi /s/Gary Black
- ---------------------------------- -----------------------------------
Tom Kobayashi Gary Black
/s/Tom Scott /s/David Gustafson
- ---------------------------------- -----------------------------------
Tom Scott David Gustafson
/s/Stewart Sloke /s/Bert Berdis
- ---------------------------------- -----------------------------------
Stewart Sloke Bert Berdis
/s/Morgan Davis
- ----------------------------------
Morgan Davis
17.
<PAGE> 1
EX-10.(c)
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is entered into this 18th
of October, 1995, by and among EDNET, INC., formerly AP Office Equipment, Inc.,
a Colorado corporation (hereinafter referred to as "Buyer"); and David Haynes,
Jim and Jane Isomoto, John Wheeler, Julie Creighton, Tadao and Ann Isomoto,
LucasArts Entertainment Co., Marianne Nishifue and Josh Piagentini, Mary
Nishifue, Steven Berman, and the Takashi and Mutsuyo Kobayashi Trust dated April
27, 1988 (hereinafter collectively referred to as "Seller"), being the remaining
stockholders of Entertainment Digital Network, a California corporation (the
"Company"), other than Buyer.
WHEREAS, Seller is the owner of record and beneficially owns Two
Hundred Seventy Eight Thousand Five Hundred Fifty Four (278,554) shares of the
issued and outstanding shares of Common Stock of the Company (the "Shares"); and
WHEREAS, on September 25, 1995, Buyer, the Company and the seven
primary stockholders of the Company entered into a Stock Purchase Agreement (the
"First Agreement") whereby Buyer purchased from those stockholders all shares of
Common and Preferred Stock of the Company which they owned on the terms and
conditions set forth in the First Agreement; and
WHEREAS, one of the conditions to the consummation of the First
Agreement was that Buyer would offer to purchase from the remaining holders of
the shares of the Common Stock of the Company all such shares they owned after
the closing of the First Agreement; and
WHEREAS, Seller desires to sell all of the Shares to Buyer, and Buyer
desires to purchase the Shares, upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
I.
SALE AND PURCHASE OF THE SHARES
1.1 SALE AND PURCHASE. Subject to the terms and conditions hereof, at
the Closing (as defined in paragraph 1.2 below), Seller agrees to sell, assign,
transfer, convey and deliver to Buyer, and Buyer agrees to purchase from Seller,
the Shares listed in Exhibit "A", attached hereto. Each purchase and sale of
shares between Buyer and a member of the Seller shall be deemed a separate
transaction, and the consummation of any purchase and sale of Shares between
Buyer and any member of Seller shall not be conditioned upon or subject to the
1.
<PAGE> 2
consummation of the purchase and sale of Shares between Buyer and any other
member of Seller.
1.2 CLOSING. The purchase shall be consummated at a closing ("Closing")
to take place at 11:00 o'clock a.m., at the offices of Buyer's counsel on
October __, 1995 ("Closing Date").
1.3 PURCHASE PRICE. The aggregate purchase price ("Purchase Price") for
the Shares shall be 243,720 shares of Common Stock of the Buyer ("Buyer's
Shares"). This portion of the Purchase Price shall be paid at Closing, by
issuance and delivery of Buyer's Shares to Seller against receipt of
certificates representing the Shares, duly endorsed for transfer to Buyer.
1.4 ALLOCATION OF SHARES. All shares of stock of Buyer to be issued to
Seller pursuant to this Agreement shall be issued to the respective Sellers in
proportion to their respective ownership of stock of the Company as described in
Exhibit "A" hereto.
1.5 OTHER AGREEMENTS. At the Closing, the indicated parties shall
execute and deliver the following additional agreements in substantially the
form attached hereto:
(a) Stock certificates representing all of the Shares,
duly endorsed to Buyer and in blank or assignments separate from the
certificates, transferring the Shares from Seller to Buyer, copies of which are
attached hereto as Exhibit "B".
1.6 BASIC AGREEMENTS AND TRANSACTIONS DEFINED. This Agreement and other
agreement listed in paragraph 1.5, are sometimes referred to as the "Basic
Agreements". The transactions contemplated by the Basic Agreements are sometimes
referred to as the "Transactions".
II.
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF SELLER. Each member of Seller
represents and warrants to Buyer, with respect to the Shares owned by Seller, as
follows:
(a) TITLE TO THE SHARES. At Closing, Seller shall own of
record and beneficially the number of the Shares listed in Exhibit "A", of the
Company, free and clear of all liens, encumbrances, pledges, claims, options,
charges and assessments of any nature whatsoever, with right and lawful
authority to transfer the Shares to Buyer. No person has any preemptive fights
or rights of first refusal with respect to any of the Shares. There exists no
voting agreement, voting trust, or outstanding proxy with respect to any of the
Shares. There are no outstanding rights, options, warrants, calls, commitments,
or any other agreements of any character, whether oral or written, with respect
to the Shares.
2.
<PAGE> 3
(b) INVESTMENT INTENT. Seller is acquiring the shares of
Buyer for his or her own account, for investment purposes only, and not with a
view to the sale or distribution of any part thereof, and Seller has no present
intention of selling, granting participation in, or otherwise distributing the
same. Seller understands the specific risks related to an investment in the
shares of Buyer, especially as it relates to the financial performance of Buyer.
(c) DISCLOSURE STATEMENT. Seller has received and
carefully reviewed the Joint Disclosure Statement dated September 20, 1995 (the
"Disclosure Statement") relating to the transactions.
2.2 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Seller as follows:
(a) ORGANIZATION. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of Colorado. Buyer has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business. Buyer is duly qualified
and in good standing as a foreign corporation in each jurisdiction where its
ownership of property or operation of its business requires qualification,
except where the failure to be qualified would not have a material adverse
effect on the Company. The Certificate of Incorporation and the Bylaws of Buyer
presently provide that the number of members of the Board of Directors shall be
six (6).
(b) AUTHORIZED CAPITALIZATION. The authorized
capitalization of Buyer consists of 25,000,000 shares of .001 par value Common
Stock, of which Three Million Five Hundred Twenty Three Thousand Three Hundred
Eighteen (3,523,318) shares have been issued and are outstanding (after giving
effect to a one for three reverse stock split). Buyer's Shares have been duly
authorized, validly issued, are fully paid and nonassessable with no personal
liability attaching to the ownership thereof and were offered, issued, sold and
delivered by Buyer in compliance with all applicable state and federal laws.
Except as set forth in Exhibit "C" attached hereto or in the Disclosure
Statement, Buyer does not have any outstanding rights, options, warrants, calls,
commitments, conversion or any other agreements of any character, whether oral
or written, obligating it to issue any shares of its capital stock, whether
authorized or not. Except as set forth in Exhibit "D attached hereto, Buyer is
not a party to and is not bound by any agreement, contract, arrangement or
understanding, whether oral or written, giving any person or entity any interest
in, or any right to share, participate in or receive any portion of, Buyer's
income, profits or assets, or obligating Buyer to distribute any portion of its
income, profits or assets.
(c) AUTHORITY. Buyer has full power and lawful authority
to execute and deliver the Basic Agreements and to consummate and perform the
Transactions contemplated thereby. The Basic Agreements constitute (or shall,
upon execution, constitute) valid and legally binding obligations upon Buyer,
enforceable in accordance with their terms. Neither the execution and delivery
of the Basic Agreements by Buyer, nor the consummation and performance of the
Transactions contemplated thereby, conflicts with, requires the consent, waiver
or approval of, results in a breach of or default under, or gives to others any
interest or right of termination, cancellation or acceleration in or with
respect to, any material agreement
3.
<PAGE> 4
by which Buyer is a party or by which Buyer or any of its material properties or
assets are bound or affected.
(d) INVESTMENT INTENT. Buyer is acquiring the Shares for
its own account, for investment purposes only, and not with a view to the sale
or distribution of any part thereof, and Buyer has no present intention of
selling, granting participation in, or otherwise distributing the same. Buyer
understands the specific risks related to an investment in the Shares,
especially as it relates to the financial performance of the Company.
(e) BUYER'S FINANCIAL STATEMENTS. Buyer's Financial
Statements are complete, were prepared in accordance with generally accepted
accounting principles applied on a basis consistent with prior periods and
fairly present the financial position of Buyer as of June 30, 1995.
(f) NO UNDISCLOSED LIABILITIES. Except as set forth in
Buyer's Financial Statements previously delivered to the Company, Buyer is not
aware of any material liabilities for which it is liable or will become liable
in the future.
(g) MATERIAL CONTRACTS. Buyer has no purchase, sale,
commitment, or other contract, the breach or termination of which would have a
materially adverse effect on the business, financial condition, results of
operations, assets, liabilities, or prospects of Buyer.
(h) NO LITIGATION. There are no actions, suits, claims,
complaints or proceedings pending or threatened against Buyer, at law or in
equity, or before or by any governmental department, commission, court, board,
bureau, agency or instrumentality; and there are no facts which would provide a
valid basis for any such action, suit or proceeding, which, if determined
adversely to the Company, would have a material adverse effect on the Company.
There are no orders, judgments or decrees of any governmental authority
outstanding which specifically apply to Buyer or any of its assets.
(i) DISCLOSURE STATEMENT. The information in the
Disclosure Statement is true and correct in all material respects and contains
no misstatements or omissions of material fact.
(j) NO OPERATIONS. Except for its ownership interest in
the Company, Buyer does not currently have any business operations or material
assets.
III.
COVENANTS
3.1 COVENANTS OF BUYER. Buyer covenants and agrees to perform the
following acts:
(a) CONSENTS. Buyer will use its best good faith efforts
to obtain the consent or approval of each person or entity whose consent or
approval is required for the consummation
4.
<PAGE> 5
of the Transactions contemplated hereby and to do all things necessary to
consummate the Transactions contemplated by the Basic Agreements.
IV.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER TO CLOSE
The obligation of Buyer to close the Transactions contemplated hereby
is subject to the fulfillment by Seller prior to Closing of each of the
following conditions, which may be waived in whole or in part by Buyer:
4.1 COMPLIANCE WITH REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of Seller contained in this Agreement shall have
been true and correct when made and shall be true and correct as of the Closing
with the same force and effect as if made at the Closing. Seller shall have
performed all agreements, covenants and conditions required to be performed by
Seller prior to the Closing.
4.2 NO LEGAL PROCEEDINGS. No suit, action or other legal or
administrative proceeding before any court or other governmental agency shall be
pending or threatened seeking to enjoin the consummation of the Transactions
contemplated hereby.
4.3 DOCUMENTS TO BE DELIVERED BY SELLER. Seller shall have delivered
the following documents:
(a) Stock certificates representing all of the Shares,
duly endorsed to Buyer and in blank or accompanied by duly executed stock
powers, copies of which are attached as Exhibit "B".
(b) Such other documents or certificates as shall be
reasonably required by Buyer or its counsel in order to close and consummate
this Agreement.
V.
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER TO CLOSE
The obligation of Seller to close the Transactions is subject to the
fulfillment prior to Closing of each of the following conditions, any of which
may be waived in whole or in part by Seller:
5.1 COMPLIANCE WITH REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties made by Buyer in this Agreement shall have been
true and correct when made and shall be true and correct in all material
respects at the Closing with the same
5.
<PAGE> 6
force and effect as if made at the Closing, and Buyer shall have performed all
agreements, covenants and conditions required to be performed by Buyer prior to
the Closing.
5.2 NO LEGAL PROCEEDINGS. No suit, action or other legal or
administrative proceedings before any court or other governmental agency shall
be pending or threatened seeking to enjoin the consummation of the Transactions
contemplated hereby.
5.3 OTHER AGREEMENTS. Buyer shall have executed and delivered the Basic
Agreements.
5.4 PAYMENTS. Seller shall have received from Buyer all Common Stock to
be issued at the Closing by Buyer pursuant to all the Basic Agreements.
VI.
MODIFICATION, WAIVERS, TERMINATION AND EXPENSES
6.1 MODIFICATION. Buyer and Seller may amend, modify or supplement this
Agreement in any manner as they may mutually agree in writing.
6.2 WAIVERS. Buyer and Seller may in writing extend the time for or
waive compliance by the other with any of the covenants or conditions of the
other contained herein.
6.3 TERMINATION AND ABANDONMENT. This Agreement may be terminated and
the purchase of the Shares may be abandoned before the Closing:
(a) By the mutual consent of Seller and Buyer;
(b) By Buyer, if the representations and warranties of
Seller set forth herein shall not be accurate, or the conditions precedent set
forth in Article V shall have not have been satisfied, in all material respects;
or
(c) By Seller, if the representations and warranties of
Buyer set forth herein shall not be accurate, or the conditions precedent set
forth in Article V shall not have been satisfied in all material respects.
Termination shall be effective on the date of receipt of written notice
specifying the reasons therefor.
6.
<PAGE> 7
VII.
MISCELLANEOUS
7.1 REPRESENTATIONS AND WARRANTIES TO SURVIVE. Unless otherwise
provided, all of the representations and warranties contained in this Agreement
and in any certificate, exhibit or other document delivered pursuant to this
Agreement shall survive the Closing for a period of two (2) years. No
investigation made by any party hereto or their representatives shall constitute
a waiver of any representation or warranty, and no such representation or
warranty shall be merged into the Closing.
7.2 BINDING EFFECT OF THE BASIC AGREEMENTS. The Basic Agreements and
the certificates and other instruments delivered by or on behalf of the parties
pursuant thereto, constitute the entire agreement between the parties. The terms
and conditions of the Basic Agreements shall inure to the benefit of and be
binding upon the respective heirs, legal representatives. successor and assigns
of the parties hereto. Nothing in the Basic Agreements, expressed or implied,
confers any rights or remedies upon any party other than the parties hereto and
their respective heirs, legal representatives and assigns. Whenever Seller is
authorized to act hereunder, any action authorized by members of Seller holding
a majority of the Shares shall be deemed the act of and binding on all members
of Seller.
7.3 APPLICABLE LAW. The Basic Agreements are made pursuant to, and will
be construed under, the laws of the State of California.
7.4 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and will be deemed to have been duly given when
delivered or mailed, first class postage prepaid:
(a) If to Seller, to:
each individual member of Seller, whose
names and addresses are listed on Exhibit E
attached hereto.
(b) If to Buyer, to:
EDnet, Inc.
ATTN: Tom Kobayashi, President & CEO
One Union Street
San Francisco, CA 94111
Telephone: (415) 274-8800
Fax: (415) 274-8801
These addresses may be changed from time to time by written notice to
the other parties.
7.
<PAGE> 8
7.5 HEADINGS. The headings contained in this Agreement are for
reference only and will not affect in any way the meaning or interpretation of
this Agreement.
7.6 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which will be deemed an original and all of which together will constitute
one instrument.
7.7 SEVERABILITY. If any one or more of the provisions of this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
under applicable law this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein. The
remaining provisions of this Agreement shall be given effect to the maximum
extent then permitted by law.
7.8 FORBEARANCE; WAIVER. Failure to pursue any legal or equitable
remedy or right available to a party shall not constitute a waiver of such
right, nor shall any such forbearance, failure or actual waiver imply or
constitute waiver of subsequent default or breach.
7.9 ATTORNEYS' FEES AND EXPENSES. The prevailing party in any legal
proceeding based upon this Agreement shall be entitled to reasonable attorneys'
fees and expenses and court costs.
7.10 EXPENSES. Each party shall pay all fees and expenses incurred by
it incident to this Agreement and in connection with the consummation of all
transactions contemplated by this Agreement.
7.11 EXHIBITS. All of the following Exhibits to this Agreement are
incorporated herein in the places referenced in this Agreement as if fully set
forth herein:
<TABLE>
<CAPTION>
EXHIBIT REFERENCE ITEM
<S> <C> <C>
A 1.1 List of Shares of Common Stock of the Company Owned by Seller
B 1.5(a) Stock Certificates and Stock Powers
C 2.2(b) List of Existing Agreements Obligating Buyer to Issue Common
Stock
D 2.2(b) List of Existing Agreements Obligating Buyer to Distribute Assets,
Income or Profits
E 7.4(a) List of Names and Addresses of Members of Seller
</TABLE>
7.12 INTEGRATION. This Agreement and all documents and instruments
executed pursuant hereto merge and integrate all prior agreements and
representations respecting the Transactions, whether written or oral, and
constitute the sole agreement of the parties in connection therewith. This
Agreement has been negotiated by and submitted to the scrutiny of both Seller
and Buyer and their counsel and shall be given a fair and reasonable
interpretation
8.
<PAGE> 9
in accordance with the words hereof, without consideration or weight being given
to its having been drafted by either party hereto or its counsel.
IN WITNESS WHEREOF, the undersigned parties hereto have duly executed
this Agreement on the date first written above.
"BUYER"
EDNET, INC.
/s/ Tom Kobayashi
--------------------------
Tom Kobayashi, President
<TABLE>
<CAPTION>
"SELLER"
<S> <C>
/s/David Haynes /s/John Wheeler
- ---------------------------- ----------------------------------
David Haynes John Wheeler
/s/Julie Creighton /s/Mary Nishifue
- ---------------------------- ----------------------------------
Julie Creighton Mary Nishifue
Takashi and Mutsuyo Trust dated /s/Marianne Nishifue, /s/ Joseph Piagentini
April 27, 1988 -------------------------------------------
By: /s/ Mutsuyo Kobayashi, Trustee Marianne Nishifue and Joseph Piagentini
------------------------------ as Tenants in Common
/s/ Tadao Isomoto, /s/ Anne Isomoto /s/Steven Berman
- ----------------------------------- ----------------
Tadao and Anne Isomoto as Steven Berman
Tenants in Common
Lucas Digital ltd..
By:/s/Michael J. Biber /s/James Isomoto, /s/Jane Isomoto
---------------------------- ----------------------------------
Michael J. Biber Jim and Jane Isomoto as Tenants in Common
</TABLE>
9.
<PAGE> 1
EX-10.(d)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT dated the 1st day of September, 1995 (the
"Employment Agreement") is between AP OFFICE EQUIPMENT, INC., a Colorado
corporation, formerly AP Office Equipment, Inc. (the "Corporation" or
"Employer"), with its executive offices at 601 ONEOK Plaza, 100 West Fifth
Street, Tulsa, Oklahoma 74103, and TOM KOBAYASHI, of 13 Pacheco Creek Drive,
Novato, California 94949 ("Employee").
In consideration of the premises and the mutual promises contained
herein, and of the provisions of a certain Stock Purchase Agreement of even date
herewith among the Corporation, Entertainment Digital Network ("EDnet") and
certain of the shareholders of EDnet, the Corporation and the Employee hereby
agree as follows:
1. TERM OF EMPLOYMENT. This Agreement shall remain in force from the
date hereof until the 31st day of December, 2000 (the "Expiration Date") unless
sooner terminated in accordance with Section 5 (the "Term"). In consideration
for Employee's provision of services specified in Section 2 hereof for the Term,
it is understood and agreed that Employer shall pay the monthly compensation
specified in Section 3 hereof for the Term.
2. EMPLOYMENT DUTIES. Employee shall serve as President and Chief
Executive Officer of the Corporation for the term of employment of Employee
under this Employment Agreement. In his capacity as an officer, Employee shall
have such authority as is delegated to him by the Board of Directors of the
Corporation. During the Term, Employee shall faithfully perform the duties
assigned to him and shall devote his full time and attention to, and use his
best efforts in the furtherance of, the business of the Corporation. The
foregoing authority and duties shall be consistent with Employee's authority and
duties as an officer of EDnet.
3. COMPENSATION. In consideration of the services to be rendered by
Employee under this Employment Agreement, the Corporation agrees to pay, and
Employee agrees to accept, the following compensation:
(a) BASE SALARY. The Corporation shall pay Employee a
base salary at the annual rate of One Hundred Twenty-Five Thousand Dollars
($125,000) for the first six months of employment, to increase to market rate
thereafter and for each succeeding year of this Employment Agreement for the
Term. The base salary shall be payable in equal bi-weekly installments, subject
only to applicable withholding requirements. No overtime pay will be paid to
Employee by the Corporation.
(b) STOCK OPTIONS. In addition to Employee's base salary
hereunder, as additional compensation, the Corporation shall grant to Employee
an option to purchase a total of 250,000 shares of the Corporation's Common
Stock, par value $.10 per share, at the price
1.
<PAGE> 2
of $1.25 per share under Employer's incentive stock option plan, within 60 days
of the execution of this Agreement, on the following terms and conditions:
(1) On January 1, 1997, the option shall become
exercisable for a total of 100,000 shares of the Corporation's Common Stock,
exercisable for a five year period, if for any prior rolling 12 month period
during the period September 1, 1995 through December 31, 1996, the Corporation
has sales of at least $5,000,000 or pre-tax net income of $500,000.
(2) On January 1, 1998, the option shall become
exercisable for a total of 100,000 shares of the Corporation's Common Stock,
exercisable for a five year period, if for any prior rolling 12 month period
during the period September 1, 1995 through December 31, 1997, the Corporation
has sales of at least $8,500,000 or pre-tax net income of at least $1,500,000.
(3) On January 1, 1999, the option shall become
exercisable for a total of 50,000 shares of the Corporation's Common Stock,
exercisable for a five year period, if for any prior rolling 12 month period
during the period September 1, 1995 through December 31, 1998, the Corporation
has sales of at least $15,000,000 or pre-tax net income of at least $3,000,000.
Each of the above installments may be exercised by the delivery by Employee to
the Corporation of a three-year promissory note payable to the Corporation, with
interest only payable annually at the minimum rate necessary to avoid the
imputing of interest by the Internal Revenue Service.
(c) REIMBURSEMENT OF EXPENSES. The Corporation shall
promptly reimburse Employee for reasonable out-of-pocket expenses that the
Employee may incur in connection with his services for the Corporation. Employee
shall provide to the Corporation supporting documentation sufficient to satisfy
reporting requirements of the Internal Revenue Service and in such form as is
reasonably satisfactory to the Corporation.
(d) EMPLOYEE BENEFITS. Employee shall be entitled to
participate in such employee benefit plans, including group pension, life and
health insurance and other medical benefits, and shall receive all other fringe
benefits, as the Corporation may make available to employees during the term of
employment of Employee. In addition, the Corporation shall continue to maintain
and provide disability insurance at the levels currently in effect.
4. VACATION. Employee shall be entitled to accrue vacation leave equal
to one and one-quarter (1 1/4) days at full pay for each one (1) month period of
completed service during the Term (with unused days being carried forward
indefinitely), and may take such accrued vacation days at such times as he may
wish, subject to Employee's arranging such vacations so as not materially to
affect adversely the ability of the Corporation to transact its necessary
business and provided, further, that Employee shall not take vacations totalling
more than twenty-five (25) business days during any calendar year and shall take
no single vacation of more than fifteen (15) consecutive business days.
2.
<PAGE> 3
5. TERMINATION. The employment of Employee under this Employment
Agreement shall terminate on the first to occur of the following:
(a) On the Expiration Date as provided in Section 1.
(b) Upon the death of Employee or in the event of
permanent disability of Employee, at the option of the Corporation, upon ninety
(90) days written notice by the Corporation. For the purposes of this Employment
Agreement, Employee will be deemed to be permanently disabled in the event that
competent medical authority, acceptable to the Corporation, opines that it is
improbable that Employee will ever be able to resume his usual or ordinary
duties for and on behalf of the Corporation.
(c) This Agreement may be terminated by the Board of
Directors of the Corporation for Employee's willful misconduct, habitual neglect
of duties or breach of a material provision of this Agreement. In the case of
termination for willful misconduct or habitual neglect of duties, Employee shall
be given at least one (1) written notice describing in reasonable detail the
perceived deficiencies in Employee's performance, and Employee shall be given at
least thirty (30) days opportunity to correct such perceived deficiencies prior
to any termination. In the case of termination for breach of this Agreement,
Employee shall be given written notice describing in reasonable detail the
alleged breach, and Employee shall have thirty (30) days in which to cure such
breach.
(d) At the election of Employee, in the event of the sale
or transfer of substantially all of the business or assets of the Corporation,
or control thereof, provided that Employee shall provide 30 days prior written
notice of termination.
(e) At the election of either party upon thirty (30) days
prior written notice to the other. If Employer shall so terminate this
Agreement, Employee shall be entitled to compensation for an additional twelve
(12) months after the expiration of the thirty (30) day notice to Employee, as
provided in Section 6(b).
6. PAYMENT UPON TERMINATION.
(a) If the employment of Employee is terminated by death,
or because of disability, pursuant to Section 5(b) hereof, the Corporation shall
pay to the estate of Employee or to Employee, as the case may be, the
compensation which would otherwise be payable to Employee at the end of the
month in which his death or the termination of his employment because of
disability occurs, compensation for accrued vacation days and reimbursement for
unreimbursed expenses. The Estate or Employee shall not be entitled to severance
pay or future Employer insurance contributions for Employee benefits.
(b) In the event that the employment of Employee is
terminated at the election of the Corporation pursuant to Sections 5(c) or 5(e)
hereof, or at the election of Employee pursuant to Section 5(d) hereof, Employee
shall be entitled to continuation of his base salary then in effect and Employer
insurance contributions for Employee benefits for twelve (12)
3.
<PAGE> 4
months from the last day of actual employment or the date of termination,
whichever is earlier. Employee shall also be entitled to compensation for
accrued vacation days and reimbursement for unreimbursed expenses.
(c) If the employment of Employee is terminated on the
Expiration Date pursuant to Section 5(a), or in the event Employee elects to
terminate his employment pursuant to the provisions of Section 5(e) hereof,
Employee shall be entitled to compensation for accrued vacation days and
reimbursement for unreimbursed expenses.
7. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Employee agrees both
during and after employment by the Corporation, not to use (except in the course
of employment) or disclose to others, except with the Corporation's prior
written consent to, any Confidential Information. Confidential Information shall
include, but not be limited to, trade secrets, technical data including computer
programs, financial data, future plans, business strategy and information
received from third parties under disclosure restrictions, which Employee has
acquired by reason of his employment by the Corporation, or which Employee had
developed in the course of such employment. Confidential Information does not
include: (i) information that at the time of disclosure is in the public domain
through no fault of Employee; (ii) information received from a third party
outside of the Corporation that was disclosed without a breach of any
confidentiality obligation; (iii) information approved for release by written
authorization of the Corporation; or (iv) information that may be required by
law or by order of any court, agency or proceeding to be disclosed.
8. POSSESSION AND SURRENDER OF CONFIDENTIAL INFORMATION AND DOCUMENTS.
Employee hereby acknowledges the Corporation's right to possession and title in
and to all Confidential Information and all papers, documents, tapes, drawings,
computer programs, or other records prepared by Employee during his employment,
or provided by the Corporation, or which otherwise come into Employee's
possession by reason of his employment by the Corporation, or which Employee may
have written or created while employed by the Corporation. Employee agrees not
to make or permit to be made, except in pursuance of Employee's duties
hereunder, any copies of such materials. Employee further agrees to deliver to
the Corporation, upon request, all such materials in Employee's possession.
9. INTELLECTUAL PROPERTY RIGHTS. All right, title, and interest of
every kind and nature, whether now known or unknown, in and to any intellectual
property, including, but not limited to, any invention, patents, trademarks,
service marks, copyrights, films, scripts, ideas, creations, and properties
invented, created, written, developed, furnished, produced, or disclosed by
employee, in the course of rendering services to Employer under and pursuant to
this agreement shall, as between Employer and Employee, be and remain the sole
and exclusive property of Employer for any and all purposes and uses, and
Employee shall have no right, title, or interest of any kind or nature in or to
such property, or in or to any results and/or proceeds from such property.
4.
<PAGE> 5
10. NON-COMPETITION.
(a) For a period of three (3) years following the date of
the execution of this Agreement, Employee agrees that he shall not at any rime,
directly or indirectly, within any county, city or part thereof and other areas
in the United States of America (collectively, the "Locations"), so long as the
Corporation continues to be engaged in the same or similar business or activity
(the "Business") in such Location.
(1) own, manage, operate, control, or be
connected in any manner with the ownership, management, operation or control of
any person or entity that engages in the same or similar type of Business as the
Business or engages in a business competitive with the Business (a "Competitive
Business"), which includes but is not limited to, acting as a director, officer,
agent, employee, consultant, partner or stockholder of a Competitive Business;
(2) engage in any activity which is the same as,
similar to or in competition with the Business;
(3) interfere with, disrupt or attempt to
disrupt the business relationship, contractual, employment or otherwise, between
the Corporation and any customer or prospective customer, supplier, lessee or
employee of the Corporation, including without limitation the customers and
suppliers of the Business prior to the date hereof,
(4) solicit employment for or of employees of
the Corporation or induce any employee to leave the employ of the Corporation,
(5) lend or allow his name or reputation to be
used by or in connection with any Competitive Business; or
(6) otherwise allow his skill, knowledge or
experience to be used in or by any Competitive Business.
(b) Notwithstanding anything in this Agreement to the
contrary, nothing in this Agreement shall limit the right of Employee as an
investor to hold or make investment not in excess of 5% of the outstanding
securities of any corporation, the securities of which are listed on a
nationally recognized securities exchange or traded in a nationally recognized
over-the-counter market.
(c) The parties hereto intend that the covenants set
forth in Sections 10(a) shall be construed as a series of separate covenants,
each consisting of the covenants set forth in Section 10(a) for each of the
Locations. Except for such Locations, all such separate covenants shall be
deemed identical.
(d) In the event that this Agreement is terminated
pursuant to Section 5 hereof (other than the termination by Employee pursuant to
Section 5(d) or by the Corporation pursuant to Section 5(e), the provisions of
Sections 10 shall survive such termination. Section 10(a) shall
5.
<PAGE> 6
terminate and be of no force or effect in the event the Corporation breaches
this Agreement and fails to cure such breach within thirty (30) days of receipt
of written notice thereof.
11. REMEDIES. The Corporation and Employee agree that the services of
Employee are of a personal, special, unique, and extraordinary character, and
cannot be replaced by the Corporation without great difficulty, and that the
violation by Employee of any of his agreements under Section 9 would damage the
goodwill of the Corporation and cause the Corporation irreparable harm which
could not reasonably or adequately be compensated in damages in an action at
law, and that the agreement of Employee under Section 9 may be enforced by the
Corporation in equity by an injunction or restraining order in addition to being
enforced by the Corporation at law.
12. NOTICE. All notices under this Employment Agreement shall be in
writing. Notice intended for the Corporation shall be sent by registered or
certified mail, postage prepaid, return receipt requested, to the address of the
Corporation set forth above or such other address as the Corporation may
hereafter designate in writing. Notice intended for Employee shall be delivered
to Employee by hand or sent by registered or certified mail, postage prepaid,
return receipt requested, to the address of Employee set forth above or such
other address as Employee may hereafter designate in writing.
13. ASSIGNMENT. The rights and obligations of the Corporation under
this Employment Agreement shall inure to the benefit of, and shall be binding
upon, the successors and assigns of the Corporation. The rights and obligations
of Employee under this Employment Agreement shall inure to the benefit of, and
shall be binding upon, the heirs, executors, and legal representatives of
Employee.
14. ENTIRE AGREEMENT. This Employment Agreement supersedes any and all
other agreements, either oral or in writing, between the parties hereto with
respect to the employment of Employee by the Corporation and contains all of the
covenants and agreement between the parties with respect to such employment.
Each party to this Employment Agreement acknowledges that no representations,
inducements, promises, or agreements, oral or otherwise, have been made by any
party, or any one acting on behalf of any party, which are not embodied herein,
and that no other agreement, statement, or promise not contained in this
Employment Agreement shall be valid and binding. Any modification of this
Employment Agreement will be effective only if it is in writing signed by both
parties to this Employment Agreement.
15. SEVERABILITY. If any provision in this Employment Agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.
16. ATTORNEYS' FEES. In the event that any action is filed in relation
to this Agreement, the unsuccessful party in the action shall pay to the
successful party, in addition to all the sums that either party may be called on
to pay, a reasonable sum for the successful party's attorney's fees.
6.
<PAGE> 7
17. GOVERNING LAW. This Employment Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day, month and year first above written.
AP OFFICE EQUIPMENT, INC.
By: /s/ Jesse A. Clayton
--------------------------------------
Jesse A. Clayton
----------------------------------------
(Print Name)
President
----------------------------------------
Title
EMPLOYEE
/s/Tom Kobayashi
__________________________________________
TOM KOBAYASHI
7.
<PAGE> 1
EX-10.(e)
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT dated the 1st day of September, 1995 (the
"Employment Agreement") is between AP OFFICE EQUIPMENT, INC., a Colorado
corporation, formerly AP Office Equipment, Inc. (the "Corporation" or
"Employer"), with its executive offices at 601 ONEOK Plaza, 100 West Fifth
Street, Tulsa, Oklahoma 74103, and DAVID GUSTAFSON, of 62 Pacheco Creek Drive,
Novato, California 94949 ("Employee").
In consideration of the premises and the mutual promises contained
herein, and of the provisions of a certain Stock Purchase Agreement of even date
herewith among the Corporation, Entertainment Digital Network ("EDnet") and
certain of the shareholders of EDnet, the Corporation and the Employee hereby
agree as follows:
1. TERM OF EMPLOYMENT. This Agreement shall remain in force from the
date hereof until the 31st day of December, 2000 (the "Expiration Date") unless
sooner terminated in accordance with Section 5 (the "Term"). In consideration
for Employee's provision of services specified in Section 2 hereof for the Term,
it is understood and agreed that Employer shall pay the monthly compensation
specified in Section 3 hereof for the Term.
2. EMPLOYMENT DUTIES. Employee shall serve as Vice President-Marketing
and Sales and Chief Operating Officer of the Corporation for the term of
employment of Employee under this Employment Agreement. In his capacity as an
officer Employee shall have such authority as is delegated to him by the Board
of Directors of the Corporation. During the Term, Employee shall faithfully
perform the duties assigned to him and shall devote his full time and attention
to, and use his best efforts in the furtherance of, the business of the
Corporation. The foregoing authority, and duties shall be consistent with
Employee's authority and duties as an officer of EDnet.
3. COMPENSATION. In consideration of the services to be rendered by
Employee under this Employment Agreement, the Corporation agrees to pay, and
Employee agrees to accept the following compensation:
(a) BASE SALARY. The Corporation shall pay Employee a base
salary at the annual rate of One Hundred Twenty-Five Thousand Dollars ($125,000)
for the first six months of employment, to increase to market rate thereafter
and for each succeeding year of this Employment Agreement for the Term. The base
salary shall be payable in equal bi-weekly installments, subject only to
applicable withholding requirements. No overtime pay will be paid to Employee by
the Corporation.
(b) STOCK OPTIONS. In addition to Employee's base salary
hereunder, as additional compensation, the Corporation shall grant to Employee
an option to purchase a total of 250,000 shares of the Corporation's Common
Stock, par value $.10 per share, at the price
1.
<PAGE> 2
of $1.25 per share under Employer's incentive stock option plan, within 60 days
of the execution of this Agreement, on the following terms and conditions:
(1) On January l, 1997, the option shall become
exercisable for a total of 100,000 shares of the Corporation's Common Stock,
exercisable for a five year period, if for any prior rolling 12 month period
during the period September 1, 1995 through December 31, 1996, the Corporation
has sales of at least $5,000,000 or pre-tax net income of $500,000.
(2) On January 1, 1998, the option shall become
exercisable for a total of 100,000 shares of the Corporation's Common Stock,
exercisable for a five year period, if for any prior rolling 12 month period
during the period September 1, 1995 through December 31, 1997, the Corporation
has sales of at least $8,500,000 or pre-tax net income of at least $1,500,000.
(3) On January 1, 1999, the option shall become
exercisable for a total of 50,000 shares of the Corporation's Common Stock,
exercisable for a five year period, if for any prior rolling 12 month period
during the period September 1, 1995 through December 31, 1998, the Corporation
has sales of at least $15,000,000 or pre-tax net income of at least $3,000,000.
Each of the above installments may be exercised by the delivery by Employee to
the Corporation of a three-year promissory note payable to the Corporation, with
interest only payable annually at the minimum rate necessary to avoid the
imputing of interest by the Internal Revenue Service.
(c) REIMBURSEMENT OF EXPENSES. The Corporation shall promptly
reimburse Employee for reasonable out-of-pocket expenses that the Employee may
incur in connection with his services for the Corporation. Employee shall
provide to the Corporation supporting documentation sufficient to satisfy
reporting requirements of the Internal Revenue Service and in such form as is
reasonably satisfactory to the Corporation.
(d) EMPLOYEE BENEFITS. Employee shall be entitled to
participate in such employee benefit plans, including group pension, life and
health insurance and other medical benefits, and shall receive all other fringe
benefits, as the Corporation may make available to employees during the term of
employment of Employee. In addition, the Corporation shall continue to maintain
and provide disability insurance at the levels currently in effect.
4. VACATION. Employee shall be entitled to accrue vacation leave equal
to one and one-quarter (1 1/4) days at full pay for each one (1) month period of
completed service during the Term (with unused days being carried forward
indefinitely), and may take such accrued vacation days at such times as he may
wish, subject to Employee's arranging such vacations so as not materially to
affect adversely the ability of the Corporation to transact its necessary
business and provided, further, that Employee shall not take vacations totalling
more than twenty-five (25) business days during any calendar year and shall take
no single vacation of more than fifteen (15) consecutive business days.
2.
<PAGE> 3
5. TERMINATION. The employment of Employee under this Employment
Agreement shall terminate on the first to occur of the following:
(a) On the Expiration Date as provided in Section 1.
(b) Upon the death of Employee or in the event of permanent
disability of Employee, at the option of the Corporation, upon ninety (90) days
written notice by the Corporation. For the purposes of this Employment
Agreement, Employee will be deemed to be permanently disabled in the event that
competent medical authority, acceptable to the Corporation, opines that it is
improbable that Employee will ever be able to resume his usual or ordinary
duties for and on behalf of the Corporation.
(c) This Agreement may be terminated by the Board of Directors
of the Corporation for Employee's willful misconduct, habitual neglect of duties
or breach of a material provision of this Agreement. In the case of termination
for willful misconduct or habitual neglect of duties, Employee shall be given at
least one (1) written notice describing in reasonable detail the perceived
deficiencies in Employee's performance, and Employee shall be given at least
thirty (30) days' opportunity to correct such perceived deficiencies prior to
any termination. In the case of termination for breach of this Agreement,
Employee shall be given written notice describing in reasonable detail the
alleged breach, and Employee shall have thirty (30) days in which to cure such
breach.
(d) At the election of Employee, in the event of the sale or
transfer of substantially all of the business or assets of the Corporation, or
control, thereof provided that Employee shall provide 30 days' prior written
notice of termination.
(e) At the election of either party upon thirty (30) days
prior written notice to the other. If Employer shall so terminate this
Agreement, Employee shall be entitled to compensation for an additional twelve
(12) months after the expiration of the thirty (30) day notice to Employee, as
provided in Section 6(b).
6. PAYMENT UPON TERMINATION.
(a) If the employment of Employee is terminated by death or
because of disability, pursuant to Section 5(b) hereof, the Corporation shall
pay to the estate of Employee or to Employee, as the case may be, the
compensation which would otherwise be payable to Employee at the end of the
month in which his death or the termination of his employment because of
disability occurs, compensation for accrued vacation days and reimbursement for
unreimbursed expenses. The Estate or Employee shall not be entitled to severance
pay or future Employer insurance contributions for Employee benefits.
(b) In the event that the employment of Employee is terminated
at the election of the Corporation pursuant to Sections 5(c) or 5(e) hereof, or
at the election of Employee pursuant to Section 5(d) hereof, Employee shall be
entitled to continuation of his base salary then in effect and Employer
insurance contributions for Employee benefits for twelve (12)
3.
<PAGE> 4
months from the last day of actual employment or the date of termination,
whichever is earlier. Employee shall also be entitled to compensation for
accrued vacation days and reimbursement for unreimbursed expenses.
(c) If the employment of Employee is terminated on the
Expiration Date pursuant to Section 5(a), or in the event Employee elects to
terminate his employment pursuant to the provisions of Section 5(e) hereof,
Employee shall be entitled to compensation for accrued vacation days and
reimbursement for unreimbursed expenses.
7. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Employee agrees both
during and after employment by the Corporation, not to use (except in the course
of employment) or disclose to others, except with the Corporation's prior
written consent, any Confidential Information. Confidential Information shall
include, but not be limited to, trade secrets, technical data including computer
programs, financial data, future plans, business strategy and information
received from third parties under disclosure restrictions, which Employee has
acquired by reason of his employment by the Corporation, or which Employee had
developed in the course of such employment. Confidential Information does not
include: (i) information that at the time of disclosure is in the public domain
through no fault of Employee; (ii) information received from a third party
outside of the Corporation that was disclosed without a breach of any
confidentiality obligation; iii) information approved for release by written
authorization of the Corporation; or (iv) information that may be required by
law or by order of any court, agency or proceeding to be disclosed.
8. POSSESSION AND SURRENDER OF CONFIDENTIAL INFORMATION AND DOCUMENTS.
Employee hereby acknowledges the Corporation's right to possession and title in
and to all Confidential Information and all papers, documents, tapes, drawings,
computer programs, or other records prepared by Employee during his employment,
or provided by the Corporation, or which otherwise come into Employee's
possession by reason of his employment by the Corporation, or which Employee may
have written or created while employed by the Corporation. Employee agrees not
to make or permit to be made, except in pursuance of Employee's duties
hereunder, any copies of such materials. Employee further agrees to deliver to
the Corporation, upon request, all such materials in Employee's possession.
9. INTELLECTUAL PROPERTY RIGHTS. All right, title, and interest of
every kind and nature, whether now known or unknown, in and to any intellectual
property, including, but not limited to, any invention, patents, trademarks,
service marks, copyrights, films, scripts, ideas, creations, and properties
invented, created, written, developed, furnished, produced or disclosed by
employee, in the course of rendering services to Employer under and pursuant to
this agreement shall, as between Employer and Employee, be and remain the sole
and exclusive property of Employer for any and all purposes and uses, and
Employee shall have no right, title, or interest of any kind or nature in or to
such property, or in or to any results and/or proceeds from such property.
4.
<PAGE> 5
10. NON-COMPETITION.
(a) For a period of three (3) years following the date of the
execution of this Agreement, Employee agrees that he shall not at any time,
directly or indirectly, within any county, city or part thereof and other areas
in the United States of America (collectively, the "Locations"), so long as the
Corporation continues to be engaged in the same or similar business or activity
(the "Business") in such Location.
(1) own, manage, operate, control or be connected in
any manner with the ownership, management, operation or control of any person or
entity that engages in the same or similar type of business as the Business or
engages in a business competitive with the Business (a "Competitive Business"),
which includes but is not limited to, acting as a director, officer, agent,
employee, consultant, partner or stockholder of a Competitive Business;
(2) engage in any activity which is the same as,
similar to or in competition with the Business;
(3) interfere with, disrupt or attempt to disrupt the
business relationship, contractual, employment or otherwise, between the
Corporation and any customer or prospective customer, supplier, lessee or
employee of the Corporation, including without limitation the customers and
suppliers of the Business prior to the date hereof,
(4) solicit employment for or of employees of the
Corporation or induce any employee to leave the employ of the Corporation,
(5) lend or allow his name or reputation to be used
by or in connection with any Competitive Business; or
(6) otherwise allow his skill, knowledge or
experience to be used in or by any Competitive Business.
(b) Notwithstanding anything in this Agreement to the
contrary, nothing in this Agreement shall limit the right of Employee as an
investor to hold or make investments not in excess of 5 % of the outstanding
securities of any corporation, the securities of which are listed on a
nationally recognized securities exchange or traded in a nationally recognized
over-the-counter market.
(c) The parties hereto intend that the covenants set forth in
Sections 10(a) shall be construed as a series of separate covenants, each
consisting of the covenants set forth in Section 10(a) for each of the
Locations. Except for such Locations, all such separate covenants shall be
deemed identical.
(d) In the event that this Agreement is terminated pursuant to
Section 5 hereof (other than the termination by Employee pursuant to Section
5(d) or by the Corporation pursuant to Section 5(e), the provisions of Sections
10 shall survive such termination. Section 10(a) shall
5.
<PAGE> 6
terminate and be of no force or effect in the event the Corporation breaches
this Agreement and fails to cure such breach within thirty (30) days of receipt
of written notice thereof.
11. REMEDIES. The Corporation and Employee agree that the services of
Employee are of a personal, special, unique, and extraordinary character, and
cannot be replaced by the Corporation without great difficulty, and that the
violation by Employee of any of his agreements under Section 9 would damage the
goodwill of the Corporation and cause the Corporation irreparable harm which
could not reasonably or adequately be compensated in damages in an action at
law, and that the agreements of Employee under Section 9 may be enforced by the
Corporation in equity by an injunction or restraining order in addition to being
enforced by the Corporation at law.
12. NOTICE. All notices under this Employment Agreement shall be in
writing. Notice intended for the Corporation shall be sent by registered or
certified mail, postage prepaid, return receipt requested, to the address of the
Corporation set forth above or such other address as the Corporation may
hereafter designate in writing. Notice intended for Employee shall be delivered
to Employee by hand or sent by registered or certified mail, postage prepaid,
return receipt requested, to the address of Employee set forth above or such
other address as Employee may hereafter designate in writing.
13. ASSIGNMENT. The rights and obligations of the Corporation under
this Employment Agreement shall inure to the benefit of, and shall be binding
upon, the successors and assigns of the Corporation. The rights and obligations
of Employee under this Employment Agreement shall inure to the benefit of, and
shall be binding upon, the heirs, executors, and legal representatives of
Employee.
14. ENTIRE AGREEMENT. This Employment Agreement supersedes any and all
other agreements, either oral or in writing, between the parties hereto with
respect to the employment of Employee by the Corporation and contains all of the
covenants and agreements between the parties with respect to such employment.
Each party to this Employment Agreement acknowledges that no representations,
inducements, promises, or agreements, oral or otherwise, have been made by any
party, or any one acting on behalf of any party, which are not embodied herein,
and that no other agreement, statement, or promise not contained in this
Employment Agreement shall be valid and binding. Any modification of this
Employment Agreement will be effective only if it is in writing signed by both
parties to this Employment Agreement.
15. SEVERABILITY. If any provision in this Employment Agreement is held
by a court of competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.
16. ATTORNEYS' FEES. In the event that any action is filed in relation
to this Agreement, the unsuccessful party in the action shall pay to the
successful party, in addition to all the sums that either party may be called on
to pay, a reasonable sum for the successful party's attorney's fees.
6.
<PAGE> 7
17. GOVERNING LAW. This Employment Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day, month and year first above written.
AP OFFICE EQUIPMENT, INC.
By: /s/ Jesse A. Clayton
-------------------------------
Jesse A. Clayton
-----------------------------------
(Print Name)
President
-----------------------------------
Title
EMPLOYEE
/s/ David Gustafson
-----------------------------------
DAVID GUSTAFSON
7.
<PAGE> 1
EX-10.(f)
EDNET, INC.
(A COLORADO CORPORATION)
INCENTIVE STOCK OPTION PLAN
1. PURPOSE.
This Incentive Stock Option Plan (the "Plan") is intended as an
incentive and to encourage stock ownership by certain officers and key executive
employees of EDnet, Inc. (the "Corporation") or of its subsidiary corporations
as that term is defined in Article 3, below (the "Subsidiaries") so that they
may acquire or increase their proprietary interest in the success of the
Corporation and Subsidiaries, and to encourage them to remain in the employ of
the Corporation or of the Subsidiaries. It is further intended that options
issued pursuant to this Plan shall constitute qualified stock options within the
meaning Section 422 of the 1986 Internal Revenue Code, as amended.
2. ADMINISTRATION.
The Plan shall be administered by a Compensation Committee appointed by
the Board of Directors of the Corporation (the "Committee"). The Committee shall
consist of not less than two members of the Corporation's Board of Directors.
The Board of Directors may from time to time remove members from, or add members
to, the Committee. Vacancies on the Committee, howsoever caused, shall be filled
by the Board of Directors. The Committee shall select one of its members as
Chairman, and shall hold meetings at such times and places as it may determine.
Acts approved by a majority of the Committee at which a quorum is present, or
acts reduced to or approved in writing by a majority of the members of the
Committee, shall be the valid acts of the Committee. No director while a member
of the Committee shall be eligible to receive an option under the Plan. The
Committee shall from time to time at its discretion make recommendations to the
Board of Directors with respect to the key executive employees who shall be
granted options and the amount of stock to be optioned to each.
The interpretation and construction by the Committee of any provisions
of the Plan or of any option granted under it shall be final unless otherwise
determined by the Board of Directors. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it.
3. ELIGIBILITY.
The persons who shall be eligible to receive options shall be such key
executive employees including officers, whether or not they are directors of the
Corporation or its subsidiaries (as such term is defined in Section 425 of the
Internal Revenue Code of 1986, as amended) existing from time to time as the
Board of Directors shall select from time to time among those nominated by the
Committee. An optionee may hold more than one option, but only on the terms and
subject to the restrictions hereafter set forth. No person shall be eligible
1.
<PAGE> 2
to receive an option for a larger number of shares than is recommended for him
by the Committee.
4. STOCK.
The stock subject to the options shall be shares of the Corporation's
authorized but unissued or reacquired .001 par common stock hereafter sometimes
called Capital Stock. The aggregate number of shares which may be issued under
options shall not exceed 500,000 shares of Capital Stock. The number of shares
with respect of which option rights may be granted to any individual under any
and all options which are issued to him by the Corporation shall not exceed
250,000 shares. The limitations established by each of the preceding sentences
shall be subject to adjustment as provided in Article 5(h) of the Plan.
In the event that any outstanding option under the Plan for any reason
expires or is terminated, the shares of Capital Stock allocable to the
unexercised portion of such option may again be subjected to an option under the
Plan.
5. TERMS AND CONDITIONS OF OPTIONS.
Stock options granted pursuant to the Plan shall be authorized by the
Board of Directors and shall be evidenced by agreements in such form as the
Committee shall from time to time recommend and the Board of Directors shall
from time to time approve, which agreements shall comply with and be subject to
the following terms and conditions:
(a) NUMBER OF SHARES.
Each option shall state the number of shares to which if
pertains.
(b) OPTION PRICE.
Each option shall state the option price, which shall be not
less than 100 % of the fair market value of the shares of Capital Stock of the
Corporation on the date of the granting of the option. Subject to the foregoing,
the Board of Directors and the Committee in fixing the option price shall have
full authority and discretion and be fully protected in doing so.
(c) MEDIUM AND TIME OF PAYMENT.
The option price shall be payable in United States dollars
upon the exercise of the option and may be paid in cash or check.
(d) TERM AND EXERCISE OF OPTIONS.
No option shall be exercisable either in whole or in part
prior to six months from the date it is granted. No option shall be exercisable
after the expiration of ten years from the date it is granted. Not less than one
thousand shares may be purchased at any one time unless
2.
<PAGE> 3
the number purchased is the total number at the time purchasable under the
option. During the lifetime of the optionee, the option shall be exercisable
only by him and shall not be assignable or transferable by him and no other
person shall acquire any rights therein.
(e) MAXIMUM AMOUNT OF GRANT.
The aggregate fair market value (determined on the date the
option is granted) of Common Stock subject to an incentive stock option granted
to an optionee by the committee in any calendar year shall not exceed
$100,000.00.
(f) TERMINATION OF EMPLOYMENT EXCEPT DEATH.
In the event that an optionee shall cease to be employed by
the Corporation or Subsidiaries for any reason other than his death and shall be
no longer in the employ of any of them, subject of the condition that no option
shall be exercisable after the expiration of ten years from the date it is
granted, such optionee shall have the right to exercise the option at any time
within three months after such termination of employment. Whether authorized
leave or absence or absence for military or governmental service shall
constitute termination of employment, for the purposes of the Plan, shall be
determined by the Committee, which determination, unless overruled by the Board
of Directors, shall be final and conclusive.
(g) DEATH OF OPTIONEE AND TRANSFER OF OPTION.
If the optionee shall die while in the employ of the
Corporation or a Subsidiary or within a period of three months after the
termination of his employment with the Corporation and all Subsidiaries and
shall not have fully exercised the option, an option may be exercised, subject
to the condition that no option shall be exercisable after the expiration of ten
years from the date it is granted, at any time within one year after the
optionee's death, by the executors or administrators of the optionee or by any
person or persons who shall have acquired the option directly from the optionee
by bequest or inheritance.
No option shall be transferable by the optionee otherwise than by will
or the laws of descent and distribution.
(h) RECAPITALIZATION.
Subject to any required action by the stockholders, the number
of shares of Capital Stock covered by each outstanding option, and the price per
share thereof in each such option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Capital Stock of the
Corporation resulting from a subdivision or consolidation of shares or the
payment of a stock dividend (but only on the Capital Stock) or any other
increase or decease in the number of such shares effected without receipt of
consideration by the Corporation.
3.
<PAGE> 4
Subject to any required action by the stockholders, if the Corporation
shall be the surviving corporation in any merger or consolidation, each
outstanding option shall pertain to and apply to the securities to which a
holder of the number of shares of Capital Stock subject to the option would have
been entitled. A dissolution or liquidation of the Corporation or a merger or
consolidation in which the Corporation is not the surviving corporation, shall
cause each outstanding option to terminate, provided that each optionee shall,
in such event, if a period of two years from the date of the option shall have
expired, have the right immediately prior to such dissolution or liquidation, or
merger or consolidation in which the Corporation is not the surviving
corporation, to exercise this option.
In the event of a change in the Capital Stock of the Corporation as
presently constituted, which is limited to a change of all of its authorized
shares with par value into the same number of shares with a different par value
or without par value, the shares resulting from any such change shall be deemed
to be Capital Stock within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive,
provided that each option granted pursuant to this Plan shall not be adjusted in
a manner that causes the option to fail to continue to qualify as a qualified
stock option within the meaning of Section 422 of the 1986 Internal Revenue
Code, as amended.
Except as hereinbefore expressly provided in this Article 5(h), the
optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class or by reason
of any dissolution liquidation, merger, or consolidation or spin-off of assets
or stock of another corporation, and any issue by the Corporation of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall not affect, and no adjustment by reasons thereof shall be made with
respect to, the number or price of shares of Capital Stock subject of the
option.
The grant of an option pursuant to the Plan shall not affect in any way
the right or power of the Corporation to make adjustments, reclassifications,
reorganizations or changes of its capital-or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
(i) RIGHTS AS A STOCKHOLDER.
An optionee of an option shall have no rights as a stockholder
with respect to any shares covered by his option until the date of the issuance
of a stock certificate to him for such shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued, except as provided in Article 5(h)
hereof.
4.
<PAGE> 5
(j) MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS.
Subject to the terms and conditions and within the limitations
of the Plan, the Board of Directors may modify, extend or renew outstanding
options granted under the Plan, or accept the surrender of outstanding options
(to the extent not theretofore exercised) and authorize the granting of new
options in substitution therefor (to the extent not theretofore exercised). The
Board of Directors shall not, however, modify any outstanding options so as to
specify a lower price or accept the surrender of outstanding options and
authorize the granting of new options in substitution therefor specifying a
lower price. Notwithstanding the foregoing however, no modification of an option
shall, without the consent of the optionee, alter or impair any rights or
obligations under any option theretofore granted under this Plan.
(k) INVESTMENT PURPOSE.
Each option under the Plan shall be granted on the condition
that the purchases of stock thereunder shall be for investment purposes, and not
with a view to resale or distribution except that in the event the stock subject
to such option is registered under the Securities Act of 1933, as amended, or in
the event a resale of such stock without such registration would otherwise be
permissible, such condition shall be inoperative if in the opinion of counsel
for the Corporation such condition is not required under the Securities Act of
1933 or any other applicable law, regulation, or rule of any governmental
agency.
(l) OTHER PROVISIONS.
This option agreement authorized under the Plan shall contain
such other provisions, including, without limitation, restrictions upon the
exercise of the option, as the Committee and the Board of Directors of the
Corporation shall deem advisable. Any such option agreement shall contain such
limitations and restrictions upon the exercise of the option as shall be
necessary in order that such option will be a "qualified stock option" as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or to
conform to any change in the law.
6. TERM OF PLAN.
Options may be granted to the Plan from time to time within a period
ten years from the date the Plan is adopted, or the date the Plan is approved by
the Stockholders, whichever is earlier.
7. INDEMNIFICATION OF COMMITTEE.
In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees actually and necessarily incurred in connection with the defense
of any action, suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of action taken or
5.
<PAGE> 6
failure to act under or in connection with the Plan or any option granted
thereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Corporation) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, expect in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such Committee member is liable
for negligence or misconduct in the performance of his duties; provided that
within 60 days after institution of any such action, suit or proceeding a
Committee member shall in writing offer the Corporation the opportunity, at its
own expense, to handle and defend the same.
8. AMENDMENT OF THE PLAN.
The Board of Directors of the Corporation may, insofar as permitted by
law, from time to time, with respect to any shares at the time not subject to
options, suspend or discontinue the Plan or revise or amend it in any respect
whatsoever except that, without approval of the stockholders, no such revision
or amendment shall change the number of shares subject to the Plan, change the
designation of the class of employees eligible to receive options, decrease the
price at which options may be granted, remove the administration of the Plan
from the Committee, or render any member of the Committee eligible to receive an
option under the Plan while serving thereon. Furthermore, the Plan may not,
without the approval of the stockholders, be amended in any manner that will
cause options issue under it to fail to meet the requirements of qualified stock
options as defined in Section 422 of the 1986 Internal Revenue Code, as amended.
9. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the sale of Capital Stock
pursuant to options will be used for general corporate purposes.
10. NO OBLIGATION TO EXERCISE OPTION.
The granting of an option shall impose no obligation upon the optionee
to exercise such option.
11. APPROVAL OF STOCKHOLDERS.
The Plan shall not take effect until approved by the holders of a
majority of the outstanding shares of Capital Stock of the Corporation, which
approval must occur within the period beginning twelve months before and ending
twelve months after the date the Plan is adopted by the Board of Directors.
6.
<PAGE> 1
EX-10.(g)
EDNET, INC.
1995-1996
NONSTATUTORY STOCK OPTION PLAN
1. PURPOSE.
The purpose of the 1995-1996 Nonstatutory Stock Option Plan
(hereinafter referred to as the "Plan") is to provide a special incentive to
selected key employees and consultants of EDnet, Inc. (hereinafter referred to
as the "Company") and its subsidiaries to promote the Company's business. The
Plan is designed to accomplish this purpose by offering such employees and
consultants an opportunity to purchase shares of the common stock of the Company
so that they will share in the Company's success. For purposes of the Plan a
subsidiary is any corporation in which the Company owns, directly or indirectly,
stock possessing fifty percent or more of the total combined voting power of all
classes of stock or over which the Company has effective operating control.
2. ADMINISTRATION.
The Plan shall be administered by a Compensation Committee established
by the Board of Directors of the Company. The Committee shall consist of two or
more members. The Committee shall have authority, consistent with the Plan,
(a) to determine which of the key employees and consultants of the
Company and its subsidiaries shall be granted options;
(b) to determine the time or times when options shall be granted and
the number of shares of common stock to be subject to each option;
(c) to determine the option price of the shares subject to each option
and the method of payment of such price;
(d) to determine the time or times when each option becomes exercisable
and the duration of the exercise period, subject to the limitations contained in
Paragraph 6(b);
(e) to prescribe the form or forms of the instruments evidencing any
options granted under the Plan and of any other instruments required under the
Plan and to change such forms from time to time;
(f) to adopt, amend and rescind rules and regulations for the
administration of the Plan and the options and for its own acts and proceedings;
and
1.
<PAGE> 2
(g) to decide all questions and settle all controversies and disputes
which may arise in connection with the Plan. All decisions, determinations and
interpretations of the Committee shall be binding on all parties concerned.
3. PARTICIPANTS.
The Participants in the Plan shall be key employees or consultants of
the Company or of any of its subsidiaries, whether or not also officers or
directors, as may be selected from time to time by the Committee in its
discretion. Directors who are not employees shall also be eligible. In any grant
of options after the initial grant, employees who were previously granted
options or sold shares under the Plan may be included or excluded.
4. LIMITATIONS.
No option shall be granted under the Plan after December 31, 1996, but
options theretofore granted may extend beyond that date. Subject to adjustment
as provided in Section 8 of the Plan, the number of shares of common stock of
the Company which may be issued under the Plan shall not exceed 565,000 in the
aggregate. To the extent that any option granted under the Plan shall expire or
terminate unexercised or for any reason become unexercisable as to any shares
subject thereto, such shares shall thereafter be available for further grants
under the Plan, within the limit specified above.
5. STOCK TO BE ISSUED.
Stock to be issued under the plan may constitute an original issue of
authorized stock or may consist of previously issued stock acquired by the
Company, as shall be determined by the Board of Directors. The Board of
Directors and the proper officers of the Company shall take an appropriate
action required for such issuance.
6. TERMS AND CONDITIONS OF OPTIONS.
All options granted under the Plan shall be subject to the following
terms and conditions (except as provided in Section 7) and to such other terms
and conditions as the Committee shall determined to be appropriate to accomplish
the purposes of the Plan:
(a) OPTION PRICE. The option price under each option shall be
determined by the Committee and may be more, equal to or less than the then
current market price of the Company's common stock as the Committee may deem to
be appropriate, but in no event may such price be less than par value; provided,
however, that in the event the Committee shall determine to grant an option at
less than 85% of the then current market price of the Company's common stock,
such option shall not be granted without the prior approval of the Board of
Directors.
(b) PERIOD OF OPTIONS. The period of an option shall not exceed five
years from the date of grant.
2.
<PAGE> 3
(c) EXERCISE OF OPTIONS.
(i) Each option shall be made exercisable at such time or times,
whether or not in installments, as the Committee shall prescribe at the time the
option is granted.
(ii) A person electing to exercise an option shall give written
notice to the Company, as specified by the Committee, of his election and of the
number of shares he has elected to purchase, such notice to be accompanied by
such instruments or documents as may be required by the Committee, and unless
otherwise directed by the Committee shall at the time of such exercise tender
the purchase price of the shares he has elected to purchase.
(d) PAYMENT FOR ISSUANCE OF SHARES. Upon exercise of any option granted
hereunder, payment in full shall be made at the time of such exercise for all
such shares then being purchased; except, however, that the Committee may in its
discretion permit the issuance of stock upon such plan of partial payment as it
deems reasonable, provided that the then unpaid portion of the purchase price
shall be evidenced by a promissory note at such rate of interest and upon such
other terms and conditions as the Committee shall deem appropriate. In all cases
where stock is issued for less than present full payment of the purchase price,
there shall be placed upon the certificate a legend setting for the amount paid
at issuance, and the amount remaining unpaid thereon, and that the shares are
subject to call for the remainder and may not be transferred by the holder until
the balance due thereon shall be fully paid.
The Company shall not be obligated to issue any shares unless and
until, in the opinion of the Company's counsel, all applicable laws and
regulations have been complied with, nor, in the event the outstanding common
stock is at the time listed upon any stock exchange, unless and until the shares
to be issued have been listed or authorized to be added to the list upon
official notice of issuance upon such exchange, nor unless or until all other
legal matters in connection with the issuance and delivery of shares have been
approved by the Company's counsel. Without limiting the generality of the
foregoing, the Company may require from the Participant such investment
representation or such agreement, if any, as counsel for the Company may
consider necessary in order to comply with the Securities Act of 1933, as then
in effect, and may require that the Participant agree that any sale of the
shares will be made only in such manner as is permitted by the Committee and
that he will notify the Company when he intends to make any disposition of
shares whether by sale, gift or otherwise. The Participant shall take any action
reasonably requested by the Company in such connection. A Participant shall have
the rights of a stockholder only as to shares actually acquired by him under the
Plan.
(e) NONTRANSFERABILITY OF OPTIONS. No option may be transferred by the
Participant otherwise than by will or by the laws of descent and distribution,
and during the Participant's lifetime the option may be exercised only by him.
(f) CONSIDERATION FOR OPTION. Each employee receiving a stock option
must agree that he will remain in the employ of the Company upon the terms of
the employment then existing (unless different terms are mutually agreed upon)
for at least one (1) year from (i) the date of the granting of the options or
(ii) the date of expiration of the then current employment
3.
<PAGE> 4
contract, whichever is later, subject to the right of the Company to terminate
his employment at any time.
(g) TERMINATION OF EMPLOYMENT. If the employment of a participant
terminates for any reason other than his death, he may, unless discharged for
cause which in the opinion of the Committee casts such discredit on him as to
justify termination of his option, thereafter exercise his option as provided
below, but only to the extent he was entitled to exercise the option on the date
when his employment terminated. If such termination of employment is voluntary
on the part of the participant, he may exercise his option only within ten days
after the date of termination of his employment (unless a longer period not in
excess of three months is allowed by the Committee). If such termination of
employment is involuntary on the part of the participant, he may exercise his
option only within three months after the date of termination of his employment.
In no event, however, may such participant exercise his option at a time when
the option would not be exercisable had the participant remained an employee.
For purposes of this section (g), a participant's employment shall not be
considered terminated in the case of sick leave or other bona fide leave of
absence approved by the Company or a subsidiary, or in the case of a transfer to
the employment of a subsidiary or to the employment of the Company. Anything
herein to the contrary notwithstanding, an option may be exercised only to the
extent exercisable on the date of termination of employment by death or
otherwise.
(h) RETIREMENT. If prior to the expiration date of his option an
optionee shall retire with the Company's consent, such option may be exercised
in the same manner as if the optionee had continued in the Company's employ;
provided, however, the Committee may terminate all unexercised options if it
shall determine that the retired optionee has engaged in any activity
detrimental to the Company's interest.
(i) DEATH. If a participant dies at a time when he is entitled to
exercise an option, then at any time or times within one (1) year after his
death (or such further period as the Committee may allow) such option may be
exercised, as to all or any of the shares which the participant was entitled to
purchase immediately prior to his death, by his executor or administrator or the
person or persons to whom the option is transferred by will or the applicable
laws of descent and distribution, and except as so exercised such option shall
expire at the end of such period. In no event, however, may an option be
exercised after the expiration of the option period.
7. REPLACEMENT OPTIONS.
The Company may grant options under the Plan on terms differing from
those provided for in Section 6 where such options are granted in substitution
for options held by employees of other corporations who concurrently become
employees of the Company or a subsidiary as the result of a merger,
consolidation or other re-organization of the employing corporation with the
Company or subsidiary, or the acquisition by the Company or a subsidiary of the
business, property or stock of the employing corporation. The Committee may
direct that the substitute options be granted on such terms and conditions as
the Committee considers appropriate in the circumstances.
4.
<PAGE> 5
8. CHANGES IN STOCK.
In the event of a stock dividend, stock split or recapitalization or
merger in which the Company is the surviving corporation, or other similar
capital change, the number and kind of shares of stock or securities of the
Company to be subject to the Plan and to options then outstanding or to be
granted thereunder, the maximum number of shares or securities which may be
issued or sold under the Plan, the option price and other relevant provisions
shall be appropriately adjusted by the Board of Directors of the Company, the
determination of which shall be binding on all persons.
9. EMPLOYMENT RIGHTS.
The adoption of the Plan does not confer upon any employee or
consultant of the Company or subsidiary any right to continue employment with
the Company or a subsidiary, as the case may be, nor does it interfere in any
way with the right of the Company or a subsidiary to terminate the employment of
any of its employees at any time.
10. AMENDMENTS TO THE PLAN.
The Committee may at any time discontinue granting options under the
Plan. The Board of Directors of the Company may at any time or times amend the
Plan or amend any outstanding option or options for the purpose of satisfying
the requirements of any changes in applicable laws or regulations or for any
other purpose which may at the time be permitted by law, provided that except to
the extent required or permitted under Section 8 no such amendment shall,
without the approval of the stockholders of the Company, increase the maximum
number of shares available under the Plan, or without the consent of the
participant void or diminish options previously granted, nor increase or
accelerate the conditions and actions required for the exercise of the same,
except if the participant shall be discharged from the Company's employment for
cause, and except that nothing herein shall limit the Company's right to call
stock issued for deferred payment to be evidenced by promissory note, where the
participant is in default of his obligations on such note.
11. APPLICATION OF FUNDS.
The proceeds received by the Corporation from the sale of Capital Stock
pursuant to options will be used for general corporate purposes.
12. NO OBLIGATION TO EXERCISE OPTION.
The granting of an option shall impose no obligation upon the optionee
to exercise such option.
5.
<PAGE> 6
13. INDEMNIFICATION OF COMMITTEE.
In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees actually and necessarily incurred in connection with the defense
of any action, suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of action taken or failure to
act under or in connection with the Plan or any option granted thereunder, and
against all amounts paid by them in settlement thereof (provided such settlement
is approved by independent legal counsel selected by the Corporation) or paid by
them in satisfaction of a judgment in any such action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such action,
suit or proceeding that such Committee member is liable for negligence or
misconduct in the performance of his duties; provided that within 60 days after
institution of any such action, suit or proceeding a Committee member shall in
writing offer the Corporation the opportunity, at its own expense, to handle and
defend the same.
DATE PLAN ADOPTED BY BOARD OF DIRECTORS: NOVEMBER 10, 1995
6.
<PAGE> 1
EX-10.(h)
ENTERTAINMENT DIGITAL NETWORK
1993 FLEXIBLE STOCK INCENTIVE PLAN
1. ESTABLISHMENT, PURPOSE, AND DEFINITIONS.
(a) There is hereby adopted the 1993 Flexible Stock Incentive Plan (the
"Plan") of Entertainment Digital Network (the "Company").
(b) The purpose of the Plan is to provide a means whereby eligible
individuals (as defined in paragraph 4, below) can acquire Common Stock of the
Company (the "Stock"). The Plan provides employees (including officers and
directors who are employees) of the Company and of its Affiliates an opportunity
to purchase shares of Stock pursuant to options which may qualify as incentive
stock options (referred to as "incentive stock options") under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and employees,
officers, directors, independent contractors, and consultants of the Company and
of its Affiliates an opportunity to purchase shares of Stock pursuant to options
which are not described in Sections 422 or 423 of the Code (referred to as
"nonqualified stock options"). The Plan also provides for the sale or bonus of
Stock to eligible individuals in connection with the performance of services for
the Company or its Affiliates. Finally, the Plan authorizes the grant of stock
appreciation rights ("SARs"), either separately or in tandem with stock options,
entitling holders to cash compensation measured by appreciation in the value of
the Stock.
(c) The term "Affiliates" as used in the Plan means parent or
subsidiary corporations, as defined in Sections 424(e) and (f) of the Code (but
substituting "the Company" for "employer corporation"), including parents or
subsidiaries which become such after adoption of the Plan.
2. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board"). The Board may delegate the responsibility for
administering the Plan to a committee, under such terms and conditions as the
Board shall determine (the "Committee"). The Committee shall consist of two or
more members of the Board or such lesser number of members of the Board as
permitted by Rule 16b-3 promulgated under the Securities Exchange Act of 1934,
as amended ("Rule 16b-3"). To the extent required by Rule 16b-3, none of the
members of the Committee shall receive, while serving on the Committee, or
during the one-year period preceding appointment to the Committee, a grant or
award of equity securities under (i) the Plan or (ii) any other plan of the
Company or its Affiliates under which the participants are entitled to acquire
Stock (including restricted Stock), stock options, stock bonuses, related rights
or stock appreciation rights of the Company or any of its Affiliates, other than
pursuant to transactions in any such other plan which do not disqualify a
director from being a disinterested person under Rule 16b-3. The limitations set
forth in this Section 2(a) shall automatically incorporate any additional
requirements that may in the future be necessary for the Plan to comply with
Rule 16b-3. Members of the Committee shall serve at the pleasure of the Board.
The Committee shall select one of its members as chairman, and shall hold
meetings at
1.
<PAGE> 2
such times and places as it may determine. A majority of the Committee shall
constitute a quorum and acts of the Committee at which a quorum is present, or
acts reduced to or approved in writing by all the members of the Committee,
shall be the valid acts of the Committee. If the Board does not delegate
administration of the Plan to a committee, then each reference in this Plan
outside of this paragraph 2(a) to "the Committee" shall be construed to refer to
the Board.
(b) The Committee shall determine which eligible individuals (as
defined in paragraph 4, below) shall be granted options under the Plan, the
timing of such grants, the terms thereof (including any restrictions on the
stock), and the number of shares subject to such options.
(c) The Committee may amend the terms of any outstanding option granted
under this Plan, but any amendment which would adversely affect the Optionee's
rights under an outstanding option shall not be made without the Optionee's
written consent. The Committee may, with the Optionee's written consent, cancel
any outstanding stock option or accept any outstanding stock option in exchange
for a new option.
(d) The Committee shall also determine which eligible individuals (as
defined in paragraph 4, below) shall be issued Stock or SARs under the Plan, the
timing of such grants, the terms thereof (including any restrictions), and the
number of shares or SARs to be granted. The Stock shall be issued for such
consideration (if any) as the Committee deems appropriate. Stock issued subject
to restrictions shall be evidenced by a written agreement (the "Restricted Stock
Purchase Agreement" or the "Restricted Stock Bonus Agreement"). The Committee
may amend any Restricted Stock Purchase Agreement or Restricted Stock Bonus
Agreement, but any amendment which would adversely affect the shareholder's
rights to the Stock shall not be made without his or her written consent.
(e) The Committee shall have the sole authority, in its absolute
discretion to adopt, amend, and rescind such rules and regulations as, in its
opinion, may be advisable for the administration of the Plan, to construe and
interpret the Plan, the rules and the regulations, and the instruments
evidencing options or Stock granted under the Plan and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
All decisions, determinations, and interpretations of the Committee shall be
binding on all participants.
(f) Without limitation of the foregoing, the Committee shall have the
right, with the Optionee's consent, to accelerate the exercise date of any
options issued pursuant to the Plan or terminate the restrictions applicable to
any stock issued pursuant to the Plan.
3. STOCK SUBJECT TO THE PLAN.
(a) An aggregate of not more than 230,000 shares of Stock shall be
available for the grant of stock options or the issuance of Stock under the
Plan. If an option is surrendered (except surrender for shares of Stock) or for
any other reason ceases to be exercisable in whole or in part, the shares which
were subject to such option but as to which the option had not been exercised
shall continue to be available under the Plan. Any Stock which is retained by
the
2.
<PAGE> 3
Company upon exercise of an option in order to satisfy the exercise price for
such option or any withholding taxes due with respect to such option exercise
shall be treated as issued to the Optionee and will thereafter not be available
under the Plan.
(b) If there is any change in the Stock subject to the Plan, an Option
Agreement, a Restricted Stock Purchase Agreement, a Restricted Stock Bonus
Agreement, or a SAR Agreement through merger, consolidation, reorganization,
recapitalization, reincorporation, stock split, stock dividend, or other change
in the capital structure of the Company, appropriate adjustments shall be made
by the Committee in order to preserve but not to increase the benefits to the
individual, including adjustments to the aggregate number, kind and price per
share of shares subject to the Plan, an Option Agreement, a Restricted Stock
Purchase Agreement, a Restricted Stock Bonus Agreement, or a SAR Agreement.
4. ELIGIBLE INDIVIDUALS. Individuals who shall be eligible to have granted to
them the options, Stock or SARs provided for by the Plan shall be such
employees, officers, directors, independent contractors and consultants of the
Company or an Affiliate as the Committee, in its discretion, shall designate
from time to time. Notwithstanding the foregoing, only employees of the Company
or an Affiliate (including officers and directors who are bona fide employees)
shall be eligible to receive incentive stock options.
5. THE OPTION PRICE. The exercise price of the Stock covered by each incentive
stock option shall be not less than the per share fair market value of such
Stock on the date the option is granted. The exercise price of the Stock covered
by each nonqualified stock option shall be as determined by the Committee.
Notwithstanding the foregoing, in the case of an incentive stock option granted
to a person possessing more than ten percent of the combined voting power of the
Company or an Affiliate, the exercise price shall be not less than 110 percent
of the fair market value of the Stock on the date the option is granted. The
exercise price of an option shall be subject to adjustment to the extent
provided in paragraph 3(b), above.
6. TERMS AND CONDITIONS OF OPTIONS.
(a) Each option granted pursuant to the Plan will be evidenced by a
written Stock Option Agreement executed by the Company and the person to whom
such option is granted.
(b) The Committee shall determine the term of each option granted under
the Plan; Provided, however, that the term of an incentive stock option shall
not be for more than 10 years and that, in the case of an incentive stock option
granted to a person possessing more than ten percent of the combined voting
power of the Company or an Affiliate, the term shall be for no more than five
years.
(c) In the case of incentive stock options, the aggregate fair market
value (determined as of the time such option is granted) of the Stock with
respect to which incentive stock options are exercisable for the first time by
an eligible employee in any calendar year (under this Plan and any other plans
of the Company or its Affiliates) shall not exceed $100,000.
3.
<PAGE> 4
(d) The Stock Option Agreement may contain such other terms, provisions
and conditions consistent with this Plan as may be determined by the Committee.
If an option, or any part thereof is intended to qualify as an incentive stock
option, the Stock Option Agreement shall contain those terms and conditions
which are necessary to so qualify it,
7. TERMS AND CONDITIONS OF STOCK PURCHASES AND BONUSES.
(a) Each sale or grant of stock pursuant to the Plan will be evidenced
by a written Restricted Stock Purchase Agreement or Restricted Stock Bonus
Agreement executed by the Company and the person to whom such stock is sold or
granted.
(b) The Restricted Stock Purchase Agreement or Restricted Stock Bonus
Agreement may contain such other terms, provisions and conditions consistent
with this Plan as may be determined by the Committee, including not by way of
limitation, restrictions on transfer, forfeiture provisions, repurchase
provisions and vesting provisions.
8. TERMS AND CONDITIONS OF SARS. The Committee may, under such terms and
conditions as it deems appropriate, authorize the issuance of SARs evidenced by
a written SAR agreement (which, in the case of tandem options, may be part of
the option agreement to which the SAR relates) executed by the Company and the
person to whom such SAR is granted. The SAR agreement may contain such terms,
provisions and conditions consistent with this Plan as may be determined by the
Committee.
9. USE OF PROCEEDS. Cash proceeds realized from the sale of Stock under the
Plan shall constitute general funds of the Company.
10. AMENDMENT, SUSPENSION, OR TERMINATION OF THE PLAN.
(a) The Board may at any time amend, suspend or terminate the Plan as
it deems advisable; provided that such amendment, suspension or termination
complies with all applicable requirements of state and federal law, including
any applicable requirement that the Plan or an amendment to the Plan be approved
by the Company's shareholders, and provided further that, except as provided in
paragraph 3(b), above, the Board shall in no event amend the Plan in the
following respects without the consent of shareholders then sufficient to
approve the Plan in the first instance:
(i) To increase the maximum number of shares subject to
incentive stock options issued under the Plan; or
(ii) To change the designation or class of persons eligible to
receive incentive stock options under the Plan.
(b) No option may be granted nor any Stock issued under the Plan during
any suspension or after the termination of the Plan, and no amendment,
suspension or termination of the Plan shall, without the affected individual's
consent, alter or impair any rights or
4.
<PAGE> 5
obligations under any option previously granted under the Plan. The Plan shall
terminate with respect to the grant of incentive stock options on March 16,
2004, unless previously terminated by the Board pursuant to this paragraph 10.
11. ASSIGNABILITY. Each option granted pursuant to this Plan shall, during
optionee's lifetime, be exercisable only by him, and neither the option nor any
right hereunder shall be transferable by optionee by operation of law or
otherwise other than by will or the laws of descent and distribution. Stock
subject to a Restricted Stock Purchase Agreement or a Restricted Stock Bonus
Agreement shall be transferable only as provided in such Agreement.
12. PAYMENT UPON EXERCISE OF OPTIONS. Payment of the purchase price upon
exercise of any option granted under this Plan shall be made in cash; provided,
however, that the Committee, in its sole discretion, may permit an optionee to
pay the option price in whole or in part (i) with shares of Stock owned by the
Optionee; (ii) by delivery on a form prescribed by the Committee of an
irrevocable direction to a securities broker approved by the Committee to sell
shares and deliver all or a portion of the proceeds to the Company in payment
for the Stock; (iii) by delivery of the optionee's promissory note with such
recourse, interest, security, and redemption provisions as the Committee in its
discretion determines appropriate; or (iv) in any combination of the foregoing.
Any Stock used to exercise options shall be valued at its fair market value on
the date of the exercise of the option. In addition, the Committee, in its sole
discretion, may authorize the surrender by an optionee of all or part of an
unexercised option and authorize a payment in consideration thereof of an amount
equal to the difference between the aggregate fair market value of the Stock
subject to such option and the aggregate option price of such Stock. In the
Committee's discretion, such payment may be made in cash, shares of Stock with a
fair market value on the date of surrender equal to the payment amount, or some
combination thereof.
13. WITHHOLDING TAXES. No Stock shall be granted or sold under the Plan to any
participant, and no SAR may be exercised, until the participant has made
arrangements acceptable to the Committee for the satisfaction of federal, state,
and local income and social security tax withholding obligations, including
without limitation obligations incident to the receipt of Stock under the Plan,
the lapsing of restrictions applicable to such Stock, the failure to satisfy the
conditions for treatment as incentive stock options under applicable tax law, or
the receipt of cash payments. Upon exercise of a stock option or lapsing or
restriction on stock issued under the Plan, the Company may satisfy its
withholding obligations by withholding from the Optionee or requiring the
Shareholder to surrender shares of the Company's Stock sufficient to satisfy
federal, state, and local income and social security tax withholding
obligations.
14. RESTRICTIONS ON TRANSFER OF SHARES. The Stock acquired pursuant to the Plan
shall be subject to such restrictions and agreements regarding sale, assignment,
encumbrances or other transfer as are in effect among the shareholders of the
Company at the time such Stock is acquired, as well as to such other
restrictions as the Committee shall deem advisable.
5.
<PAGE> 6
15. CORPORATE TRANSACTION.
(a) For purposes of this Section 15, a "Corporate Transaction" shall
include any of the following shareholder-approved transactions to which the
Company is a party:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for (1) a transaction the principal purpose of which is
to change the state of the Company's incorporation, or (2) a transaction in
which the Company's shareholders immediately prior to such merger or
consolidation hold (by virtue of securities received in exchange for their
shares in the Company) securities of the surviving entity representing more than
fifty percent (50%) of the total voting power of such entity immediately after
such transaction;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company unless the Company's shareholders
immediately prior to such sale, transfer or other disposition hold (by virtue of
securities received in exchange for their shares in the Company) securities of
the purchaser or other transferee representing more than fifty percent (50%) of
the total voting power of such entity immediately after such transaction; or
(iii) any reverse merger in which the Company is the surviving
entity but in which the Company's shareholders immediately prior to such merger
do not hold (by virtue of their shares in the Company held immediately prior to
such transaction) securities of the Company representing more than fifty percent
(50%) of the total voting power of the Company immediately after such
transaction.
(b) In the event of any Corporate Transaction, any option or
outstanding SAR shall terminate and any restricted stock shall be reconveyed to
or repurchased by the Company immediately prior to the specified effective date
of the Corporate Transaction unless assumed by the successor corporation or its
parent company, pursuant to options, restricted stock agreements or SARs
providing substantially equal value and having substantially equivalent
provisions as the options, restricted stock or SARs granted pursuant to this
Plan, or unless otherwise determined by the Committee.
16. SHAREHOLDER APPROVAL. This Plan shall only become effective with regard to
incentive stock options upon its approval by a majority of the shareholders
voting (in person or by proxy) at a shareholders, meeting held within 12 months
of the Board's adoption of the Plan. The Committee may grant incentive stock
options under the Plan prior to the shareholders, meeting, but until shareholder
approval of the Plan is obtained, no incentive stock option shall be
exercisable.
6.
<PAGE> 1
EX-10.(i)
ENTERTAINMENT DIGITAL NETWORK
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of the ___th day of ___________, 199__, by
and between Entertainment Digital Network, a California corporation (the
"Company") and ___________________ ("Optionee").
WITNESSETH:
WHEREAS, the Company has agreed to grant the option provided for in
this Agreement to Optionee;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties to this Agreement hereby agree as follows:
1. OPTION GRANT. The Company hereby grants to Optionee the right and
option to purchase from the Company on the terms and conditions hereinafter set
forth, all or any part of an aggregate of _______________ shares of the Common
Stock of the Company (the "Stock"). This option is not intended to satisfy the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") for incentive stock options.
2. OPTION PRICE. The purchase price of the Stock subject to this option
shall be $0.10 per share. The term "Option Price" as used in this Agreement
refers to the purchase price of the Stock subject to this option.
3. OPTION PERIOD. This option shall be exercisable from time to time,
in whole or in part, commencing on the date hereof and shall terminate five (5)
years from such date (the "Termination Date").
4. METHOD OF EXERCISE. Optionee may exercise this option with respect
to all or any part of the shares of Stock then subject to such exercise as
follows:
a. By giving the Company written notice of such
exercise, specifying the number of such shares as to which this option is
exercised. Such notice shall be accompanied by payment in an amount equal to the
Option Price of such shares.
b. If required by the Company, Optionee shall give the
Company satisfactory assurance in writing, signed by Optionee or his legal
representative, as the case may be, that such shares are being purchased for
investment and not with a view to the distribution thereof, provided that such
assurance shall be deemed inapplicable to (1) any sale of such shares by such
Optionee made in accordance with the terms of a registration statement covering
such sale, which may hereafter be filed and become effective under the
Securities Act of 1933, as amended, and with respect to which no stop order
suspending the effectiveness thereof has been
1.
<PAGE> 2
issued, and (2) any other sale of such shares with respect to which in the
opinion of counsel for the Company, such assurance is not required to be given
in order to comply with the provisions of the Securities Act of 1933, as
amended.
c. As soon as practicable after receipt of the notice
required in paragraph 4(a) and satisfaction of the conditions set forth in
paragraphs 4(b), the Company shall, without transfer or issue tax and without
other incidental expense to Optionee, deliver to Optionee at the office of the
Company, at 69 Green Street, Suite 400, San Francisco, CA 94111 attention of the
Secretary, or such other place as may be mutually acceptable to the Company and
Optionee, a certificate or certificates of such shares of Stock; provided,
however, that the time of such delivery may be postponed by the Company for such
period as may be required for it with reasonable diligence to comply with
applicable registration requirements under the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, any applicable listing
requirements of any national securities exchange, and requirements under any
other law or regulation applicable to the issuance or transfer of such shares.
5. CORPORATE TRANSACTIONS.
a. If there should be any change in a class of Stock
subject to this option, through merger, consolidation, reorganization (including
any Corporate Transaction), recapitalization, reincorporation, stock split,
stock dividend or other change in the capital structure of the Company, the
Company shall make appropriate adjustments in order to preserve. but not to
increase. the benefits to Optionee, including adjustments in the number and kind
of securities subject to this option and in the price per share. Any adjustment
made pursuant to this paragraph 5 as a consequence of a Corporate Transaction
shall entitle Optionee to acquire, upon exercise of this option and for the same
aggregate exercise price, a number of shares of stock (or other securities) of
any successor company equal to the number of shares Optionee would have received
if, prior to such transaction, Optionee had actually held a number of shares of
Stock equal to the number of shares then subject to this option.
b. For purposes of this Agreement, a "Corporate
Transaction" shall include any of the following transactions to which the
Company is a party:
i. a merger or consolidation in which the
Company is not the surviving entity, except for (1) a transaction the principal
purpose of which is to change the state of the Company's incorporation, or (2) a
transaction in which the Company's shareholders immediately prior to such merger
or consolidation hold (by virtue of securities received in exchange for their
shares in the Company) securities of the surviving entity representing more than
fifty percent (50%) of the total voting power of such entity immediately after
such transaction;
ii. the sale, transfer or other disposition of
all or substantially all of the assets of the Company unless the Company's
shareholders immediately prior to such sale, transfer or other disposition hold
(by virtue of securities received in exchange for their shares
2.
<PAGE> 3
in the Company) securities of the purchaser or other transferee representing
more than fifty percent (50%) of the total voting power of such entity
immediately after such transaction;
iii. any transaction or series of related
transactions in which shares of the Company representing more than fifty percent
(50%) of the total voting power of the Company immediately prior to such
transaction or series of related transactions are disposed of by the holders
thereof; or
iv. any reverse merger in which the Company is
the surviving entity but in which the Company's shareholders immediately prior
to such merger do not hold (by virtue of their shares in the Company held
immediately prior to such transaction) securities of the Company representing
more than fifty percent (50%) of the total voting power of the Company
immediately after such transaction.
6. LIMITATIONS ON TRANSFER. This option shall, during Optionee's
lifetime, be exercisable only by Optionee, and neither this option nor any right
hereunder shall be transferable by Optionee by operation of law or otherwise
other than by will or the laws of descent and distribution.
7. NO SHAREHOLDER RIGHTS. Neither Optionee nor any person entitled to
exercise Optionee's rights in the event of his death shall have any of the
rights of a shareholder with respect to the shares of Stock subject to this
option except to the extent the certificates for such shares shall have been
issued upon the exercise of this option.
8. LOCK-UP AGREEMENT. Optionee, if requested by the Company and an
underwriter of Common Stock or other securities of the Company, shall not sell
or otherwise transfer or dispose of any Stock of the Company received pursuant
to this Option (except Common Stock included in such registration) during the
period specified by the Company and the underwriter following the effective date
of a registration statement of the Company filed under the Securities Act.
Optionee agrees to execute an agreement for the foregoing in writing in a form
satisfactory to such underwriter for the foregoing purposes. The Company may
impose stop-transfer instructions with respect to such Common Stock subject to
the foregoing restriction until the end of said period.
9. NO EFFECT ON TERMS OF EMPLOYMENT. SUBJECT TO THE TERMS OF ANY
WRITTEN EMPLOYMENT CONTRACT TO THE CONTRARY, THE COMPANY (OR ITS AFFILIATE WHICH
EMPLOYS OPTIONEE) SHALL HAVE THE RIGHT TO TERMINATE OR CHANGE THE TERMS OF
EMPLOYMENT OF OPTIONEE, IF ANY, AT ANY TIME AND FOR ANY REASON WHATSOEVER, WITH
OR WITHOUT CAUSE.
10. NOTICE. Any notice required to be given under the terms of this
Agreement shall be addressed to the Company in care of its Secretary at the
office of the Company at 69 Green Street, Suite 400, San Francisco, CA 94111,
and any notice to be given to Optionee shall be addressed to him at the address
given by him beneath his signature to this Agreement, or such other address as
either party to this Agreement may hereafter designate in writing to the other.
3.
<PAGE> 4
Any such notice shall be deemed to have been duly given when enclosed in a
properly sealed envelope addressed as aforesaid, registered or certified and
deposited (postage or registration or certification fee prepaid) in a post
office or branch post office regularly maintained by the United States.
11. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of any successor or successors of the Company. Where the context
permits, "Optionee" as used in this Agreement shall include Optionee's executor,
administrator or other legal representative or the person or persons to whom
Optionee's rights pass by will or the applicable laws of descent and
distribution.
12. WITHHOLDING. Optionee agrees to withholding of shares from exercise
for satisfaction of any applicable federal, state or local income tax or
employment tax withholding requirements.
13. CALIFORNIA LAW. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of California.
IN WITNESS WHEREOF, the Company and Optionee have executed this
Agreement as of the day and year first above written.
ENTERTAINMENT DIGITAL NETWORK
By______________________________________
Its_____________________________________
________________________________________
Optionee
Address:
4.
<PAGE> 1
EX-10.(j)
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT, OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
Void after
October 31, 1996
STOCK PURCHASE WARRANT
This Warrant is issued to _____________________ (the "Holder") by
ENTERTAINMENT DIGITAL NETWORK, a California corporation (the "Company").
1. PURCHASE OF SHARES. Subject to the terms and conditions hereinafter set
forth, the Holder is entitled, upon surrender of this Warrant at the
principal office of the Company (or at such other place as the Company
shall notify the holder hereof in writing), to purchase from the
Company _____ fully paid and non-assessable shares of Common Stock of
the Company (as adjusted pursuant to Section 7 hereof, the "Shares")
for the purchase price specified in Section 2 below.
2. PURCHASE PRICE. The per share purchase price for the Shares is $2.625.
Such price shall be subject to adjustment pursuant to Section 7 hereof
(such price, as adjusted from time to time, is herein referred to as
the "Warrant Price").
3. EXERCISE PERIOD. This Warrant shall become exercisable on May 1, 1996
and shall remain so exercisable until and including October 31, 1996.
4. METHOD OF EXERCISE.
(a) While this Warrant remains outstanding and exercisable in
accordance with Section 3 above, the holder may exercise, in whole or in part,
the purchase rights evidenced hereby. Such exercise shall be effected by:
(i) the surrender of this Warrant, together with a duly
executed copy of the form of subscription attached hereto, to the Secretary of
the Company at its principal offices; and
(ii) the payment to the Company of an amount equal to the
aggregate purchase price for the number of shares being purchased.
1.
<PAGE> 2
5. CERTIFICATES FOR SHARES. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter, and in any event
within thirty (30) days of the delivery of the subscription notice.
6. RESERVATION OF SHARES. The Company covenants that it will at all times
keep available such number of authorized shares of its Common Stock, free from
all preemptive rights with respect thereto, which will be sufficient to permit
the exercise of this Warrant for the full number of Shares specified herein. The
Company further covenants that such Shares, when issued pursuant to the exercise
of this Warrant, will be duly and validly issued, fully paid and non-assessable
and free from all taxes, liens and charges with respect to the issuance thereof.
7. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARE. The number of and kind
of securities purchasable upon exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the Company
shall at any time prior to the expiration of this Warrant subdivide its Common
Stock, by stock split or otherwise, combine its Common Stock or issue additional
shares of its Common Stock as a dividend with respect to any shares of its
Common Stock, the number of Shares issuable on the exercise of this Warrant
shall forthwith be proportionately increased in the case of a subdivision or
stock dividend and proportionately decreased in the case of a combination.
Appropriate adjustments shall also be made to the purchase price payable per
share, but the aggregate purchase price payable for the total number of Shares
purchasable under this Warrant (as adjusted) shall remain the same. Any
adjustment under this Section 7(a) shall become effective at the, close of
business on the date the subdivision or combination becomes effective or as of
the record date of such dividend, or in the event that no record date is fixed
upon the making of such dividend.
(b) RECLASSIFICATION, REORGANIZATION OR ACQUISITION. In the event
of (i) any reclassification, capital reorganization or other change in the
Common Stock of the Company (other than as a result of a subdivision,
combination or stock dividend provided for in Section 7(a) above), or (ii) a
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, including any merger,
consolidation or stock exchange, or a sale of all or substantially all of the
assets of the Company, then as a condition of such reclassification,
reorganization, change or transaction, lawful provision shall be made, and duly
executed documents evidencing the same shall be delivered to the holder of this
Warrant, so that the holder of this Warrant shall have the right at any time
prior to the expiration of this Warrant to purchase, at a total price equal to
that payable upon the exercise of this Warrant immediately prior to such event,
the kind and amount of shares of stock or other securities or property
receivable in connection with such reclassification, reorganization, change or
transaction by a holder of the same number of shares of Common Stock as were
purchasable by the holder of this Warrant immediately prior to such
reclassification, reorganization, change or transaction. In any such case
appropriate provisions shall be made with respect to the rights and interest of
the holder of this Warrant so that the provisions hereof shall thereafter be
2.
<PAGE> 3
applicable with respect to any shares of stock or other securities or property
deliverable upon exercise hereof, and appropriate adjustments shall be made to
the purchase price per share payable hereunder, provided the aggregate purchase
price shall remain the same.
8. PRE-EXERCISE RIGHTS. Prior to exercise of this Warrant, the holder
shall not be entitled to any rights of a shareholder with respect to the Shares,
including (without limitation) the right to vote such Shares, receive dividends
or other distributions thereon, exercise preemptive rights or be notified of
shareholder meetings, and such holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company.
9. RESTRICTED SECURITIES. The holder understands that this Warrant and the
Shares purchasable hereunder constitute "restricted securities" under the
federal securities laws inasmuch as they are being, or will be, acquired from
the Company in transactions not involving a public offering and accordingly may
not, under such laws and applicable regulations, be resold or transferred
without registration under the Securities Act of 1933 or an applicable exemption
from registration. In this connection, the holder acknowledges that Rule 144 of
the Securities and Exchange Commission is not now, and may not in the future be,
available for resales of the Shares purchased hereunder. The holder further
acknowledges that the Shares and any other securities issued upon exercise of
this Warrant shall bear a legend substantially in the form of the legend
appearing on the face hereof.
10. CERTIFICATION OF INVESTMENT PURPOSE. Unless a current registration
statement under the Securities Act of 1933 shall be in effect with respect to
the securities to be issued upon exercise of this Warrant, the holder hereof, by
accepting this Warrant, covenants and agrees that, at the time of exercise
hereof, such holder will deliver to the Company a written certification that the
securities acquired by the holder upon exercise hereof are for the account of
the holder and acquired for investment purposes only and that such securities
are not acquired with a view to, or for sale in connection with, any
distribution hereof.
11. SUCCESSORS AND ASSIGNS. The terms and provisions of this Warrant shall
inure to the benefit of, and be binding upon, the Company and the holder hereof
and their respective successors and assigns.
12. GOVERNING LAW. This Warrant shall be governed by the laws of the State
of California, excluding the conflicts of laws provisions thereof.
ENTERTAINMENT DIGITAL NETWORK
By:_________________________________
Title:______________________________
3.
<PAGE> 4
SUBSCRIPTION
Entertainment Digital Network
One Union Street
San Francisco, CA 94111
Attention: Corporate Secretary
The undersigned hereby elects to purchase, pursuant to the provisions
of the Stock Purchase Warrant issued by the above Company and held by the
undersigned, ______ shares of the Company's Common Stock.
Payment of the aggregate purchase price for the foregoing shares
required under the Warrant accompanies this Subscription.
The undersigned hereby represents and warrants that the undersigned is
acquiring such shares for its own account for investment purposes only, and not
with a view to, or for sale in connection with, any distribution of such shares
or any part thereof.
Date:______________________________________
Signature:_________________________________
Address:___________________________________
___________________________________________
Name in which shares
should be registered:
__________________________________________________
4.
<PAGE> 1
EX-10.(k)
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR QUALIFIED
UNDER THE CALIFORNIA CORPORATE SECURITIES LAW OF 1968, AS AMENDED (THE
"SECURITIES LAW"), OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION. THE
SECURITIES REPRESENTED HEREBY CANNOT BE SOLD, ASSIGNED, PLEDGED, DISTRIBUTED,
DONATED OR OTHERWISE TRANSFERRED OR DISPOSED OF WITHOUT SUCH REGISTRATION UNDER
THE SECURITIES ACT AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE STATE
SECURITIES LAWS, UNLESS THE COMPANY DETERMINES THAT EXEMPTIONS FROM SUCH
REGISTRATION AND QUALIFICATION REQUIREMENTS ARE AVAILABLE.
THIS WARRANT AND THE COMMON STOCK PURCHASABLE HEREUNDER ARE SUBJECT TO
RESTRICTIONS ON TRANSFER CONTAINED IN THAT CERTAIN SUBSCRIPTION, REPRESENTATION
AND STOCK TRANSFER RESTRICTION AGREEMENT, DATED JUNE 25, 1996, WHICH
RESTRICTIONS ON TRANSFER ARE INCORPORATED HEREIN BY REFERENCE.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
WARRANT TO PURCHASE A MAXIMUM OF
___________ SHARES OF COMMON STOCK OF
EDNET, INC.,
a Colorado corporation
(Void after July 31, 1999)
This certifies that ______________________ (the "Holder"), for value
received, is entitled to purchase from EDNET, INC., a Colorado corporation (the
"Company"), having a place of business at One Union Street, San Francisco,
California 94111, a maximum of ____________________ fully paid and nonassessable
shares of the Company's common stock (the "Common Stock") for cash at a price of
_________ Dollars and ____ Cents ($________) per share (the "Stock Purchase
Price") upon surrender to the Company at its principal office (or at such other
location as the Company may advise the Holder in writing) of this Warrant
properly endorsed with the Form of Subscription attached hereto duly completed
and signed and upon payment in cash or by check of the aggregate Stock Purchase
Price for the number of shares for which this Warrant is being exercised
determined in accordance with the provisions hereof. This Warrant will expire on
the date described in Section 2 below. The Stock Purchase Price and the number
of shares purchasable hereunder are subject to adjustment as provided in Section
4 below.
This Warrant is issued pursuant to the terms of that certain
Subscription, Representation and Stock Transfer Restriction Agreement, dated
June 25, 1996 (the "Agreement").
This Warrant is subject to the following terms and conditions:
1. Exercise; Issuance of Certificates; Payment for Common Stock.
This Warrant is exercisable at the option of the holder of record hereof, at any
time or from time to time commencing on the date hereof and expiring as provided
in Section 2 below for all or any part of the shares of Common
-1-
<PAGE> 2
Stock (but not for a fraction of a share) which may be purchased hereunder. The
Company agrees that the shares of Common Stock purchased under this Warrant
shall be and are deemed to be issued to the Holder hereof as the record owner of
such shares as of the close of business on the date on which the following items
have been delivered to the Company: (a) this Warrant, properly endorsed, (b) the
completed, executed Form of Subscription, and (c) payment for such shares,
provided, however, that the Company is not obligated to issue shares of Common
Stock purchased under this Warrant unless such Common Stock is registered under
the Securities Act and qualified under the Securities Law, or the securities
laws of any other jurisdiction, or exemptions from such registration and
qualification requirements are available. Certificates for the shares of Common
Stock so purchased, together with any other securities or property to which the
Holder hereof is entitled upon such exercise, shall be delivered to the Holder
hereof by the Company at the Company's expense within a reasonable time after
the rights represented by this Warrant have been so exercised. In case of a
purchase of less than all the shares which may be purchased under this Warrant,
the Company shall cancel this Warrant and execute and deliver a new Warrant or
Warrants of like tenor for the balance of the shares purchasable under the
Warrant surrendered upon such purchase to the Holder hereof within a reasonable
time. Each stock certificate so delivered shall be in such denominations of
Common Stock as may be requested by the Holder hereof and shall be registered in
the name of such Holder.
2. Termination. This Warrant will terminate at 5:00 p.m. (Pacific
time) on July 31, 1999, provided, however, that in the event that the average
closing bid price of the Common Stock exceeds one hundred sixty percent (160%)
of the Stock Purchase Price for thirty (30) consecutive trading days, then the
Company may, within three business days following the end of such thirty (30)
day period, give notice of its intent to repurchase the Warrants at a purchase
price of one-tenth of one cent ($0.001) per Warrant. Holders will have (30) days
following the date of the Company's notice to exercise the Warrants. In the
event the Company exercises the right to redeem the Warrants, such Warrants will
be exercisable until the close of business on the business day immediately
preceding the date for redemption fixed in such notice. If any Warrant called
for redemption is not exercised by such time, it will cease to be exercisable
and the Holder will be entitled only to the redemption price.
3. Common Stock to be Fully Paid; Reservation of Common Stock.
The Company covenants and agrees that all shares of Common Stock which may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable and
free from all preemptive rights of any shareholder and free of all taxes, liens
and charges with respect to the issue thereof. The Company further covenants and
agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved, for the purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of authorized
but unissued Common Stock, or other securities and property, when and as
required to provide for the exercise of the rights represented by this Warrant.
4. Adjustment of Stock Purchase Price and Number of Shares. The
Stock Purchase Price and the number of shares purchasable upon the exercise of
this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 4. Upon each adjustment
of the Stock Purchase Price, the Holder of this Warrant shall thereafter be
entitled to purchase, at the Stock Purchase Price resulting from such
adjustment, the number of shares obtained by multiplying the Stock Purchase
Price in effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment, and dividing
the product thereof by the Stock Purchase Price resulting from such adjustment.
4.1 Subdivision or Combination of Stock. In case the
Company shall at any time subdivide its outstanding shares of Common Stock into
a greater number of shares, the Stock Purchase Price in effect immediately prior
to such subdivision shall be proportionately reduced, and conversely, in case
the outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
4.2 Dividends in Common Stock, Other Stock, Property,
Reclassification. If at any time or from time to time the holders of Common
Stock (or any shares of stock or other securities at the
-2-
<PAGE> 3
time receivable upon the exercise of this Warrant) shall have received or become
entitled to receive, without payment therefor,
(a) Common Stock or any shares of stock or other
securities which are at any time directly or indirectly
convertible into or exchangeable for Common Stock, or any
rights or options to subscribe for, purchase or otherwise
acquire any of the foregoing by way of dividend or other
distribution,
(b) any cash paid or payable otherwise than as a cash
dividend, or
(c) Common Stock or additional stock or other
securities or property (including cash) by way of spinoff,
split-up, reclassification, combination of shares or similar
corporate rearrangement, (other than (i) shares of Common
Stock issued as a stock split, adjustments in respect of which
shall be covered by the terms of Section 4.1 above or (ii) an
event for which adjustment is otherwise made pursuant to
Section 4.3 below), then and in each such case, the Holder
hereof shall, upon the exercise of this Warrant, be entitled
to receive, in addition to the number of shares of Common
Stock receivable thereupon, and without payment of any
additional consideration therefor, the amount of stock and
other securities and property (including cash in the cases
referred to in clauses (b) and (c) above) which such Holder
would hold on the date of such exercise had he been the holder
of record of such Common Stock as of the date on which holders
of Common Stock received or became entitled to receive such
shares or all other additional stock and other securities and
property.
4.3 Reorganization, Reclassification, Consolidation,
Merger or Sale. If any capital reorganization of the capital stock of the
Company, or any consolidation or merger of the Company with another corporation,
or the sale of all or substantially all of its assets to another corporation
shall be effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities, or other assets or property, then, as a condition
of such reorganization, reclassification, consolidation, merger or sale, lawful
and adequate provisions shall be made whereby the Holder hereof shall thereafter
have the right to purchase and receive (in lieu of the shares of the Common
Stock of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby) such shares of stock, securities or
other assets or property as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby; provided,
however, that in the event the value of the stock, securities or other assets or
property (determined in good faith by the Board of Directors of the Company)
issuable or payable with respect to one share of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby is in excess of the Stock Purchase Price effective at
the time of the merger and securities received in such reorganization, if any,
are publicly traded, then this Warrant shall expire unless exercised prior to
the reorganization.
In any reorganization described above, appropriate provision shall be
made with respect to the rights and interests of the Holder of this Warrant to
the end that the provisions hereof (including, without limitation, provisions
for adjustments of the Stock Purchase Price and of the number of shares
purchasable and receivable upon the exercise of this Warrant) shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise hereof. The
Company will not effect any such consolidation, merger or sale unless, prior to
the consummation thereof, the successor corporation (if other than the Company)
resulting from such consolidation or the corporation purchasing such assets
shall assume by written instrument, executed and mailed or delivered to the
registered Holder hereof at the last address of such Holder appearing on the
books of the Company, the obligation to deliver to such Holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase.
4.4 Notice of Adjustment. Upon any adjustment of the
Stock Purchase Price or any increase or decrease in the number of shares
purchasable upon the exercise of this Warrant, the Company shall give written
notice thereof, by first class mail, postage prepaid, addressed to the
registered Holder of this Warrant at the address of such Holder as shown on the
books of the Company. The notice shall be signed by the Company's chief
financial officer and shall state the Stock Purchase Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon
-3-
<PAGE> 4
the exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
4.5 Other Notices. If at any time:
(a) the Company shall declare any cash dividend upon
its Common Stock;
(b) the Company shall declare any dividend upon its
Common Stock payable in stock or make any special dividend or
other distribution to the holders of its Common Stock;
(c) the Company shall offer for subscription pro rata
to the holders of its Common Stock any additional shares of
stock of any class or other rights;
(d) there shall be any capital reorganization or
reclassification of the capital stock of the Company; or
consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation;
(e) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company; or
(f) there shall be an initial public offering of
Company securities;
then, in any one or more of said cases, the Company shall give, by first class
mail, postage prepaid, addressed to the Holder of this Warrant at the address of
such Holder as shown on the books of the Company, (i) at least fifteen (15)
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding-up or public
offering, at least fifteen (15) days' prior written notice of the date when the
same shall take place; provided, however, that the Holder shall make a best
efforts attempt to respond to such notice as early as possible after the receipt
thereof. Any notice given in accordance with the foregoing clause (i) shall also
specify, in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled thereto. Any
notice given in accordance with the foregoing clause (ii) shall also specify the
date on which the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up, conversion or public offering, as the case may be.
4.6 Certain Events. If any change in the outstanding
Common Stock of the Company or any other event occurs as to which the other
provisions of this Section 4 are not strictly applicable or if strictly
applicable would not fairly protect the purchase rights of the Holder of the
Warrant in accordance with such provisions, the Board of Directors of the
Company shall make an adjustment in the number and class of shares available
under the Warrant, the Stock Purchase Price or the application of such
provisions, so as to protect such purchase rights as aforesaid. The adjustment
shall be such as will give the Holder of the Warrant upon exercise for the same
aggregate Stock Purchase Price the total number, class and kind of shares as it
would have owned had the Warrant been exercised prior to the event and had it
continued to hold such shares until after the event requiring adjustment.
5. Issue Tax. The issuance of certificates for shares of Common
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax (other than any applicable income taxes)
in respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
6. No Voting or Dividend Rights; Limitation of Liability. Nothing
contained in this Warrant shall be construed as conferring upon the holder
hereof the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest
-4-
<PAGE> 5
represented hereby or the shares purchasable hereunder until, and only to the
extent that, this Warrant shall have been exercised.
7. Warrants Not Transferable. This Warrant and the rights
hereunder may not be transferred, in whole or in part, without the prior written
consent of the Company. Upon the Company's request, the Holder shall deliver
evidence satisfactory to the Company that any proposed transferee is an
"accredited investor" under the Securities Act and the Securities Law.
8. Modification and Waiver. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the Company and representatives of a majority in interest of
the Holders under the Agreement.
9. Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, to each such
Holder at its address as shown on the books of the Company or to the Company at
the address indicated therefor in the first paragraph of this Warrant or such
other address as either may from time to time provide to the other.
10. Binding Effect on Successors. This Warrant shall be binding
upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets. All of the
obligations of the Company relating to the Common Stock issuable upon the
exercise of this Warrant shall survive the exercise and termination of this
Warrant. All of the covenants and agreements of the Company shall inure to the
benefit of the successors and assigns of the holder hereof.
11. Descriptive Headings and Governing Law. The description
headings of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California.
12. Lost Warrants. The Company represents and warrants to the
Holder hereof that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant and, in
the case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such mutilation
upon surrender and cancellation of such Warrant, the Company, at its expense,
will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
13. Fractional Shares. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Stock Purchase Price.
In Witness Whereof, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this ____ day of June, 1996.
EDNET, INC.,
a Colorado corporation
By: ____________________________________
Thomas Kobayashi
Chairman and Chief Executive Officer
-5-
<PAGE> 6
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: EDNET, Inc.
One Union Street
San Francisco, California 94111
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, the number of shares of common stock ("Common Stock") of
EdNet, Inc., a Colorado corporation (the "Company"), indicated below and
requests that the certificates for such shares be issued in the name of, and
delivered to the undersigned at the address listed below.
The undersigned represents that it is acquiring such Common Stock for
its own account for investment and not with a view to or for sale in connection
with any distribution thereof and in order to induce the issuance of such Common
Stock makes to the Company the representation and warranties set forth on the
investment representation statement attached hereto.
- --------------------------------------- -------------------------------------
Printed Name Signature
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant)
Address:
- ---------------------------------
- ---------------------------------
Number of Shares Purchased: (2)
-------------------------------
Purchase Price Enclosed: $
-------------------------
($ per Unit; make checks payable to "EDNET, Inc."
---------
DATED:
------------------
(2) Insert here the number of shares called for on the face of the Warrant
(or, in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment for
additional Common Stock or any other stock or other securities or property or
cash which, pursuant to the adjustment provisions of the Warrant, may be
deliverable upon exercise.
-1-
<PAGE> 1
EX-10.(l)
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement"), effective as of January
12, 1996 is entered into by and between ED NET, INC., a Colorado corporation
(herein referred to as the "Company") and LIVIAKIS FINANCIAL COMMUNICATIONS,
INC., a California corporation (herein referred to as the "Consultant").
RECITALS
WHEREAS, Company is a publicly held corporation with its common stock
traded on the NASDAQ Electronic Bulletin Board; and
WHEREAS, Consultant has experience in the area of corporate finance,
investor communications and financial and investor public relations; and
WHEREAS, Company desires to engage the services of Consultant to assist
and consult to the Company in matters concerning corporate finance and to
represent the company in investors' communications and public relations with
existing shareholders and brokers, dealers and other investment professionals as
to the Company's current and proposed activities;
NOW THEREFORE, in consideration of the promises and the mutual
covenants and' agreements hereinafter set forth, the parties hereto covenant and
agree as follows:
1. TERM OF CONSULTANCY. Company hereby agrees to retain the Consultant to
act in a consulting capacity to the Company, and the Consultant hereby agrees to
provide services to the Company, for a term of twelve (12) months commencing on
January 12, 1996 and ending on January 11, 1997.
2. DUTIES OF CONSULTANT. The Consultant agrees to provide the following
specified consulting services through its officers and employees during the term
specified in Section 1.:
(a) Advise and assist the Company in developing and implementing
appropriate plans and materials for presenting the Company and its business
plans, strategy and personnel to the financial community, establishing an image
for the Company in the financial community, and creating the foundation for
subsequent financial public relations efforts;
(b) Introduce the Company to the financial community;
(c) With the cooperation of the Company, maintain an awareness
during the term of this Agreement of the Company's plans, strategy and
personnel, as they may evolve during such period, and advise and assist the
Company in communicating appropriate information regarding such plans, strategy
and personnel to the financial community;
1.
<PAGE> 2
(d) Assist and advise the Company with respect to its (i)
corporate finance activities, (ii) stockholder and investor relations, (iii)
relations with brokers, dealers, analysts and other investment professionals,
and (iv) financial public relations generally;
(e) Perform the functions generally assigned to
investor/stockholder relations and public relations departments in major
corporations, including responding to telephone and written inquiries (which may
be referred to the Consultant by the Company); preparing or reviewing press
releases, reports and other communications with or to shareholders, the
investment community and the general public; advising with respect to the
timing, form, distribution and other matters related to such releases, reports
and communications; and consulting with respect to corporate symbols, logos,
names, the presentation of such symbols, logos and names, and other matters
relating to corporate image;
(f) Disseminate information regarding the Company to shareholders,
brokers, dealers, other investment community professionals and the general
investment public;
(g) Conduct meetings, in person or by telephone, with brokers,
dealers, analysts and other investment professionals to advise them of the
Company's plans, goals and activities, and assist the Company in preparing for
press conferences and other forums involving the media, investment community
professionals and the general investment public;
(h) At the Company's request, review business plans, strategies,
mission statements budgets, proposed transactions and other plans for the
purpose of advising the Company of the investment community implications
thereof;
(i) Otherwise perform as the Company's financial relations and
public relations consultant; and,
(j) Make public communications and disclosures regarding the
Company only within the scope of the authorizations conferred by the Company and
not make any such communications or disclosures of information not provided or
authorized by the Company.
3. ALLOCATION OF TIME AND ENERGIES. The Consultant hereby promises to
perform and discharge well and faithfully the responsibilities which may be
assigned to the Consultant from time to time by the officers and duly authorized
representatives of the Company in connection with the conduct of its financial
and investor public relations and communications activities, so long as such
activities are in compliance with applicable securities laws and regulations.
Consultant shall diligently and thoroughly provide the consulting services
required hereunder. Although no specific hours-per-day requirement will be
required, Consultant and the Company agree that Consultant will perform the
duties set forth hereinabove in a diligent and professional manner. At the
request of the Company, the Consultant will inform the Company of its specific
activities concerning the Company. The parties acknowledge and agree that a
disproportionately large amount of the effort to be expended and the costs to be
incurred by the Consultant and the benefits to be received by the Company are
expected to occur upon and shortly after, and in any event, within four or five
months of the effectiveness of this Agreement.
2.
<PAGE> 3
4. REMUNERATION. As full and complete compensation for services described
in this Agreement, the Company shall compensate Consultant as follows:
4.1 For undertaking this engagement and for other good and
valuable consideration, the Company agrees to issue and deliver to the
Consultant a "Commencement Bonus" payable in the form of 390,000 unregistered,
restricted shares of the Company's Common Stock (the "Common Stock"), which for
this purpose have been valued by the Company's Board of Directors and the
Consultant at $ 2.125 per share. This Commencement Bonus shall be issued to the
Consultant promptly following execution of this Agreement and shall, when issued
and delivered to Consultant, be fully paid and non-assessable. The Company
understands and agrees that Consultant has foregone significant opportunities to
accept this engagement and that the Company derives substantial benefit from the
execution of this Agreement and the ability to announce its relationship with
Consultant. The 390,000 shares issued as a Commencement Bonus, therefore,
constitute payment for Consultant's agreement to represent the Company and are a
nonrefundable, non-apportionable, and non-ratable retainer; such shares are not
a prepayment for future services. All shares issued pursuant to this Agreement
shall be evidenced by stock certificate(s) issued in the name of Liviakis
Financial Communications, Inc. Consultant shall have demand registration rights
at the end of this Agreement to require the Company to use its best efforts in a
timely manner to register the 390,000 shares issued to it under this Agreement.
4.2 Consultant acknowledges that the shares of Common Stock to be
issued pursuant to this Agreement (the "Shares") have not been registered under
the Securities Act of 1933, and accordingly are "restricted securities" within
the meaning of Rule 144 of the Act. As such, the Shares may not be resold or
transferred unless the Company has received an opinion of counsel reasonably
satisfactory to the Company that such resale or transfer is exempt from the
registration requirements of that Act. It is also understood that the
certificates will bear a legend reflecting the fact that the securities have
been issued without registration under the Securities Act of 1933 and may not be
sold or transferred except upon registration or an exemption therefrom and
compliance with any applicable state securities laws.
4.3 In connection with the acquisition of Shares hereunder, the
Consultant represents and warrants to the Company as follows:
(a) Consultant acknowledges that the Consultant has been
afforded the opportunity to ask questions of and receive answers from duly
authorized officers or other representatives of the Company concerning an
investment in the Shares, and any additional information which the Consultant
has requested.
(b) Consultant's investment in restricted securities is
reasonable in relation to the Consultant's net worth, which is in excess of ten
(10) times the Consultant's cost basis in the Shares. Consultant has had
experience in investments in restricted and publicly traded securities, and
Consultant has had experience in investments in speculative securities and other
investments which involve the risk of loss of investment. Consultant
acknowledges that an investment in the Shares is speculative and involves the
risk of loss. Consultant has the requisite
3.
<PAGE> 4
knowledge to assess the relative merits and risks of this investment without the
necessity of relying upon other advisors, and Consultant can afford the risk of
loss of his entire investment in the Shares. Consultant is (i) an accredited
investor, as that term is defined in Regulation D promulgated under the
Securities Act of 1933, and (ii) a purchaser described in Section 25102 (f) (2)
of the California Corporate Securities Law of 1968, as amended.
(c) Consultant is acquiring the Shares for the
Consultant's own account for long-term investment and not with a view toward
resale or distribution thereof except in accordance with applicable securities
laws.
5. EXPENSES. Consultant agrees to pay for all its expenses (phone,
mailing, labor, etc.), other than extraordinary items (travel required by/or
specifically requested by the Company, luncheons or dinners to large groups of
investment professionals, mass faxing to a sizable percentage of the Company's
constituents, investor conference calls, etc.) approved by the Company prior to
its incurring an obligation for reimbursement.
6. INDEMNIFICATION. The Company warrants and represents that all oral
communications, written documents or materials, other than those designated by
the Company to the Consultant as "confidential" or "Company private", furnished
to Consultant by the Company with respect to financial affairs, operations,
profitability and strategic planning of the Company are accurate and Consultant
may rely upon the accuracy thereof without independent investigation. The
Company will protect, indemnify and hold harmless Consultant against any claims
or litigation including any damages, liability, cost and reasonable attorney's
fees with respect thereto resulting from Consultant's communication or
dissemination of any said information, documents or materials not designated by
the Company to the Consultant as "confidential" or "Company private", excluding
any such claims or litigation resulting from Consultant's communication or
dissemination of information not provided or authorized by the Company.
7. REPRESENTATIONS. Consultant represents that he is not required to
maintain any licenses and registrations under federal or any state regulations
necessary to perform the services set forth herein. Consultant acknowledges
that, to the best of his knowledge, the performance of the services set forth
under this Agreement will not violate any rule or provision of any regulatory
agency having jurisdiction over Consultant. Consultant acknowledges that, to the
best of his knowledge, Consultant is not the subject of any investigation,
claim, decree or judgment involving any violation of the SEC or securities laws.
Consultant further acknowledges that he is not a securities Broker Dealer or a
registered investment advisor.
8. LEGAL REPRESENTATION. The Company acknowledges that it has been
represented by independent legal counsel in the preparation of this Agreement.
Consultant represents that he has consulted with independent legal counsel
and/or tax, financial and business advisors, to the extent the Consultant deemed
necessary.
9. STATUS AS INDEPENDENT CONTRACTOR. Consultant's engagement pursuant to
this Agreement shall be as independent contractor, and not as an employee,
officer or other agent of the Company. Neither party to this Agreement shall
represent or hold itself out to be the
4.
<PAGE> 5
employer or employee of the other. Consultant further acknowledges the
consideration provided hereinabove is a gross amount of consideration and that
the Company will not withhold from such consideration any amounts as to income
taxes, social security payments or any other payroll taxes. All such income
taxes and other such payment shall be made or provided for by Consultant and the
Company shall have no responsibility or duties regarding such matters. Neither
the Company or the Consultant possess the authority to bind each other in any
agreements without the express written consent of the entity to be bound.
10. ATTORNEY'S FEE. If any legal action or any arbitration or other
proceeding is brought for the enforcement or interpretation of this Agreement,
or because of an alleged dispute, breach, default or misrepresentation in
connection with or related to this Agreement, the successful or prevailing party
shall be entitled to recover reasonable attorneys' fees and other costs in
connection with that action or proceeding, in addition to any other relief to
which it or they may be entitled.
11. WAIVER. The waiver by either party of a breach of any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any subsequent breach by such other party.
12. NOTICES. All notices, requests, and other communications hereunder
shall be deemed to be duly given if sent by U.S. mail, postage prepaid,
addressed to the other party at the address as set forth herein below:
To the Company: Tom Kobayashi
President & CEO
Ed Net, Inc.
One Union Street
San Francisco, CA 94111
To the Consultant: Liviakis Financial Communications, Inc.
John M. Liviakis, President
2118 "P" Street; Suite C
Sacramento, California 95816
It is understood that either party may change the address to which
notices for it shall be addressed by providing notice of such change to the
other party in the manner set forth in this paragraph.
13. CHOICE OF LAW, JURISDICTION AND VENUE. This Agreement shall be governed
by, construed and enforced in accordance with the laws of the State of
California. The parties agree that Sacramento County, CA. will be the venue of
any dispute and will have jurisdiction over all parties.
14. ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or the alleged breach thereof, or relating to Consultant's
activities or remuneration under this
5.
<PAGE> 6
Agreement, shall be settled by binding arbitration in California, in accordance
with the applicable rules of the American Arbitration Association, and judgment
on the award rendered by the arbitrator(s) shall be binding on the parties and
may be entered in any court having jurisdiction thereof. The provisions of Title
9 of Part 3 of the California Code of Civil Procedure, including section
1283.05, and successor statutes, permitting expanded discovery proceedings shall
be applicable to all disputes that are arbitrated under this paragraph.
15. THIRD PARTY FEES. Consultant will not accept from any third parties any
fees or other remuneration related to services to be performed under this
Agreement, except with the prior written consent of the Company.
16. COMPLETE AGREEMENT. This Agreement instrument contains the entire
agreement of the parties relating to the subject matter hereof. This Agreement
and its terms may not be changed orally but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
AGREED TO:
"Company" ED NET, INC.
Date: 1/12/96 By:/s/Tom Kobayashi
--------------------------------
Tom Kobayashi
President & CEO
"Consultant" LIVIAKIS FINANCIAL COMMUNICATIONS, INC.
Date: 1/12/96 By: /s/John M. Liviakis
------------------------------
John M. Liviakis
President
6.
<PAGE> 1
EX-10.(m)
FINANCIAL ADVISORY AGREEMENT
THIS AGREEMENT, made this 31st day of July, 1995, by and between
CENTURY FINANCIAL PARTNERS, INC., formed under the laws of the State of
California ("Century"), and ENTERTAINMENT DIGITAL NETWORK, INC., a California
corporation ("EDNET").
WITNESSETH:
WHEREAS, Century, through its corporate finance and financial advisory
group, is in the business of assisting selected business enterprises, on a best
efforts basis, in obtaining and effectuating desired business relationships,
transactions and funding;
WHEREAS, EDNET provides a network service which allows the exchange of
high quality audio, compressed video and multi-media data communications,
utilizing long distance carriers; and
WHEREAS, EDNET is interested in obtaining capital through a merger with
a publicly traded shell to finance its expansion;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. RETENTION OF CENTURY. EDNET hereby engages and retains Century on an
exclusive basis, and Century hereby accepts such engagement by EDNET, upon the
terms and conditions hereinafter set forth. With this authorization, EDNET
grants Century the exclusive right to represent the Company, on a best efforts
basis, to prospective investors for financing and general corporate advisory
services for a period of 3 years. EDNET further grants Century a first right of
refusal to provide investment banking services for a period of 3 years. In
connection with Century's activities on the Company's behalf, Century will
familiarize itself with the business, operations, properties and financial
condition and prospects of the Company. Century's services shall include the
creation of additional awareness of the Company and sponsorship of the Company's
common stock; the analysis and execution, if necessary, of various financing
alternatives that will increase the Company's cash position.
This Agreement shall continue in full force and effect until terminated
by EDNET or Century upon not less than 60 days written notice of termination to
the other party; provided, however, that this Agreement cannot be terminated
prior to January 1, 1996 and, in the event of termination of this Agreement,
Century's designee shall nevertheless be entitled to the compensation provided
by paragraph 4 of this Agreement.
2. DUTIES OF EDNET. In connection with Century's activities on EDNET's
behalf, EDNET will cooperate with Century and will furnish Century with all
information and data
1.
<PAGE> 2
concerning EDNET ("Information") which Century deems appropriate and will
provide Century with access to EDNET's officers, directors, employees,
independent accountants and legal counsel. EDNET represents and warrants that
all information made available to Century by EDNET will be complete and correct
in all material respects and will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein not misleading in light of the circumstances under which such statements
are made. The Company acknowledges and agrees that, in rendering its services
hereunder, Century will be using and relying on the information without
independent verification thereof by Century.
3. INDEMNIFICATION. EDNET agrees to indemnify and hold harmless Century
and its Partners, employees, and agents against any and all losses, claims,
damages or liabilities, joint or several, to which Century or any of such
persons may become subject, at common law or otherwise, insofar as such losses,
claims, damages, liabilities, or actions in respect thereof arise out of or are
based upon the engagement of Century pursuant hereto, and agrees to reimburse
Century and each indemnified person for all legal and other expenses reasonably
incurred in connection with (including the cost of investigating or defending)
such loss, claim, damage, liability, or action; provided, however, that neither
Century nor any such person shall be indemnified pursuant to this paragraph for
any loss, claim, damage, or liability arising out of its or his own gross
negligence or bad faith. This indemnity agreement is in addition to any other
rights which Century or any indemnified person may have at common law or
otherwise.
4. COMPENSATION. EDNET shall compensate Century and/or a designee of
Century by:
(a) the grant of a five year option, to Mr. Irawan Onggara, to
purchase 1,000,000 shares of common stock at $1.25 per share in the publicly
traded entity upon the successful merger of EDNET into a public shell which
shall be registered immediately pursuant to an S-8 Registration; and
(b) the investment banking services that will be rendered by
Century will each be evidenced by a separate written agreement between the
parties hereto.
5. EXPENSES. It is acknowledged that in providing the services
contemplated by this Agreement, Century will incur expenses, including legal,
printing, travel, and communication expenses. EDNET shall reimburse Century for
all expenses incurred by Century in performing its services under this
Agreement, including but not limited to legal, travel and printing expenses,
telephone charges, postage, courier expenses and other communication costs. All
expenses in excess of $1,000 will require the approval of EDNET. Century shall
bill EDNET monthly for expenses and be reimbursed for these costs and expenses
within thirty (30) days after its presentation to EDNET of a detailed expense
voucher.
6. NON-EXCLUSIVITY. It is acknowledged by EDNET that Century provides
the same or similar services as those being provided to EDNET pursuant to this
Agreement to other persons and entities, and receives fees for providing such
services. Nothing contained in this Agreement shall restrict, interfere with or
otherwise limit Century's right to continue to provide
2.
<PAGE> 3
such services to persons and entities other than EDNET. However, while engaged
by EDNET as contemplated in this Agreement, Century agrees not to advise and/or
represent any other supplier of connectivity services to the entertainment
industry.
7. GOVERNING LAW. This Agreement shall be interpreted, construed and
governed according to the laws of the State of California.
8. SECTION HEADINGS. The section headings contained in this Agreement
are for convenience only and shall in no manner be construed as a part of this
Agreement.
9. ENTIRE AGREEMENT. This Agreement supersedes all prior discussions
and agreements between the parties hereto, or any of their officers, directors,
employees, or agents with respect to all matters in this Agreement, and this
Agreement constitutes the sole and entire agreement of the parties with respect
thereto. Any prior representation, inducement, promise or agreement, whether
oral or written, between the parties hereto, or any of their officers,
directors, employees, or agents, which is not embodied herein shall be of no
force or effect.
10. BURDEN AND BENEFIT. This Agreement shall be binding upon, and shall
inure to the benefit of the parties hereto and their respective heirs, personal
and legal representatives, successors, and assigns.
11. SEVERABILITY, ENFORCEABILITY. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
nonenforceability without invalidating the remaining provisions hereof or
thereof or affecting the validity or enforceability of such provision in any
other jurisdiction.
12. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and which together shall
constitute one and the same agreement, with one counterpart being delivered to
each party hereto.
3.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereunto set their hands, the day and
year first above written.
ENTERTAINMENT DIGITAL NETWORK, INC.,
a California corporation
By: /s/Tom Kobayashi
------------------------------------
Tom Kobayashi, President
CENTURY FINANCIAL PARTNERS, INC.,
a California corporation
By: /s/Russell Armstrong
------------------------------------
Russell Armstrong, President
4.
<PAGE> 1
EX-10.(n)
May 20, 1996
Revised
Mr. Tom Kobayashi, Chairman
EDnet, Inc.
One Union Street
San Francisco, California 94111
Dear Tom:
We have enjoyed our series of introductory discussions as we jointly
explored how Morgan Fuller Capital Group, LLC ("Morgan Fuller" or the "firm")
can be of meaningful assistance in providing expansion capital facilities. The
purpose of this letter is to:
1. Propose that EDnet, Inc. ("EDnet" or the "Company") engage
Morgan Fuller as its ongoing financial advisor; and,
2. Confirm Morgan Fuller's engagement to proceed with a $2
million Regulation-S financing.
A. FINANCIAL ADVISOR RELATIONSHIP
We are prepared to serve as the Company's financial advisor over the
next year in the ongoing development of debt and equity capital resources in a
well-conceived financial structure. In approaching the assignment, our
perspective will be long-term in its orientation as we work to provide an
appropriate level of market maker and research support. On an intermediate term
basis, we will work with you over the next year as the term of this engagement
to arrange the $7 to $10 million in private placement and secondary financings
contemplated in your May 13th Cash Flow and Use Of Funds Statement.
Services To Be Rendered. Morgan Fuller will perform such of the
following financial advisory services as EDnet may reasonably request:
1. Morgan Fuller will familiarize itself to the extent it deems
appropriate and feasible with the business, financial
condition and prospects of the Company. It is understood that
Morgan Fuller shall, in the course of such familiarization,
rely entirely upon publicly available information and such
other information as may be supplied by the Company without
independent investigation;
2. Morgan Fuller will advise the Company in developing general
equity and debt financing strategies.
3. The firm will from time to time publish research reports and
will serve as a market maker.
1.
<PAGE> 2
Mr. Tom Kobayashi
May 20, 1996
4. Morgan Fuller will render such other financial advisory and
investment banking services as may from time to time be agreed
upon by EDnet and Morgan Fuller.
Retainer Fee For Advisory Services
The Company shall pay to Morgan Fuller for its services hereunder
Warrants a total of 250,000 common shares, exercisable at the closing
bid market price on May 24, 1996, to be exercised on or before May 23,
1999. The exercise expiration date will be accelerated in the event of
a secondary public offering of common stock of $10 million or more or
in the event of a change of control.
B. PLACEMENT AGENT - $2 MILLION REGULATION-S FINANCING
As we have discussed in our series of meetings, we believe that a
modest $2 million Reg-S financing represents the best alternative for meeting
the Company's short-term expansion capital requirements.
Financing Terms
1. Morgan Fuller will use its best efforts to place $2 million of
7.5% Convertible Preferred Stock ("Securities").
2. Terms:
a. Mandatory Conversion - The Securities and cumulative
dividends receivable will be automatically converted according
to a 1:1 ratio into shares of Common Stock on the first
anniversary date. The Conversion Price will be the lesser of
(i) or (ii) below, adjusted for any stock splits, stock
dividends, recapitalization or the like:
(i) 100 % of the average daily closing bid price of
the Common Stock on the NASDAQ Market for five (5)
trading days immediately preceding the Closing Date
for this Financing; or
(ii) 70% of the average daily closing bid price of
the Common Stock on the NASDAQ Market for the five
(5) trading days immediately preceding the Conversion
Date;
b. Optional Conversion - At the Holder's Option upon written
notice thereof to the Payer, the Securities may be converted
to Common Stock prior to the Mandatory Conversion Date, based
on the conversion price formulas set forth in Section 2.a
above at the applicable conversion date according to the
following schedule:
2.
<PAGE> 3
Mr. Tom Kobayashi
May 20, 1996
(i) on the date that is 45 days from the Closing
Date, then each Security Holder may convert up to 50%
of the Securities originally purchased;
(ii) on the date that is 90 days from the Closing
Date, then each Security Holder may convert the
remaining portion of the Securities originally
purchased
c. Legal Counsel - EDnet will engage legal counsel to prepare
the Securities and the related documentation associated with
the issuance of the Securities. There are a number of routine
technical areas associated with the preparation of the final
form of Security including: Fractional Shares; Delivery Of
Certificates; Taxes; Defaults and Remedies, etc.
3. Closing. The target date for the closing will be on or about
June 15, 1996. Morgan Fuller will use its best efforts to
facilitate EDnet's acquisition of a $1 million bridge loan, if
required, in support of the contemplated May 30, 1996 Digital
Dimensions, Inc. transaction.
Success Fee
The Company shall pay to Morgan Fuller for its services hereunder as
Placement Agent for the sale of the Securities a cash fee equal to 8%
of the value of the Securities sold at such closing plus that number of
warrants to purchase common stock of the Company at an exercise price
which approximates the valuation used at the Closing in an amount equal
to 10% of the value of the Securities sold divided by the closing bid
per share price of the Securities. (Eg. If $2 million of Securities are
issued and the bid share price at the Closing is $6.00, then 333,333
Warrants will be granted.)
Expenses. The Company hereby agrees, from time to time upon request, to
reimburse Morgan Fuller for all reasonable travel and out-of-pocket
costs (including legal and other professional fees) related to this
engagement. All such expenditures in excess of $1,000 will require the
Company's prior written approval.
C. FINANCIAL ADVISOR AND PLACEMENT AGENT ENGAGEMENT PROVISIONS
Indemnity. The Company will enter into a separate standard form letter
agreement providing for the mutual indemnification of the parties in
connection with this engagement.
Termination Of Engagement. Morgan Fuller's engagement(s) hereunder may
be terminated by either the Company or Morgan Fuller at any time, with
or without cause, upon written advice to that effect to the other party
provided however that Morgan Fuller will be entitled to its full fee as
specified above.
3.
<PAGE> 4
Mr. Tom Kobayashi
May 20, 1996
Miscellaneous.
1. This letter agreement and the related indemnification letter
referred to above shall be deemed made in California. Such
agreements shall be governed by the laws of California without
regard to such state's rules concerning conflicts of laws. Any
right to trial by jury with respect to any claim or proceeding
related to or arising out of this engagement, or any
transaction or conduct in connection herewith, is waived.
2. The Company expressly acknowledges that all advice (written or
oral) given by Morgan Fuller to the Company in connection with
this engagement are intended solely for the benefit and use of
the Company (including its management, directors, and
attorneys). The Company agrees that no such opinion or advice
shall be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner
or for any purpose, nor shall any public references to Morgan
Fuller be made by EDnet (or such persons) without the prior
written consent of Morgan Fuller, which consent shall not be
unreasonably withheld.
3. The Company expressly acknowledges that Morgan Fuller has been
retained solely as a financial advisor and/or placement agent
and not as an advisor or agent of any other person, and that
the Company's engagement of Morgan Fuller is not intended to
confer rights upon any persons not a party hereto (including
shareholders, employees, or creditors of the Company) as
against Morgan Fuller, Morgan Fuller's affiliates, or their
respective directors, officers, agents and employees.
Please confirm that the foregoing is in accordance with your
understandings and agreements with Morgan Fuller by signing and returning to
Morgan Fuller the duplicate of this letter enclosed herewith.
Very truly yours, ACCEPTED AND AGREED:
Morgan Fuller Capital Group, L.L.C. EDnet, Inc.
By: /s/ Gordon Taubenheim By: /s/Tom Kobayashi
------------------------------- -------------------------
Managing Director Title
Date: 05/20/96
-----------------------
4.
<PAGE> 1
EX-10.(o)
June 25, 1996
Tom Kobayashi, Chairman
EDnet, Inc.
One Union Street
San Francisco, CA 94111
Dear Tom:
The purpose of this letter is to confirm Morgan fuller's engagement by EDnet,
Inc. ("EDnet") or the "Company") to arrange a series of debt and equity
financings for the ultimate purpose of generating approximately $3 million on a
phased basis in additional capital. The following summarizes our mutual
understandings:
PLACEMENT AGENT PROVISIONS
1. SENIOR SECURED NOTES. Morgan Fuller will use its best efforts to place
up to $1,250,000 of Senior Secured Notes ("Notes") with accredited
investors. The Notes will be funded according to the following
schedule: July 1, 1996 - $500,000; July 22, 1996 - $500,000; August 15,
1996 - $250,000. As security, a blanket lien will be filed on the
Company's personal assets. Other terms and conditions are as follows:
- Simple Interest - Payable at the end of each calendar quarter
and at the time of payoff. Interest Rate - Fourteen percent
(1.17% per month)
- Loan Covenants and Provisions - Standard provisions for such
credit facilities
- Repayment Provisions - To be repaid in full from proceeds of a
contemplated Regulation-S financing scheduled for October
1996, or as an alternative the proceeds from any other debt or
equity financing with the exception of the current
Regulation-D financing will be used. In the event that the
repayment has not occurred by November 15, 1996, the Notes
will be converted to a Term Loan with $100,000 per month
principal payments commencing November 30, 1996.
2. REGULATION-S FINANCING. Morgan Fuller is also hereby engaged to conduct
a best efforts Regulation-S financing of Convertible Preferred Stock
("Securities") of approximately $3 million in mid-October 1996. The
timing of this financing is directly related to the
<PAGE> 2
Tom Kobayashi, Chairman
June 25, 1996
Page 2
Company's becoming a "Reporting Company" subsequent to its filing of
SEC Form 10-SB in late July 1996. Terms and conditions associated with
this financing include:
- Use Of Proceeds - The first $1.25 million of net proceeds will
be used to payoff the Notes described herein. The remaining
proceeds are to be used for working capital purposes and to
support the Company's program of acquisitions and
developmental expansion.
- Issuance Price - The Convertible Preferred Stock
("Securities") will be issued at $3.00 per share.
- Mandatory Conversion Date To Common Stock - The Securities
will be automatically convertible into unlegended Common Stock
on the first issuance date anniversary. The conversion price
will be the lesser of: $3.00 per share; or, 60% of the average
daily closing bid price of the Common Stock on the NASDAQ
National Market for the ten (10) trading days immediately
preceding the conversion date. The number of Common Stock
shares issued will automatically be adjusted for any
cumulative dividends receivable, stock splits, stock
dividends, recapitalizations or the like.
- Optional Conversion Period - At each investor's option, the
Securities may be converted to unlegended Common Stock prior
to the Mandatory Conversion Date but no sooner than 45 days
from the date of Issuance. The Conversion Price will follow
the same formula as described above under the Mandatory
Conversion paragraph.
- Closing. The target date for the closing will be on or about
October 15, 1996.
PLACEMENT AGENT FEES
1. SENIOR SECURED NOTES: The Company will pay to Morgan Fuller a Loan Fee of
Five percent (5%) -- payable out of gross loan proceeds. In addition, the
Company will issue to Morgan Fuller or its nominee investors a total of $625,000
of three year Warrants. The execution price is to be priced at market, based on
the Closing Bid Price on the date of each phased loan funding.
2. REGULATION-S FINANCING: The Company shall pay to Morgan Fuller for its
services a cash fee equal to seven percent (7%) of the value of the securities
sold at such closing plus that number of Warrants to purchase common stock of
the Company at an exercise price which
<PAGE> 3
Tom Kobayashi, Chairman
June 25, 1996
Page 3
approximates the valuation used at each closing in an amount equal to 10% of the
value of the securities sold divided by the per share closing bid price of the
securities.
MISCELLANEOUS PROVISIONS
(a) EXPENSES. The Company hereby agrees, from time to time upon request, to
reimburse Morgan Fuller for all reasonable travel and out-of-pocket costs.
(b) INDEMNITY. The Company will enter into a separate standard agreement
providing for the mutual indemnification of the parties in connection with this
engagement.
(c) TERMINATION OF ENGAGEMENT. Morgan Fuller's engagement hereunder may be
terminated by either the Company or Morgan Fuller at any time, with or without
cause, upon written advice to that effect to the other party provided however
that Morgan Fuller will be entitled to its full fee as specified above.
(d) GOVERNING LAW. This letter agreement and the related indemnification letter
referred to above shall be deemed made in California. Such agreements shall be
governed by the laws of California without regard to such state's rules
concerning conflicts of laws. Any right to trial by jury with respect to any
claim or proceeding related to or arising out of this engagement, or any
transaction or conduct in connection herewith, is waived.
(e) BENEFIT AND USE OF SERVICES PROVIDED. The Company expressly acknowledges
that all advice (written or oral) given by Morgan Fuller to the Company in
connection with this engagement are intended solely for the benefit and use of
the Company (including its management, directors, and attorneys). The Company
agrees that no such opinion or advice shall be used for any other purpose or
reproduced, disseminated, quoted or referred to at any time, in any manner, or
for any purpose, nor shall any public references to Morgan Fuller be made by
EDnet (or such persons) without the prior written consent of Morgan Fuller,
which consent shall not be unreasonably withheld.
(f) BASIS OF SERVICES PROVIDED. The Company expressly acknowledges that Morgan
Fuller has been retained solely as a placement agent in this engagement and not
as an advisor or agent of any other person, and that the Company's engagement of
Morgan Fuller is not intended to confer rights upon any persons not a party
hereto (including shareholders, employees, or creditors of the Company) as
against Morgan Fuller, Morgan Fuller's affiliates, or their respective
directors, officers, agents and employees.
<PAGE> 4
Tom Kobayashi, Chairman
June 25, 1996
Page 4
Please confirm that the foregoing is in accordance with your understandings and
agreements with Morgan Fuller by signing and returning to Morgan Fuller the
duplicate of this letter. enclosed herewith.
Very truly yours, ACCEPTED AND AGREED
MORGAN FULLER CAPITAL GROUP, L.L.C. EDNET, INC.
By: /s/Gordon R. Taubenheim By: /s/Tom Kobayashi
------------------------------- -------------------------------
Gordon R. Taubenheim Tom Kobayashi
Managing Director Chairman & Chief Executive
Officer
<PAGE> 1
EX-10.(p)
June 28, 1996
Tom Kobayashi, Chairman
EDnet, Inc.
One Union Street
San Francisco, CA 94111
Dear Tom: RE: SECURED NOTES/REG-S OFFERING ENGAGEMENT
The purpose of this letter is to expand upon and clarify certain matters set
forth in the engagement letter of June 25, 1996 between EDnet, Inc. ("EDnet" or
the "Company") and Morgan Fuller Capital Group, L.L.C. ("Morgan Fuller" or the
"Firm") which provides for a debt financing of $1,250,000 and a Regulation-S
equity financing of approximately $3,000,000.
PLACEMENT AGENT PROVISIONS
1. SENIOR SECURED NOTES: Rather than sell individual Senior Secured Notes
("Notes") to investors, Morgan Fuller will use its best efforts to
place up to $1,250,000 of Participating Interests ("Participations") in
the Notes with accredited investors. The Notes will be funded according
to the following schedule: July 2, 1996 - $500,000; July 22, 1996 -
$500,000; August 15, 1996 - $250,000. The Company reserves the right to
"take down" less than the total $1,250,000 financing; in such an
instance, EDnet will provide Morgan Fuller with a written notice as to
its intentions five (5) business days before the scheduled funding
date. Morgan Fuller will receive warrants only on the amount of notes
actually funded.
o Loan Covenants, Security and Repayment Provisions - With your
consent, we will need the assistance of Cooley Godward LLP in
making arrangements for the drafting of the Note form and the
filing of the blanket lien on the Company's personal assets.
Also as was noted in the June 25, 1996 engagement letter, the
proceeds of the current $3 million Regulation-D will be exempt
from the repayment of the Note provisions.
2. REGULATION-S FINANCING - TIMING CONSIDERATIONS: As we have discussed,
the timing of the Reg-S financing is directly related to the Company's
becoming a "Reporting Company" subsequent to its filing of a SEC Form
10-SB. In the event that the achievement of a "reporting company"
status is achieved at an earlier date than is
<PAGE> 2
Tom Kobayashi, Chairman
June 28, 1996
Page 2
presently expected (about October 1, 1996), Morgan Fuller and the
Company will proceed on an accelerated time schedule basis with the
closing of the Reg-S financing and the related payoff of the Notes.
3. REGULATION-S FINANCING - TERMINATION FEES: The engagement of Morgan
Fuller as the Placement Agent for the funding of the Notes is by
necessity and as a practical matter tied directly to the Firm's Reg-S
financing engagement. Although the "Termination Of Engagement"
paragraph in the June 25, 1996 engagement letter addresses the payment
of fees in the event of termination in broad terms, it is mutually
understood that in the event that the Comply decides to not proceed
with the Reg-S financing according to the terms set forth in the June
25, 1996 engagement letter, then Morgan Fuller will receive the
Placement Agent Cash Fee of $140,000 (7% Cash Fee times the discussed
minimum of $2 million), and $200,000 of Warrants (10% of $2 million)
with the warrant exercise price set at the issuance price set forth in
the "Optional Conversion Period" paragraph provisions.
Please confirm that the foregoing is in accordance with your understandings and
agreements with Morgan Fuller by signing and returning to Morgan Fuller the
duplicate of this letter enclosed herewith.
Very truly yours, ACCEPTED AND AGREED
MORGAN FULLER CAPITAL GROUP, L.L.C. EDNET, INC.
By: /s/Gordon R. Taubenheim By: /s/Tom Kobayashi
------------------------------ ----------------------
Gordon R. Taubenheim Tom Kobayashi
Managing Director Chairman & Chief
Executive Officer
<PAGE> 1
EX-10.(q)
June 28, 1996
Tom Kobayashi, Chairman
EDnet, Inc.
One Union Street
San Francisco, CA 94111
Dear Tom: RE: REG-D OFFERING ENGAGEMENT
The purpose of this letter is to confirm Morgan Fuller's engagement by EDnet,
Inc. ("EDnet" or the "Company") to act as Placement Agent in the completion of
the Company's current private offering of $3,000,000 of Units (consisting of one
share of Common Stock and One Warrant). However, the Company reserves the right
to place up to $1 million of the total $3 million financing using its own
efforts and investor sources. The following summarizes our mutual
understandings:
PLACEMENT AGENT PROVISIONS
1. Morgan Fuller will use its best efforts to complete the placement of
the $3 million of Common Stock and Warrants ("Shares") at $3.00 per
share in accordance with the terms and provisions set forth in the
Company's "Subscription, Representation and Securities Transfer
Restriction Agreement" dated June 25, 1996.
2. CLOSINGS. We would expect that the first closing of a minimum $500,000
would occur on or about July 15, 1996, with subsequent closings at
appropriate mutually agreed to intervals between now and the August 31,
1996 subscription expiration date.
PLACEMENT AGENT FEES
The Company shall pay to Morgan Fuller for its services hereunder as Placement
Agent at each closing for the sale of the securities a cash fee equal to 8% on
funds realized from Morgan Fuller's brokerage efforts, and a 5% cash fee on all
other funds raised under the $3 million offering which Morgan Fuller does not
broker. Morgan Fuller will receive that number of warrants to purchase common
stock of the Company at an exercise price equal to 20% of the value of the
securities sold by it at each closing divided by the market bid price of the
securities on the day of closing. As is referenced above, the Company has raised
$635,000 of funds and reserves the right to raise an additional $365,000 without
Morgan Fuller's participation in
<PAGE> 2
Tom Kobayashi, Chairman
June 28, 1996
Page 2
warrants issuance for raising money in the financing. All such funds raised by
the Company up to the agreed to $1 million maximum will be exempt from any
Placement Agent warrants or cash fees.
MISCELLANEOUS PROVISIONS
(a) EXPENSES. The Company hereby agrees, from time to time upon request, to
reimburse Morgan Fuller for all reasonable travel and out-of-pocket costs.
(b) INDEMNITY. The Company will enter into a separate standard agreement
providing for the mutual indemnification of the parties in connection with this
engagement.
(c) TERMINATION OF ENGAGEMENT. Morgan Fuller's engagement hereunder may be
terminated by either the Company or Morgan Fuller at any time, with or without
cause, upon written advice to that effect to the other party provided however
that Morgan Fuller will be entitled to its full fee as specified above.
(d) GOVERNING LAW. This letter agreement and due related indemnification letter
referred to above shall be deemed made in California. Such agreements shall be
governed by the laws of California without regard to such state's rules
concerning conflicts of laws. Any right to trial by jury with respect to any
claim or proceeding related to or arising out of this engagement, or any
transaction or conduct in connection herewith, is waived.
(e) BENEFIT AND USE OF SERVICES PROVIDED. The Company expressly acknowledges
that all advice (written or oral) given by Morgan Fuller to the Company in
connection with this engagement are intended solely for the benefit and use of
the Company (including its management, directors, and attorneys). The Company
agrees that no such opinion or advice shall be used for any other purpose or
reproduced, disseminated, quoted or referred to at any time, in any manner or
for any purpose, nor shall any public references to Morgan Fuller be made by
EDnet (or such persons) (without the prior written consent of Morgan Fuller,
which consent shall not be unreasonably withheld.
(f) BASIS OF SERVICES PROVIDED. The Company expressly acknowledges that Morgan
Fuller has been retained solely as a placement agent in this engagement and not
as an advisor or agent of any other person, and that the Company's engagement of
Morgan Fuller is not intended to confer rights upon any persons not a party
hereto (including shareholders, employees, or creditors of the Company) as
against Morgan Fuller, Morgan Fuller's affiliates, or their respective
directors, officers, agents and employees.
<PAGE> 3
Tom Kobayashi, Chairman
June 28, 1996
Page 3
Please confirm that the foregoing is in accordance with your understandings and
agreements with Morgan Fuller by signing and returning to Morgan Fuller the
duplicate of this letter enclosed herewith.
Very truly yours, ACCEPTED AND AGREED
MORGAN FULLER CAPITAL GROUP, L.L.C. EDNET, INC.
By: /s/Gordon R. Taubenheim By: /s/Tom Kobayashi
------------------------------ --------------------------
Gordon R. Taubenheim Tom Kobayashi
Managing Director Chairman & Chief
Executive Officer
<PAGE> 1
EX-10.(r)
LBC Capital Resources, Inc.
1608 Walnut Street
Suite 501
Philadelphia, PA 19103
TEL: 215-985-4000
FAX: 215-985-4926
October 17, 1996
EDnet
One Union Street
San Francisco, California 94111
Attention: Tom Kobayashi
Chairman and Chief Executive Officer
This letter confirms the agreement ("Agreement") by EDnet, Inc. or its
affiliates (the "Company") to retain LBC Capital Resources, Inc. ("LBC") to
provide the services described below.
1. Services. The following summarizes the services to be provided by LBC:
1.1 Screen and advise the Company with regard to corporations,
individuals, mutual funds, hedge funds, investment partnerships, securities
firms, lending and other institutions, their referrals and affiliates, which,
for their own account or for their clients, customers or investors (collectively
"Entities"), may provide a transaction to the Company.
1.2 Any services provided by LBC under this Agreement shall be at LBC's
sole cost and risk. LBC's sole compensation, if any, shall be a "success fee"
upon consummation of a transaction by entities ("Entities") for the purpose of
effecting such a transaction (hereinafter, a "Transaction"), as provided in
Section 4 below.
2. Term.
2.1 This Agreement will be effective upon signing by both parties and
shall be in effect for a minimum term of 60 days. Thereafter the Agreement will
remain in effect until terminated by either party upon 10 days written notice.
3. Information.
3.1 In connection with performing its services hereunder, LBC will be
provided with such information regarding the Company and its operations as LBC
shall reasonably request.
<PAGE> 2
October 17, 1996
4. Success Fee to LBC.
4.1 LBC shall receive a success fee ("LBC's Fee"), comprised of cash
and warrants.
4.2 The cash portion of LBC's Fee shall equal 6% of the Transaction
Amount and shall be paid as proceeds are received by the Company. Any portion of
LBC's Fee (cash or warrants) that is attributable to proceeds to be received by
the Company upon the occurrence of a future event, or the satisfaction of a
contingency, shall be paid when the event occurs or the contingency is
satisfied.
4.3 Upon completion of one or more Transactions, for each $1,000,000 of
Transaction Amount, on a pro-rata basis after transactions aggregating at least
$1,000,000 have been closed, LBC or its designee agrees to purchase, and the
Company agrees to sell for $2,500, a seven year warrant ("Warrant") equal to
120,000 common shares exercisable at a price per share equal to 125% of the
average closing price for the 5 trading days preceding the execution of this
Agreement. The warrant will contain standard provisions as to anti-dilution,
registration rights, transferability, etc.
4.4 LBC's fee shall be payable upon consummation of any Transaction
which occurs as a result of an agreement with an Entity entered into 1) during
the term of this Agreement (Phase I), or 2) within 18 months following
termination of this Agreement with regard to Entities, or their affiliates,
identified by LBC with which the Company has had discussions during Phase I, or
3) within 36 months following the termination of this Agreement with any Entity,
or their affiliates, with which there has been a transaction during Phases 1) or
2) above.
5. Indemnification.
5.1 LBC will assume that (a) all information furnished by the Company
or its representatives, as well as all information contained in documents
prepared by or for the Company that is publicly available or made available to
LBC by the Company, is complete and accurate in all material respects, and does
not omit any material fact or information necessary to make the statements
contained therein not misleading, and (b) the Company has complied or prior to
closing will comply with all applicable laws relating to the issuance of
securities, provided that LBC will not offer or sell any securities in any
jurisdiction without the prior consent of the Company.
5.2 If the Company fails to fulfill its obligations under this
Agreement, the Company will be responsible for resulting expenses, including
legal expenses, if any.
5.3 The Company will indemnify and hold harmless LBC, its affiliates,
successors, assigns, directors, officers, agents, employees and their heirs,
executors, administrators and all persons, firms and entities who might be
claimed to be jointly or severally liable with LBC ("Indemnified Parties") from
and against any and all losses, claims, damages, liabilities, costs and expenses
(including any legal fees and costs incurred in connection with such claim) to
which such Indemnified Parties may become subject as a result of the performance
of LBC's services hereunder under any applicable federal or state law or
otherwise, except to the extent
<PAGE> 3
October 17, 1996
that any such loss, claim, damage or liability, cost and expense is finally
judicially determined to have resulted from LBC's negligence or misconduct in
the performance of its services hereunder.
6. Transaction and Transaction Amount
6.1 The term "Transaction" means any transaction or series or
combinations of transactions, such as financing which may include lending
transactions, whereby, directly or indirectly, control of or an interest in the
Company, its affiliates, or any business with common management with the
Company, or any of their respective assets, capital stock or other securities,
may be transferred for consideration, including without limitation a merger,
acquisition, sale or exchange of stock or assets, lease of assets with or
without purchase option, joint venture, royalty or licensing arrangements,
minority investment or partnership.
6.2 The term "Transaction Amount" shall mean the gross amount of
consideration exchanged or provided to or by the Company or its shareholders, in
a Transaction, or any entities formed in or which results from a Transaction.
The Transaction Amount shall be cumulative (e.g. if the Company receives initial
consideration and subsequent royalty and/or licensing fees, warrant exercise
funds, etc.) such that the Transaction Amount shall include all such
consideration.
7. General Provisions.
7.1 For the purposes of this Agreement, the term "Company" includes any
entity which acquires (by merger or otherwise) all or substantially all of its
assets, and the successors or assigns of the Company.
7.2 The headings on the various paragraphs of this Agreement are solely
intended to simplify the reading of this Agreement and are not meant to impart
any meaning to the Agreement.
7.3 LBC will not be responsible for any fees, commissions or expenses
payable to any other person, firm or Entity.
7.4 This Agreement may not be amended or modified except in writing and
shall be governed by and construed in accordance with the laws of the State of
California.
8. Expenses.
8.1 Concurrent with the execution of this Agreement, the Company will
issue to LBC a $2,500 non-accountable expense allowance. In addition,
identifiable expenses shall be reimbursable by the Company, not to exceed $5,000
without the prior written authorization by the Company.
8.2 Upon the successful completion of a Transaction, the Company agrees
to publish a "Tombstone" advertisement in the Wall Street Journal.
<PAGE> 4
October 17, 1996
9. Acceptance and Effectiveness.
9.1 Execution of this letter by the Company, and return of a signed
copy, by fax or otherwise to LBC, completes this Agreement between LBC and the
Company.
9.2 Nothing herein shall obligate the Company to enter into any
financing proposed by LBC.
If the foregoing is acceptable to you, please sign and return the
enclosed copy of this letter to my attention.
Very truly yours,
LBC Capital Resources, Inc.
By: /s/James F. Mongiardo
------------------------
James F. Mongiardo
Managing Director
ACCEPTED:
EDnet
By: /s/Tom Kobayashi Date: 10/21/96
------------------------------------ ---------------------
Tom Kobayashi
Chairman and Chief Executive Officer
<PAGE> 5
LBC Capital Resources, Inc.
1608 Walnut Street
Suite 501
Philadelphia, PA 19103
TEL: 215-985-4000
FAX: 215-985-4926 EDnet
Proposed Summary of Principal Terms
Amount: $ 5 million
Type: Convertible Preferred via Regulation D
Dividends: 8% per annum (payable in shares of common upon conversion)
Conversion Price: 100% of the average closing bid price for the five trading
days prior to closing the transaction.
Redemption: Redeemable in whole or in part by the Company any time after
the first year of issuance, if stock rises (for any
consecutive 20 day trading period) to 200% or more of the
average closing bid price for the five trading days prior to
closing the transaction.
Mandatory
Conversion: The Preferred will be converted at the Company's option
concurrently with the closing of an underwritten public
offering of the Company's Common Stock so long as the gross
aggregate amount raised by such offering equals or exceeds
$10 million and the gross public offering price equals or
exceeds $8.00 per Common Share.
Warrants: The holder will receive one half purchase warrant for each
share received upon conversion. The terms shall be 5 years
and the exercise price 150% of the average closing bid price
for the five trading days prior to closing the transaction.
The Company will have the right to call the warrants any
time after one year if the Common Stock rises (for any
consecutive 20 day trading period) to 250% or more of the
average closing bid price for the five trading days prior to
closing the transaction.
Registration: Within 90 business days from closing, the Company will use
it's best efforts to file a Registration Statement covering
the resale of shares of common stock into which the
Preferred Stock may be converted and for which warrants may
be exercised.
Conditions: Mutual agreement on the specific details of the investment.
Satisfactory completion of due diligence.
